Power Lunch - Banking On It, and the State of New Jersey 4/14/23

Episode Date: April 14, 2023

Earnings season just kicked off with a bang. UnitedHealth is dragging on the Dow after results, while JPMorgan is jumping higher. We’ll dig into all of the numbers on the big banks that reported, and get the big picture from a regional bank CEO as well. Plus, NJ Governor Phil Murphy joins on the state of the Garden State’s economy, taxes, the exodus of wealth from the state and more. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody, and welcome to Power Lunch. Alongside Kelly Evans, I'm Tyler Matheson coming up. Earning season, kicking off with a bang. United Health dragging on the Dow. Just talked about that one. But J.P. Morgan, jumping, we will dig into all the numbers. The big banks get the picture from a regional bank CEO as well. Plus, a big interview coming up with New Jersey, Governor Phil Murphy.

We'll get the state of the state's economy and talk taxes, the exodus of the wealthy corporations, and much more. First, let's get a check on the markets, though, as stocks are sluble. fighting and trying to hold on to gains for the week. NASDAX's already given those up, I believe. Dow's down 232 points. Let's go to Dominic Chu now for a quick look at some of the bigger movers. All right. So Tyler, Kelly, we're going to start with a couple of stocks that are the biggest drags on the blue chip Dow Jones Industrial average.

Boeing shares right now far and away, the biggest percentage decliner in the Dow. The aerospace and defense contractor is getting hit hard after it warned that it may have to pause some deliveries of its 737 max model jets due to a potential parts problem. Boeing said the issue would not affect those planes that are already in service. Nonetheless, those shares down 6% right now. The biggest point drag on the Dow comes from the aforementioned from Tyler, United Health Group. After the health insurance giant actually reported better than expected profits and revenues, it even raised its full year guidance. But there are some investor concerns about how future policy changes involving the Medicare Part C

or advantage programs could impact profits down the line. Those concerns leading to a 2.5% drop in United Health, but because it's a $500 stock, a very big waiting in the Dow. And then we'll end with a massive downside move in shares of Cattellant. The worst performing stock in the S&P 500 by a very wide margin, down 26% right now. The contract drug manufacturer lowered its current quarter and full year outlook, given productivity issues and higher than expected costs at some of its manufacturing facilities. It also said that chief financial officer Thomas Castellano has stepped down for reasons

not related to any disagreements with the company, management, or board. But you take those two together, Tyler Kelly, a 26% drop in an S&P 500 company. I'll send things back over to you. All right, thank you very much, Dom. A big morning for bank earnings, setting up a full week ahead next week. Let's go through what we've heard so far. J.P. Morgan, reporting a surge in net interest income, cracking $20 billion and guiding for more than $80 billion this year.

That would be a record. City reporting a 7% rise in loan loss provisions from the prior quarter, just a hair under $2 billion and slightly worse than analysts expected. And Wells Fargo reporting a 13% drop in non-interest income, driven primarily by falls in venture capital, private equity, mortgages, which the bank has been winding down for many quarters now. Now, here you see the stock performance with J.P. Morgan outperforming, followed by City and Wells.

Joining us now for more is Gerard Cassidy, capital markets, head of U.S. bank equity. Mr. Casti, welcome. Good to see you. How do you weigh these bank results that we've gotten so far today? Good, bad, mediocre? What? Yep. No, Tyler, they're very good. When you take a look at J.P. Morgan and City, as well as Wells Fargo, the net interest income numbers were very strong. And that showed up particularly so at J.P. Morgan and City. And the reason being is that their funding costs really didn't go up that much. They went up, don't get me wrong, they went up, but not as bad as maybe some people expected. And their net interest, the earning asset revenues or the yields in the earning assets were better than expected because of greater loans outstanding.

I think it was JP Morgan had a very strong growth in their credit card receivables this quarter, as did the Citigroup. So I think the numbers, as the stocks are showing, are quite good for the big money centers. And coming into this quarter, Tyler, everybody was quite pessimistic for the banks, as you know. I don't know whether my numbers give me the most recently updated target prices from you. But I see what I'm reading is that you have $132 a share target price on J.P. Morgan. It's trading at 138. Are you going to change that? We will have to reassess when we get through our numbers today. We're still working on the numbers.

And clearly the JP Morgan results were better than expected. And so we'll have to reassess all of our earnings today as well as our target prices later on today as well. Okay. What about PNC, Gerard? That one's down about 2 percent, turn lower, gave up its earlier gain, some concerns about that lower loan loss provision, actually, meaning it's a lower quality beat. And maybe that has to go up in the future. And just the fact that the regional banks are in the red is, you know, probably not the reaction we were hoping for after what are perceived to be some of the biggest.

and strongest, turn in the results here. Kelly, it's a good observation that obviously the stock is down, but I would point out that this company in the fourth quarter hitch and sink the loan loss provision, as we like to call it, meaning their provision in the fourth quarter was much greater than all their peers. So even though the provision this quarter, which drove the beat, was lower than the fourth quarter, whereas the other three banks we just mentioned had higher low loss provisions, P&C built up those reserves already. More importantly, I think what you're seeing on the regionals is that the net interest revenue at PNC did not grow as much as expected because the margin pressure due to the

fact that the deposit baiters were higher for them. Whereas the other three big banks, that was not the case. And I think people are reading through and accurately so that the regionals may see higher deposit bators, particularly in the commercial deposit area. Exactly. So what's then the knock on effect from all of that. If they're facing more earnings pressure, what does it mean for stocks? What does it mean for potential, I don't know, consolidation, dealmaking? I mean, what do you think? The dealmaking is a little premature, but I'm with you. I think you've got the right thought. I just think it's going to take longer, meaning, you know, the next two or three years and not in the next six months. And the reason being is that the interest rate marks are still, you know, I think,

an obstacle for more deal activity. But the stocks, to us, following the, the Silicon Valley signature failures sold off very hard. And I think this is somewhat of a overreaction to what P&C has put up there because the banks are still going to report, we believe, positive earnings growth. And credit quality is still very strong. And all four banks showed very strong credit quality today. Now, they're all bracing for the recession or slowdown, which is why they built up the reserves. But generally speaking, credit is very strong at the regional bank level, as well as at the big banks.

All right, Gerard, thanks so much for joining us today. We appreciate it. Thank you. Gerard Cassidy. Woffed Bank also reporting results. That regional bank reporting a Q2 earnings miss and a rise in revenues shares down about 3% today. Headquartered in Seattle, the bank is known for its conservative approach. For more now on the state of banking, let's bring in Brent Beardall, president and CEO of Woffed Bank. By the way, he is only the sixth CEO in the bank's 100-year history. If I've got that right, Brent, welcome back. Good to see you, Kelly. Good morning. Good to see you too. And I think, you know, to say this is to emphasize that your bank has been through plenty of difficult times. What do you say to people after a quarter like this about the variability you continue to expect, the earnings pressure you might face from higher, you know, costs on deposits, and how long this period might last? You know, I'm actually very pleased with this quarter, all things considered. everyone knows what happened to mid-sized banks in the wake of Silicon Valley, especially

West Coast banks. And everybody was wondering what happened to deposits and what would happen to deposit betas. And we were very happy to report that in the month of March, we actually had net deposit inflows of $25 million. For the quarter, we were down just shy of $100 million, but that's less than 1% of total deposits. But I think what you see big picture is that.

deposits are flowing from mid-sized banks to the largest banks. I think J.P. Morgan announced this morning $37 billion of deposit increases and their margin expanded. So for mid-sized banks, we're in a tough position right now because of the perception of the too big to fail banks that they have this implicit guarantee. And customers ask us every day, is our money safe? And I have a great answer, I believe, but the fact that we have to answer that question, it's not a very good position to be in. Let's talk about one of the things that seemed to cripple Silicon Valley Bank, and that was their wrong-footed holdings of longer-term treasuries and mortgage-backed securities. Where are you keeping your excess deposits

and how do you avoid getting tripped by the same kind of wire? Very good question. A reason that they went into those securities is their loan-to-deposit ratio, I believe, was only 42%. So for every one of their deposits, they only had 42 cents of that invested in loans. At Wafed, we're very different. We are a financial intermediary. We don't want to be a net investment player, if you will. So we have over 100% of our deposits are invested in loans. So that's how we've kept from making the same mistake they did. And in fact, we went so far in today's release to say if we included the losses on our Hilda maturity portfolio, what our equity would be and would still be at 10.5% equity to assets.

I think the last time you were on, Brent, you were optimistic or pleased by the loan growth rate that you were experiencing. Are you still? Yeah. In fact, we've had to temper that loan growth in the December quarter. Our loans grew a rate of 22% for the annualized. in the December quarter, we had to bring that down in this quarter to only 6% loan growth. And some of that is happening naturally because of what the Fed is done and our clients pulling back. But that is in reality because of the deposits kind of bind all West Coast banks find themselves in because of what's happened with Silicon Valley Bank.

Brent, where are those demand for loans coming from? Because I was struck by Warren Buffett on our air earlier this week who said that in railroads and in cyclical parts of its businesses, things are actually down. quite substantially. He wasn't super bullish on the economy. So where, and obviously everyone knows about commercial and office real estate being a worry spot, but where are you seeing still quite strong demand for loans where you feel comfortable extending credit? Yeah, you know, I'm a big believer in housing, especially in our eight Western states. We have net in migration. We have a huge under supply of housing. So there's a lot of multifamily coming to the market now. But I think what's

going to happen and so many people are pulling out, then you're going to see a dip in housing. So I believe in multifamily housing is a great category. I think single family housing for rent is another fantastic category. So anything that's shelter-based, we're pretty bullish on right now. Yeah, I think that phone was somebody calling and asking for a mortgage there, Brent. Last year, you announced that I believe it was an acquisition of a California-based bank, which will take you into California. Give us an update on where that, where that, where that deal stands and what you expected to do for you. Yes. No, we're very excited about that deal. That is Luther Burbank Savings in California. They're an $8 billion bank. We announced that deal in early November

last year and we're in the middle of our regulatory application process and I think it's going well to date. But as you know, the regulators are busy with a lot on their plates and bank mergers are heavily scrutinized right now. So we are in the wait and see game in terms of how. We're that goes. But one of the things we did is we hired a commercial banker in California that used to be the CEO of a bank there, Robo Bank, and we're really excited about the prospect of what we can do in California. California, from my perspective, I'm from California, and I've looked at so many banks over the years that have gotten over levered in California. And what Luther Bergbank has shown us is there are some very strong credits available in California. You don't have to over lever. They have a multifamily book that's on average, I think, 52% loaned value. All right, Brent, great as always to see you. Wish our friend Brad Good, a happy belated birthday for us. Brent Beardall of Buffett. Thank you, sir. Great to see you both.

Thank you. All right. Coming up, Walmart continuing to unwind some of its e-commerce acquisitions. Is this a Walmart-specific problem or something bigger? It's not maybe of a post-pendemic phenomenon, people going back to stores. How about that? Plus, New Jersey Governor Phil Murphy about to join us as he tries to get the state's finances in order, and he's making some progress there. We'll ask him how rising interest rates are affecting that task. Power lunch, we'll be right back. Welcome back everybody. I jumped the gun there. Welcome back everybody. Time for today's tech check. Walmart continuing to trim back parts of its e-commerce business, selling direct-to-consumer brand bonobos for $75 million. that's a far car from what it paid for it.

Our retail reporter Melissa Repcoe joins us to discuss why. It's selling Bonobos really at a time that it's been unwinding a lot of these different direct-to-consumer brands. It recently sold Moose Jaw, an outdoor brand, to Dick's sporting goods. And it's really a continuation of some of these DTC brands having a bit of a reality check with their value. And a lot of them are going to things like brick and mortar.

So with Walmart, they really haven't done a whole lot with Bonobos since they bought it years ago. For more than $300 million, and now they're selling it for $75 million. Yes, exactly. A big drop for them. But when I spoke to Walmart yesterday, they were saying that they really found there to be some overlap with their brands. Last year, they had launched a Bonobos extension of the brand in their stores and on their website. And they just thought that it was too similar to what they already carried.

So they're selling it off now. And they're really focusing on the basics of e-commerce rather than the shiny brand. But Bonobos was not merely an e-commerce brand, was it? I mean, I've seen them in Nordstrom. I've seen them in other stores. Yes, Bonobos was one of those names that started out as direct to consumer, but then found it was really hard to operate without locations. So they opened up stores that acted more like showrooms.

A lot of those sales actually happen where people leave without the item and get it shipped to their home. And we should add this is hardly Walmart's only e-commerce fray that didn't quite work out. They shut down Jet.com after paying $3 billion for it. There was a smaller New York centric delivery set. I can't remember the name of it. They've done a jet black. Jet black. Yes.

And they've done a number of these. And I don't know if they finally said enough is enough because the core business actually has done quite well. It's all of these acquisitions that haven't panned out. Exactly. It's worth noting that e-commerce has grown dramatically. And a lot of that came from the pandemic. So in January of 2020, which was right before the pandemic started,

e-commerce drove about 6% of their overall online sales for Walmart US. That's grown to 13% as of this January. But I think Walmart changed its approach. It really started thinking about how it could use some of the fundamentals of its business, like its stores, to lean into faster delivery, fulfilling orders at a lower cost. And again, kind of shifted away from a lot of these companies that it bought under Mark Lorry, Jet.com's leader, he left in 2021. And during that time, a lot of these brands were thought of as the future of e-commerce.

And now it's, you know, they weren't. And what's interesting about this is also putting pressure on Amazon. You know, in his shareholder letter, Andy Jassy, talks about the cost of kind of that last, that fulfillment to the household, if you want to call it that, they need to get better at it. And this competition from the Walmarts and the targets and their model is fascinating. And that same message carryover to Walmarts Investor Day, which was last week, similar to what we're hearing from Amazon, Doug McMillan of Walmart said the focus is really on driving a profitable e-commerce business. And that will come from things like automation, which it's really pushing into, it's all about making money now, not just driving sales higher. And a lot of these DTC brands like Bonobos were known for growing at all costs,

but not necessarily making money. Making money. You can juice the revenues, but at the end of the day, what you want to do is make money. Melissa, thanks. Have a great weekend. Melissa Rep. Thanks, you too. Coming up, a Boeing concern.

The aircraft maker can't seem to get out of its own way. Anytime the company recovers from one issue, it seems to stumble into another. This time, halting deliveries of some 737. We've got the details with Boeing weighing on the Dow today when Power Lunge comes right back. Welcome back to Power Lunch. There you can see the market's about 100 points off the session low, but the Dow is still down half a percent. The NASDAQ, the worst performer, down 610s. United Health and Boeing are one reason why the blue chips are lower, but the S&P broadly is down about 410s, 4128 today.

Let's get more from Bob Bassani. Hi, Bob. We're breaking a nice three-day wind streak here, but it's been very impressive when the Big Money Center banks that are reporting are leading the S&P 500. So J.P. Morgan, Citigroup, leading the S&P. BlackRock, another earning reporter, also leading the S&P 500. Bank of America, also not reporting, but also nice move to the upside. Net interest income, generally very strong, reduced expectations, and they're doing better than those reduced expectations. That could be a template for earnings season that we're seeing.

I think the contrast with the regional banks is very interesting. PNC had very good numbers. I know there's a whole thing about reducing their loan loss reserves. The way I always used to read this, that's a good thing. That means credit quality is getting better. That is generally a good sign. I know I've heard comments today that it's a poor earnings beat when you do that, but I find that a rather strange way to look at things. But nonetheless, you see the regional banks underperforming today.

PNC actually hit a 52-week low on an intraday basis yesterday. And so what's been happening is a widening gulf between the money center banks and the regional banks. at the KBE versus the KRE. The KBE is the overall bank index and is very heavily weighted towards those big money center banks, the JPMorgan's and Bank of America. And the KRE is just the regional banks, the PNCs and the fifth third of the world. And you see that on the orange line below that, those regional banks are notably underperforming now the big money center banks. That's been a trend now for the last couple of weeks. Finally, just on the S&P 500, down day today, but we're in a real up trend. We're up about half a percent. We're also at the highest level since February. And guys,

the important thing here is the rally is broadening out a lot more advancing stocks than declining stocks this week. Back to you. All right, Bob, thank you very much. Let's turn now to bond yields as they are rising today. Rick Santelli is in Chicago for us. Hey, Rick. Hi, Tyler. What a morning. If you looked at import and export prices, they were all lower. Import prices year over year, we're down 4.6% export price year over year, down 4.8. If you monitored retail sales quite strong, excuse me, expectually weak. What was strong was University of Michigan. But here's the big asterisk. If you looked at the one-year inflation rate, and we've talked about this on CNBC for many times throughout the session today, 4.6%. And this is important to watch the forensics

of how the market behaved. Let's go to the whiteboard. Two-year note yields, 8.30 and 10 o'clock Eastern. When we know we have weekday at 8.30, and we saw it pop up a bit. But ultimately, it popped up to around 412. But when the data hit for University of Michigan one-year inflation outlook, we had a higher yield at 413. And if you look at 10-year notes, the spread difference was quite large.

This is significant. Tuesday tends, all the yield curve spreads. Eventually, when the two-year note yields stops, going up as the Fed gets done, there's going to be some big moves. And finally, how did it all pan out? Maybe this is the most important feature of all. The lower it goes, the more Fed it brings in. These were the most responsive contracts at 8.30 and 10 o'clock.

And the fact that it made a much lower pricing at 9551 brings in more Fed really gives us a glimpse of what the market's paying the closest attention to and what may unravel the fastest when the Fed. finally admits it's done, even though much of the equity rally may be in the rear view mirror. Kelly, back to you. All right? That guy in A in penmanship, right? I mean, he grades the Fed auctions.

I give him an A on this. An A for the auctions themselves. Oil closing for the week, Pippa, Stephen's here with the numbers. And this one, Pippa, listen, 50 cents higher on the average price of gasoline since January, and we saw the fallout in that inflation expectations number from the Consumer Center report. Anyhow, I digress. Yeah, well, I don't have a whiteboard like regs. Not quite as engaging.

But a little bit of a muted end to the week here for oil. Still, though, a fourth straight week of gains. And we did get the latest report from the IEA today. And they had some pretty choice words for that surprise cut from OPEC and its allies, which Saudi Arabia, of course, said was a precautionary move. The IEA came out and said, no, no, no, this was all about supporting prices, given the recent weakness we had seen. And so they forecast demand hitting an all-time high above 101 million barrels.

This year, that's global demand. And they said, quote, consumers confronted by inflated prices for basic necessities will now have to spread their budgets even more thinly, and this augurs badly for the economic recovery and growth. And part of that is that we're not seeing a huge uptick in production here in the U.S. We just got the latest recount data down for a third week now at the lowest since June 2022. So a lot of things to watch here as oil and gas earnings kickoff next week. All right. Pippa, thank you very much.

Pippa Stevens. Have a good weekend. Let's get to Bertha Coombs now for a CNBC News update. Bertha. Hey, Tyler. Here's what's happening at this hour. Protesters continue to march in France this evening. Eight major French unions telling media that they refused to accept President Emmanuel Macron's invitation to meet for discussion following the Constitutional Court's approval of Macron's pension reform bill, raising the retirement age to 64.

One union leaders saying they will not meet until the bill is removed. The arraignment hearing of Cashap founder Bob Lee's murder suspect, Nima Momeni has been postponed to Tuesday, April 25th. The 38-year-old tech consultant was arrested and charged yesterday in San Francisco. No bail has been set, and at the moment, he remains in custody. And legendary composer Andrew Lloyd Weber was awarded the Key to New York City today, honoring his contribution to the city. This is Weber's Phantom of the Opera prepares for its final weekend of shows.

I can't believe it's actually coming to an end. It caps off a 35-year run on Broadway. You know, they've tried to close it before. It's sort of like Tom Brady retiring, but they keep bringing it back. I guess this time it's for real. One of the greats of all time. Really one of the great shows. Thanks, Bertha.

Ahead on Power Lunch, check out this video. Protesters storming the headquarters of luxury goods brand LVMH on the day that its CEO Bernard Arnaud became the world's richest person. The growing class war apparent around the world. even in our little tri-state corner here. Higher taxes may be driving wealthy residents from states like New Jersey and New York to other lower tax states. But how significant is the exodus really? We'll speak to New Jersey's Governor Phil Murphy about that and much more next.

Welcome back to Power Lunch, everybody. A big boost for our home state of New Jersey, which got its third credit rating upgrade in five days. Earlier this week, S&P Global Ratings upgraded its rating on New Jersey's general obligation bonds. to A from A minus. This follows an upgrade from Fitches and Moody's as well. Here to discuss the upgrades and the economy and much more is the governor of our state of New Jersey, Phil Murphy. Governor Murphy, welcome. Good to have you with us and good to have you both of the hosts of this show or residents of your state.

Let's start with the upgrades. If my son had many A's as your state does, I wouldn't be so worried about what college he's going to go to. How did you do it? How did you get there? What does it mean for the residents of New Jersey? And then finally, what do rising interest rates mean for the borrowing costs that the state faces? All good questions. And I wish your son, nothing but the best at school. Thank you. Listen, most importantly, this means for residents of our state, we save money, they save money. Period. Now, how do we get here? Jersey way back decades ago was a role model state. It was a AAA bond-rated state. And then both sides of the aisle, by the way, not one party guilty over the other, for several decades, just engaged in irresponsible behavior. Debts were going up, property taxes, were out of control. We didn't make our pension payment on and on and on. And I got elected the first time and got reelected in 21 to basically,

basically fix the state. And I'm not going to pat ourselves on the back. This is a journey, but we have now had six consecutive credit rating upgrades. The prior administration had 11 consecutive downgrades. What's the formula? It's making your pension payments. It's getting a hold of property taxes and making the state more affordable. It is reducing indebtedness, basically becoming again a state that folks trust and find reliable. Again, we're not there yet, but this is a journey and we've made a good amount of progress. We won't rest until those A's keep going north from there. Good.

We will come back to the question of real estate taxes and to income taxes in just a moment. But I'm told that shortly after Silicon Valley Bank failed, you traveled to California to meet with executives out there. whether with Silicon Valley Bank executives or others. Why did you make that trip? Whom did you meet with? And what did you accomplish? Yeah, I actually, Tyler, made the trip before that happened, but it was fresh in our memories.

I was out there. I'm the chair of both the National Governors Association and the Democratic Governors Association. We had a conference for the NGA in Santa Monica. We spent a lot of time with the movie studios. New Jersey is on fire on film and television. And then I went up north. You're absolutely right to meet with venture capitalists and tech startups and companies. That's who New Jersey is. We're an innovation economy. Tech, telecom,

bio, life sciences, pharma, fintech, increasingly, as I mentioned, film, television, digital, offshore wind, green economy. That's who we are and that's what we were out there pitching. Okay. Let's talk a little bit, come back to the question of taxation. As you well know, New Jersey has the third highest income tax rate in the country. It has overall the highest real estate tax rates in the country. I live in Montclair. The taxes there are very, very high, painfully so. What are you able to do and what are you able to say?

You famously said, hey, last fall during the campaign, something on the order of, if the only thing you care about is taxes, maybe New Jersey isn't for you. I'm paraphrasing what I believe you said. How do you think about the level of taxation? How many people, especially wealthy people, are leaving the state of New Jersey? And what effect is that having on inbound revenues? Yeah, these are all very good questions. First of all, we have more millionaires today than we've ever had before.

And that does not mean that we don't take affordability deadly seriously. Frankly, it's job number one. It's our obsession. But the fact of the matter is each state has its own bumper sticker. Some states, you don't pay any income tax or the weather's warm. New Jersey's bumper sticker is the number one state in America to raise a family. And everything we do feeds into that. Number one rated public education system.

Top handful of health care systems of the country. Incredible quality of life, location, et cetera. You add all that up. none of that comes cheap. That does not mean we don't care deeply about affordability. So we back up the truck on property tax relief. We make college accessible. Could you bring the truck to my house, governor? Bring the truck to my house, man. But listen, Tyler, listen, you live in Montclair, affectionately known as the People's Republic of Montclair,

quintessential New Jersey community, one of the most successful communities in America, great school system, great transportation, great quality of life, diversity, everything you'd want raising your family. That's why you're there. Agree. None of that comes free. And so, but that does not mean that we're not obsessed with, you know, we've got something called the Anchor Property Tax Relief Program, which admittedly is means tested, so it doesn't touch everybody in Montclair. But if you make less than $150,000 a year, sort of the median salary in New Jersey, you're saving $1,500 a year on property taxes. That knocks it back sort of to 2011. Even if you make up to a quarter of a million, you're saving $1,000. That probably knocks it back to the middle of the last decade.

So we take all that very, very seriously. But again, you know, when you're the number one state in America to raise a family, a lot goes into that. Governor, it's Kelly here. And Post-pandemic, a lot of New Jerseyans who were there to commute into New York City have really enjoyed spending time at home. And they would love to have a job a little closer to home. They'd love to work in New Jersey, but there aren't a lot of jobs for them. What can you say to those people who would say, hey, I'd love to commute 15 or 20 minutes, not have to take the ferry, not have to pay the whatever it's going to cost, it's go to lower Manhattan, not have to deal with the mass transit system? What are the prospects for there being a higher number of professional white-collar financials, whatever you're going to call it?

I mean, just the corporate base in New Jersey in general, we would all love to see more announcements of companies moving in versus moving out. Well, they are moving in, Kelly. Good to see you, by the way. And there are, listen, these are crazy times, as we all know. Notwithstanding all the myths of people leaving New Jersey, and the last census, New Jersey grew 5.5.5% percent, exactly the median of American states.

And then you know, you both know, because you live here, since the pandemic hit, you had another further influx of folks, either out of New York and Philly or folks who otherwise would have gone to New York and Philly and came to New Jersey. And those folks are still in many respects, as you all know, in a hybrid sort of life. They're commuting some days. They're at home other days. But our unemployment rate is one-tenth of a percent above our all-time low. Companies, in fact, are moving in.

And I just celebrated a very high-end pharmaceutical research company that's headquartering in Princeton, 150 jobs. FISA just opened up its headquarters in Berkeley Heights last year, 3,000 jobs. I was on with a Wall Street firm. Most of the middle and back office of Wall Street with some seriously high-paying jobs are in New Jersey. So again, in the space that we're competitive and we're competitive, large. largely speaking in the innovation space, we are growing. I was with, I'll give you one last example with a guy last night who was building, you're ready for this? The world's, what will be the world's largest movie studio? Who to thunk it? That's going to be in Bayonne, New Jersey.

And it's going to be massive with a lot of really good jobs above and below the line. So we're at it, Kelly. We're not perfect by any means, but we're working on it. Bravo Bayonne. I hope we have time to come back to the legalization of marijuana and how much revenue you're deriving from it. But I do want to ask you about the abortion debate that is so hot right now. Today, Governor DeSantis in Florida signed a legislatively passed a bill that would ban abortions after six weeks. How do you think abortion is going to play out in the 2024 presidential election? How do you think it will affect Governor DeSantis particularly? And third, do you think it is an issue that could tip the election one way or another?

Yeah, I mean, some of that, Tyler, is beyond my pay grade in the sense that my nose is pressed firmly and almost completely on the New Jersey glass. But I can give you one perspective that we live every day. And I say this as an American with a heavy heart. It matters more than ever before where you live and where you work. And it's not just the, we've spent a good amount of time as you should on affordability, and that we're obsessed with that, and we need to continue to be. It's also increasingly values. You know, where is your state on Mitha-Pristone, on abortion generally, on reproductive freedom,

on gun safety, on voting rights, on LGBT-QIA-plus freedoms and rights, on the environment? I could go on, but there's a list, and you all know it as well as I, And we're sort of becoming a patchwork quilt country. I personally think as it relates to electoral politics, it has huge resonance. I say that again with a heavy heart. I wish we weren't in that mode, but I believe it has huge resonance, particularly in a general election. And I think ultimately it catches up to states that think it can push back against freedoms without any limit and expect that there will be no consequences. At a certain point, and I don't know where that breaking point is, the line of people who go to Florida, to pick Florida, because that's the example you used, who go there because they don't pay taxes and they like the weather, at a certain point, that reaches a breaking point.

When you don't have reproductive freedoms, your voting rights are restricted, you're being told what books your kids can or cannot read, what teachers can or cannot teach, subject to felony, by the way, open carry, concealed. carry on, don't say gay, on and on and on, that market is not unending. At a certain point, I believe there's a breaking point in any American state. Governor Murphy, thank you for your time today. We'll hope to have you back. We'll get to the question of marijuana decriminalization, number one, and also my bugaboo, which is, I love New Jersey, but the way it is organized, if you, you're a Goldman guy, you know you would never put up with the way New Jersey is organized around all those little townships, all of which have their own individual school superintendents,

police chiefs, fire chiefs, you'd do something as an investment. Governor Murphy, thank you. Appreciate it. Great to be with you all. Still to come. We have some key movers of the day with stocks still into the lost territory down about half of 1%. Power Lunch will be right back.

Stay with us. Welcome back to Power Lunch, everybody. This morning on Squawk Box, banking analyst Chris Whalen, made some comments about Citigroup, as the company was reporting earnings. After checking some of the numbers, which are complicated, we want to make some clarifications. Waylon said Citigroup's target is a subprime consumer

and has a high default rate five times as high as JP Morgan's on loans. According to Q4 data from the Federal Reserve, that number is not correct. The ratio is about double J.P. Morgan. About an hour ago, Whalen admitted his mistake in a tweet, but also noted that Citigroup's default rate is five times as high. as the large bank peer group. That's also according to the fourth quarter data from the Federal Reserve.

Citigroup has been in touch with CNBC disagreeing with Wayland's assessment. In an email, a spokesperson told us, quote, City does not have a high default rate on the consumer credit book. The spokesman Olson also called incorrect, Wayland's description of the bank as targeted toward subprime consumers. And after the break, today's Restockland. Welcome back, everybody. Time for three-stock lunch to close out this Friday. And we have some of the day's biggest movers to discuss. Gotta start with Boeing. Shares are down nearly 6% as they halted the deliveries of the troubled 737 max model. Also, United Health, both of these companies shaving points off the Dow. UNH down about 3% despite beating Q1 estimates. And of course, rounding things out with JP Morgan up huge after that record Q1 revenue. 7% pop today. Let's get the trade on all of these names with Shelby McFadden. She's an investment analyst. at Motley Fool Asset Management.

Good to see you, Shelby. Let's start with Boeing. What do you do? Absolutely great to be back. When it comes to Boeing, you know, it's going to be a hold for me. And it starts with what you mentioned before, those concerns around the near-term top line impact of those 737 delays. But when we look a little bit deeper into that, we see a little bit more concern about the

quality of the supplier network. There's a big question, is this going to be another transatlantician? issue, how long is this going to last? So understanding that there's only so much that Boeing can do when it comes to ameliorating this issue, I think is definitely reflected in a little bit of the punishment of the stock. There's also the concern for the fact that this affects a substantial proportion of the 737 backlog and 737s being such a large portion of the top line sales. And I would be remiss if I didn't think that there was a little bit of extra punishment in there for the fact that it just sometimes seems to be hit after hit.

And there may be some even long-term buy-and-hold investors that are just getting a little bit fatigued. So we'll kind of see in the coming days if they were overpunished to begin with. But I would say that some, you know, an issue of that severity with their supply to resolve it efficiently and safely is a reason to definitely take a pause and hold, wait and see. Big whale in the news today, and that would be United Health. What do you think here? United Health is also going to be a hold for me. And it's actually a really interesting example of why we want to take a look at not just the earnings print, but also really dig into the fundamentals, really listen to management on those calls,

because they had a really great quarter, beat and raise, and then the stock's down 3%. And it's coming down to something that's affecting the entire industry. And that's going to be those Medicare reimbursement rates. because United Health can't do anything to, you know, control the government and those sorts of decisions, it's, you know, an opportunity for me to say, okay, the fundamentals otherwise look really strong. The business is really strong. They're very competitive. Let me go ahead and hold and see if they can show me that they're going to be best in class while everyone is dealing with this. So, you know, again, it's an opportunity to sit back and say maybe the market will, you know, kind of take the foot off of the neck a little bit over the next few days.

but it just goes to show that there's a lot more significant than just the print. Quick final word on J.P. Morgan. What's it for you, Shelby? J.P. Morgan's a buy for me. And that's because they've delivered on what a lot of us thought would be coming for this quarter following that sort of micro crisis in March for a lot of banks. And what they've done is they've delivered impressive deposit growth. Really robust guidance on net interest income. Their capitalization looks great. And even their credit book is, surprisingly strong compared to what a lot of expectations were in anticipation of any sort of downturn. So they're a great example of strength and management and the advantage of scale.

Yeah. All right, Shelby, good to have you today. Thanks so much. We appreciate it. Shelby McFadder. Great to see you. We just finished the cocktails now. We're going to go to baseball beer and unintended consequences.

That story is under the microscope. Well, the big story of the baseball season so far other than the undefeated Tampa Bay Rays is a 30-minute reduction in game times. This is because of new rules. They got a pitch clock and other things. But the shorter games aren't great for everybody like the beer seller. Dominic Chu is here to explain. Under the microscope for beer sales and who couldn't use one on a Friday afternoon.

But he says 30 minutes, Tyler does. But it's actually closer to 31. So yes, just a little bit longer than what Tyler points out. But the point being that because of those pitch clock changes to enhance the guest experience, you're getting some of that taken away in other parts. Let's take a look at those beer sales because in response to those shorter game times, and in other words, shorter time to enjoy some of those beers and other adult beverages during the course of a game, there are at least four teams in Major League Baseball right now

and possibly more in the offing that have now extended their beer sales beyond certain cutoff points, usually by about the seventh inning stretch or so. If you take a look at the Minnesota Twins, the Arizona Diamondbacks, the Texas Rangers, and the Milwaukee Brewers, maybe no show. shocking there. They have now extended their beer sales times to account for the fact, guys, that there are now shorter times. But I would point this out. So many of these teams are taking this as a fan experience portfolio, especially for Arizona. Earlier in my career, by the way, pre-CNBC, I was asked by my then boss to do a feature on the business of baseball,

and part of it was the beer at Chase Field in Arizona. Five bucks. Great experience. Wow. Fantastic. Dom, to be to continue. Yes. And thank you for watching power line.