Power Lunch - Biden’s Busy Weekend, and Retail Crime Wave 5/19/23

Episode Date: May 19, 2023

President Biden has a busy weekend on deck. Today he’s in Japan meeting with G-7 leaders on Russia, China & more. While halfway across the world, negotiations on the debt ceiling are reportedly stalled ahead of a fast-approaching deadline. We’ll discuss. Plus, retail has a shrink problem. Theft is hitting the bottom line big time, and it’s not kids shoplifting – it’s organized crime. We’ll explore the issue.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Hi, everybody. Welcome to Power Lontz, alongside Contessa Brewer. I'm Tyler Matheson. Welcome for a Friday. Coming up, President Biden's busy weekend, he is in Japan, Hiroshima, meeting with G7 leaders on Russia, China, and more. While halfway across the world, negotiations on the debt ceiling down in Washington reportedly stalling ahead of a fast approaching deadline. Plus, retail's big shrink problem, theft, hitting the bottom line big time, and it's not kids shoplifting stuff. It's organized crime, Contessa. Let's get a check on the markets now, Tyler. As stocks turn lower after those reports about the debt ceiling talks, all three major averages are still posting gains for the week.

But look, we're all off down about a third to almost a half a percent on the Dow Industrial's Foot Locker, the big stock story today losing a quarter of its value. The company cut its outlook and said sales have slowed. It has to provide discounts now to clear inventory. And that's dragging on other sports. apparel names, including Nike, down more than 3%, down almost 4%. Look at Under Armour, down 5% Dick's sporting goods, 6%. VF Corp, down more than 9%, Tyler.

All right, growing tensions here and abroad in focus today. The debt ceiling talks apparently stalling once again. You had to predict there might be a snag with all that positive talk earlier in the week. Maybe not so much. All while global leaders meet at G7 and Hiroshima would have discussed issues surrounding China and Russia and more. Kayla Tauschen covering both of those stories for us. Kayla, let's start with where the debt ceiling talks stand and what may have happened this morning. Well, Tyler, negotiators working toward a deal to raise the debt limit and cut federal spending have hit an impasse. Republicans saying they are pressing pause and accusing the White House of being unreasonable.

The change in heart comes after just yesterday top party leaders both said they were optimistic in agreement could be reached in the next week. House Speaker Kevin McCarthy today suggested the administration hasn't budged on spending levels. Yeah, I mean, yesterday, yesterday I really felt we were at the location where I could see the path. The White House is just, but we can't be spending more money next year. We have to spend less than we spent the year before. It's pretty easy. The White House, meanwhile, sees Republicans as inflexible, saying the President understands the GOP has an issue with its vote count, and it hopes Republicans understand what the administration needs to deliver Democratic votes.

Meanwhile, Treasury Secretary Janet Yellen told bank CEOs in Washington, there was no wiggle room from that June 1st deadline, according to two attendees, doubling down on the so-called ex-state that she's identified as the earliest for a potential default. That deadline now less than two weeks away. Tyler. Kayla, there's a lot of needle, many needles that must be thread in Washington on both sides of the aisle. but let's go across the world to the G7, where the principal topics are Russia and Ukraine and probably to a lesser degree China.

Yes, the leaders of the world's largest economy have been meeting in Japan for the last day and they're going to be meeting throughout the weekend. Of course, Russia and China loom large in those discussions. First, where Russia is concerned, there's a discussion over the war in Ukraine and how to end it. That's been the discussion for the last year, plus. President Volodemir Zelensky is set to appear at the G7 in person. And now we've learned that

there's been an agreement to send F-16 fighter jets from the U.S. and allies to Ukraine in a way that would intensify the fighting and hopefully amp up Ukraine's defensive power. And then there is China. Of course, this summit is taking place in China's backyard. There's a discussion over economic coercion, bolstering domestic supply chains, what they call friend shoring, essentially. essentially moving these supply chains out of places like China and two places like Japan and Europe where they feel that they can more sustainably make products. We expect to learn a little bit more about those efforts when the summit wraps. All right, Kayla, thank you for that. And speaking of China and this sort of inclination or an agreement that the G7 leaders think there should be

less reliance on China and its trade with this communist nation. Let's get over to Yuniou now and get reaction to the G7 there in China. Eunice, hello. Hey, Contessa. Well, China today is accusing the G7 of what it described as coercive diplomacy. The foreign ministry today described the U.S. as the inventor of coercive policy. And earlier this week, the ministry had accused the U.S. and mocked the U.S. for shifting what they described as domestic risks onto the rest of the world.

including it said the debt default. Now, in contrast, China's president has been chairing a summit here in China, which is being billed as an alternative to summits such as the G7. President Xi invited Central Asian leaders here and also pledged to boost trade and security for the region. He also touted what he's described as a Chinese-style modernization as a Chinese-style modernization, as an alternative to the West. And Eunice, while they're dealing with this international front, there are also some reports coming out of China that people are going to social media

and really expressing dissatisfaction with their own financial situation within China. Yeah, absolutely. A lot of people here have been very concerned about the economic conditions and exactly what the future holds for them. There have been several Chinese, especially young Chinese who've been venting their frustration online. In fact, sharing what they describe as bank snapshots or screenshots of their bank statements just to prove how little savings they have. One of the popular hashtags that we've seen online is My Real Savings at 26 years old. This has been viewed 320 million times where people have been saying that they have no job prospects.

They have very little money and that they're falling behind previous generations. Eunice Yun, thank you for the report from China. All right. For more on how China tensions, the Russia-Ukraine conflict and stalling debt ceiling talks will impact the G7 summit. Let's bring in Michael O'Hanlon, a director of research and senior foreign policy fellow at the Brookings Institution. Michael, welcome. Let's start with Ukraine and the news that, as I understood it, the U.S. is willing to train people on F-16 fighters and is raising its objection, in other words, taking it off the table,

to allies sending those planes to Ukraine. Is that what you're hearing? And what level of escalation does that connote? Well, to be honest, and greetings to you as well, to be honest, I only heard it just now on your show. But these things do have to break at a certain moment. And certainly F-16s have been in the conversation for months. would not be at all surprised if we wound up making this next incremental step, which is a way of saying that we're sort of half pregnant with the decision. We are going to start training Ukrainian pilots, but we haven't yet decided whether to send the F-16s. You wouldn't start the training unless you thought there was a very high probability that you might send the F-16s,

which means we don't have any particular strategic argument against it anymore. So I think the airplanes themselves will follow. And as you said, some of our allies are already prepared to do that. I have some doubts as to whether any of this weapons, you know, weapons shipment and training and general beefing up of Ukraine's military is going to help Ukraine decisively win the war this year. Let's go there, Michael, because that's where I want to go, because I read in my note that you feel that the prospect of Ukraine actually, quote, winning and ejecting Russian control in the Donbos, in Crimea, and all of those areas under Russia, is very low. And that maybe within a year's time, maybe sooner, the realists in the room are going to have to

say it is time to negotiate some terms where Ukraine may not get all of its objectives. Yeah, I'm afraid we have to start preparing that conversation. And I hope that conversation is happening quietly at the G7, because it's too soon to start to make that decision, even though it's a decision. distinct possibility. And we know that the U.S. intelligence community agrees with me from the discord leaks, right, and the postings, the illicit postings of earlier this year. But no one can really be sure. And we owe it to Ukraine, I think, to give them a fair chance to take back what they can. And so I wouldn't start publicly doubting their capacity or publicly pressuring them to accept

that Russia may keep Crimea, for example, for some indefinite period. But I think our own strategic debates, at least quietly, inside the administration within the alliance, need to start allowing for that possibility. By the way, it wouldn't necessarily mean that we encourage Ukraine to give Crimea to Russia permanently. It could just be a recognition that it's not going to be settled on a battlefield anytime soon, and it has to sort of be punted until future generations can solve it at the diplomatic table. So there are sort of third options, which may not be very appealing to President Zelensky, but are still better than, you know, trying to pressure Ukraine to give up part of its own sovereign territory. But the point is we have to anticipate this possibility.

The G7 meeting is a good place to begin to do that behind closed doors. Meanwhile, China has remained staunchly sort of in the Russia camp. And it's creating all these complications, Michael, in terms of the tension between the United States and China and the rest of the G7, Russia's one factor is. there. The trade is a factor. And you heard me just mentioned to Eunice that the G7 group has come up with language that basically says, yeah, we need to pull back on our reliance on China trade. In the meantime, China has already said it's not going to attend the G20 meeting next week in this disputed region of Kashmir. It says it shouldn't be in Kashmir. And on top of that, you have the trade official

from China, top trade official, coming to the United States next week for a very rare trade top. Is there hope to ratchet down the tension with this all-important trading partner with the United States? Yes, but I think that it's going to take some work, as you point out, with all these different forces pulling in different directions. I mean, one reassuring thing in the last two weeks, Secretary of State Blinken essentially corrected his own boss, who earlier had rejected the Chinese peace plan for the Ukraine conflict out of hand categorically. just as NATO Secretary General Stoltenberg had done earlier in the spring. I think both Biden and Stoltenberg were wrong. Blinken was correct.

Obviously, Blinken did this after consultation inside the administration. But he basically said there might be something in that Chinese proposal we can work with. There are parts of it we may not like. There are other parts we should try to work with. That's the kind of attitude we've got to have, I think, in dealing with China, rather than just demonizing them or categorically sweeping all of their ideas aside. You mentioned that, yes, they're on Russia's side of the conflict. rhetorically. And yes, they're buying Russian oil and gas, although actually we want them to

because we don't want the world market to be deprived of all that oil and gas. So we're complicit in that ourselves. But anyway, China has not sent weapons to Ukraine. There's some suspicion they might be trying to get some spare parts indirectly to Ukraine through a third party. They have not sent bulky weaponry to Ukraine in the, or to, excuse me, to Russia in this war. And that's a huge, huge decision. They could change it at any point. And I'm not saying it proves they are well-intentioned or good-hearted. It could just be they're afraid of American retaliation and economic sanctions. But we should not paint them as fundamentally adversarial in everything they do. And the last point I would make in terms of whether we're trying to trade with them less, the phrase de-risking

is getting in vogue. And as you know, what that means is don't depend on China for crucial things where they provide 80 or 90 percent of the world's supply. That's a bad problem. place to be because that gives them economic leverage and coercive power over us. But no one's suggesting we should stop trading with China. And I think the United States is still breaking records. That appears to be. Last year was the highest trade ever. And I think that that really is the motivation between what the G7 is saying and reducing the reliance that they want to de-risk the reliance on trade with China. Michael, always fascinating to talk to you. We can talk all afternoon. Hope you'll come back soon. Michael O'Hanlon of the Brookings Institution. In the meantime, Tyler,

you know, as we talk about AI and chatbots, it seems like every hour here on CNBC, China's also in an AI race. And CNBC got a chance to test out Baidu's Ernie bot. Apparently that chatbot is not that chatty. Let's bring back in Eunice, Yun. So you got to play around with it firsthand. Ernie, huh? Yeah, that's right. We got access to China, chat GPT's Chinese rival, Ernie. we found that due to political sensitivity, there are a lot of topics that Ernie can't really talk about. When asked if President Xi Jinping will rule China for life, Ernie Bot declined to answer in Chinese and English, suggesting we start a new conversation while suspending the window that had allowed us to type. We made a general inquiry about President Xi's U.S. policy and got warned to test out the chatbot in a civilized way.

We switched topics to COVID-19, asking where the virus originated from. In English, the response didn't mention China. In Chinese, it had no response, advising to change topics. Ernie had no comment about why the Chinese government abruptly ended its zero COVID policy, but when asked, could compare itself to open AI's chat GPT. Ernie is more suitable for specific tasks, it said, while chat GPT is more general in its ability to understand and generate natural language. Just don't ask what the relationship is between President Xi and the character he's often compared to,

Winnie the Pooh, or risk getting banned. And Ernie's challenges really highlight a main conflict that we're seeing right now within China's technology policy, and that is that the government wants to be an AI leader, but at the same time is worried about the political consequences of these chatbots as well as the information that they produce. So the draft regulations are now under discussion. What we know is that they don't want chatbots to subvert state power. A lot of people within the industry see the wording as quite vague and are concerned about what that potentially could mean for them, as well as the development of the industry.

Okay, but was Ernie any good at, say, formulating a good excuse for calling in sick the next day to work or getting out of a public speaking engagement? Well, I didn't get a chance to ask him a whole or her, a whole lot of questions because we were banned as we were very carefully asking questions. But there were some general questions that it was able to ask. For example, we asked if it could write a poem or a joke about Elon. Musk that Chinese people would find funny. It did talk about Elon Musk, but I have to say the joke wasn't really funny. It was actually a bit incoherent. But he did mention Musk. Let's assume there are no funny jokes about Jishen Ping in there. Well, Eunice, thank you. Ernie, after all, is a Muppet. Anyhow. Coming up, how big of a problem is retail theft? Target flagging shrink in its

quarterly report saying it expects crime fuel losses to jump by a half billion dollars this year. Now, other retailers like Foot Locker are blaming margins on shrinkage. So is this a widespread and serious problem or is Foot Locker just stealing the excuse kicked off by Target? Plus, Deer in the Headwinds. The company reports a big revenue and an earnings beep at the stock takes a turn on concerns over higher inventory and slowing demand. Power Lunch will be right back. Welcome back, everybody. Retail facing a shrinking inventory problem after years of staying mostly silent on the topic of shrink. More retailers are speaking out about the issue, and it's not damaged goods from being held in inventory. Shoplifting or employee theft. It is organized retail crime. Courtney Reagan has the details.

Yeah, this is a really big problem. And I know that we all saw these flashy videos of the smash and grabs that were happening during COVID. That's not exactly what we're talking about. This has been going on for a real real problem. long time. Organized retail crime is often a group of criminals, and you have someone that instructs criminals to go into certain stores and steal certain things. They're stealing items that are easy to resell. So maybe it's not necessarily a high value item. Only 11% of things that are sold are luxury items. Things that can be resold easily on marketplaces, whether it's a Facebook marketplace, whether it's offer up, whether it's a more peer-to-peer site, any of these things are proliferating in their use for honest people,

but it also makes it easier for criminals. Turning stolen goods into cash. So give me some examples of items that you would be stolen. Would it be a toaster oven out of William Sonoma? Would it be what? It could be, believe it or not, it's a lot of personal care items. I don't know if you've noticed at your CVS or your local Walgreens. I'm not picking on them in particular,

but just they have things locked up like toothpaste, like deodorant. There's no serial numbers on those. There are consumable products that we all use a lot of and probably don't really bat an eye when we're ordering them online and they're maybe a little bit less expensive than we might have seen before. And we don't really think about it, but we all might have accidentally bought stolen goods. But what they do is they go, I know, because I was nosy and asked at the drugstore,

why are you locking everything up? And she said that the thieves come in and they will swipe out a whole shelf into a bag. and then walk out. So if you take 30 tubes of toothpaste at $10 a pop, you're walking out with $300 right there, and then you can turn around and who's going to track a tube of toothpaste? Right. You're just not.

For the retailers, there's varying laws about what constitutes a crime that should be prosecuted, how much has to be stolen before that happens. And there's different corporate rules about whether employees are supposed to try to stop the thief from getting. getting away in the first place. These are all really good points. Right. So there are different felony level thresholds for a dollar value of items stolen in different

areas. So the higher the threshold is for something to be a felony, often the more organized retail crime you're going to see in the area. The thieves are smart. If they know it's a felony, if they steal $1,500 worth, they'll go in and they'll still $1,400 worth. And they'll do it more than one time because a lot of the laws aren't cumulative threshold. So you could steal $1,400 worth multiple times.

And then the retailers are saying, hey, employees don't get involved. Hands off. It's dangerous for you in shoppers. I mean, 81% of retailers are reporting somewhat or much more violence associated with organized retail crime than previously. This is really tough. So there is the Inform Act that goes into effect at the end of June. And what this is doing is aiming to police some of these online sites a little more with the

highest volume sellers. The online marketplaces are required to basically track their information, their contact information and disseminate it so that we all have more information from who we're buying these goods from. It is a little bit like a game of whackamoldo, right? They can recreate new accounts. That's one thing that they're doing. There's a lot of technology that's being used in store. There's different AI analytics for where people hide in the store, where people take the most things in the store. There's license plate recognition. There's point of sale technology where certain electronic items, like a drill, or maybe even something like a toothpaste,

or a toothbrush, rather, won't work until it's been scanned across the point of sale. It becomes inoperable if it's stolen. I know that Utah has a law in pawn shops, for instance, that if you take in an electronic good, a new inbox, you have to give them a receipt to prove that you bought it and that you did not steal it and are trying to resell it. Courtney, that's really fascinating. Thank you. Should investors say bullish on lithium or quit it? The largest ever lithium deal was just announced opening the door for more M&A activity across the space.

But then the industry is facing concerns of oversupply and price pressure, actually leading Goldman to downgrade a key player in the space this morning, SQM, at the same time. The lithium ETF, LIT, up for the year. We'll dive more into that space next. Welcome back to Power Lunch Markets, taking a turn, lower intraday as Republicans walk out of debt ceiling talks. For more on how that news is being received. Let's go to Bob Pisani. Hi, Bob. Hello, Contessa. So what is the deal worth a debt ceiling deal? The minute the Republicans walked out, bond yields dropped. They had been going

up for several days. And the S&P, as you saw there, lost about 30 points. Now, remember something. The S&P has been rallying three days in a row. It's moved 100 points. It went from 4,100 to about 4200 on hopes that we'd get that debt ceiling deal done. And then we could just worry about whether the Fed's going to keep raising interest rates. Well, it didn't happen. Now, remember, everybody's looking for an opportunity to sort of lighten up on tech stocks. They keep dominating the market and maybe buying these beaten up cyclical groups like industrials. We were hopeful this morning. Deere looked very good on paper. Then Deere had its conference call late in the morning, talked about inventory buildup and the stock just kind of dropped. And so did the other big

industrial names that were there. So there's not much energy in the industrial. space, in fact, in any of the cyclical space recently. Tech still new highs. All the tech names started at the open at new highs, the big names, you know, meta, alphabet, Apple, broadcom, we're all at new highs. They're flattish now. They've come off of those highs in the day, but they still dominate the overall market here. We were hopeful energy stocks. Maybe we get to move up on oil. That really hasn't happened. We are up today on some of the big energy names, but don't kid yourself. These things have been just flattish for a long, long time. I mean, Devin's a big high beta stock.

That's 40% off of its 52-week highs. That was way back in November of last year, these energy stocks moved up, and they haven't had a lot of energy this year. So what does it mean here? If you look at the S&P, we briefly had a breakout this morning on an intraday basis. Highest levels, you're going all the way back there until August for the S&P 500, but it's very, very tentative. We need broader participation.

Right now, it's big tech, and it's a few defensive names a few consumer staple names. Other than that, cyclicals like energy, like materials, like big global industrials. Nobody seems to want them right now. We can get this debt ceiling deal and then try to figure out what side of the recession we're all going to be on. Guys, back to you. Bob, thank you. Let's get to the bond market in Chicago and Rick Santelli standing by for us.

Now, last week, Rick, you pulled traders and debt ceiling did not seem to be the biggest concern. Is that changing? No, it's not changing. It's the biggest concern for market volatility, but all the traders I talk to, they all seem to say the same thing. Spending and debt levels are unsustainable. There's no way they're going to cut the baby in half without discussing those relevant issues. Look at one-month bills. They are reflecting nervousness as they pop up over five and a half.

Your three-month bill, a little bit more behaved, but still almost at 5.30. And if you look at a two-year, you know, whether it was Powell, whether it was yelling, whether it was debt ceiling, they were all jumbled together. It was kind of hard to tell. It's certainly seen El Palah had a big influence. And if you look at two-year, you can see. Yesterday, they closed at the highest level since May 10th, sideways today. And even at sideways, they're up 27 basis points on the week. And finally, June Fed funds.

That hike is gone. One day, they took it out. Back to you. All right, Rick, thank you very much. Have a good weekend. With EV sales growing, a lithium, a key battery component, has become a hot commodity. And that could lead to consolidation in the industry. Pippa Stevens joins us with more.

Hello, Tyler. Well, mining companies are sitting on a whole lot of cash after last year's surge in commodity prices, and that's fueling a boom in M&A activity, including in the lithium sector. Producers Levant and Alchem just announced their merger in what will become the third largest lithium miner. Now, the deal diversifies the company's assets at a time when everyone is trying to grow output, but it's not that easy, with challenges around permitting as well as long lead times to get new mines online. Chris Berry, who's president of advisory firm House Mountain Partners, said he believes we will see more consolidation in the industry because companies are looking for geographic and geologic diversity, meaning both brine and hard rock operations in different locations. Security of supply is the number one worry.

In addition to the live-in-alcom deal, Giant Albemarle has submitted three unsuccessful bids for Australia-based Liontown just this year. Album Marl is the world's largest lithium producer with SQM and GOM. Fang, also large players. Some of the smaller names in various stages of production include Lithium America's Piedmont Lithium and Ionier, and we will no doubt see more of these deals this year. It's a huge component in every battery in cars and scooters and other things like that. Pippa, thanks very much. Have a great weekend. Still to come. Amid the regional bank crisis, many firms are tightening up their credit and lending standards. For today's working lunch,

we'll look at one company that offers reviews and helps customers find credit cards and more. I'll much to be right back. Welcome back, everybody. Banks tightening their lending standards to shore up their own balance sheets. Even so, consumers still need access to credit to make ends meet, among other things. And today, John Ford brings us up close with a CEO who has a front row seat on this financial crunch. John. Yeah, Tyler, Tim Chen, a CEO of NerdWallet, a company that came public about a year and a half ago. NerdWallet matches users with financial services like credit cards, loans, insurance.

Revenue was up 31% in the most recent quarter, but as banks prepare for possibly tougher times ahead, they're looking to offer fewer loans. And NerdWallet was actually conceived in tough times, though, when Chen lost his Wall Street job and tried to solve what he assumed was a simple problem. I was fired at the end of 2008, and, you know, it was a tough time to be fired. It was very hard to find a new job. I dived in with both feet searching for a new job for the next 18 months while I was also standing up NerdWollet. I didn't really think about NerdWallet as a business at the time. It was really, my sister asked me for help finding a credit card, and I said, let me Google that for you. I thought I'd have a response for her 30 seconds and was just super irritated at what I was seeing out there because I just didn't feel it was trying to be helpful.

I just felt like, you know, it was just people trying to sell stuff, right? And I made it so the company really started off as a spreadsheet for my sister. In 2023, rate hikes have affected the loans business, but inflation has also made waves in Nerdwallet's newer insurance business. Insurers have to redo the math on how their business works as the economy shifts. We've been really investing in a more personalized insurance marketplace. We think we've been taking share there. That being said, the broader macro has been challenging.

Coming out of the pandemic, there was a lot of inflation. So it got more expensive to fix a car, to replace a car, to fix a house, replace a house. And that really put some of the premiums in the wrong spot for these insurers. It took them time to reset some of those prices. So we started to see a tailwind from that in Q1. Going into Q2, there's still some road bumps there that people are running into, and so there's still a little bit of softness. But the general tailwind there should pick up over the next few quarters.

It is a risk story when it comes down to it. Here on CNBC, we talk about equity market risk a lot, but a few layers down from that, financial institutions are recalculating the value of acquiring individual customers and the likelihood that bad times are going to derail consumers' ability to pay for things. Tim Chen gives us an interesting look at how that's playing. How does the company make money? What are there various revenue streams? Well, the financial institutions basically pay them to connect them to the customers.

Yeah. So if they get a lead and they convert that lead, NerdWallet collects as a toll taker. There you go. If I am a user, if I'm me, if I want to use NerdWAT, do I pay anything? No. No. No. I pay nothing. You go on, you know, they know your credit score. They know some things about your profile. If you're shopping for a mortgage, etc. They have that data and use that to connect the buyer and so. In the insurance industry, there's been a big attempt to start to do that. I mean, you see it with travel insurance. I mean, just be very specific with Square Mouse. going in and telling you, if you want a full travel policy, here's what you get, here's what it'll pay, here's what the differences are. And because insurance policies can be so complex, having a platform that helps you navigate that is very valuable. But it also serves, doesn't it, as sort of consumer financial education at the same time? Can indeed. Yeah, that's an area that he's looking to move into, and particularly I bring up AI all the time because we're talking

about AI, that's an opportunity that he sees is to deliver personalized financial advice based on the data they have on you? Is there a conflict there, though? Like, if you, I don't know, if you have American Express sponsoring part of your content, and then you're trying to say, well, American Express is the best choice for you, or do they not do that? Is there a disclaimer? I think what he would say, I'm stretching a little bit here, but I think what he would say

is their advice is going to be based on just the data that they have on what best for you. And then based on that data, they would make several options available to you. Hey, you qualify for these different credit cards and here's what's popular. You make your choice. But if it's more personalized, I think they would say, and other companies like them, credit karma, which is part of Intuit, does much the same thing. If you're more engaged in getting better financial advice, you're going to pay attention. And thus more business will be done. And the companies who bubble up in the results, they don't pay to play. Do they pay for placement? That's a detail. I'm not sure exactly at which points revenue gets made, so I'm going to stay away from that one.

All right, John, thanks. Quick check of the markets here as we had to break. We saw them moving lower, and you can see now the Dow Jones Industrial is off by about three quarters, a third of a percent, rather, and S&P 500 as well, NASDAQ composite down almost half of a percent. And we saw deer surging five percent after crushing second quarter estimates, but reversed lower after a key. comment from the CEO. We'll talk about what it was that spooked investors when Power Lunch returns. Welcome back to Power Lunch. We're watching the markets after that turn lower on news that the debt ceiling talks have cooled. And you can see the Dow is off a third of a percentage point. Let's look at the chairs of deer also turning lower midday after jumping following earnings

results. What is behind this, Simomodi? What happened on the call to make investors turn sour. This has been a fascinating day for those who are invested in the industrial world because Deer reported Contessa a very strong report, a big beat on revenue and profits. It raised its guidance as well. But then the minute the earnings call started, executives referenced that they may be sitting on higher than expected inventory levels. This matters because for the past eight quarters, the story has been that Deer hasn't been able to keep up with demand and that production levels have been very high. So suddenly to say that inventory may be a bit higher than expected, that raised some concerns about the demand story from farmers.

Worth worth pointing out, corn prices, wheat prices have come down from their all-time highs. And the thesis has been, when crop prices stay high, farmers feel more rich, they buy more equipment. So, Deer Seema is seen as an old-school industrial company. Is it that anymore? It is certainly transitioning from that story, Tyler, to becoming more of a tech company. That's one of the reasons it's in Kathy Woods, ARC Innovation, ETF. And what's interesting is that...

In what sense, a tech company? They are... Their tech-enabled farm equipment that helps farmers really increase their return on investment, how much crop that they're producing. They're using, Tyler, artificial intelligence, robotics. That is sort of embedded in their technology portfolio now. And one of the things they're doing is all the Silicon Valley workers

that are being laid off, they're starting to recruit some of them to help them build out their tech practice. So they're opening up offices in Austin, San Francisco, Chicago. And we also spoke to one executive who, told us that many of the workers they spoke to in Silicon Valley, they're happy to leave. Listen in. Our ability to be able to lure them in markets that are certainly to do less expensive than Silicon Valley, such as Chicago and Austin, has also been a really, really great

value proposition. So, Contessa, Google's pain has been, for this point, at least Dearest Gaines. I think that is so fascinating that you could lure tech workers who, you have a culture or their paths up in front of them. They get laid off. And maybe this, or maybe they don't even get laid off, maybe it's just that great of a luring job offer to go to a deer. Where's deer's head?

Are they Maline? Exactly. In Illinois. And doesn't just touch on a broader trend we've been seeing post-pandemic. A lot of millennials and people who live in big cities, they're willing to leave now and go to the suburbs. And if you're getting paid competitively, that's certainly an incentive. Your money goes a lot farther in Moline than it does in.

Thank you, Sima. In San Jose. All right, coming up, the Oracle is doubling down on Oxy, Berkshire Hathaway, upping its stake in Occidental Petroleum to just over 24% of preferred shares. We will trade Occidental and other movers of the day in three-stock lunch. That's next. All right, time for today's three-stock lunch. We've got some movers on the menu today.

First up is Disney after a downgrade at Macquarie from outperformed to neutral. This comes after the company. Scrap plans for its a billion dollar, or roughly so, campus in Florida yesterday. Here to help us with that trade and more, Delano Soporu, New Street Advisor, CEO. Delano, what do you think about Disney? It's a company that doesn't feel particularly welcome in Florida right now. Yeah, it doesn't seem particularly welcome in Florida. And from my standpoint, I think it's one that I've owned for a while.

But right now, it's an opportunity for investors to potentially look at taking profits. If you look at the most recent quarter, the most compelling thing about Disney is looking at Disney Plus and how they were growing that side of the business, DTC. They lost 40 million subscribers, so that's obviously wasn't a good sign, but they did narrow losses in the segments. I think it's pretty clear that they're focused on cuss cutting. As you mentioned, you know, scrapping plans in Florida. There's a $5.5 billion cost reduction plan, which includes taking out some content. And so for me, the true allure of the stock was the growth and it seems to be fading and shifting more towards efficiency and profits.

And I think for investors, that might be time for investors to look at taking to profits or holding, but not potentially buy. right at this time. Next up, we have accidental shares up today after Berkshire Hathaway raised its stake in the company to nearly 25%. If Berkshire Hathaway buys, would you buy two? Normally, I'm just going to be holding, even though Berkshire Hathaway is buying. I'm my standpoint I'm holding. Look, I think, you know, the big thing that I'm seeing is obviously the demand for energy has been down from the highs we saw in 2021. Oil and natural grass prices are really weighing on all other companies. And oxidinal is no different.

The revenue did slip and their earnings fell a lot. But I think if you see the silver lining, if you're looking at the bottom of lower demand in energy and natural gas, and that coming back a bit as we go into summer and the later half of spring, that could boost the stock. And also it's a strong dividend play. And I think that is something that investors could look out to as well. All right.

Let's move on to our last stock, and that is applied materials. Earnings beat second quarter, net sales growing 6%. And stock falling, though, as investors seem unimpressed by the company's outlook, are you? Yeah, no, I think, you know, I am actually impressed by the past performance most recently. The stock did bottom in 2022, and it's on the verge of a potential full reversal, and there's few things that I do like. They did have strong results from my standpoint. Revenues are up, even though margins were contracted slightly, a little bit less than expected. Diversification is what I'm looking at here.

So the semiconductor business is performing strong. The applied global services business side of the business performing strong. The consumer side, the displays, that's the one that's a little bit flat to lower. But the diversification is a little bit offset for them on the other side of the business. And that's where the outlook for me is strong. So I actually like the company and would be buying on this here dip. The market is a little bit lower right now. And everybody says it's because the snag that's been hit in the debt ceiling discussions down in Washington.

Talk us through how to think this one through. and not get all wound up in what are sure to be lots of twists and turns on a path to a deal. Yeah, you know, for me, I think if you look at the prior instances, we have, you know, reached some sort of agreement and abated default. So I think one, investors should stick to their plan here. So on our side, we won. We really liked short-term treasuries just in the short term, in the near-term. We do know that, you know, obviously, tech has performed really, really strong

for us half the year, and it might be time for a rest of the time to take some profits and look into some value plays. You saw what some of the retailers said with consumers kind of looking strong, particularly with Walmart. Those are opportunities for investors to really, really hone in on companies that have a strong outlook,

strong balance sheets, and are still producing profits in a time like this where there is a lot of uncertainty in the market, Tyler. Delano, thank you very much for being with us, as usual again today. We appreciate it, Delano Sapporo. Thank you, Tyler.

Still ahead, a succession race underway at one of America's biggest banks. And the central bank that just raised its benchmark interest rate to 97% that and more when Power Lentz returns. We've got a little more than three minutes left in the program and a bunch more stories that you need to know about as you head into the weekend, let's not waste any time as the clock is ticking. Morgan Stanley, CEO James Gorman, saying he plans to resign from his position

after 13 years within the year, setting off a succession rate, one of Wall Street's top firms. Some candidates include those leading the three main businesses at the bank. Ted Pick, Andy Saperstein, and Dan Simkowitz. Gorman's saying he has no plans to go out like Logan Roy in succession. He infarcted on an airplane. No, no, no, no, don't say it. You didn't know this. Wait, wait, you're about to give me the spoiler, and I haven't seen the rest of the most recent season.

Oh, I'm so sorry. Tyler was about to ruin it for the rest of us. Weeks and weeks and weeks ago. Here's what I want to know. What does the office pool say? Like, you know, inside Morgan Stanley right now, What are the office worker saying? What's the overrunner?

Well, they say the inside might be to Saperstein, who is the head of their wealth management. One of the things that Gorman has done there is turn the company away from more of a trading and eye banking company and more into a steady stream wealth and asset management firm that might argue that the person who runs that business, Saperstein, might have an inside track. Well, 12 months gives us some time to let the drama play out. The U.S., of course, is dealing with interest rates, rise. to 5%. This week, Argentina's central bank raised rates to 97%. Inflation is soaring year-on-year inflation hit 109%. Throughout the country, the stock market is still resilient. It's up 65% this

year. What the leaders of the country say is that there's been such an outflow of investments given the volatile inflation crisis, they're hoping that by raising the rates so high, they actually see some investors coming in and investing in the Argentinian peso. But 97 percent, I mean, you have to just wonder what kind of impact and how long will the effects of this be seen? You live in Argentina, you want to get paid in dollars. That's the only way to really protect yourself, I suppose. Wall Street Journal identifying millions of vehicles featuring airbags linked to a massive safety recall. Last week, the National Highway Traffic Safety Administration demanded a recall of 67 million airbag inflators made by ARC automotive due to concerns that they could burst during a collision and spray metal shrapnel.

Regulators have not yet released a total list or a number of vehicles impacted by the recall, but the journal estimates that the inflators could be in at least 50 different vehicle models across 15 brands. And of course, this would be another recall involving airbags, Takata, of course, and multi-year, across dozens of brands costing millions, maybe billions of dollars. We should say that ARC automotive denies that, too. They say these were really isolated cases and they haven't been able to pinpoint a problem. Meanwhile, Hyundai and Kia have agreed to a $2 million settlement stemming from a rash of car thefts inspired by a TikTok challenge.

Thieves known as the Kia Boys post instructional videos on YouTube and TikTok about how to bypass the vehicle security system using tools as simple as a USB cable. And so they're going to agree to $200 million. About $145 million is going to be set aside for people who actually had their car stolen. But, you know, there were injuries and maybe even deaths that were linked to this as well from people who tried it and got hurt in the process. Yeah, absolutely. Check of the markets here. We're seeing them lower.

Now the Dow Jones is off 80 points or about a quarter of a percent because of those stalled-ted debt talks. Always nice to have you here. Thank you, Tyler. You too. And you all have a nice weekend, too. To tell lunch. Posing bell starts right now.