Power Lunch - 303K Jobs Created, Real Value in Real Estate? 4/5/24

Episode Date: April 5, 2024

Stocks are rebounding from yesterday’s sell-off, following a stronger-than-expected jobs report. So why are the markets liking a report that seems to give the Fed cover to stay “higher for longer���? We’ll discuss. Plus, we’ll be joined by real estate mogul Don Peebles. While many are worried about the commercial real estate market, he thinks now is a great time to buy. He’ll explain why. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon and welcome to Power Lunch, everybody. Alongside Deirdrebosa, I'm Tyler Mathes. I'm Tyler Mathes. Glad you could join us for a Friday. Stocks rebounding from yesterday's late day selloff following a stronger than expected jobs report. So why are the markets liking a report that seems to give the Fed cover to stay higher for longer? We'll discuss that one. Plus, we will be joined on set by real estate mogul Don Peebles. While many are worried about the commercial real estate market, he thinks that now is a great time to buy. But first, let's get a check on the markets. They are rebounded. Though today's loss, today's gains aren't enough to save the major averages from a losing week to start the second quarter, Tyler. All righty. Let's start with the jobs report from this morning. And it was a whopper, really. U.S. employers hired 303,000. New workers last month, a blowout compared to the street's estimate of just 200,000. The unemployment rate down to 3.8% as expected. Wages rose in line, however, with expectations. So what does all this say about the state? of the labor market and the overall health of the economy. Let's ask Seth Harris. He's a senior

fellow at the Burns Center for Social Change and former acting U.S. Secretary of Labor under President Obama. Good afternoon. Welcome. Good to have you with us, Seth. Thanks, Tyler. Good to be with you. Does this put a stake in the heart of those who expect a recession over the next 12 to 18 months? Well, it doesn't put the stake in the heart of the people, but it definitely kills the argument that a recession is coming. There is absolutely no indication of a recession. what we can expect is what we've had, which is solid, stable growth in the job market, solid stable growth in the economy as a whole, steadily rising wages, which are going to outstrip inflation, so workers are going to be better off, have more money in their pockets to buy things

for their families. It's a very strong economy continuing to do well. That's the message of today's unemployment rate below 4% for 27 consecutive months. First time that has been the case in decades since I was a up. That's a long time. Why do you think that that perception of a good economy has not filtered through to the general population? And why, oh, by the way, doesn't President Biden get more credit for that? I think he's beginning to get more credit for it. But, you know, inflation really took a bite out of family's paychecks. And a lot of people are still experiencing high prices. We're beginning to see maybe gas prices creep up a little bit. I think that, That is having a meaningful effect.

Folks would like to see prices come down. That's one of the reasons you hear the president talking about it so much. Right. And on that note, Seth, maybe these job numbers, they don't matter all that much because you've also got the immigration factor. It's really inflation. We're going to get CPI next week. How important is that when it comes to this broader picture, the rate cut trajectory from

the Fed? I think it's all important to the Fed's consideration of what the right thing to do is we have seen inflation come down fairly steadily. We've had a couple of trips and stumbles here and there, but inflation is about 50 basis points above the Fed target. We're seeing steady growth, as I said, the job market is doing extremely well. The underlying economy is strong. So I think the wrestling match at the Fed right now is, do we need to cut interest rates to help the economy to grow more, or are we okay with a steady course? I would like to see them cut rates by 25 basis points just to send the signal that inflation is not a major concern in the

the economy anymore. Instead, what we want to do is focus on continuing this solid growth. You've got wage growth going up at a little more, as I saw it at a little more than 4%. You've got inflation a little below that. So people are actually, whether they feel it or not, they're actually having real wage gains, albeit small ones. That's exactly right. And it takes a little bit of time for that to kick in. Remember, it wasn't that long ago that we were experiencing much higher inflation. And that really, Bites. People remember that. And I think we're also feeling the after effects at a pandemic recession. There's still a sense of instability among working people in our country. They also,

let me just say, are a little frustrated that corporate profits are as high as they are, and their wages are not rising commensibly. They're doing better, but they're watching corporations do fantastically well in this economy. They'd like to have a bigger share of that. Seth, you say maybe one great cut just to show that the Fed is confident on inflation, but this week has that thrown a little bit of cold water. We've been talking about commodity prices. You mentioned gas prices yourself. How confident should we be about that trajectory? You know, I don't think we see any meaningful shocks that are going to knock us off this slow, steady, moderate growth path that we are on. You know, gas prices are always a concern and, you know,

certainly having two wars going on, significant wars going on in the world is a significant concern. But as a general matter, what we have seen is a lot of stability, a lot of predictability. Those are the kinds of conditions that allow the Fed to make a policy choice signaling to the economy. We think things are going well. We are no longer worried about inflation being a big problem. Instead, what we're worried about is some slowing of growth, although I don't think we see a meaningful indication of that. GDP has slowed in the first quarter. our early indications are compared with the fourth quarter.

So a little bit of juice, just a little bit from the Fed, I think would help the economy along and send a powerful signal not just to the markets, but to working people. Construction employment, higher. That's interesting in this economy, number one. Number two, hospitality, leisure employment, back to pre-pandemic levels. That's a good sign. That's an extremely good sign. That was a sector and a group of workers who just got battered by the,

pandemic recession. You know, healthcare did extremely well last month and always does well. It seems to be, you know, absolutely immune to any change, excuse the punning, but immune to anything that goes on in the economy. The construction number, I think, is extremely important because I think that could be the beginning of the effects of these big public investments that were passed by Congress at President Biden's urging. You know, the bipartisan infrastructure. law, the Inflation Reduction Act, the Chips and Sciences Act, if those bills are beginning to bite, if projects are beginning, if shovels are going into the ground, if concrete is being poured, we're going to continue to see that number not just grow, but grow above average

as it did in March. That would be extremely good for the economy because those are good quality, middle-class union jobs that help to drive the economy in a lot of communities in our country. Seth Harris, we thank you for your insight and your time today. Have a great weekend. Thank you. Thanks a lot, Tyler. You bet. Pivoting now to the markets, the major averages are recovering from Thursday selloff with the Dow, S&P, and the NASDAG, each trading about 1% higher today. But all three indices, they're still on track for weekly losses along with the Russell 2000, which is on pace to end the week, down nearly 3%. Joining us now on set to discuss his thoughts on today's rebound is the CIO Pence Capital Management, Dryden Pence. Drayden, thanks for being with us in person as well. Absolutely.

What's moving markets? There were so many Fed speakers this week. So the focus was on that rate cut trajectory. But at the same time, we've been seeing commodities tick higher, maybe suggesting that geopolitics is driving markets. And we've seen gold, again, at record highs. So what is that, in your opinion? Well, it is a combination of a bunch of things.

And everybody's kind of dancing on the head of the Fed's pen. And I think we've got to move to that moment, or we're beginning to move to that moment, where good news is good news. So yesterday you have this, you know, okay, wait, Maybe we were going to have to move the rate cuts and, you know, information and things like that are coming in. And, you know, where is this going to? Is it going to June, July? Is it going to be three or two?

But now what we are seeing is on this jobs number is that the economy is good. And it's growing. And it's continuing to do so. And we're reaching that moment where for a long time good news was bad news. Now we're moving to, I think, where this recovery today is good news. Yes, we've got some geopolitical risk. It's going to affect oil prices. You're going to see some tick up.

We're north 80 again. You're going to see some tick up in oil prices. That's going to push that inflation number a little bit. But I think that all of those things are just going to move this Fed period out. And we're going to, again, get to this point. Earnings are going to be coming in records. I think we're going to see record earnings coming off of the first quarter. And that's good for companies.

That's good for profits. That's where it's going to ask you. I mean, because basically the stock market is discounting future earnings. What do you see there in the first quarter and for the rest of this year? Well, I think what happened to, is everybody lowered expectations. You know, at first, at the beginning of year, they thought we're going to have around 7% earnings growth.

Now it's coming down. Coming down. Everybody's going to beat. Well, not everybody. But the majority of it is going to be major earnings beats. We're going to have a good first quarter. And this is, you know, a number of consecutive quarters where you have 70 or 80% of the companies beating on earnings expectations.

And now that the people, CFOs now know the terminal interest rate. It's probably not going to go higher than five and a half. You're going to see margin expansion of these companies because, you know, companies can plan now. I think we're going to see this broadening out of the 493. The rally is kind of the rest of the market rally is the way I would look at as we get into the rest of the year. The 493. That's not an area code. That's a... The XMAG 7, right? To be clear. The XMAG 7. Mag 7 are still going to do fine, but I think what you're going to see is this broadening out of the outperformance of the market. Earnings expectations were lowered so everybody

is going to beat. CFOs can now predict their margins. if we do get a lower interest rate coming in at the back of the year that's going to provide some margin expansion. So we think it's pretty darn good across the year. So what do you do with the Meg7, the megacaps from the rest of the year? Meta's up 8% this week alone. So when we say that it's not the Meg 7, still is kind of the Fab 4, if you want to call it, or even just some of these individual names. Well, I think what happens here, it depends on if you're an asset allocator,

you take a good look at your portfolio, you've done very well with the Fab 4. and you probably reallocate a little bit to small caps, industrials, companies that make things, because I think that they're going to begin to see this, as I said, the 49E3 of the expansion of earnings beats first quarter, second quarter, third quarter this year. And I think that you're going to find some good opportunities for performance in that part of the market. Interesting. So what about bonds at this, and particularly munis? Well, in terms of the muni market, we tend to like that.

We think there's really good opportunities there. But I think the bond market's got to be careful with. Everyone who is expecting going into this year, yay, we're going to have six rate cuts, are massively disappointed. We think that rates are going to stay very elevated in terms of higher for longer. So if you're expecting to make money

on a falling interest rate market, that's not where to be. But if you're expecting to accrue income, and for a lot of retirees, they want the tax benefits of munies, then that's a good place because we're still fairly short, but I think you can extend this period of time of higher interest rates out for a while.

And that's going to be good for people. I mean, now, you know, bonds are back. We had that conversation a couple of months ago. And now that the Muni market is there, you're going to see people, you know, the risk-free rates of return are higher, the muni market's higher. It's a good place for folks

who are just really focused on how can I get some tax-free income. They're going to continue to be supportive in that market. Dredon Pence, thank you very much for being with us. We're going to call you Mr. 493, just like, you know, Pitbull's Mr. 305. You're Mr. 493. I'll have to get that on the inside of a jacket or something. Absolutely. I saw the lining of your jacket. It'll go very well. Thank you. 496 if it's gone from 7 to 4.

Well, it's a math problem. 493, 496. I like the sound of 493. But the important thing is, is there's a whole lot of companies out there that are really poised to do well coming into the rest of this. And we're excited. Have a good weekend, drive. Thank you very much. Bond yields jumping after this morning's jobs number.

Let's get to Rick Santelli in Chicago for more. Well, thank you, and I have a special guest today. Professor Casey Mulligan, previous chair to the Council of Economic Advisors under President Trump. Casey, welcome. We had what many are considering a very good jobs report. What are your thoughts on the jobs report? There were some interesting things in there. I noticed that the job games are entirely in the part-time category.

There's no job games now for a few. months coming in full-time. Wow. Now I've heard many discuss that. How do you look at that? Is there any statistical issues that are affected by that? Well, another thing I always look at is employment per person. And still this month and several months before, we're not reaching the levels that we were in 2019. Every month of 2019, we have more employment per person than we do now. Wow, now that's very impressive when you think about it. I like that statistic. But lately, seems to be that special sauce. For the last couple years, Professor, it seemed as though the population growth couldn't explain all the jobs we were creating. Then all of a sudden there

seemed to be an aha moment recently that it's immigration. Is immigration positively affecting employment per person? Well, it makes it hard to understand the statistics. You know, the per person number, that's why I look at it, we can understand the people we know, half of them are working, half of them aren't. But to understand the 160 million job number, you need to know how many people are in America, and it's something we're having trouble measuring as statisticians. Oh, yeah, no, and that is true. Now, many, of course, are going to be looking at a cost-benefit analysis of immigration, and we don't want to get into all the sticky issues,

but I think plenty of governors and mayors throughout the country have issues that there's an expense associated with this. So it seems as though the big positives are purely, at least for the moment, that it's helping alleviate some of the stresses in the labor market, but you're not convinced. Right. I see kind of a recession at the individual level that people are less likely to be working than they were before. Okay, so the more that statistic goes in the current direction. In other words, the less employment we have per person, the more that would be a recessionary indicator. Yes, almost a definition of recession. Less work is a recession.

Now, is there anything with the Fed that we should garner from this report in terms of the timeline for potential easing? Do you see anything more clearly? Well, if they saw recessionary elements of our economy, they'd probably be more willing to keep rates low or increase them less. Okay, so just so we understand this, because this is something sort of new to me. Employment per person has been going down even though we see that the immigration is a positive for jobs, but since we can't quantify the number of people, there could be an aha moment in the other direction. Yes, until we get this measurement straight, we're not going to be 100% sure how things are working. I got you. Professor Casey Mulligan, it's always interesting talking to you and I always like when I learned something new.

Tyler, back to you. All right, thank you very much. Rick Santelli. We've got a news alert now on Meta and Amon Javers has it in Washington. Amen. Hey there, Tyler, that's right. Meta, the parent company of Facebook, has just filed this motion for summary judgment. Just within the past couple of minutes, this is in the long-running FTC antitrust case. against Meta about its acquisition years ago of Instagram and WhatsApp. And in this motion for summary judgment, Mehta is arguing that this case ultimately should be dismissed. What Meta says is the FTC's entire case centers on the consummation of two acquisitions in 2012 and 2014, both of which the FTC reviewed and carefully cleared at the time.

Meta also says after extensive discovery, it's now apparent that the FTC cannot prove any of the required elements of its claim. This first ever attempt to revisit acquisitions reviewed and cleared by the FTC more than a decade ago, itself threatens beneficial competition and is unsupported. So you can imagine here, Tyler, that the FTC will not agree with this just because you file a motion for summary judgment. Doesn't mean that you will necessarily get it. But META here is arguing that this case should be over and done with. We'll wait to see what the FTC has to say for themselves as well.

Do we know anything about the history of situations where the FTC or another body has seemingly approved a merger only to have that merger then called into question years later? Yeah, it's a good question. I don't know the history of other bodies, but what META is arguing here is this is the first ever case where that's happened in terms of the FTC itself. Now, this case was brought in 2020. Remember that the actual transactions were in 12. So this was years after the effect once the Biden administration came in with a much more aggressive antitrust position than some previous administrations had had. It was initially dismissed back in 2021.

It was refiled in August of 21. It survived an initial meta motion to dismiss back in 2022. But here we are in 2024. And the case is still unresolved and ticking along. And that's the key. Still unresolved. The regulators move very slowly. And you're also starting to see.

big tech become more bold, right? We had that report yesterday of Google potentially looking at a deal to pick up HubSpot. That is something that I couldn't really imagine a year ago when they were under so much pressure. But the point is that they've been under pressure for so long. And the strategy from regulators has been mystifying, to be frank. So they're starting to operate as if they're not under all this pressure. Deirdre, that's interesting because, you know, when you talk to Biden administration antitrust regulators, as I have about this, they feel like they've really changed the calculus in the C-suite.

They feel like, you know, corporate executives are being much more cautious when it comes to acquisitions. They're thinking through the antitrust implications, and maybe they're not bringing as many deals to the table as they otherwise would have. What you're saying is they're actually emboldened, so somebody doesn't understand the other party here. I think cautious is a nice way of putting it creative is the word that I might use. Look at what Microsoft has been able to do in the Gen AI space and some of Satina Nadella's comments about the partnership with Open AI being around them, above them, below them. They're not doing all-out acquisitions,

but they found other ways to sort of get deals past the regulators. And I do think that Google yesterday is an interesting indication of how they feel about this. And maybe the fact that the regulators still haven't had this big win. But this could also have important implications because we're talking more and more about even the European regulators looking at breaking up businesses, and that relates to Google's ad tech. You know what? I know we're in an election year here, but I don't think the Biden administration

antitrust folks see themselves as done for the year yet. I would watch that AI space that you're talking about and also health care as possible areas where you might see more antitrust activity from the Biden administration before the end of the Biden first term. Very interesting. Thank you very much. Amen Javers. Coming up, folks, a power player weighing in on the markets, the economy, jobs, more, commercial real estate. We'll talk with the real estate Mogadon Peebles when power lunch returns. Oil prices rising once again today, up 5% for the week, 20% so far this year. Pippa Steven joins us now with more on what's driving it.

So a big week, of course, and yesterday we saw brand surge above 90, closing above that level for the first time since October. And that, of course, came as the market is on tenter hooks waiting to see if and when what Iran's responses to the attack on their embassy. in Damascus and what that means for the oil market and whether or not it will meaningfully impact flows. Dennis Kisler at BOK Financial told me it's going to impact it in some way, even if it just means more attacks in the Red Sea.

That does ultimately add to the price. And so we did see WTI now cross into a golden across today. We have a chart showing this. That's when the 50-day rises above the 200-day moving average. And that typically is a bullish indicator. The last time this happened was back at the end of 2019 when both of them were in an uptrend. However, we all know what happened in early 2020. So in that instance, it wasn't a bullish indicator for oil.

But right now, there is momentum behind it. According to City, the long versus short positioning is now above the two and five-year high. Now, one thing I did want to note is that gasoline futures are now up more than 30 percent this year. You can see on the next chart that they're outpacing the move in oil so far this year. You see that. And you see on the orange line when it ticked up at the start of March, that was when Ukraine started increasing their attacks against Russian oil refinery refining infrastructure.

And as J.P. Morgan said, they now think that about 670,000 barrels per day of Russia's oil refining infrastructure is now awesome. Blue line oil, red line or orange line gas. Exactly. And so you see that big disconnect that happened at the start of March. And that's when the market said,

oh, no, if Russia is refining less than they're going to be importing more products. Now, this isn't necessarily bullish for oil, though, because if demand from Russia's refineries drops and they might be exporting more. So bullish for products remains to be seen for oil itself. But now on the national average gas prices are $358. Up $0.22, yeah, in the last month, higher than they were last year.

It's summer driving season. Exactly. And, you know, Americans all get behind gas prices. And even though it's a smaller share of our wallet now than it was, say, a decade ago, it's that $3.50 and that $4. They're just like a logical level. It's the one price you notice every time. Exactly.

It certainly is. Pippa, thanks. Pippa Stevens. coming up Samsung doubling down on Texas as a U.S. Chip Hub details in today's tech check. We'll be right back. Welcome back time for a quick power check. On the positive side, that green on your screen, Newmont climbing for an eighth straight day on the back of Gold's wild ride higher. Most recently breaking above 2,300.

On the negative side, though, the right side of your screen, N-phase energy, city group downgrading the solar name, cutting its price target. That's your power check. the broader markets holding on to gains. Each of the indices is up about a percent. Let's get over to Kate Rooney now for a CNBC news update. Kate. Hey there, Dee. The Biden administration will soon roll out a new student loan forgiveness proposal that could forgive debt for as many as 10 million Americans. The plan is not as sweeping as the president's first education debt relief strategy that the Supreme Court ultimately blocked. According to the Wall Street Journal, the president is expected to provide details in a speech

on Monday. 500 Manhattan residents, meanwhile, were reportedly, sent notices to appear as potential jurors and Donald Trump's hushmoney criminal trial. Sources tell CBS News could take weeks to reduce the pool to just 12 people. Trump is accused of falsifying business records after allegedly issuing the hush money payments to adult film star Stormy Daniels days before the 2016 election. Trial is supposed to begin April 15th. And Italian police say exploited Chinese workers in Milan produced Georgio Armani bags. That's according to police.

Bonnie Brand hired a subcontractor, which in turn employed unauthorized Chinese subcontractors that hired workers under the table. Police claim the companies paid the workers just dollars an hour and ignored health and safety rules regarding breaks and days off. Tyler, back over to you. All right, Kate, thank you very much. Zoning in on areas of strength around the country. We'll speak to real estate giant Don Peebles when Power Lunch returns. We'll be right back. Welcome back to Power Lunch. The hits keep on coming for the battered commercial real estate market. This week, new data from Moody's showed that U.S. office vacancy rates rose to a record high of nearly 20% for the first quarter.

And this comes amid some recent chatter about the Fed possibly delaying interest rate cuts, which would have an impact on the sector, to put it mildly. Here on set with us to discuss all of this and more is Don Peebles, CEO and chairman of the Peebles Corporation. Always good to have you in the house, Don. Good to be here. If I'm reading you right, you think that some of the most opportune markets are among the most challenged markets right now. New York, San Francisco, among others, while some of the hotter markets, Dallas, Fort Worth, Miami, and others, maybe you're staying away from them. Am I reading you right? Sort of. So you're right in terms of opportunistic. We're an opportunistic company. So we look to develop when markets are supply constrained, and then we like

to buy when we think there's tremendous value. And what we're seeing here in the commercial office space is essentially once in a generation. We haven't seen opportunities to buy. Opportunities to buy. Nothing like this has happened since the early 1990s when we had the banking crises that resulted in almost 900 banks being closed in less than three years. were able to pick up properties in, say, Phoenix, Dallas. That's where a lot of the banking problems. Oh, and Washington, D.C. as well. We were buying buildings at 20 cents on the dollar.

And Washington, D.C., in fact, that was the very foundation that propelled our company to be able to go and make acquisitions and develop in other parts of the country. Let me zoom out before we zoom back in, if I might ask one more question, and that is this. At the top of our broadcast today, we had a guest, a former acting U.S. Labor Secretary, who said that this morning's jobs numbers put a stake in the heart of the recession argument. The economy is healthy. It is growing. Incomes are up.

Inflation remains at, you know, maybe it's not at bay yet, but it's been somewhat tamed. And he sees it that way. You seem not to see it that way. Your second guest, who Rick intervened in Chicago, he saw it better. I mean, I thought initially I was listening to one of the Biden's campaign managers. Well, he did that general did serve in the Obama administration. I know. And so look, the The apple doesn't fall far, as they said. No. Look, many of the jobs are part-time. The jobs he's talking about the union jobs are skill jobs. And the construction industry already has challenges

of workforce because there's so much demand. There's been a demand for a while and it's been driven by commercial real estate activities, not infrastructure investment, and it's been in areas that are business-friendly. Though he maintained that the infrastructure investments would fuel growth in good, quote, middle-class jobs. If the government could actually deploy the capital quickly enough, and unfortunately, it goes from the feds to the states to the cities. And that takes a while, unfortunately.

It's a very inefficient process. And so the other thing is that these statistics, these statistics are the statistics. don't register the cost of capital. The fact that it costs two and a half to three times for an American to buy a home today. The fact that rents in Miami, for example, are up over 33% since 2020. Those kinds of things, the cost of housing and the cost of capital, the fact that Americans have record credit card debt right now, those kinds of things, that's the real killer in terms of inflation for the average American, or to buy a car. And so I think that that we are in an environment where there's a lot of risk, there's some instability, and I think

commercial real estate, which has been a big employer, big job generator in major cities around the country, they're not going to be to do it now. I mean, think about New York, San Francisco, and other places where real estate development created a lot of economic opportunity. Right, but you're sort of net optimistic, right? You're finding opportunities in some of these beaten down markets. How strong a stomach do you need to have, or how long of a timeline do you to have. Well, I mean, look, I mean, I don't think it's that scientific, actually. I mean, I think look, Washington, D.C., real estate values are down 60 to 70 percent for commercial office buildings. Los Angeles, down 70 percent or more. San Francisco was down 60, 70 percent. Those are global

cities that will come back at some point in time. And so you have to have the appetite to buy, understand how to stabilize the assets based on the current income potential and then wait. You don't think there's something structural that has changed in a place like San Francisco. Last time you were on, we talked about this, and that's where I live most of the time. And, you know, the remote or the hybrid working environment has persisted. That has changed. So when you say it's going to come back, is it going to come back to pre-pandemic levels? Or what are you expecting?

Very differently. One, I think inventory and supply. If we talk about commercial office space, for example, inventory and supply will decline. Many buildings are going to get converted or repositioned or demolished. And so the market will adjust to a form of hybrid workforce. I do not think if you look at what's happening in New York, for example, hybrid workforce is there, but it's not remote working four days a week. It's down to two or one.

It's like night or day when I'm here in New York and the energy and on the streets and even, you know, the department mall fronts and everything. And I'm sure you saw that the Macy's in San Francisco is going to close down. Is that at odds with that recovery that you're seeing? No, I think that, look, these cities have some real issues. San Francisco's issue is quality of life and public safety. That is the top issue that affects them. New York City, the perception of it being unsafe, which I don't think. think it is as unsafe as it's perceived to be, the quality of life is diminishing, those are what

the headwinds are. Ultimately, you're buying an office building or a piece of real estate based on its income potential or its current cash flow. If you can buy office buildings today that are having 50% utilization, 20, 30% vacancies, and they still make economic sense, then you should buy them. What about L.A.? I think fundamentally, the issue again with L.A. It's, not necessarily hybrid working, it's the fundamentals. It's unsafe. They have out of control homeless problem. It's absurdly expensive to run a business, small, medium, or large there. It's an anti-business environment. And then it's got massive congestion. And on top of all of that,

it's an absurdly expensive place to live or have a business. And so those things make it very difficult for a place like that to recover. But ultimately, the city either declines, you know, permanently or it recovers. And I believe they're on the way to recovery. They've got a new mayor. She's trying real hard. She understands and has acknowledged the problem. But she's got a city council that's very difficult to work with.

You say, or my notes say you say, that the Fed completely miscalculated the negative impact rising interest rates would have on the economy. And the economy is in much worse shape than predicted. But what do the facts say here? The economy has been growing. Inflation has been coming down. We cited the jobs numbers earlier today. They are, by any measure, pretty good.

We've been under 4% unemployment for 27-some quarters or something like that. So what do the numbers tell you? And what does your... I sense you're speaking from the gut here that the economy is worse than anybody predicted. That's how many people feel. And that the Fed, in raising interest rates, has no idea how much... they're going to damage the economy, but the economy's been growing for the last year and a half. Well, I mean, it's gut, its experience, and it's numbers.

It just, it's a delayed response. I mean, look, New York City today, this morning had an earthquake. And it was a tremor. It kind of shook things up, and then there'll be an aftershock probably and so forth. Get your attention, though. Yeah, but what people don't understand is the largest earthquake on record wasn't in California. It was in New York in terms of the U.S. largest earthquake. But what the Fed didn't calculate or didn't consider sufficiently is the ripple effect.

It's going to take a moment. But the banks, we're seeing stress in regional and local banks. We've had a couple failures. We've got, we talk to regional banks because we're very active in the real estate space. We talk to local and regional banks, relationship banks that we've had in many major metropolitan cities. They're not making any more loans because they have to deal with the real estate space. massive amount of problems that they haven't even acknowledged yet because they've been kicking the can down the road.

There's over a trillion dollars of commercial real estate loans that will mature this year. Eighty percent of them are held by those banks. If those banks start failing, you're going to have major issues and major impact in the economy. The fact that it's costing Americans two and a half times or three times the cost to borrow to get a home or to buy a car, those will – the ripple effect of that is coming. And so we just haven't gotten there yet.

We're seeing the commercial real estate market to where the buildings that are trading are trading at 30 cents on the dollar. If you had a magic wand and there were three things you could do to fix what you see, what would those three things be? I would lower rates down. Immediately. Immediately.

And fast. That would be the first thing I would do. The second thing I would do is I would have, I would impose certain, standards to cities and states before they got any more federal money for stimulus activities. And that would be they've got to start cleaning up their cities in terms of public safety and quality of life because otherwise you're wasting the money. If you give Los Angeles hundreds of billions of dollars for infrastructure and so on, it's money being wasted because it's not going to be deployed properly and still people are not going to want to come

there. So I would deal with those would be the first two things. And then the other one is I would change the tax code. I think the tax code has to be changed to reward production and job generation activities. I've talked about this for years. So I do a real estate deal, a $500 million project, create a couple thousand jobs, put a new piece of property on the tax rolls, create economic activity. And we do that and we sell out condos. Then when we sell out condos, we're paying 39% to the federal government. The private equity fund that makes the investment for us as a limited partner, they pay a capital gains rate of 20%.

And so their reward... That seems a little unfair to you. It does. Or if they go out and buy a property, make it more efficient, cut costs and expenses, and then sell it a year later, they get a capital gains tax. And that's just not fair. I think that we have to look at the tax code, not about this system, but about people not paying their fair share, but to incentivize, use it as a tool to incentivize. And part of that

would be also offering major tax incentives and tax breaks, like what was done in the early 90s during the enterprise, for the enterprise zones, for investors and developers who are going to convert these office buildings and put them back into use. There should be a reward for that. So if we use a tax code to incentivize investment in economic activity, turn things around. Don, thank you so much. Fascinating conversation. Great, thank you. I really enjoyed it.

Great conversation. Thank you. Thank you. Still ahead. Everything's bigger in Texas. Samsung reportedly doubling down on its investment in a new chip super center in the Lone Star State. We'll get the key details when Power Lunch returns. Welcome back to Power Lunch.

Samsung, the latest company to make a big investment in chip manufacturing here in the United States, according to the Wall Street Journal, it plans to double its total semiconductor investment in Texas to $44 billion. dollars. Taiwan semi also working on a major chip manufacturing hub in the U.S. seems to be good news for the Biden administration, which is spending a lot of energy and money to revitalize U.S. chip production. Intel receiving a big chunk of government funds as part of the Chips Act. But Intel stock fell sharply earlier this week after reporting that its foundry unit lost $7 billion last year. There's a really key differentiator here. Intel is an American company. Samsung is a South Korean company, TSM is a Taiwanese company. This is now an issue of national security, right?

Chips are going to be the most important things. So you need to manufacture them here. You can't just manufacture them all in Asia, but it does raise the question. Intel has to come out of nowhere and build a foundry business. TSM's Samsung, they've got a lot of experience. Isn't TSMC building in the United States? Yes, and, yes, and Samsung. So it just raises the question, do you need Intel? Yeah. How secure do you need it to be? Yeah. Do you need it to be an American? owned company or just an American domicile. And highlights the challenges as well for Intel because, again, they're starting this foundry business from scratch.

It's billions and billions of dollars, years of R&D. All righty. Coming up, dividend darlings, we'll get the trade on three names at CNBC Pro, thinks should be safe and steady if volatility continues. Three-stock lunch. It wouldn't be a Friday without a three-stock lunch. We'll be right back. All right, time for today's three-stock lunch.

Today we look at so-called dividend aristocrats. CNBC Pro screened for companies that have raised their payments in each of the past 25 years. Here with our trades is Gina Sanchez-Lito Advisors' chief market strategy. She's also a CNBC contributor. Up first, Gina, welcome Chevron. Oil stock made the list with a 4.1 dividend yield. Shares up 7% so far this year. Your trade on Chevron.

So this is a buy for us. We own this in our dividend growth strategy, but not just because of the dividend growth. You know, you look at what's happening right now and oil prices are rising for the very sad reason that we have a lot of geopolitical tension, and that's probably going to keep oil prices high. And the result of that is that inevitably you see more drilling and you see a lot of M&A activity in Chevron as part of that. So Chevron's just taken a position in the Stadbrook Block, which is off the coast of Guyana, one of the largest oil discoveries in the last, you know, in the last decade. And, you know, we think that this is going to propel Chevron. Gina, up next, Coca-Cola, the soft drink maker offers a 3.2% dividend yield and average price targets call for more than 10% upside. What's your trade on this one? So this is also a buy for us. Again, this is part of our dividend growth strategy, but also if you look at the stock, the stock market itself has become more defensive. You know, the rally that started as a growth rally became a value rally last month. And you have lots of defensive names. that are really starting to crop up.

And this is the stock that has grown its earnings despite margin pressures because of inflation. So they've managed to prove that they can make their margin and their revenues are continuing to rise. And so they're putting everything forward that would make this a good defensive holding. We got Coca-Cola. And now what could be more American than McDonald's?

The fast food chain offers a 2.4 dividend yield. Stock down about 9% this year. What should trade on McDonald's? So actually we also own McDonald's. This is a buy for us, although the one-year chart in McDonald's is starting to resemble the golden arches, which is not a great setup. And so if you are an investor, it's a, you know, what we're seeing right now is the response of the stock price responding to CFO comments, saying that, you know, lower income households are starting to eat more at home rather than go out. That said, I think that's a short-term phenomenon. I do think that, you know, grocery stores, inflation is down. But as we go into a more defensive market and potentially, possibly a more defensive economy, McDonald's should do just fine. Gina, thank you. Have a great weekend. And for more on dividend aristocrats, be sure to visit CNBC.com slash pro. We'll be right back.

Just a minute left in the show, but we want to catch you up on several more stories. Open AI says it is seeing, quote, tremendous growth in its corporate version of ChatGPT called Enterprise, claiming it's now reached more than 600,000 paying customers versus having just 150 back in January. The firm COO says 2024 is going to be the year of adoption for AI, which is what pretty much anyone will tell you. This is a subscription. You pay for this. Yeah, and Enterprise use it. So ChatGPT, consumer facing and enterprise facing, but you can take the APIs and you can kind of tailor certain aspects of generative AI for your company, your data.

Wouldn't be a day without a story on Tesla reportedly scrapping plans to produce a lower cost EV amid rising competition of China. According to Reuters cited three people familiar with the plan. Sources say Tesla will continue developing robotaxies instead. We should note that Tesla has not officially commented on that Reuters report, though CEO Elon Musk wrote on his ex-platform, quote, Reuters is lying. There's that. There you go. Thanks for watching, Carlunch, everybody. Closing bell starts right now.

Thank you.