Power Lunch - A Fitch In Time?, Retail Details 8/15/23

Episode Date: August 15, 2023

Fitch is putting banks on notice – even the likes of JPMorgan. But Moody’s already downgraded multiple names in the space. In Fitch too late to the game? We’ll explore.Plus, the newest retail sales data shows the consumer is holding strong. But for how much longer will that be the case? We’ll discuss. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch, everybody. I'm Tyler Matheson. Kelly is out today with me for the hours. Courtney Reagan, welcome, Court. Good as always to have you. Coming up, a Fitch in time. Fitch putting banks on notice that even the likes of J.P. Morgan may get a downgrade. Moody's already downgrading multiple names in the space, but is Fitch too late to the party here. Plus shop till they drop. The newest data showing the consumer is holding strong, but for how much longer we will discuss that one ahead? But first, to check in on the markets, the Dow lower by nearly 300 points, moved lower perhaps by that Fitch downgrade that Tyler was mentioning. Home Depot is a key earnings name today, beating estimates, but reporting some instances of consumer tightening. Of course, that is the Dow component. The stock way off its highs from earlier in the session. We'll talk a little bit more on that in just a moment, plus some street talk around Discover Financial. The company's CEO resigning that stock down more than 10%.

Also, good news, bad news for D.R. Horton. good, Warren Buffett, adding a stake in the stock. The bad, Helm builder sentiment, dropping sharply with rates over 7%. We begin, though, with that warning from Fitch, the firm saying it may be forced to downgrade dozens of banks, big ones, including J.P. Morgan Chase. This comes after recently downgrading the United States credit rating. For market reaction, let's bring in Doug Butler, Senior Vice President, Director of Research at Rockland Trust. what has got Fitchie feeling so, well, I could rhyme, but I won't. Well, I'll also not go there.

But again, Fitch downgrading the banks, certainly is very corollary to what they just did with the U.S. government. It's really, if they're really negative on the government, and they're taking this as a broad swap, they're saying the banking industry as a whole has greater problems in it, which is why they would, hit J.P. Morgan Chase and all of the rest of and every bank down the line. So essentially every bank from, you know, large regionals all the way up to J.P. Morgan would get hit with this. And that's,

that's one of the reasons why it spooked the markets a bit, feeling like that this is a problem. But again, the issues facing the banks, the commercial real estate problem, high rates, high deposit. Those are things that the concerns have already been baked in. So I do feel Fitch is a little late the party, but, you know, the market sentiment today is, well, if there's any additional challenges, then it's going to be a problem. I suppose you could say, you could argue that if you're going to downgrade the U.S. government debt, therefore, you need to downgrade everything else that is lower on the credit scale, just by almost definitionally. But I guess the key question for investors is, do you feel, do you personally feel that the banks that we're

talking about here, some of the big ones, are in any sense? on sand as opposed to concrete and cement. Should we be worried about them? Oh, I don't think you should be worried at all about the biggest. And I actually think almost there's very few banks out there that are on shaky ground. The banks that went under were on pretty shaky ground. And that, you know, they're swimming in, so to speak. There are probably, there's probably another couple of banks out.

there that will get hit, that will run into some problems that may have be sort of forced into a merger or something like that over the next year, especially if it takes take a dramatic downturn. But yeah, do I feel like JP Morgan Bank America, Wells Fargo, the biggest banks are at great peril? No. And I don't even think Fitch that's there. It's just they're down very and everything because they're making a case that financials are as a whole greater risk. And I think it's tied into that U.S. government call, which makes the government call a tough thing. So if that's true, Doug, and these banks are selling off today and you don't, you're not worried about them. You don't really think that they're standing on sand.

Is there opportunity here to pick up some shares of J.P. Morgan on sale? Well, we were slightly old. We're already, we're owners of J.P. Morgan. We're slightly overweight where our targets are to begin with. So we're not adding to it today. So we're not, we're not diving in. with both feet. But if we do think there are definitely going to be opportunities that, you know, that you'll see in the bank sector over the coming six months, we're probably we air on the side of being cautious about entering the bank space until you have greater clarity on how hard the recession is going to be. We've seen a lot of recovery since those, you know,

those March draw, February March draw days. So you get, you're talking about, you're talking about, You're talking about how the economy is going to land. It would seem that banking problems aren't going to be the precipitating event that either causes a recession or hardens up what otherwise might be a soft-ish kind of recession. But the real concern here would be consumers and consumer habits. Yeah, I think that's our big concern. It's why we sort of feel that, you know, today's market drop is a bit of a blip in the marketplace versus is a long-term trend. Again, you're seeing the strong consumer. And I think most rallies continue until the consumer cries uncle, but the consumer cry uncle if they start losing jobs.

Yeah, I mean, I think back to the last, the great recession in 2007-08, and that was driven by a banking crisis. If there's a recession this time around, my sense is it's not going to be driven by a banking crisis. No, I mean, you know, they're never like the last one. We'll always win the last walk. But I think for where we stand, we think that there's still, look, the economy still seems like it's going along pretty well. Now, who knows what's going to happen with student loan,

start getting repaid and all of that starts happening again. People are starting to get decidedly more squeezed on their interest payments and receiving credit card bills tick up. But again, you know, we think that there's, ample opportunities out there in the market, especially if you're, you know, really focused on staying ahead of the game. Doug, we thank you for your time today. As always, good to see you, sir, Doug Butler.

Thanks a time. You back. Well, on the consumer front, Doug alluded to it there. Some mixed signals coming this morning. Retail sales coming and stronger than expected significantly seeing a near 2% boost in online shopping, Home Depot, key retailer beating estimates. But the home improvement retailer did report a pullback on big ticket, So with us to discuss retail sales and the state of the consumer are Terry Lundgren, former Macy's CEO and founder and CEO of TJL advisors.

Also with us, Aditya Bavay, she's a senior U.S. economist with Bank of America. Thank you, Bois, for being here. Aditya, I'm going to start with you. I was really interested and intrigued to see those retail sales numbers today. And it got me wondering what the Fed is thinking. Is it possible we could see sort of a re-acceleration of inflation? This was a remarkable report. We were above consensus based on what we were seeing in our internal card data.

And of course, the retail sales report came in even stronger than we were expecting. And you have to put that in the context of what was essentially zero inflation in July in the corresponding categories. So we're looking at real consumer spending around 1% in those categories in July, which obviously sets us up very, very well for third quarter GDP. So yes, from the Fed's perspective, they certainly want to be vigilant. They want to keep an eye on where inflation's going on a forward-looking basis. And that probably means they continue to push back against the timing and pace of rate cuts that the markets are pricing right now. And Terry, help us sort of square what we heard from the government retail sales and then what we heard from Home Depot today.

Certainly better than expected results nearly across the board. But when I spoke with CFO Richard McPhail and CEO Ted Decker on the call was sort of talking about how there's still some caution with consumer spending when it comes. to more discretionary categories, these big ticket items. So what's going on here with the consumer? Is the consumer strong or is it not or does it just depend on the category? Well, Courtney, you know, over the last year or two, we've been talking about how the consumer's savings account has been draining from the stimulus packages that were presented to them over the last couple of years.

That in itself would have been a big issue. However, we've now gotten to a different place where we've got wage growth and people feeling secure about their. jobs, and that is what's encouraging them to spend. So I think we're in a much better place today than I thought we would be several months ago, particularly with that wage growth number. And I think that's what we're seeing. As far as Home Depot's comments, you said it. I mean, they beat expectations. I think you're going to see a lot of retailers meet or exceed expectations, but in many cases, the expectations have been moderated. So there are many cases

that the top line sales are forecast to be negative to last year. and their inventory is in better shape, so they're going to be able to manage their earnings around expectations. Terry, you're going to be delighted to hear that my son, who's applying to colleges, just applied to the University of Arizona, where it's the Lundgren Center for Retail. How about that? There you go.

Tyler, I'm going to give him a personal escort. That's what I'm looking for, baby. That's what I'm looking for. No question. I'm a personal recruiter to this campus. All right, that's good. I'm going to take care of that. Adity, let me ask you and then, Terry, the same.

question and that is this. A lot of people as they look at the consumer behavior are concerned about the resumption of student loan payments. How concerned are you, Aditya, how concerned are you, Terry? Aditya, you go first. Sure. So we see that as a modest headwind to consumer spending, no more than that. For one, a lot of folks that have large amounts of student loans, have also graduate degrees. They're a little bit older. They probably have a significant savings. buffer, I think some people have already probably started to prepare for the assumption of repayments based on the fact that it's been so much in the news over the last few months. So from a forward-looking basis, especially given the 12-month on-ramp as well,

we think it's a modest headwind that plays out over several quarters, but we don't think it is a factor that could potentially break this very constructive dynamic that we're seeing. A constructive dynamic, Terry, do you see it that same way? How big a concern is it? I think Khadija said it right, and he's got great insights, by the way, on this subject. So I agree. And I also believe that in general, while consumer debt is high, what I look at is delinquency rates. And delinquency rates are actually at a 20-year low. So people are paying off their debts.

They are winding down those high interest, high credit card debts. And so I think this is going to not be a major problem for us as we look forward. Kerry, as we look forward this week, we're going to hear from a number of retailers, some of the biggies, including Target and Walmart. Shares, though, of those two in particular have gone opposite directions over the last three months. Target's down 20%. Walmart is up about 5%. Based on what we heard today from retail sales and maybe some of the commentary from Home Depot,

what do you expect that we'll hear from these two big heavyweights? Well, I think you'll hear that what will first of all, Target pointed out their challenges in their last quarter. and my guess is that they're carving through those and they're setting themselves up for future improved performance down the road. But I'd be surprised if it's come this quickly in this quarter. On the other hand, I think, you know, Walmart has been performing and just keep in mind, and you know this, Tyler and Courtney, but, you know, a substantial amount of their business, I think it's over 50% now is food and grocery related. And there still is inflation in those categories. So you don't need unit growth to grow. You just need maintaining

unit growth or maintaining units volume from the prior year and getting your growth by it with inflationary pricing. Not true on the other side of the business, but the fact is that they have less dependence on that than Target. That's why I think you'll see two different stories there. All right, folks, thank you very much. Terry Lundgren, Aditya Bave, thank you very much for your time today. Appreciate it. Thanks. Need that. All right, coming up, those retail sales depend heavily on consumers' desire and ability to spend, which more and more relies on credit, in part, buy now, pay later, with consumers already holding a record amount of debt and student loan payments, as we just mentioned, set to resume.

Will shoppers keep spending on those buy now pay later plans? Plus, the global chips race, the U.S. facing more and more competition for AI chips. I almost said A1 chips there, Courtney, like the sauce, but not just China, Saudi Arabia, buying more than 3,000 Nvidia. semis, more on that ahead on the program. We'll be right back. It is powerful. Yeah, it is. Welcome back. Data Out Today shows Retail spending is holding up better than expected. Still, there are concerns that consumers may try to limit their expenses as student loan

payments resume in October. As credit debt balloons, and these loan payments do come due, some are forecasting a slowdown that could impact the buy-now-pay-later industry. But our next guest doesn't agree. Dan Doloff is a senior Pintech analyst at Mizzuho. Dan, thanks for joining us. I was pulling through some old notes. from other firms, sort of trying to average out what the loan payments might be when they resume. On the low end, I saw something like 210 from Wells Fargo per month, on the hand, maybe $460. Why don't you think that would impact spending or buy now, pay later payments? Yeah, actually, it's a great point.

And I totally agree with those numbers. Those are the same numbers that we got. I think we don't say it's not going to impact, but what we say today in our survey, which is about 300 users of buy now, pay later, is that the impact is going to be lower than what people think. So obviously there's going to be an impact, but it's going to be much more muted than a lot of people are thinking. So I think if you just look at our survey, about 50% of buy now, pay later users, firm, Klarna, Square, after pay, etc., PayPal, have student loans. The other 50 don't. On average, the impact to the industry is, like, just short of 2%.

So it's actually not that much if you take it, like, with the big fear. Are the people who have the student loans healthier financially otherwise? It's a great question, and I think that's the answer. there is a clear link between having student loans and household income. So what we found out is that student loan, people that have student loans have higher incomes. Yeah, about $10,000. In college educated. Exactly.

Right. So it's actually, you kind of know it intuitively, but seeing it in a survey makes sense. So it's about $80,000 on average for student loan, people with student loans versus like $69 or $70,000 excluding. There's also a very interesting link between more by now pay later apps using more by now pay later apps and higher income. So that's what I was going to ask. I don't understand that then. Why are you needing to use Buy Now Pay Later if you have a higher income? So it's relatively higher, right?

So if you're thinking about sort of the average household income for the Buy Now Pay Later user in our survey is about $80,000 with student loans or $69 without student loans. But it's still like kind of not sort of the, you know, if you're making $150,000 or $200,000 a year, you're not going to be using by now pay later. So on average, on a relative basis, they're a little bit better off than a non-college education. without student loans. And hence, you think that fact will blunt the impact of the resumption of payments on the economy, partly. It will. It has to.

There has to be some impact, but I think the fear factor is much bigger than what we're going to end up seeing. I mean, people are worried I was talking to the, you know, management of a firm. I mean, they noticed, they know that this is coming, and there's, you know, investors and management are concerned about it down the road in the fall. So I'm fascinated in general by these companies and these products that buy now, pay later, because many of them, if you sort of follow the rules, you are more or less getting free money. You're paying them off and there is no interest. And so are people using these instead of credit cards in addition to credit cards? What if consumers learned about how the product works and what it enables them to buy? In terms of like, is it a replacement for credit cards? Yes. Yes. It's, there's two cohorts, I think. There's people that use it at the very low end, right, and they don't have credit cards.

They don't have access to credit. But there's also, we've done surveys and research in the past that there's also kind of that he pays the bill users. At the end of the month, you just get someone else's paying your bill for you. So it's all over the place. A lot of people shop online using a firm, for example, right? A lot of people use afterpay when they shop in store. So it's not just the underbanked, but there's definitely a big cohort there.

away, what firm has done and some of the other guys have done, they've tightened the credit box recently because of what happened. So you have less of the lower cohorts and more of the investment grade. So I'd say it's like a mixed kind of mixed. And I know retailers like it because it often increases the transaction value at really not much cost to the retailer. And that's the biggest opportunity here that people are missing. And this is my personal view. This is a huge conversion mechanism. Sure. Right. So retailers love it. What do you mean by that? So converting means that a retailer has a choice making a sell or not making a sell. And it turns out that having Buy Now Pay Later checkout button, a good one, increases the odds of selling the product.

So I'm willing as a retailer to take a 5% merchant discount rate in order to sell the product. That's a great trade. By the way, credit card interchange is not that much lower. So we're talking here about the difference is maybe one to two points between Buy Now, Pay Later and Credit Card acceptance. but it's free advertising, not free advertising, but it's sort of like a conversion mechanism to lure people to buy more online, increases demand. Which of these Buy Now Pay Later companies do you think is best positioned going forward? A firm is the Rolls Royce of Buy Now Pay Later, right?

Like they figured out how to like get a big breadth of products or services. So paying for higher ticket items, Peloton, which a lot of us were buying during the, you know, during COVID. That's how they started. I mean, after pay is doing a good job, too, but it's part of square or block, right? It's part of a bigger, bigger comprehensive offering. A firm is the pure play, Rolls-Royce, of Buy and Now, Pay Later, and I think that they would be sort of the front runner here for the next, you know,

three to five years. Got it. Interesting companies. Dan Doloff, thank you very much for joining us here today on Power Lunch. All right, further ahead, going behind the scenes on the strike. The Union and the studios out in Hollywood set to meet after weeks of silence. Those details went Power Lunch. turns. Welcome back, everybody, on this volatile day for stocks. Let's check in on the bond market.

Rick Santelli tracking the action. Hey, Rick. Hi, Tyler. What a fascinating day. Short maturity yields are now a bit lower on the day. Long maturity yields are toying with history. Let's start at the beginning. 8.30 Eastern retail sales headline number up 7 tenths of 1%. And as you look at that chart, something should jump out at you. Is that even though this was the best in six months outside of where it was much stronger 2.8, it kind of fits with pre-COVID. Maybe a little bit stronger. It certainly doesn't feel like the markets and interest rates should have rocketed the way they did. Maybe it's the following charts. Now here's import and export prices year over year for six years. They've had precipitous

drops, six consecutive months lower for both. Well, that doesn't really add up. Why did interest rates pop on that? Well, maybe that explains why they reversed and we've come back down. And the long maturity is kind of in yesterday's range, sort of, but a bit higher. And the short maturities, as I said, yields are a bit lower. Now look at how tens and thirties moved on the number, the way they spike. You've got as high as 426 on a 10 year, 435 on a 30 year. Why are these significant? They are super significant. Let's open the charts up towards the third week in October of last year. And the answer should jump out at you. Four and a quarter is current high yield closed for tens. Intra Day, we took it out, but it's all about the close. 30-year bonds didn't quite get

up to theirs. 438 is their number, both on the 24th of October. Two-year no-heels did the same thing in March, and they failed the close above that level, even though they took it out intradate. These are hugely important technical aspects of the marketplace to pay very close attention to. Courtney, back to you. Thank you very much. Rick Santelli. Boil oil falling 2% today. Pappa Stevens has the numbers, energy in focus here today, too, as a sector. Yep. So oil's under pressure, thanks to the data out of China. There was a sluggish economic data and then fears around whether or not the central bank's, you know, a surprise rate cut will actually do enough to boost their economy. And of course, China is the world's largest

crude importer. So certainly something to watch there. But today I did want to take a look at the refiners because Bank of America downgraded the group to neutral, saying that they think the risk reward is now skewed towards the risk side looking forward. Now, they have been very bullish on the industry back in March of 2022. They said it was the golden age for the refiners. And since then, they have outperformed both the energy sector and then the S&P 500 as well. So they do think, the firm does think that the earnings picture has been structurally reset and is now higher going forward. But given the outperformance over the last year, they said now is the time to lighten your exposure a little bit. So it's more of a valuation call. Yeah, it's a, it's a

Exactly. So they say that they've outperformed. They were basically left for dead because the long-term case for the refiners has always been under question, given that there have been calls for forever about peak oil coming. And I think in the last year, particularly with the invasion, the use case around oil longer term has been reset. And so that has drawn interest in refineries. We've also seen a lot of capacity come offline, thanks to things like COVID, set of fire out of Philadelphia refinery that just was never replaced. And so basically, yes, Bank of America has said, now that they've outperformed. Time to pair back. All right, Pippel, thank you very much. Appreciate it. Let's get to Bertha Coombs now for a CNBC News update. Hey, Tyler. There's concern across Maui about the chemical contamination from the fires, the state health department, cautioning people that the ash and dust from burned buildings might carry toxic chemicals such asbestos and lead. That's because many of the buildings in Lahaina were built in the 1970s before those

chemicals were phased out of construction. Meantime, speaking at an event in Milwaukee, President Biden said moments ago that he will travel to Hawaii as soon as he can. The White House says it's an active discussions about a trip. He has faced criticism from some Republicans for not speaking much publicly in the initial aftermath of the fires. And another soccer superstar heads to Saudi Arabia. The Al-Hal team announcing today that it has acquired.

Brazilian legend, Naimar, from Paris, Saint-Germain. Transfer fee, $98 million. Might as well just round it up to $100 million, right? That's not even his salary. That's incredible. I don't even under, those numbers are like, I don't even understand that. Bill price is what they are. They can write those really big checks.

He's going to make, they say, one report was he makes $200 million a year from playing soccer for this, for this Saudi team. She's always football is like. Yeah. Okay. Wow. Thanks, Bertha. Thank you. Well, ahead on Power Lunch, a semi- Huge rally.

Nevada's up 150% this year. We'll speak to the CEO coming up next. Welcome back to Power Lunch, the Nvidia invasion spreading around the globe, the U.S. China, and even Saudi Arabia buying up Nvidia AI chips. Christina Parts and Ellis. Has more on this one for us. Hi, Christina. Hi, Courtney.

Well, once again, Nvidia is among the top winners on the NASDAQ 100 today. Up about 8.5% on the week on the next. notion that everyone wants to get their hands on its chips. China isn't the only country front-running Nvidia AI chip orders, and they're doing that because just in case the U.S. imposes more export restrictions. But now, the Financial Times reports that Saudi Arabia alone had purchased more than 3,000 Nvidia H-100 chips as the nation develops its own large language generative AI model. So that means China, Saudi Arabia, UAE, and major hypers like Microsoft, Google, Meta, all wanting Nvidia GPU.

chips. Imagine how difficult is going to be for the smaller firms to scale up their AI models. But this global race to accelerate AI capabilities has put a major strain on the GPU chip supply chain and could limit the near-term upside for Nvidia, because if it can't get the parts, it can't sell the chips. UBS saying supply will be the primary determinant for its data center revenue at least through 2024. But Wall Street, of course, continues to pump up this name. Today, Wells Fargo, Baird, UPS, UBS, all raise their price targets. You can see on your screen well above $500 ahead of NVIDIA's earnings that are out next Wednesday.

Keep in mind, though, there has been recent stock fluctuations with NVIDIA. It's been down 5% on the month, so it shows investors are nervous that this AI phenomenon will cool, but as UBS said, it's still too early to get off the train. Considering Nvidia has that first mover advantage, for now at least. Yeah, they are the name in the category so far as I can tell. Christina, stick around for a couple of minutes as we are joined by our next guest runs a company that's caught in the middle of that race to secure AI chips. It may be a bit of an under the radar name, but shares of Navitas semiconductor are up around 4% right now today. And more than 150% this year. A lot of CEOs would like that kind of performance.

The company's still reporting a loss, however, for the quarter as costs remain high and margins a little bit lower than, expectation or hopes. Gene Sheridan is the CEO and co-founder of Navitas Semiconductor. Mr. Sheridan, welcome. Good to have you with us. The report is very, very favorable on the top line. Your revenues, I think, more than doubled compared with a comparable quarter a year ago.

Anyone would love to see that. But obviously, what people would love to see even more is profitability. When do you expect to see that? Yeah, Ron. Thanks for having me, Tyler. and it's great to be on this show. We're on a great track towards profitability. We're in a steep growth curve right now,

having completed a few quarters, each quarter doubling from the prior year, 35% up sequentially from the prior quarter. And we predict put off profitability in the next 18 months or so. We're in a great position to deliver on exactly that. These chips are powering virtually all modern electronics with clean energy, energy-saving technology.

What is the impediment from where you are today and reaching profitability in, say, 18 months. What's holding you back? Is it that your costs are high or that the margins aren't where they need to be? What is it? As you sit there as the CEO and you go, how am I going to get there? What's holding me back? It's really early days, early innings on capitalizing on this huge opportunity to

displace silicon, which is a $22 billion market today, powering all modern electronics, powering your EVs, powering data centers, powering home appliances, powering virtually all forms of electronics. They are being displaced by next generation technology that we make called gallium nitride and silicon carbide. As we ramp our revenues, our costs are right in line, our expenses are right where we want them to be, to not only deliver profitability in the next 18 months, deliver market leadership, and bring that back to a U.S.-based semiconductor company, which are especially proud at. So we feel very good about our position, and we're in that high growth, high investment period to deliver on it.

Gene, I'm curious about your business in China. It says that your mobile growth has continued there, but so many other companies, both in your sector as well as others, are struggling with China's recovery that's been a little more choppier than hoped, I should say. What are you seeing in China and how are you making sure that market continues to work for you? Yeah, our technologies I refer to, it's got the benefit of both worlds. It's both enabling new technology in the new energy markets like electric vehicle, energy storage, powering next generation solar inverters, but it's also displacement technology.

So we're going into existing markets like charging your phone or your laptop. And instead of using silicon, we're using gallium nitride to fast charge that laptop or phone up to three times faster with half the size and weight. As we do that, the market could be flat or even declining, and we can still deliver significant growth as we're converting those existing silicon designs over to this new generation technology. Well, people will love that faster charging EVs and phones and so forth. Christina, you're still here, aren't you?

Christina, parts of nevertheless. Yeah, and I want to piggyback just off of what Courtney asked in regards to China. Your front-end manufacturing is 100% outsourced to Taiwan Semiconductor. Taiwan Semiconductor has 10 plants in Taiwan, two in China. So are you concerned at all about just how much or how reliant you and like other companies, are reliance on one name? It is true that TSMC is the largest supplier to the whole semiconductor industry, and they're based largely in Taiwan, as you point out.

But our silicon carbide chips are actually 100% manufactured in the U.S. We now have multiple options coming to us of factories that were originally built to make silicon in Europe, in the U.S. and around Asia that now want to upgrade those factories to make gallium nitrate and silicon carbonite. So we have many options implanted to diversify into all of these different regions to serve the U.S. needs and the global needs outside of Taiwan, outside of China. So we've got a very nice diversification strategy that's coming to us. Right. But that diversification strategy is a little bit ways out, because you did say you're still at the early stages in building a silicon carbide

plant here in the U.S. is obviously not cheap. I was just at Wolfspeed last week. And of course, we know what's going on with OnSemi. So I feel like, is this something that maybe is really not in the near term or at least not in the next few years for you? No, it's actually surprisingly quick. That's the benefit of this technology is we can retrofit older existing fabs. If I had to build a brand new semiconductor fab, it could take three, four, or five years. You're absolutely right. In our case, we can actually retrofit older silicon factories, make them gallium nitrate and silicarbate capable in about 12 to 18 months.

And some of those efforts are already underway. So it'll be a lot faster than you might expect. All right, Jean, thank you very much and continue to good fortune to you and your company. We appreciate your time today. Thanks so much, Tyler. And Christina, thank you as well. Quote. Well, still ahead, deal or no deal. Hollywood Studios offering the Writers Guild a new deal and a push to end their strike, reportedly planning to meet at the negotiating table to discuss terms. We'll get all the details when power lunch returns.

Welcome back. Hollywood's Alliance of Studios set to meet with the WGA to discuss the most recent deal offer. In some industry, heavyweights are pushing hard for a settlement. Julie Borsden has the latest. This is a script writing itself here, Julie. What's going on? Well, I'm hearing some optimism. I've been talking to a number of senior media industry executives, and they're telling me they are optimistic about progress after what they see is a productive meeting that happened between the AMPTP and the WGA on Friday. Now, while picketing continues, sources telling me that the East Coast leadership of the WGA has flown out to Los Angeles for meetings this week, meetings in which they'll respond to the AMPTP's proposed pay increases, and around overall pay and also particularly streaming compensation. Now, the studios have reportedly reassured screenwriters that they will not replace them with AI tools and have offered minimum staffing requirements for the first time. And they've even reportedly brought sharing specific streaming data.

Now, there is talk that the increases in streaming royalties that were won by the Director's Guild could be used as a template for these talks. And then eventually, whatever eventual writers deal does. come could be used as a template for the Screen Actors Guild, which is, of course, also out on strike. Now, all of this comes as the Screen Actors Guild strike tops one month, and that guild announces that it will no longer allow actors to work on indie, non-AMPTP projects in the U.S. that says it looks for more negotiating leverage. The strikes have already cost the U.S. economy an estimated $4 billion, according to the Milliken Institute, which says costs will grow to $5 billion

dollars in the next month and then will rise even faster if workers are laid off and entertainment related businesses really start to shudder here. Now sources tell me that if things aren't resolved specifically with actors or close to resolved with Actors Guild by Labor Day, we will start to see many more movies pushed from the fall release schedule to the spring or even later in the year. I'm hearing a lot of fear from executives that there could be massive damage to the movie industry, if films are moved out of that key fall schedule guys, because that could just train people once again that they don't have to go out to movies to see, to be watching content.

And it feels like we've seen that Surgeon movie going this summer. They don't want to unlearn those patterns. But as you've schooled me, Julia, most of the movies that would be set for release this fall or winter have really in post-production and are all but done. So why would they hold them That's right. Why would they hold them back? Is it because they can't, the actors can't go on promotional tours to, to promote the movies or what? Exactly. Exactly.

So if you think about the role that Margot Robbie played in promoting Barbie, she was out there, she was doing interviews, she was a huge part of the awareness of the movie. And studios really rely on actors to promote their films. And so if you have a film, say, like the Dune sequel, are they going to go forward and release that film without Timothy, Shalame out there to promote it, or are they going to decide to hold that to the fall? So these are the types of conversations the studios are going to really be having intensely about which films they want to release without the promotion of stars, which ones they could get away with, not having that extra promotion, and which ones they're better off waiting and having that promotional engine from movie stars and maybe holding off and releasing films

later. So these are tough conversations. And when you think about a big star, a big brand, when is it worth it? When is it not? What are people doing who work on production sets? What are people doing to make ends meet? Are they taking jobs as waiters or construction or what? Well, the one thing I would say is that the picketing is going on. So writers and actors, they are picketing. People who are working on production sets are trying to find jobs in reality TV, in documentaries,

in those areas where there is still shooting. I feel like reality TV is a key thing there. or anything related to sports or news or the like. Obviously, those businesses are still ongoing. And I've talked to a number of people who are either they're starting to drive jobs, take jobs driving for Uber or to pick up odd jobs here and there. So definitely hearing about a lot of people here in L.A. who are looking for temporary work, hoping that this is resolved fairly soon.

Yeah, Julie, that was sort of just what I was starting to wonder. I mean, obviously they've held out for so long. But at some point, some members of these associations, these unions probably can't just continue forever and ever without an income. I mean, do they pressure the leaders? Hey, you've got to come to a resolution. Yes, we want things better, but we also need some work. Yeah, absolutely. I mean, they want to make sure that they're getting the gains that will really influence not just how they get paid, but also how the generation of writers after them get paid or generation of actors after them. But especially the writers, it's been over 100 days.

We hit the 100 day mark last week. They're saying, okay, we want to get back to work. Obviously, the studios, though they've been saving on costs right now, they want to make sure that they don't have an empty broadcast TV schedule and have to push their films out even longer. So I think there's a sense, especially for the Writers Guild strike, which has been going on for so long now, that they're really ready to get back to work. The Screen Actors Guild, they've been on strike about 31, 32 days now. So that's obviously not as long. And the question is, if we can get a resolution between the writers and the studios, how does that push the Screen Actors Guild to to come to a similar compromise.

All right, Julia, thanks. Great to see you, as always, Julia Borson. Meantime, shares have Discover Financial Sinking on News. The CEO is stepping down immediately. So it can now be a time to buy it on the dip. We will trade Discover and other movers of the day. And our famous three-stock lunch. Power lunch will be right back.

All right, it's time for today's three-stock lunch. And we take a look at some of the big movers of the day. First up, D.R. Horton shares hire today, in addition to other home builders after Warren Buffett's Berkshire Hathaway revealed its position in the stock, betting on the U.S. housing market. D.R. Horton already up 40% this year. Remember last year, it was a nasty year for the home builders. Here with our trades is David Traynor, New Constructs CEO. David, what's your take on the home builders from New Constructs? We like them. You know, look, we think, especially the homebuilders focused on the lower-priced half of the market.

the demand is going to stay stable there. And when it comes to DR Horton, you're looking at a stock with great risk reward. I mean, it's one of the most profitable companies in the market, much less a home builder, and it's priced as if its profits will permanently decline by 20%. So we're seeing really good risk reward in terms of strong macro tailwinds, strong profitability and profit growth, consistently over many, many years, and a valuation that implies the opposite. It's interesting that chart has been up until the right pretty much here for most of the year. Well, next step, shares of credit card issuer, discovered down 10% today.

So opposite direction after the company announced president and CEO Roger Hothschild will step down effective immediately with John Owen taking over as interim CEO. David, are you buyer on Discover? Should we pick up this stock on sale? Yeah, Courtney, we think this is on sale. We think the bad news is priced in here. And this is probably going to be forming a relative bottom. Another super strong, profitably great track record company, 10% compounded annual growth and profits over the last decade. It's trading as if its profits will permanently decline by 50%.

So the market's already pricing this business as if its business will be cut in half. So we think risk reward is really good here. They've historically had really, really high ratings in terms of customer service. Underwriting has been strong. We think the regulatory issues are almost all behind them. We think the bad news is out there, and we think now is a good time to buy the dip. All right, buy the dip. Lastly, we have the EV maker Lucid Group.

Shares down roughly 5% today as Tesla unveils cheaper versions of its model X and S cars. Those are the top of their line. $10,000 less than the regular models. Now, they do have less range, according to the company's website. Can Lucid stand up to Tesla here? David? I mean, Lucid isn't trying to stand up to Tesla. They're really in the super high end of the market. I think the average selling price of a Lucid is around $139,000. And so they're really going after Tesla's target market, right? I mean, where Tesla's really made its money is in the higher

end of the market. They've struggled more in the lower end because there's just so much more competition. And so, look, Lucid has never made any money, Tyler. This is actually one of our original zombie stocks. And it wasn't until Lucid was able to raise. raise $3 billion, mostly from Saudi Arabia, that we took it off the list because, you know, the likelihood of running out of money going to zero, like we think zombie stocks will, is pretty low when you can raise money at $3 billion a clip. But it's a bad business, losing a lot of money, valuation, super expensive despite all that. So this is definitely one we think people should.

Yeah, let them spend the money on Namar instead of the cars. That's a better, better. That's right. Thanks, my friend. David Traynor. We appreciate it. Thank you. We only have a few minutes left, but a bunch of stories we still want to talk about.

It's closing time when Power Lunch returns. We'll be right back. We only have two minutes left on the show and a bunch of more stories that you need to know. So let's get right to it. Home Builder sentiment dropping sharply as rising mortgage rates take steam out of the housing market. The latest NHN-A-HB survey shows Builder Sentiment dropped six points in August. The first decline in seven months. Rates for a 30-year fixed mortgage now, top 7.2 percent, according to Mortgage News Daily.

It's crazy to see that with the 7. handle up for so many years. It is. And, you know, the home builders have had a rough run in 2022, a great run over the past year. Here comes a wall of worry, I would say, in the form of those interest rates. Amazon says its pharmacy is introducing automatic coupons on insulin and other diabetes care products, making many insulin brands now available for as little as $35 a month. The key is technology developed by Amazon that automatically applies manufacturing. sponsored coupons at checkout. The problem I gather has been that people did get the coupons,

but they didn't know where to find them. They didn't know how to use them. This apparently automates that process and does something that health care administrators and policymakers have wanted to do for a long time, reduce the cost of costs. Yeah, I think it's fabulous with so many Americans needing this life-saving drug to make it easier at checkout. I mean, what's better than that?

And apparently, Gen Z workers feel too committed to their jobs to take a vacation. A new LinkedIn survey found just 58%. percent of Gen Z workers plan to take time off in the next few months. It's less than any other working age generation. And even when they do take off, 35 percent of Gen Z workers say they feel guilty while they're away from work. Tyler's laughing. This has not been a guilt that I have suffered. I've suffered from many forms of guilt, many, many, many forms of guilt. But the guilt to overtaking the vacation that I've earned has not been lost. That's good. That's nice and healthy. I'm not Gen Z, but I have suffered that guilt. I still take it. Still take the vacation.

You still take the vacation. I feel a little guilty about it, but I do it. Don't feel guilty. Thanks for watching Power Lunch, and don't you feel guilty either. Maybe I'll take off tomorrow. Closing bell starts right now.