Power Lunch - A sharp afternoon drop in oil prices, a high-level meeting at the White House and an energy power player. 5/31/22

Episode Date: May 31, 2022

Oil prices fell sharply right at 2p ET on a report that OPEC is considering suspending Russia from its oil production deal. We asked the CEO of Liberty Energy where he sees crude prices going and what can be done to lower them. Plus, Strategas’ Dan Clifton explains why the inflation meeting between President Biden & Fed Chair Powell is of critical importance to investors. And, is the housing market starting to slow? The National Association of Realtors chief economists tells us what he’s seeing. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch for this last day of May. I'm Tyler Matheson, and here's what we have planned for you. A critical and rare high-level meeting at the White House, the president talking with the Fed chair as the central bank battles decades-high inflation. Is the administration signaling perhaps that it will accept a slower economy? And rising oil prices, fanning inflation fears, crude hitting $119 a barrel in trading today, is a buck 25, 125. Is that next? We've got the CEO of Liberty Energy here for his outlook on prices and ability to boost production capacity. Kelly.

Tyler, thank you very much. Well, was it the meeting between the Fed chair and the president? The doubt just went positive, erasing a 460 point gain today. It's up two points. The S&Ps up six points. The NASDAQ up 47 right now. A midday rally and some mega-cap tech stocks could also be leading the way. Amazon, Alphabet, trying and succeeding and pulling the indexes higher. Look at Amazon at more than 5%. But as Tyler mentioned, crude is also getting a bounce. It's trading around 117 right now. Wow. Actually, it is trading below 115 right now. As you can see this sharp drop lower here in just the last couple of minutes. That's obviously going to firm up the tone of the market outside of the energy space as well. So keep an eye on WTI crude for this reversal lower. It's now down by

about a quarter of a percent. Spiking energy prices have been just one race in Washington is concerned about inflation. Let's get to Kayla Taushy with the details on the meeting between the president and the Fed chair. Kayla? Kelly, it began just a few minutes ago. A White House official tells me that President Biden

wanted to simply touch base with his top economic official, the chair of the Federal Reserve, as he grapples with decades high inflation and a set of policy tools potentially to combat it from the executive branch. The president in the next few weeks, months and this inflection point ahead of the midterm elections must decide which items to include in a legislative package to help bring down costs for Americans and whether removing tariffs on

goods imported from China will in fact help ease inflation. It is the first meeting of President Biden and Chair Powell in six months. The two last sat or stood together when President Biden renominated him for a second term in late November. They met just a few weeks before that, which is where President Biden solidified his decision to. do that. But then they met about five months before that with all top financial regulators at a time when inflation was at 5 percent higher than the Fed's usual goal. And at that time, experts both inside and outside the administration say that President Biden perhaps should have nominated his selections to the Fed sooner to allow them to get ahead of the curve.

Now this meeting is taking place at a time when an economy whose growth was supercharged by the policies wrought by the Fed over the last several years, are slowing down. A senior administration official telling me this. When an economy settles into a more normal cycle, you're not going to be posting GDP growth rates north of 5% and monthly job gains north of 500,000. Our view is that the economy will start to normalize. It will expand this year, though not at the pace of last year. When I speak to administration officials here at the White House, Kelly and Tyler, they say that a recession is always a possibility, but even at this time, it is not the base case.

back to you. All right, Kayla, thank you very much. Kala Taushi reporting from the North Lawn of the White House. Our next guest says the president's meeting with Chair Powell will have more significance than the market is giving it credit for. These two powerful men not meeting today to drink tea and gossip, but let's bring in Dan Clifton, head of policy research with Stratigis, a bared company. Dan, welcome. Good to have you with us. We know they're talking about inflation. What else could be on the agenda? up. Yeah, so inflation is the backdrop to these discussions. And if you think about where both of these men stand right now, President Biden's approval rating hit the lowest level of his presidency over the weekend as inflation concerns billed. And for the Federal Reserve Chairman,

he really risked being one of the few Fed chairs that led inflation genie out of the bottle. So both of these men have the, have the incentive to get in a room and figure out how to solve this problem. I think much of the commentary today really kind of miscellency. the point of what's happening. We have these dynamic economic issues that are in front of us that could exacerbate inflation. So, for example, the European Union banning Russian oil could have the effect of raising oil prices. You also have Chinese tariffs on the agenda. The president said he's going to review those tariffs. Secretary Yellen has been pushing to reduce those tariffs. Let's just say the president wakes up tomorrow and says, I'm going to get

rid of those tariffs, you're going to want to know how the Federal Reserve is going to respond to that type of change. In fact, in 2018, it was a big problem for the Trump administration. He was raising tariffs. Powell kept interest rates higher. So there's going to be that interaction. And I think the big issue, and Caleb just touched on this in the introduction, is that the Democrats are getting closer to a deal on what I call build back smaller, which will include tax increases. Now, think about this. What is? is the Fed chairman going to say on how tax increases impact monetary policy? So increasingly, we have monetary and fiscal policy interacting. We have a set of issues that have risen to the

level where both men need to get in the room and figure out how these issues are going to be impacted. So we have a more coordinated policy. That's why I think today's important are very, very important. Well, you've laid a lot on the table there, Dan, and I'm going to have a hard time getting through all of it. I guess on the face of it, if there are lower taxes on China, that would be disinflationary, wouldn't it? Well, it could be in the short run. But if you remember what happened with President Trump, when he started raising tariff rates, the Fed kept interest rates high and financial conditions tighten. So it may actually have the opposite effect, because it may actually be more inflationary by improving economic growth. Now, we just don't know. I don't think

the president knows, and I think the president's trying to understand where the Fed chair stands on that if there's going to be a policy decision. Ultimately, I think the Fed is going to want lower tariffs, very similar to what Treasury Secretary Yellen want, and that will be an important input to their interagency process in deciding how to move forward on tariffs. And if behind the curtain, the two men are talking about the possibility of higher income taxes or some kinds of taxes domestically, if you have that working. at the same time as higher interest rates and quantitative de-easing. You've got three fairly powerful disinflationary forces, number one,

and also impediments to growth, right? Yeah, but I would treat the tax increases very differently. In 1968, the idea was we'll raise taxes on corporations and high-income individuals and stamp out inflation. We got lower growth and we got higher inflation. In 1993, there was a meeting just like today. between Bill Clinton and Alan Green's ban, and they didn't want to explicitly say it. But out of that meeting came the idea that if you raise taxes, the Fed wouldn't have to raise

as much interest rates. We raised taxes. We got slower growth, but we still had the inflation. And as you know, the Fed had to aggressively raise interest rates in 1994. We need to be very careful on the tax increase side. The belief that that has reduced inflation, not bared itself out in history and could actually lead to. a slower economy and raise that recession risk that's currently out there.

And Dan, what's it all mean for you in terms of both the possible political fallout, but even more so for investors? Yeah, I think that we're in a position where we're at the beginning of a long stage to stamp out inflation. We haven't gone through this in 40 years. The money growth supply is starting to decline. That is something very good. That's telling us that inflation is going to start coming down. But we got a long window before we actually start getting it out. the system, that means that we want to continue to be in energy, materials, utilities, health care.

Health care's taking a little beaten today. I'm Bill Beck smaller. But those are the defensive areas that we want to be in and be able to do a relative performance because the market's going to have to grind itself out here until we start getting that inflation rate down meaningfully. And we're still some time away before we start to see that happening. Yeah, Dan, great to have you here today. Thank you for all your time.

Great. Thank you, Kelly. We have Dan Clifton. we have a sharp drop in oil prices right now. This is on reports that OPEC is weighing suspending Russia from an oil production deal. Brian Sullivan joins us by phone, but Brian, apparently the issue here is that if Russia's pumping less but they don't count anymore, this could pave the way for Saudi and others to pump significantly more. Is that right? Yeah, we don't have a lot else, Kelly, by the way, and this is a Wall Street Journal exclusive. I want to give them props for

their reporting on this. And nothing is done. But what the journalist is saying is that, OPEC, and of course, Russia is not a member of OPEC, they're a member of that OPEC plus group, which is Russia and a bunch of other countries, but Russia matters much more because of its size, that if they are suspended from this deal that they have all made, this declaration of cooperation that they made a few years ago, which is basically a one-for-all, all-for-one type thing, where that's why one can't pump unilaterally more. If Russia scoots out of that, perhaps then OPEC has clearance for the countries that do have ability, to your point, Saudi, UAE, to fill that gap. So maybe adding incremental barrels

on the market, that's why the price of oil, it's still positive right now, but it's come down a couple of bucks. If this occurred, and it's unclear from the journal reporting, if it would or not, of course, I'm reaching out to my OPEC sources right now as well. It's unclear when it would be enacted, how much more could come on the market. But obviously, Kelly, the market reacted. It reacted and it reacted in a big way, Brian. We're down about $4 or $5 from the session highs earlier today. I mean, is there anything keeping Saudi? I mean, other than agreements and formalities, what have you?

I mean, could they be pumping a lot more crude right now? And would that significantly ease the supply crisis globally? They have the spare capacity. The UAE has the spare capacity. They may be the only OPEC nations that do, just due to just maintenance problems, issues, whatever it may be. Most OPEC countries do not. The Saudis do. But like I said, what people don't get is a thing called the Declaration of cooperation, basically all for one, one for all that we're going to make a deal and everybody has their quotas. And if one can't do it,

nobody can do it. And so that provides the group the ability to say, well, I can't pump more because Angola or whatever can't pump more. Equatorial Guinea cannot do it. So of course the group could come to a group. decision and change its targets. We've kind of been waiting for that. They've been adding 432,000 barrels per day the last couple months, 400,000 barrels a day before that. And obviously, the Biden administration has been nudging, prodding, pushing, trying to cajole OPEC, particularly the Saudis, to pump more oil, which is something that they have not done because they will say we don't want to break with the OPEC deal. So if the OPEC deal doesn't break itself, but if Russia

leaves, that might give the other members cover. political group cover to do what they want. How tied is this to the idea that the EU has decided to place a ban on Russian oil imports? Well, Tyler, I find the timing to be very interesting. Right. Maybe nothing, but that's, yeah. Listen, obviously, it has a lot to do with this timing. Now, of course, EU is going to do it tomorrow.

They haven't done anything officially, but it looks like it's going to happen. So maybe that's why the journal got this leak, or they, were able to come up with the story. Nice job by them, by the way. So if you see this lack of imports into Russia, it will cut off Russian production probably by one or two million barrels a day, unless, as Kelly and I talked about last hour, they can find new buyers for that incremental barrel in India and China. If China says, you know what, Russia, we're close, but we're not that close. We don't need those barrels because we just don't want to deal with the hassle of them. and India can't take enough, well, Russia's going to either, you know, they're going to come down

in production and that would be a natural ability for OPEC to potentially make some of that up. Or maybe the United States, Tyler. He's easier to export from Houston to Rotterdam than it is to ship from Houston to New Jersey. Remember that. Thank you, Jones, Act. All right, sir. Thank you very much. Brian Sullivan on the phone. I appreciate the explanation. The Dow has gone negative once again by about seven points. But our next guest says investors should focus on top line revenue growth.

given the confusing inflation backdrop. That's leading him to take on both new long and short positions. Let's bring in Peter Anderson, Chief Investment Officer with Anderson Capital Management. Let's hear about the shorts first, Peter. Welcome. Thank you very much. Yes. So the shorts, what I've done is I've done the same process, Kelly, to identify long positions, but ones that are real stinkers, so to say, in this screening mechanism. And what I've come up with are Peloton, Zillow, Carvana, and Netflix. And these companies are not hedges against my longs.

You know, there's a lot of long, short managers that do that. They try to do pair trading. I'm not doing that. I'm saying that these are companies whose business models are broken that did see some very attractive performance and demand during the pandemic. but when you strip that all away, the business models just aren't durable enough to go into the future. And so are you saying these companies eventually are going to have to be merged into somebody else? They're going to go away or they're going to fail?

What are you saying here? And if you're saying Netflix is going to fail, stop the presses, man. Well, you've asked a lot of questions. So let me first say this. I do think that some exit plans of these companies, be that they would be purchased by somebody else or that they would have to have a complete overhaul such as Netflix because I think the programming is the main process with by which this company has not really got a very positive future. I think that the business model is just

very old and most people when you poll them about Netflix they spend maybe 10 or 15 seconds on a movie and then decide that it's not for them, but the algorithm then builds that into your suggestions for future movies. So it's almost like a death spiral. Do you know how many people that I know spent about 15 hours this weekend watching Stranger Things? I mean, it stopped my house cold. I didn't watch it. In fact, I fell asleep.

But at any rate, I mean, I don't know. I mean, I'm not sure I'd write their obit just yet in terms of their content. Because when they have good content, when they have good content, people tune in. Absolutely. And, you know, there's an argument that, you know, one out of 10 or one out of 20, a home run, like a venture capital investment, might work. But let me also remind you that these stocks have been uncovered by an analytic process. It isn't just our opinions talking about stranger things, et cetera.

But it's a way I look at these stocks. And I look at their EBITDA and their leverage and coverage, which are technical terms from the high-yield bond market, actually. And when I see decreasing trends, I mean, there's no hiding of those. You can't hide from financial disclosure. From the numbers. The numbers don't lie. No, I agree. One of the reason we love you is you say stuff, man.

I mean, there's nobody, you know, the greatest, the Cardinals sent on television, is to come on and say nothing, and we don't have to worry about that with you. Well, there's a lot of talk therapy going on right now, you know, for all of us, because there are just, I think we're so confused. Just if I can switch a bit to just where we are in this cycle, right? Sure. You know, inflation, all of it, the IPOs of certain SPACs. I mean, the dead bodies along the road for the past year, it's incredible.

And I don't even know if we can assimilate all this data. So on top of that, trying to identify stocks, which is devilishly complicated anyway. But in this environment, where we really don't know where we are in terms of coming out of this horrible position, you know, it just complicates matters even more. And I do think, you know, identifying shorts, ironically, might be a little bit easier in this environment than identifying long simply because we've had two years of inflated attraction to some of these stocks that when you look at them in the bright sunlight.

And you say, what is the potential for Peloton, for instance, to thrive when we all can go back to our gyms and health clubs? I think that most of us will say it's probably seen as better day. And maybe it will be acquired. Who knows? But, you know, they've hired McKinsey to help them out on how to convert and adapt to the new, you know, merging post-COVID. And I don't really have a lot of confidence.

in that. Peter, we have to go, but I just want to mention to illustrate your point. I think that's very well said that it's almost easier to identify shorts than longs. Your longs are like Booz Hamilton and Sinova holding. So, you know, these are not your everyday fang names. And again, revenue growers identified through your process and certainly not the names that we hear too much about. So we appreciate you joining us today. Thank you. Anytime you want to hear the straight truth, just ping me and I'll let you know, Tyler, okay? All right. man, that's good. Enjoy stranger things. Let's see you, man. Peter Anderson. Didn't he go watch the Top Gun movie or was he just doing strange? I don't know. I didn't watch the Top Gun.

Oh, Mac, no, Mac didn't really go. He didn't want Spider-Man, he would go get tickets in advance. I don't think he knows who Tom Cruise really is. Maybe he'll go next to him. And he certainly doesn't know what Top Gun was, the phenomenon of Top Gun. He will. He will. He will. He will. I want to go see it. Anyhow, coming up, did you see it? No, I want to, though. A new report shows home price growth hit a record in March. But a surging price is starting to ease. We will find out what the nation's realtorers are seeing right now.

Plus, the CEO of Liberty Energy on climbing crude and whether his company has capacity to increase production. As we head to the break, some of the energy-related names hitting 52-week highs, Marathon, Diamondback, EOG, and OxyPET, just a little bit higher right now. And there's S as well. Welcome back to Power Lunch, everybody. New data from S&P CoreLogic shows record home price growth of 20% plus in March year over year. But that was March.

Since then, new home sales have plunged new home sales, more than 16% in April versus a year ago, pending home sales, were off nearly 4% that same month. And a recent report from Redfin says sellers are cutting prices at the fastest clips in 2019. Realtor.com reports a 9% rise in listings last week versus a year ago. Our next guest says these are all signs the housing market is starting to soften. Lawrence Yun is National Association of Realtors, Chief Economist. Mr. Ewan, welcome. How abrupt was the turn there?

In other words, the March price appreciation numbers were an all-time record, 20% year-over-year in the 20-largest metropolitans. What went off there in April that caused these numbers that we just cited to go the way they did? The price indicators are a lagging indicator. I mean, it's reflecting, you know, the market condition about six months prior. What's happening is that mortgage rate really shot up. 200 basis point move from the early part of the year. Consequently, the lifeblood of the home sales market,

is getting hurt. So pending contracts, as you mentioned, along with new home sales, are now coming down back to the pre-pandemic sales activity after the huge surge of two years. So it's just inevitable that home price appreciation will slow down in the upcoming months. Yeah, I mean, let's talk a little bit about that thing. What was it? Home listings, a 9% rise in listings last week versus a year ago. What does that tell you? Does that tell you that sellers or potential sellers are figuring this market has topped? Well, it's implying that the worst in housing shortage is coming to an end. And it should be viewed as a welcoming news because consumers, they were just chasing after limited inventory. Multiple offers were prevalent, which was the reason for the strong price increases.

But now with more inventory beginning to show up, and maybe some home sellers who were delaying and delaying, when is at good time to list, now they're understanding that days of the fast price gains are over, and consequently now they're considering listing, more inventory showing up on the market. But interestingly, whatever is listed is finding buyers quite swiftly. The days on the market is still very fast,

less than three weeks. That's remarkable, Lawrence. And again, it's borne out by a lot of the anecdotes that I know of personally. So we still have a high proportion of all cash buyers, and yet we're seeing the beginnings of some price cuts, aren't we? How do you think this push and pull is going to play out in the coming months for both the pace of sales and for prices? Well, let's first clarify what the price cut really means. So the home sellers essentially listed their home 20% above last year's price. Now they are reducing it. So the prices could still be up 10% or 15% from one year ago.

But sellers are clearly recognizing that higher interest rate is essentially squeezing away some of the buyers. The multiple offers in some cases are not happening anymore. Homes are maybe sitting on the market, certain homes that are mispriced. So it just means that the sellers need to be very, realistic to the market conditions. We have a shrinking buyer pool because of higher mortgage rates. But now the home sales are retreating back to the pre-pendemic levels. Let's hope that mortgage rate stabilize. And we have the job growth to continue to provide some support or

housing demand. Exactly. It's such a different market from Lawrence, we remember especially speaking to you so much around the housing bubble and crash. And here we are again with another historic market, but a very different one as well. Thanks for joining us today. Thank you. Lawrence Yun of N-A-R. Up next, FinTech not finished. The group having a rough start to the year, but could there be signs of a turnaround? We'll explore that. Plus, debt and stocks. One credit rating agency, warning some major S&P stocks could be downgraded to junk status, the latest when power lunch returns. Welcome back. It's been a rough year for the FinTech stocks. PayPal, a firm, SOFI, and and Robin Hood are all down at least 40%.

But look at how these stocks have bounced off their lows from earlier in May. Since May 12th, a firm has more than doubled. So do they have more room to rebound? Kate Rooney is taking a closer look at these names. Kate? Hey, Kelly, yeah, Wall Street is certainly keeping an eye out for fintech opportunities at these prices.

And there were some big winners in May. We had SOFI. That was the big outperformer for the month, followed by Robin Hood and Affirm. Compare those names to the ARC FinTech Innovation ETF. was down about 10% in the same time frame. If you zoom out a little bit, though, the year-to-date charts, not looking quite as good. A firm seeing the deepest loss is there with about a 70% drop so far this year.

And JMP securities is among those hunting for value right now. The firm ran some screens on more than 100 fintech names looking at cash and cash on the balance sheet, also earnings growth, and then short interest as well. They first looked at cash relative to market cap. top of that list, Root, followed by Robin Hood and backed, JMP, calling this a good starting point for value. It points to companies that could potentially go on offense here with either spending or potential M&A. They also rank the most attractive valuations based on earnings projections, calling out names like Kuro, that's a consumer finance company, nerd wallet, upstart,

lending tree, and rocket. All expected to see double digits earnings expansion despite shares being in the red year to date. And finally, short interest guys. Upstart, lemonade sofi, which I mentioned earlier, backed all on the high end of that list. And if sentiment changes quickly, the shorts may have to come in and cover their position so that can often spark a rally. It might be part of the story there with SOFi. You can see it's about 15% short interest on that stock. Back to you. All right. Thank you very much. Let's get to Sima Modi now for the CNBC News Update. Hey, Seema. Hey, Tyler, here's the update at this hour. Rescures in Nepal, recovering all 22 bodies from the site where a plane crashed on a mountain site on Sunday within 20 minutes of taking off.

All passengers and crew members on board were killed in the crash. Nepal officials recovered the aircraft's black box and are ordering an investigation amid questions over air safety. European Union leaders agreeing on an embargo on Russian crude oil imports that will take full effect by the end of the year. However, Hungary and the Czech Republic, Slovakia as well, securing exemptions for the pipeline, imports. The ban is aiming to halt 90% of Russia's crude imports into the 27-nation block. This marks the toughest sanction yet on Russia and one that took weeks of debating to settle on. A federal jury in Washington found Hillary Clinton campaign lawyer Michael Sousman not guilty on a charge of lying to the FBI. Prosecutors from a special counsel contended that Sousman misrepresented himself to the FBI in 2016

in hopes of orchestrating an October surprise against former President Donald Trump. Guys, back to you. All right, Seema, thank you very much. And ahead on power launch, a crude conflict. The EU agreeing on a partial ban of Russian oil imports, Russia immediately striking back. We will discuss high crude prices and how high they can go. Plus, bowl on the China stocks, Chinese tech and auto names surging as the country shows signs of reopening.

We will discuss in today's three-stock lunch. Welcome back, everybody. 90 minutes left in the trading day. The final 90 minutes of the month. Let's get caught up on the markets across stocks, bonds, commodities, and an oil company CEO who will join us with more on what's going on with prices and what measures could really help to bring them down right now. Quick check on markets shows you the Dow and S&P back into the red today, but way off the lows. The Dow was down 460 earlier on. And we're actually going to see small gains for the month of May for both the Dow and the S&P. It's been difficult to achieve this year. The NASDAQ up 17. points today. Let's move on to Amazon, a big boost to the NASDAQ, up more than 5% with consumer discretionary, the best sector as we seek to close out the month. Starbucks and Nike also up about 3%. Second best sector today, communication services. That's where we find names like Google, up 2.5%. Netflix, higher by 1% Disney, higher as well. Let's turn our attention now to the bond market where yields are rising again after those comments from the Fed's Chris Waller yesterday. Rick Santelli joining us from Chicago. Rick?

Yes, we've definitely seen interest rates firm up. Tens are up about 10 basis points as you look at a one-week chart. And if you open the chart up for the month, we had a low close of 274, which means as we sit, we're up 10 basis points from our lows, and we're down nearly 30 basis points from our May meeting high-yield close on the 6th, which was 313. Now, we want to pay very close attention to notion that we are seeing a bit of steepening in the yield. curve today. And what's really fascinating is, is if you look towards the equity side of the equation, which is getting, you know, very close to a decent month, definitely had a good week, we see that

it is taking its toll on the intensity of how people trade treasury yields in deference to what the Fed will do this year. And Fed Fund futures are about 11 basis points or 11 ticks above their lows for the month of May, which means less Fed. showing up in the marketplace. And you can see it in many different barometers like the HYG, the high yield ETF month to date. It's on pace for a five-week high close. Kelly, back to you. All right, Rick, thank you very much.

And it's been a two-part drama for the oil market today. First, surging higher, then reversing lower midday. Pippa Stevens has the close for us. Pippa? Hey, Kelly, a lot of moving parts. But oil just now falling from its highs after a report from the Wall Street Journal that OPEC is weighing, suspending Russia from its production deal. Now, earlier in the day, oil hit the highest since early March after the EU reached an agreement

to ban the majority of Russian oil and petroleum products. The bloc had been debating this sixth round of sanctions for weeks. A possible oil embargo had been a sticking point given that different countries are more and less dependent on Russia. So this agreement does include some temporary exemptions in order to get this over the finish line. So the ban covers Russian seaborne oil, which is about two-thirds of Europe's Russian in crude imports. Importantly, though, oil imported via pipeline will be allowed for the time being, which will give Hungary and others extra time to find alternatives.

Now, Germany and Poland have also pledged to reduce pipeline imports, meaning that by the end of the year, 90% of Russian oil to Europe will be banned. WTI and Brent both falling from their highs earlier in the day, but still on Pace Kelly for six straight months of gains for the first time in more than a decade. Wow, Pippa. Thank you very much, Pippa, Stephen. So what's next for crude? Our next guest has a unique perspective on energy prices as the leader of the second largest fracking company in North America. Chris Wright is the chairman and CEO of Liberty Energy.

Chris, it's great to have you here. And let me ask something that came up earlier about who can fill the supply needed in the global market. How much more could the U.S. do right now? Well, Kelly, U.S. production is growing, and it certainly can continue to grow, but there's a limit at how fast we can grow right now with tightness in labor markets, equipment, supply chain, and frankly permitting and pipeline and infrastructure and all the things it takes to grow U.S. oil production. Well, that being said, we'd obviously prefer to see it come from here than from other sources that might be less friendly and more complicated. we also have seen the UK moving to do a windfall tax on producers, trying to kind of carve out a way to still incentivize production and then giving the proceeds to low-income households.

Could something like that happen here? There's always the risk of that. Look, in the UK, they're raising taxes on oil and gas production from 40% to 65%. Think of an industry that struggled for five or 10 years, and now they're going to have a good years or maybe a good few years and pay 65% tax rates. That's going to disincentivize more oil and gas production,

which is exactly what the world doesn't need. We need more oil, more natural gas, more refining capacity. So it sounds, Chris, like in your answer to Kelly's first question, you were saying it's not that we don't have the capacity, but we don't have the capacity to refine it, to transport it, to deliver it, to do what needs to be done to get it out of the ground. how long, how many, if everything went well, the permitting, the building, the labor market, supply chain,

if everything went well, how quickly could American supplies come in and blunt the shortages? You know, Tyler, that's of order two years to get a lot of new production out of the United States, two years to build some meaningful infrastructure, but even a messaging that's, that's going to happen, that permits are going to be approved, new pipelines will be built. That'll spur some animal spirits, and you'll see investment in front of that as well. So it's really the question of what's the trajectory of U.S. growth going to be in the next two or three years. It could be strong in response to sober regulatory environments and less threats and resistance to our industry, or it could be more muted. And the quality of life is very different in those two scenarios.

Yeah. So, so the reason why there has not been the kind of investment that we were just, you know, sort of spitballing about there is what? Is that is that boards and shareholders haven't wanted it. They haven't trusted that the demand was going to be there. They didn't want to put money there when they thought, well, it doesn't look like we're going to get the return on investment that we want. So we'd rather pay dividends. We'd rather do buybacks, whatever. Am I anywhere near the truth on that question? No, absolutely. That's one of the two factors for sure. Look, the Shell Revolution has been great for the world, but it's been poor returns in our industry for five or ten years now. And so, Tyler, that's the factor you're speaking to. But there's an additional factor,

which is the ability to build infrastructure, pipelines, to move natural gas, to move oil, to expand refining capacity, and maybe most critically, to expand the U.S. ability, to export natural gas, not just to help Europe in their struggles, but we're in the front edge of a global food crisis because natural gas prices are so expensive that nitrogen fertilizer production is down. All of these things need to come together, not just changing corporate boards,

price mechanisms fixing that problem already. What we need is a sobriety in government policy and regulatory affairs. Fascinating conversation, Chris. Thank you very much. And I, I, I think you really hit a fascinating point. We're going to talk about a lot in the second half of this year. And that is the fertilizer issue and the food security issue that is going to be a worldwide issue for all of us to consider. Chris, thank you. Thank you, Tyler. You bet.

All right. All right. Still to come, the debt pool amid the massive volatility and higher rates. How are stocks with high debt performing? We'll break down the list next. And as we head to break, remember, you can now listen to Power Launch, on the go. Look for us on your favorite podcast app. Follow, listen today. We don't want to hear anything else. Follow, listen today. Welcome back everybody to Power Lunch as interest rates rise.

Companies with high debt levels are coming under new scrutiny. Simomodi is taking a closer look at these highly leveraged names. Sima. Hey Tyler, credit rating agency Fitch says there are few companies with bonds at risk of being downgraded to junk status. Names like Las Vegas Sands, and Nordstrom, what these names have in common is they're sitting on higher levels of debt on average than their peers. Other traveled names that had to take out a lot of debt due to the pandemic, Southwest Airlines, Expedia, host hotels are at moderate risk, according to Fitch. Overall, Paul Hicke at bespoke, says interest rates and the performance of highly leveraged stocks move inversely to each other, which explains why a lot of these names have underperformed in the last

few months. A CNBC analysis of data from S&P Capital IQ shows other names that fit the bill include the cruise lines. Carnival, Royal Caribbean, Norwegian Cruise Line, with a debt-to-equity ratio higher than the sector average, all three stocks you'll see are down about 20% in the past month. But higher debt isn't necessarily scaring all investors away. UBS is out with a new note this morning writing if the cruise lines can turn a profit this summer around peak travel season, they will be able to focus on strengthening their balance sheets. Higher rates are also impacting how much new debt companies are issuing. Take a look at this data.

Just in the last month, only $3.5 billion was raised. That is the slowest pay since 2005 and well below the $45 billion, $47 billion that was raised in May of 2021. So companies are certainly feeling it, guys. It's been a major reset, and we're only just now seeing the fallout. Right. Seema, thanks very much. Simomodi. Silicon reopening positivity. Chinese stocks are climbing as Shanghai moves toward ending its lockdown. This after weeks of declines, we'll take a look at three names in particular.

There they are. And whether you should be cautious or by now. And a quick look at the Dow, which is now moving steadily lower once again. We were briefly positive, as you can see on that tiny chart up there, but we were also down by 460 earlier today. We're down 178 points. We're back in a moment. All righty, folks, time for today's three-stock lunch. We look today at stocks that are getting a lift as China moves to ease COVID restrictions. One of them, JD.com, up 5%, Neo, up 4% after Morgan Stanley said the Chinese EV maker is ready for a rebound. And Estee Lauder, rising almost 2% on a call from Oppenheimer that a recovery in China could help drive growth.

It is a bigly diversified company internationally. Let's bring in Jeff Kilberg, Sanctuary Wealth Management, Chief Investment Officer, and CNBC contributor. Let's start with JD.com, which looks like a very nice vodka gimlin on the rocks there. It does, Tyler. Great to be here. And certainly, we may need any more than three drinks to unpack. But I am cautiously optimistic that China is reopening. Certainly, we are seeing the second largest economy come back as with the lockdowns are abating. But nonetheless, you look at JD. It's about 25% the size of Alibabaabom. I own both names. I want to be a buyer of JD.

But if you think about JD.com, they have a really congruent line to Amazon. If you think about the fulfillment, infrastructure that Amazon has implemented, they have the ability in the same way with that last mile delivery network with their own employees. They're taking a playbook out of the Amazon path.

But if you look at JD specifically, oversold conditions, I want to see you get back above its 50-day movement average at $97, but this really should allow a fairly priced name at a 4P ratio of about 32 times. really move higher. What about Neo?

So Neos are really interesting name. And you look at this, it's been absolutely cream cracker, right? Kelly, down about 47% year-to-date. And even George Soros came in a couple weeks ago, dipped his toe with a mere $100 million. But if you think about Neo, they're really trying to find a solution over in China.

And at the end of the day, they are the top performer in the EV space. They're trying to create a middle-class EV car. And as we see, all the different components that we know, There's supply issues, there's semiconductor issues, there's inflation. All those headwinds maybe starting to abate over there. But again, this is a way for them to really move higher. And if you also look at the way what they have done, they borrowed a page on the playbook of Apple

that they're actually doing a battery as a service subscription. So now you can charge, you can swap. You can even upgrade your battery. So I think that's going to be pretty strategic moving forward as we do see this reopening in China. Let's go to Estee Lauder, which you say is a buy just not yet. It is, Tyler. If you look at the chart, it's kind of been in discovery mode, price discovery, under that 50-day moving average as well as a two-day moving average since the start of year in 2022. So I want to be a buyer once we get back above that 50-day moving average.

An old trading term, we call it buying on a stop. That's a prudent way to get into the stock once you have some confirmation from the technicals. But if you look at, people are going out again. I know we all want a zoom filter. Look at this mug, Tyler. I need a zoom filter everywhere I go. So I know I'm not using S-Dolider products, but a lot of people are embracing the fact that we're going back out. We want to look our best. So I think you do have an opportunity. This is a laggard year-to-date.

So I think it has an opportunity with a 35-times forward PE ratio to really grow. But at the end of the day, I want to be a buyer at this stock tie at 258. At 258, and once it crosses, and that's the 50-day moving average.

Jeff, I assume that's right. I assume that's right. Okay. Jeff, thank you very much. And you do not need any of those products. You look just wonderful. Oh, my dad said I have a face for radio, Ty. All right. We'll get you the right filter on TikTok.

It's all about the selfie positioning. Anyway, up next, Wall Street is set to close out a rocky month of trading again. There are some charts that really tell this month's story. That's next. Welcome back, everybody. We told to you the key levels to watch we would give you. And here they are 32-977. We have to hold this if we want the doubt to be positive for the month.

We are only, Tyler, what is that? 300, no, 50 points higher. Yeah, she said. A few points ahead of where we need to be. But the real message here to me is all the talking that we've been doing this month has led to basically flat. Month to date, 0.15% higher. After all of this Sturmund Dron. Flat is the new up in the kind of year that we've had. But what has been up, let's quickly show you crude oil. This one briefly dropping below $100 a barrel here earlier in the month. It's just been a steady move higher regardless. And interest rates finally have not been a straight move higher. We've actually seen a lot of downside pressure. And as I said before, this one I'm watching.

If this goes back to the upside, I want to know just how well things are going to hold on. We were up above three, well above three earlier, and now back at 2.84. And we got it all in for you, everybody. That's why we do it here on Power Lunch. Thanks for watching today.