Power Lunch - A power player in real estate, the energy blame game and the market’s next big test. 6/28/22

Episode Date: June 28, 2022

As CEOs push to get workers back into the office, Don Peebles discusses the headwinds facing commercial real estate and the best places to invest in the industry. Plus, Exxon CEO Darren Woods says the clean energy transition is to blame for high oil prices. Is he right? And, the next big test for the market: shrinking profit margins. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

And welcome to Power Lunch, everybody. Tyler Matheson is off today. I'm Kelly Evans. Here's what's ahead. A power player in real estate, as CEOs pushed to get workers back into the office, Don Peebles is here to discuss the headwinds facing commercial real estate and the development taking place in Miami. City people are now calling Wall Street South. Plus Exxon CEO Darren Wood says the clean energy transition is to blame for high oil prices. Is he right? We will take a close look at energy policy, try to find possible solutions, and figure out what it's all going to mean for your utility bills. But first, let's get a quick check on the markets where the Dow is near session lows down almost 300 points right now after being up 400 earlier today. It's the outperformer down 8-10s. S&Ps down 1.3 percent, NASDAQ, down 2 and a quarter. Energy is the best performing sector, kind of the only performing sector today, led higher by names like Hess, Marathon, and Williams.

We also have Qualcomm spiking midday on an analyst tweet. The tweet said that Apple is likely to keep using Qualcomm 5G modem chips. Qualcomm shares are at 5.5% right now. And as the quarter comes to an end, the market is facing a major test in the form of profit margins. Bob Bassani takes a closer look at the New York Stock Exchange. Bob? Hello, Kelly. Goldman Sachs says profit margins are likely to decline next year, whether or not the economy falls into a recession. How much will profit margins decline? Well, again, it depends on what

side of the recession debate you're on. If there is no recession, Goldman estimates there'll be a 70 basis point decline. That's 0.7%. If there is a recession, it'll be double that, 130 basis points or 1.3%. Remember, profit margins hit a record last year, 13 and a half percent in the middle of the year, but have been declining ever since then. 12 percent last quarter, and it'll likely hit 11% or so this quarter. Is that important or not? Well, it's important because you have to understand why we hit these record profit margins. Remember what happened during COVID? Big corporations cut cut back on their spending rather dramatically on labor, on travel, and on real estate. And at the same time, they use more technology to increase the efficiency of their operations. What happened?

Well, when the economy rebounded, the revenues for the companies rebounded. And more of those revenues went straight to the bottom line because they were operating more efficient. efficiently. That's called operating margin. Now what's happening here, Kelly, is the whole process is starting to reverse at this point because we're seeing higher costs for a lot of the companies and, of course, more difficulties in transportation. We saw these issues with Nike show up several times in their commentary as well. This is likely to weigh on earnings overall in the next several quarters. Kelly, back to you. All right, Bob, thank you very much, Bob Pisani down at the New York Stock Exchange. Let's continue this conversation. Our next guest is four,

costing better than expected earnings leading to a year-end price target of 4,500 on the S&P. But should investors be concerned about those shrinking profit margins Bob was just describing? Let's bring in Art Hogan. He's national securities chief market strategist. Art, it's great to have you here for sort of a throwdown on earnings per share where people are expecting they're going to be revised lower. They say that's the only reason some of these forward multiples for the homebuilders or even for the market makes sense.

Why are you still pretty constructive? Yeah, it seems to be the new conversation around the street. And the narrative is if we feel so badly in the here and now, how can earnings estimates not have come down yet? And I think the answer to that quite simply is probably threefold. First and foremost, emotionally we feel bad because we're paying so much for food and energy product. And yet corporate America has been able to pass along a lot of those costs.

So if we go through the first quarter earnings reporting season and see what happened exiting that, we saw estimates for the second quarter and second half actually go higher. And that's in a world where you and I know well that analysts on Wall Street tend to be very conservative. And that's why we tend to see 65 or 70 percent of companies beat their estimates every quarter. And I think that right now we're just trying to attach how we're feeling in the here and now versus what we would like to ascribe to earnings growth in the second half of this year. And a lot of that may not come to fruition. I think one of the things you forget is part of the issue is inflation. And obviously that's going to inflate sales.

and if margins remain, you know, not at record levels, but at, you know, something of more historic norms, I certainly think the earning season is going to be fine. We'll know a lot more about this in the second week of July when earning season kicks off in earnest. Well, it's one of those times when you remember that we are in a nominal GDP boom and a real GDP recession. So anything priced off nominal is going to do well, but the problem is expenses are priced that way, too. I don't know if you can kind of look through and talk about the places where you think it might. I mean, it was a surprise even for the fact. financials back in the first quarter with J.P. Morgan and everybody when when people said, wait a minute, you know, these profit margins are nowhere near what we thought they were going to

be. So could we be in for some nasty surprises still, even with strong top line growth? Oh, sure. And I think that, you know, JP Morgan is a great example of that. When yesterday they had the ability to increase their dividend, increase their buyback, et cetera. And what they're really going through is some of that overbuilt in departments where they likely, you know, got ahead of themselves. And the mortgage department, the mortgage underwriting department is clearly one of those. So there's going to be some adjustments that corporate America has to make. We're going to see a lot of that, especially when you overbuilt for what the environment was last year. And the environment is different this year. But I think on

balance, when you look at the entirety of the S. F.B. 500, we're clearly likely to see earnings that are above estimates for the second quarter and second half unless something draconian changes. Now, the real question is, what multiple should you ascribe to those earnings at a slowing economy with interest rate that's likely to be closer to three and a half. Right. U.S. tenure at the end of the year versus what you would have last year when the yield on the tenure was 50 basis points. Well, and that brings up, there's two very, should we say,

controversial points that you have here. I mean, one is that earnings will be revised higher. And the second is that, am I right, that you think the multiple on the S&P should be 19 times? Yeah, I think that, but that's a trail like 12, right? So when we exit the year to a trail like 12 multiple, 19 times would be the lowest we've seen over the last 10 years. That's not a forward multiple.

So, yeah, I think the forward multiple on 23 will likely be closer to 16 or 17. Got it. But looking at 22, it's a year on target, so you have to look back at what the multiple is on last year's earnings. Right. So, okay, so 16 or 17 times, which is kind of where we are now, maybe a little bit of expansion. But it sounds like then you think this adjustment is done. I mean, our guest just a moment ago was saying he thinks people should be buying fixed income because rates are kind of put in the highs for the year.

Is that consistent with your worldview as well? Well, I would tell you this. If consensus is that the Fed funds rate exit this year, you know, call it three and a quarter to three and a half, which is where consensus is now. That was a week ago, that was three and a half to three and three quarters. So that's backed off a bit. The 10-year likely is going to track somewhere around that. And historically, that would be the case. So, you know, at least for this year, know that that sort of three and a half level is probably where we peek out for a bit. And we'll bounce in between three and a quarter, three and a half for most of the second quarter into the third quarter.

But yeah, that's what we would say. And if you want to ascribe what historically has been the right multiple to that, you sort of just get to 17 pretty quickly. All right. So stock pick-wise, that's kind of also where the rubber meets the road. You've got a couple of tech names in here. Apple, I doubt you would change it based on this tweet about Qualcomm's modem chips. But Apple, Microsoft, even AutoZone kind of pops up on your list?

Why these three? Yeah, all defensible. And when you think about all three of them, you know, you've got defensible cash flows in both Apple on Microsoft, very strong management teams, great balance sheets, and what has become less and less discretionary spend for people as both software and the suite that Microsoft offers, if they're able to make this acquisition that they're working on now, I think that's we'll make forward to be a creative immediately. And just a real defensible cash flow. So it's very much of a defensive growth name. I feel Apple falls in that same category with a very shareholder-friendly management team

that buys back shares and has a steady dividend. Autozone is a different story. It's, again, not a discretionary item. If you need a new, you know, you need a new alternator in your car to, you know, to drive the kids of school, you're going to get it. You're not making that decision. And the fleet age has continued to get older and older because people just can't access new cars.

So the older the fleet age, the more the autosones in O'Reilly's and the general auto parts, et cetera, are going to be, you know, in demand. And AutoZone as a company of this spot back, its share, consistent shares consistently. So I think the multiple is very attractive there as well. All right, betting on these stocks, betting on the market, recovering to around 4,500 this year. Art, thanks for your time. It's good to see you. Good to see you.

Art Hogan today. All right, shares of Disney are trading higher as Shanghai Disney reopens. The shares up, about fractionally as the market overall is losing steam here in the afternoon. The company's board is also meeting and it's focused on CEO Bob Chapex's future. Let's get out to Julia Borson. with some new reporting on that today. Julia? Kelly, that's right. Disney's 11 member board, which includes CEO Bob Chepec,

is meeting right now in Florida to review the company's businesses and also to consider of Cheapex future. Now, the stock is down 45% in the past year, and Cheapex contract is expiring in February. Now, sources tell me they do expect the board to vote to extend Cheapex contract, either at this meeting or at one in the fall after the board's chair issued a statement in support of Chapak following his firing of senior executive Peter Rice. The question is how long that contract extension is for.

Cheapak drew criticism for his mishandling of the company's response to Florida's don't say gay bill, but sources tell me that management's response to Roe v. Wade's reversal was, in contrast, well received. Friday morning Disney emailed all its employees reiterating its commitment to providing them and their dependence with reproductive care, no matter what state they live in. But sources tell me there is another business challenge that is now very much in focus. Disney's recent release of Light Year had one of the lowest box office debuts of any Pixar movie after the last two Pixar movies were released exclusively on Disney Plus. So that raises questions about whether Disney Plus is cannibalizing the box office.

And that puts more pressure on Chepec to deliver. streaming subscriber growth in the company's next earnings report, which are due out in August. So streaming strength could be the most important factor determining CheapEx longevity as Disney's CEO. Kelly? Yeah, we still can't be a great sign that we're already talking about it this way. It's publicly obvious that there's been his sort of spat with his predecessor and a lot of angst among employees. And yeah, it just, Like you said, I mean, I guess if he wants this position for the long run, you think he has to show that streaming is a huge success story? Well, absolutely.

There's so much focus right now on the success of Disney Plus and the entire family of streaming apps, including ESPN Plus and also Hulu. Because this company has really shifted its focus and is hoping to be valued more as a tech company than a traditional media company. But at the same time, Kelly, the theme park business, which is the business, that Chepec came from is one that has been doing remarkably well through this rebound. And I do have to point out that the company just announced that Shanghai Disney is going to be opening on Thursday. This is you know, sort of after a three-month shutdown of that park. And this is not unexpected, but it does show that there's more opportunity to keep generating money from Cheapax area of strength, which is those parks as they work to grow the streaming business. And hopefully Kelly not cannibalize the all-important

movie business as well. True. Absolutely. Wow, three-month closure in Shanghai. Julia, thank you very much, our Julia Borsden. Stocks are generally drifting lower right now to fresh session lows. Dow's down 336. That's a 1% drop. Nasdax down almost 2.5%. Coming up, a tough month for office rates. Boston Properties is down 16%. S.L. Green down 20%. Real estate developer Don Peebles is here to talk about the headwinds facing the sector and which cities are best positioned to fill those office towers. And Kathy Wood telling CNBC her firm has cut its portfolio to 34 holdings. Three of her highest conviction names are Zoom, Tesla, and Roku. They've all slumped this year. We'll trade them in three-stock lunch.

As we had to break Molson Cores hitting a 52-week high on an upgrade to neutral from sell over at Goldman. The stock, the best performer in the staple sector so far this year. It's up 20% on pace for its eighth straight monthly gain, its longest win streak since 1986. Welcome back to Power Lunch, everybody. From low inventory to rising mortgage rates and a strong preference to work from home, there's a bunch of headwinds facing the real estate market. Office rates are mostly hired today, but names like Boston Properties, S.L. Green and Alexandria are 30% or more off their yearly highs.

Let's bring in a real estate power player to get a read on the key issues impacting the space right now. Don Peebles is founder, chairman, and CEO of the People's Corporation. It's a privately held real estate and development company with a portfolio of multi-billion dollar projects and most major metro areas, including New York, Miami and L.A. Don, it's great to see you. And since the last time we spoke, it feels like the traction behind Miami just keeps growing. Before we dive into that, though, let's just talk overall about trends here. Are people coming back to the office? Very slowly.

And they're not going to come back full time. Most people that are coming back to work and working live are working part-time, three days a week, two days a week. And I think that's a trend that will continue and go throughout the marketplace. What does it mean for New York, for Manhattan especially? I mean, just as an example because of its concentration and financial services where this has been such a huge fight. There's companies that have been early and really pushing for people to come back to the office. and maybe now if things slow down a little bit, workers won't have as much of a choice and they'll have to.

Well, I think that one of the things is efficiency. If you look at law firms, for example, especially transactional law firms, they've had some of their best years ever these last two years in terms of billable hours because their lawyers are working as opposed to spending their time commuting. So we're seeing more and more firms recognize that they are more efficient

and more businesses are more efficient. with remote working put into the mix. And so I don't think that that changes. I think that that expands and people are settling down and big law firms and major banks have accepted this change and how people are working. And what it means to New York is that businesses are going to suffer. I mean, the businesses that depend on a large influx of workers

in the city every day, I think that will continue to have a negative effect on those businesses. And we're going to see many of these smaller businesses. unfortunately closed and some that many who have closed will not reopen. I think it's a good thing in terms of the residential market, though. Yeah, and anecdotally, I mean, sometimes people joke in New Jersey about having a place in Manhattan for the weekend, but you wonder if it turns into more of a bedroom community in the long run.

Let's talk about these office reeds, though. Are these leases, you know, these are multi-year leases? And I wonder if they are, you know, how long of a period of adjustment could we face in companies downsizing? And could that be offset by inflation where higher leases take some of the sting out of those declines? Well, I think what happens on the residential side, for example, is rents are going to go up. So even though the cost of capital increases and cap rates increase, you know, investors who own apartment buildings in most major cities around the country will continue to do well. I think the commercial office market, of course, is very different because

there's just a flood of sub lease space on the market right now. And that along with increasing vacancies, I mean, New York City is essentially over 20% vacancy factor overall in terms of leasing, not necessarily occupancy. And occupancy is only about 40 some odd percent right now, mid-40s at best. And so what you're going to continue to see is more sublet space going to market. And that's going to depress rents even further. Let's talk about Miami for a second. Is it in a bubble because of so much demand being driven by crypto?

Well, no, I don't think so because I think that if you look at Miami, I mean, bubbles are created by artificial or short-term stimulus. And Miami is fundamentally very well equipped to compete against cities like New York, Chicago, and many other northeastern cities, Washington, D.C., for example, as well. And we saw that with King Griffin moving Citadel to Miami. He's moving out of Chicago, moving a thousand plus workers down to Miami. Miami has no state income tax. It's an extremely business-friendly environment. It's a right-to-work state. So even on my business on the construction side, unions do not have the same kind of impact that they do, say, in New York City.

The quality of life in many regards is superior, certainly on a weather basis. And they don't have the same challenges of public safety. So they're fundamentally just so much better equipped to compete right now. It's a little humid. Not everyone likes that heat. But I take your points. So since you know so much about the real estate market, Don, where would you have the individual investor put their money to work?

Do you like the office rates down 20%? Do you think they should steer clear of that and maybe look towards something more residential? Should they be involved with rates at all? Or is this a time for maybe more individual property ownership or rent exposed? where do you think has the most value right now? Well, I would stay away from the office reits. Investors understand that they are fundamentally challenged. I mean, any of the reits like Vernado, S.L. Green that are heavily concentrated on office space in New York City are in tremendous trouble. So I would be looking as an individual investor where I could buy apartment

REITs who are investing in the Sunbelt area. And I think that's where I think that's where you're going to see growth. And as an individual investor, I would still invest in South Florida overall and other parts of Florida, Tampa, Jacksonville. I'd certainly look at Nashville and throughout Texas, because Texas is doing very well quietly. So it's not the headline state that Miami in South and Florida in general is. So I would look at Texas as well. Arizona is strong. And in Las Vegas, Nevada has made a big comeback, especially in the housing market. And I think you'll see more of that in the gaming business. And that's another place if I were going to look to invest, I start looking at the gaming business again. And any reeds I would look at would be in the

hospitality sector, especially those hotel reeds that are focused on leisure hotel ownerships. Fascinating. Brimming with ideas. Nashville's still that strong. It hasn't slowed? No. Amazing. It's still strong. And in all sectors, by the way, office, housing, and of course, hospitality as well. Wow. Don, great to have you today. Thanks so much for your time. Thank you, Kelly for having me. Don Peebles. The K-Web Chinese Internet ETF seemingly breaking free from its rough web. It's on track for its best months since June 2020. We'll run through the names and the reasons next.

Plus, stacking the deck for a comeback. China lifting COVID restrictions, boosting casino stocks you just heard Don talking bullish on gaming and hospitality. We'll dive into it next. Welcome back, everybody. We're seeing increased selling pressure as we move throughout the hour here. The Dow is now down more than 400 points or about 1.3%. The Chinese tech stock.

have been making a comeback, though. The K-Wive ETF is up 14% this month. Analysts say because of valuations, but have the fundamentals change that much? Sima Modi brings us the details. Seema? Hey, Kelly, the rebound in Chinese talks comes as China takes its first step to reopening its country to overseas travelers by cutting down its quarantine requirement. Also lifting sentiment, the Chinese central bank governor signaling yesterday that monetary policy would focus on boosting credit growth. That's a departure from their comments in the past. Also, analysts at McQuarrie, pointing to industrial profits.

This is a proxy for earnings growth in China. They've been improving over the past couple of months, and it comes ahead of a big event this weekend where the president, Xi Jinping, will visit Hong Kong. And the question is whether he will unveil any measures to support secondary listings for Chinese companies like Alibaba. Speaking of Alibaba, take a look at the Chinese tech names leading the rebound this month.

It's Alibaba. It's JD.com, Weibo, Baidu, all up about 20. percent or more this month. Weabel up about 6 percent, Biden up 9 percent for the month of June. But this does follow months and months of extreme losses for all of these names. For Alibaba, it's the first positive month in four and credit suites in telling investors that the company's valuation and profitability picture is a reason to own the stock. However, it's trading at a current price to earnings ratio around 32 times, which is more expensive than recent months, but still cheaper than levels it was trading at before the pandemic.

Something to keep in mind, Kelly. Well, and as strong as China's been Latin America, which was and was supposed to be a big beneficiary from higher commodity prices, maybe not surprisingly as commodities have reset. Look at Latam's performance over the past month. Really not great. Yeah, after being the best performing market this year,

Brazil, you'll see Brazil is down about 20% in the past month. It comes as oil prices retreat, and also the growing uncertainty, whether the U.S. will start to increase oil production in the second half of the year. That's been also weighing on sentiment. And as you pointed out, the stronger dollar, that certainly doesn't help the Latin American trade, which again has done well so far this year. But just in the last month, reversing some of those gains, Kelly.

Yeah, by 21%. Sima, thank you very much, our Sima Modi. Let's get to Christina Parsonevarez now for the CNBC News update. Christina. Thank you, Kelly. Here is our CNBC update at this hour. The Hastley scheduled January 6th hearing is underway in Mark Meadows' former aide Cassidy Hutchinson is testifying on everything she remembers about the Capitol Hutchinson recalls the moment that she told Meadows there was violence at the Capitol.

He almost had a lack of reaction. I remember him saying, all right, something to the effect of how much longer does the president have left in his speech? Court is back in session as Gisela Maxwell awaits her sentencing. Prosecutors are pushing for 30 years over her sex trafficking and conspiracy crimes. Maxwell was convicted of helping her one-time boyfriend Jeffrey Epstein, lure women and girls for over 10 years. And Jule Labs wants to extend a temporary stay on the Food and Drug Administration's ban of its e-cigarettes. Jules says the agency overlooked more than 6,000 pages of data provided about the aerosols, users inhaled.

Kelly, back over here. Christina, thank you very much. Still ahead on Power Lunch, Kathy Woods Safety Arc. The fund manager says we're already in a recession, but will her highest conviction names provide shelter to investors or more risk? Plus, clean energy, messy transition. Exxon's CEO blaming the energy shortage on the rush to convert to alternative energy sources with old fossil fuel stocks leading the S&P today.

Hess, Marathon Occidental, one of the only sectors in the green. We'll be right back. Welcome back, everybody. Just 90 minutes left in the trading day, but stocks have been sinking. Let's get you caught up across all the major averages, bonds, commodities, and we're going to discuss the messy transition to clean energy. Energy being the bright spot today. Let's start with the check on markets. Dow's down 431 points today, almost exactly reversing the gain we saw earlier in the session. The S&P's now down almost 2%. The NASDAQ shedding two and two thirds of a percent right now. It's back to 11,000 to 17. consumer discretionary, no surprise, worst performer today. Nike, a huge drag on the Dow after earnings. It's falling almost 7% after that report where it warned about revenue being hit by higher costs.

Again, inflation showing up everywhere. Elsewhere in the space, we have Amazon, Tesla, and Home Depot sharply lower as well. Amazon down 5% today. Over in the bond market, yields are on the rise. The tenure at least was until it started drifting lower this afternoon. Rick Santelli has all the latest action. Rick? Yeah, it's pretty incredible, especially as we start to see a much deeper red in the stock market.

You would think that rates would be a little bit more susceptible like they were about two weeks ago to the downside and yield upside in price. But we're at 320 on a 10. We're at 318. When the market was higher, it's going down and rates are certainly not following. As a matter of fact, look at an intro of the seven year. You could see at 1 o'clock Eastern that rates popped up. They continue to gravitate to the upside. And if you look at the first year ever for a seven year, it was 2009. Because today's auction was the highest yield since 2010.

And the reason I put that chart up there, we're only about 30 basis points away from the highest yield of a seven year ever, which was around 357. Now, if we look at what's going on with boons, and I continue to point to boons, because I'll tell you what, Christine Lagarde and ECB are going to have their hands full, fragmentation, southern economy's paper going one way, the good credit going another way.

I'm not sure how they're going to accomplish it. But look at the quarter, the month to date on boon yields. They're definitely to the upside. That chart's more aggressive than a 10. And how do we know who's leading? Here's the spread between the two over two days. It shrunk from 175 basis points to around 156 basis points. So we want to continue to monitor all that is Europe regarding interest rates.

back to you. Absolutely. affecting like you said, our yields as well, Rick, thank you. And oil affecting them too, crude stubbornly high, back towards $11.11 a barrel. Pippa Stevens, what's going on? Hey, Kelly. Well, oil is heading for a third straight day of gains as G7 leaders look to impose a price cap on Russian oil. The goal here, of course, is to reduce the money heading to Moscow while also lowering oil prices. On the practical front, though, this faces a whole, this faces a whole lot of challenges. National Security advisor Jake Sullivan called the situation a quote novel challenge saying the solution can't just be pulled off the shelf. So let's check on prices here. WTI up 2% at just under 112. Brand crude up nearly 3% at 11816. And turning to energy stocks, once again the

top sector with every component in the green did want to highlight Occidental up more than 3%. Berkshire Hathaway has slightly increased its stake. in the company. A filing yesterday shows that Berkshire last week bought shares worth $44 million, bringing its total stake in Oxy to $9 billion based on yesterday's closing price. Kelly. And there's the green on our screens today. Pippa, thank you very much. And ExxonMobil's CEO is predicting oil prices will remain high, and he's pointing the finger for it as well. Let's bring in Brian Sullivan now with more. Who is he targeting, Brian? I think he's just targeting general long-term policy mistakes by governments over years and decades and perhaps even generations in the past and going

forward. Kelly, there's so much to unpack here. And it kind of goes to what Pippa was talking about. The administration currently desperate to find either someone to blame or some way to fix higher gas prices, likely not going to happen. So the ExxotMobil CEO sitting down with the Financial Times. And he said this, Darren Woods, you need a fairly robust set of alternative solutions if you are going to reliably and affordably meet the needs. of people. You can factor that in for gasoline. You can talk to that into home electricity needs if you want. Now, this morning, we talked to Jared Bernstein, who works, of course, under the National Economics Council, under President Biden. Jared, a long time known to our viewers here on CNBC, and I think a pretty rational actor. And I was hosting Squawk Box with Becky Quick this morning,

and I challenged Jared a little bit, respectfully, of course, about this energy transition and the speed of it. And I noted that throughout history, Kelly, transitions have taken a lot longer than anybody thought they would. And Jared agreed. These transitions take time. And look, as someone who's worked in government economics for a long time, when I hear transition, I get nervous because it usually means somebody's about to get smacked. And so what we what we have to do is make sure that we bring people along with us as we make this transition to clean energy. So you can hate gasoline, Kelly, I get it, but only about three to four percent of car sales in the United States are pure electric vehicles right now. Getting to 2030 with a 50 percent target looks pretty

much impossible, but we'll see. But in the meantime, a lot of gas cars on the road. And I think what Woods is saying is you better plan for gasoline demand for the future. In other words, we better have some refineries that can make some gas. Right. And we're concerned about how to keep the cars running. Also how to keep the lights and the AC on and the heat if you have electric heat source. I mean, that's the other big piece of this as well. It is. And I, again, I understand the need in climate change is real. It is a threat and we need to do something about it. And everybody wants to do about it yesterday. I get that with any emergency or whatever. You might want to solve it sooner than later. But I also just want to lay out the stats and the facts of where we are right now as a nation. Okay, nationally, here's where we get our power, which is about 38% natural gas. So that's nationally. And then we get 22% coal. I mean, 20% of it. 22% coal in 2022. I want you to think about that, but that is nationally. It's even more fossil fuel-based in certain areas like New England, Kelly. And I've been highlighting this as the winter when they had

all their electricity pricing issues. Right now, if you're in Boston and it's hot and you're running your air conditioning, 60% of your power production, that's a live look for the New England ISO, is natural gas. 27% is nuclear. 11% is renewables. of which some of that is actually certain other types of gas, wood, or even dumb. 87%, Kelly, of the energy being produced from Connecticut to all the way up there in Bangor, Maine, is either natural gas or renewables, or natural gas or nuclear. They're talking about killing nuclear. I get it.

I think the point is this. If you are going to take that 27% of power and nuclear offline because you don't want it, you better darn well have something that's going to make up for that, Whether it's solar or wind offshore, great. But you can't take something offline without replacing it. It's what we saw in the Midwest a couple weeks ago, where they had rolling brownouts and blackouts in Columbus, Ohio, in 100 degree temperature.

I'll leave you with this, Kelly. California, they want to shut down the Diablo Canyon nuclear plants. The last nuclear plant in California that's operating, 2,550 megawatts. You better have a lot of solar to make up for that once you shut that down. That's all. Shut it down. or make sure you have the backup power.

Otherwise, you're out of power. I think they're actually trying to look at not shutting it down at this point. Can we stop the process? It seems to be where the rhetoric at least now is going. A lot of similar questions around here as well. New Jersey has a lot of nuclear power. Brian, thank you very much. Really appreciate it.

Brian Sullivan, a comprehensive look there at the transition and how it is and is not working. Coming up, it's our weekly working lunch. John Ford bringing us his interview with a fintech that's focused on making get this, your tax payments more efficient. Can it be done? Find out in a moment. Welcome back to Power Lunch. Markets are at session lows right now with the Dow down more than 450 points. We've got companies of all sizes looking to keep commerce flowing as the economy slows,

and that means doing everything more efficiently. Today, John Ford brings us up close with the CEO of a fintech company that's simplifying the process of paying state and local taxes and even tariffs to get business done around the world. John, I thought this was going to be for individual tax filers, but businesses needed too, I know. Everybody needs and everything, right, needs to pay taxes. Yes, Kelly. Scott McFarlane is the CEO of Avalera, a $7 billion market cap software company, trying to make it easier for businesses to follow regulations across local, national, and international borders. McFarlane's entrepreneurial roots go back long before he came to tech.

He was growing up in Ohio, his father ran a hotel business, and in college, he and a roommate started a fitness equipment business that skyrocketed. And one day, the inventor of Lifecycle walked into our office, the inventor of it, and he said, you know, I've got this idea, you know, it hasn't gone anywhere. Would you guys take it over? And so we took over Life Fitness as, you know, sophomores and juniors in college, and we built that business into what it is today. Now, I left, you know, after, you know, I don't know, five years or something like that. And my roommate in college, you know, ran it until he sold it to, you know,

I mean, Bally Fitness and Brunswick, you know, years and years down the line. Now at Avalera, Scott is working to increase the reach of the technology through the use of APIs application programming interfaces. That allows other software companies in bookkeeping and other functions to plug into Avalera's technology and make it available to more customers. Now, if this works as planned, outside developers are going to be able to write new types of apps based on Avalera's unique data. We've always had an API base.

That's how we've actually connected into all of the financial applications in the past, Sean. But, I mean, the new technology and your ability to, you know, take what we're doing and make it part of our partner's experience with their customers more integrated is really a big step. And so our tools with low code allow, you know, sort of non-developers, if you will, or developers that want the ease of. of adding, you know, what we do, the tax technology and all of that into their applications, make it simple and almost like an afterthought for them. Now, Scott started reselling fitness equipment in college and moved up the value chain into selling his own brand when the inventor gave it to them. Now with Avaleri, he's looking to expand by growing the influence of the company's software.

It's similar, Kelly, to what we see Snowflake doing, out of Snowflake Summit this month, they're about more than just data management and warehousing. Now they're encouraging developers to build on top of the snowflake they've already got for higher efficiency. That's how you become a platform and that's how you get a lot bigger. But, you know, his personal story is also so interesting. And I was just reading that his dad was a big inspiration, a successful businessman. And actually Scott's plans went up in smoke when his dad sold the family business. That's true. Not only that, but Scott had dyslexia, right?

and learning disabilities to get through sports, helped him with that, just his outgoing personality. He managed through help from other people to find a way. So maybe that can be inspiration from some people in this tough, inflationary environment, this unstable economy. Despite what you're dealing with, you can get through it. Absolutely. Very inspiring.

John, thank you very much for bringing that to us, as always, our John Ford with Working Lunch Today. Coming up, today's three-stock lunch, it's Kathy Woods Conviction List, Zoom, Tesla, and Roe. Our trader will tell you whether you should jump on this arc. We'll be right back. Welcome back, everybody. Time for today's three-stock lunch. Ark Invest CEO, Kathy Wood, told CNBC earlier today that to manage the risk of a bare market, she's focused on the firm's highest conviction names. On the list, Zoom off 71% from its year high,

Tesla down 43% from its high, and Roku, 82% off its high. Let's bring in Scott Nations. He's president and CEO of nation shares. Scott, we want you to weigh in. What's your traders take on all three of these names right now? Let's start with Zoom video down another 5% today. Yeah, and Kathy Wood's going to have to show her work on how fewer names leads to more safety, particularly if she's going to go with Zoom, which was great. Kelly, it was a lifeline for a lot of people during the pandemic, but it's toast now because it's now a mature space and they're going to have to compete with Google, Cisco, Microsoft, and Amazon. Think about the EPS of Zoom.

It's trending lower, which is horrible. You pointed out it's down more than 70% over the past 52 weeks, and Zoom is cheap for a reason. So I would be selling Zoom. Think of the 2000s, and Zoom is Netscape, and all four of those names are Microsoft. All right, but let's go from Zoom to Tesla,

which is a company that would seem to have a much bigger moat, a 10-year head start in developing EVs at scale. The stock is still down 33% year-to-date. Right, but that's actually not that bad, Kelly. I mean, compare it to Meta or Facebook, which is down more than 50%. But Tesla does have some problems. It now has some competitors. Mercedes EV entry has longer range.

The Mustang EV from Ford just got rave reviews. I think the biggest problem for Tesla is it needs a full-time CEO and an engaged completely engaged board. It doesn't have either of those. We love to love Elon. We love how iconoclassic he is. We love him on Twitter, but Twitter is the problem. And until he's fully engaged, I would be a hold on Tesla.

I wouldn't sell anything I own, but I wouldn't be adding to it if I owned it already. All right. Let's see if the winner here is our final name for you, Roku, probably the poorest performer of the three. Yeah, it is. It's the worst of the three, as you point out. It's down more than 80% from July of 2021. But in many ways, it's the best name here. You know, it got punished along with Netflix,

but it's a very different animal from Netflix. I mean, Netflix has one platform, and it's spent a ton of money producing content for that one platform. Roku's very different. It's got hardware, branded hardware, white label hardware. It has ad-supported platforms. It's got ad-free. And the thing I like about Roku is it has,

has the potential to be the portal for all of your streaming services. So if you're like me and you subscribe to three or four and it's a mess, if Roku can be the single portal for all of your streaming, then it will be the must buy. So this is the one of the three that I would own. All right. We will leave it there with that glimmer of hope, the sunlight amid the rainstorm. Scott, Scott, Nations. Scott Nations. Coming up, casino stocks are actually one of the best performing groups in the S&P today. Look at the the green there with the Dow down 416 points. Why some of them getting a boost from major updates in Macau? We have the details next. Check out the casino stocks, everybody. They're not

only higher today in the tough market. They're higher on the week and they're rallying on news of China easing COVID restrictions. Contessa Brewer has the latest. Contessa? Well, Kelly, this is really silver lining news. China's shrinking the mandatory quarantines for incoming international visitors from three weeks to 10 days. And then really, let's dive into how the casinos with Macau exposure reacted. Melco popped up 7% at this point. When you've got a win up almost 3.5%. Las Vegas Sands up 4.5%. MGM relies less heavily on its Macau revenues than the rest of the group. The dark cloud, though, still looms. What Macau really needs here is for restrictions to ease on incoming travelers from China. Instead, last week, the government shut down Macau

bars, nightclubs, cinemas, gyms, and in-restrainting. Casinos remain open. They'll stay so unless the government in their mass testing finds a case in the gaming area. That's according to Macau's chief executive. Bernstein analysts, though, forecast gross gaming revenues this week near zero. That's right. The liquidity situation also seems to be worsening. When Macau borrowed up to half a billion dollars from its parent company, quote, others could soon follow. That's according to Morgan Stanley analysts who write that MGM, China, Sands and SJM, that's a Chinese operator, have fewer than 12 months cash on hand at the rate that they were spending it in the first quarter. On the upside here, the licensing concessions

have been extended for another six months to the end of December. That allows more time for this renewal process. And another bright spot for Sands, the Singapore business is rebounding significantly. We expect to get more color on that in the earnings report coming up next month, Kelly. And positive news on the U.S. as well, right? What about Vegas? Oh, we're hearing even with consumer confidence worries, even with discretionary spending worries, the airport in Las Vegas is reporting that May was its third busiest month in history with more than four and a half million passengers, a lot of those international travelers. So that's a big boost to the city. Gaming and hospitality reads. That's the Don People's training.

and the brunettes close it out again today. Thanks for watching, Power Lunch, everybody.