Power Lunch - Business & Politics Collide, and the Rally Rolls On 6/16/23

Episode Date: June 16, 2023

Business and politics are set collide in China. Bill Gates is meeting with Xi Jinping, ahead of Secretary of State Blinken’s visit to Beijing.While many U.S. business still need China, the U.S. government seems to be increasingly worried. We’ll explore.Plus, the S&P 500 and Nasdaq hit new highs today dating back to April 2022. Now that more than just 7 stocks are participating, can the rally continue? We’ll discuss. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch, everybody. Alongside Kelly Evans, I'm Tyler Matheson. Coming up, we've got business and politics colliding in China. Bill Gates, meeting with President Xi Jinping, a head of Secretary Anthony Blinken's visit there. While many U.S. businesses still need China, the U.S. government seems to be increasingly worried about our relationship with Beijing. Plus, the rally that just won't quit, the S&P 500 and NASDAQ hitting new highs today, dating back to April of last year. Now that more than just seven stocks are participating, can the rally, Kelly, continue? Well, we're getting kind of a lukewarm verdict on that today. We have the Dow and the S&P up fractionally, the NASDAQ lower right now.

But Adobe is among the stocks leading the S&P after its results. It beat estimates on record cloud demand, optimism over its AI offerings. The stock up 2%, but almost 50% this year. The CEO telling our Jim Kramer those AI offerings will make people much more productive. And can Delta hit the Sweet 16? If we hold today's quarter percent gain, it will be the 16th straight day that they're in the green. Remarkable run. They're up 27 percent in a month. Not just them either. Carnival also up more than 20 percent this week, having its best week since November 2020. No real driver this week unless you count analyst optimism on the stock tie.

Kelly, thank you very much. Two major visits to China representing two polls of U.S. China relations. Business on the one hand, politics on the other. The first meeting, Bill Gates, meeting with President, who called him, quote, the first American friend he met this year, although Gates is not the only business, China, to visit the country. Another key meeting this weekend, that of Secretary of State Anthony Blinken. But while corporate America is buddying up to China, tensions with Washington between Washington and Beijing remain high. Here with the details of those visits and some backdrop is Eunice Yunn live from Beijing. Hi, Eunice.

Hey, Tyler. Well, the fact that the president here had to tell Gates that he is the first American friend that President Xi has met in Beijing this year really shows you just how unusual this meeting was in this time of heightened tension. This was the highest level outreach by Chinese leadership to try to repair the relationship, which has been badly damaged with the international business community as well, especially with corporate America in the meeting. President Xi highlighted what he thought was very important for Beijing and something that Beijing needs, and that is technology cooperation with the United States.

Now, that runs counter, of course, though, with the direction that Washington is heading, and that is to curb Chinese access to U.S. technology. Now, Gates's visit here happens to coincide or come just a couple of days ahead of U.S. Secretary of State Anthony Blinken's trip here. He's expected to arrive and have meetings during his trip, which is supposed to be Sunday and Monday. Not a whole lot of detail on who he's going to meet, though the expectation is that he would be meeting with his counterpart, as well as potentially presidency himself. Now, as for exactly what's going to happen, a lot of the expectations on both sides, guys, has been really tamped down. But the hope is that the fact that they're communicating at all and that Blinking is going to show up here could mean that the relationship would be able to move forward.

Eunice, I'm curious a little bit more about the Bill Gates meeting with President Xi. President Xi sounded very open and happy to be, you know, as he put it, meeting this first. American friend. What about all the other corporate leaders who have come through Beijing? Do you think they tried to arrange meetings like this, or is there a reason that he chose Bill Gates as perhaps the first? And do we think there will be more to come? Well, so there's been a lot of speculation as to why he would have this meeting with Bill Gates, as opposed to the other very high-profile names that have come out here, such as Elon Musk, for example, Jamie Diamond, or Tim Cook, for example. But it could be because,

the two have been familiar with each other. They have met in the past. And also, maybe more importantly, Bill Gates was coming out here as a philanthropist. So he was coming out here, not as an executive. So it could have been an easier move by the president. And perhaps, indeed. And we'll see if there is more to follow. Eunice, thank you. As always, we appreciate it, are Eunice Yun. And Bill Gates is just the latest U.S. executive to visit China and to emphasize its importance to American companies. Elon Musk saying the two economies are like conjoined twins, the Starbucks CEO saying there are limitless possibilities in China.

Tim Cook, saying the countries have enjoyed a symbiotic relationship, and Jamie Diamond saying, while trade could decrease, it won't be a decoupling. For more on this complicated political and business relationship, we turn to CNBC contributor Michelle Caruso Cabrera and Patrick Chauvinak. He's economic advisor at Silvercrest Asset Management and a longtime China watcher. Welcome to you both. Michelle, what's the importance of Blinken's trip? Well, Blinken going nearly the same time as Bill Gates is just so emblematic of how deeply intertwined our two countries are economically.

And yet at the same time, we have a deeply troubled relationship diplomatically. And American business isn't a real pickle at this point, because why are they going there? They need the Chinese economy. And yet at the same time, Xi Jinping has been. changing the rules of the road. When American businesses started investing in the 80s and 90s, it was about reducing the role of the Communist Party in the economy. It was about making it easier to do business. Now that Xi Jinping has been in power, it's about increasing the role of the Communist Party, making it much more difficult to do business there. And at the same time,

he's talking about retaking Taiwan, which is why Anthony Blinken is headed over there, because we have this very, very tense moment. If they were to do that, it would lead to a really catastrophic situation. It's a tough situation. Michelle, you have an interesting point about how China is actually helping the Federal Reserve. I want to come back to that. But before I do that, I want to stay on point here with Patrick Chauvonik and ask you the question,

Patrick, if I might. Is Blinken's visit more about making progress with China or just managing conflict with China? A course at Columbia about U.S. China negotiations. And one of the main takeaways was, well, it's nice to have

agreement. A lot of it is about managing conflict. And that's exactly what the focus will be right now. There's been a dramatic decline in the relationship between U.S. and China. It's probably at its worst level since diplomatic relations were opened up, at least at the political or geopolitical level. And they need to bring that out of a spiral. There's been some talk about how, well, this is just sort of a failed effort or a doomed effort by the Biden administration to go back to engagement. I doubt that real constructive engagement is going to come out of that. Neither side is the least interested in budging on some of the things that have been a source of tension.

But the more confrontational a stance we have towards China, the more important it is to have lines of communication open, to avoid misinterpretation, miscommunication, because those are the things that could really cause things to spiral out of control in ways that nobody wants. That is the way it feels to me, that we're talking about managing conflict here. and managing communications lines, which have been so sort of polluted, let me use that word, and that's dangerous.

There's a real concern within the national security establishment in Washington, D.C., about the lack of communication between our two militaries. And when that's not happening, then you can have accidents. This is why Henry Kissinger,

the former Secretary of State, has been banging on about getting the equivalent of a red telephone between the U.S. and China. Other members of the national security establishments say, well, it's called email and cell phone.

The problem is they don't answer. It's really quite concerning. I think that's the basic goal here is to try to make sure that we can communicate. When there's something that happens, we need to be able to talk to each other to avoid accidents and war. Ironically, go ahead, Patrick.

This is taking place after a whole series of canceled meetings. You know, Blinken was supposed to go in February. Then there was the spy balloon episode that made that impossible. Secretary of Defense Austin was supposed to meet with his counterpart in Singapore, that didn't come off. So there is a concern in D.C., at least within the administration, that those lines of communication have been absent. The thing I was going to add also is that the lines of communication that are open seem to be the business world.

Even if it's worse doing business there than it used to be, who's the tail and who's the dog when it comes to American multinationalers, those with business in China? In other words, are we better off if they forge ahead with, you know, expansion there, even when people, like when we talk to Dennis Unkovic, he says he's advising more companies to leave than go into China these days. But do we want them to continue to try to deepen ties, or is that going to be considered, you know, a misfortune choice down the road? That's a very interesting point because these companies are in a difficult situation. You know, there's all the talk in D.C. is all about decoupling, reshoring. Well, you know, some companies can do that. But for a lot of companies, they're in China for the Chinese market. And they get a

lot of revenues from China. And so they can't just disengage in that way. They are concerned about not just the geopolitical risks about the U.S.-China relationship, but also about the business climate in China and how things are turning. Just in the past day or so, AIIB, the infrastructure bank in China, someone, a Canadian who worked for that bank, actually fled Beijing because he was critical of the role of the Communist Party, and he had to sneak out of the country. So there's a lot of concern about the business climate in China, the safety of professionals, foreign professionals working in China, that business leaders try to sort of put a happy face on. So, Michelle, I want to come back to that point I signaled earlier.

The weakness in the Chinese economy has been a good friend to the U.S. Federal Reserve. explain, and should we then be rooting against the Chinese economy to prosper? Well, the weakness in the Chinese economy has obviously helped the Fed, right? Because if we had gotten that post-COVID boom that everybody had talked about, where would commodity-prices? Go away up. Commodity prices would be way up. And the Fed and the ECB would have to be stronger for longer if that had happened, right?

So that's the silver lining there. I think, you know, do we want to root against the Chinese economy? Not necessarily. I think we were all happier when they were what I talked about, reforming the economy so that there was more market forces within that economy. The thing is, free markets can lead to free people. And you have to ask, does the Chinese Communist Party and Xi Jinping want free people? I think the answer is no.

And so you have to start making choices, and you start choosing control over people and the economy instead of allowing for the freedom that led to 50, 15% growth they used to get in the early days. And now they're struggling. Note this. They announced a stimulus yesterday, or they leak it to the Wall Street Journal. And what did commodity prices do?

They yawn. Ten years ago, that would have led to a rally in the U.S. equity market. And that is not the case anymore. That's what makes it so difficult for American businesses trying to figure out how to operate there. Thank you both. We really appreciate it today. Michelle Crusoe, Cabrera, Patrick Chauvinnik, on China. And coming up, Bulls and Bears and Bubbles.

the market seems to be lost somewhere between fantasy land and reality, but it is clear we aren't in Kansas anymore. All signs pointing to a slowdown in the mid to long term. We've been talking about a slowdown for a long time, by the way. Yet right now, after months of recession talks, suddenly the new rallying cry is no recession. Is this all just a bubble growing and setting up for a bigger pop? We'll discuss that next.

But first, as we head to a break, a quick power check on the positive side of the S&P, Corning up 4% getting an upgrade to buy at Citigroup. On the negative side, Humana down nearly 4% after reporting some downbeat guidance and a warning on insurance costs. We'll be right back. All right, welcome back to Power Launch, everybody. It's been a winning week on Wall Street. Investors getting the pause in rate hikes they had hope for as well as encouraging inflation data. Some market milestones made this week, including the S&P, seeing its best performance since March, up about 3%.

It is the fifth positive week in a row and now up more than 26% from the bare market low last October. NASDAQ and Dow also seeing weekly gains, so how much longer will the rally last? Two guys who know, to the minute, to the minute. Ron Insana, he is a CNBC senior analyst and commentator and co-CEO of Contrast Capital Partners, also with us Jack Ablin, Crescent Capitals, founding partner and CIO. Let's talk a little bit about the question that was sort of dangling in the air as we ended the last conversation, and that is the possibility of a recession in the United States. It has been talked about.

Oh, there's that last year. It was not going to be a 2022. There's going to be 2023. First half, 2023. No, no, second half, 23. Now they're saying maybe 24. No, maybe last half of 24. What do you think?

Well, being a yield curve devotee, if you looked at the yield curve, having started its inversion in November, yeah, November of last year, The first month by that math would have been made that we could have entered recession. It could be as late as 15 months later going back on that data since 1968. So the economy is softening to an extent in certain parts. And I've said this before. I don't think you can make any really uniform statements about the state of the economy because there are different silos operating at different speeds in ways that we really haven't seen in quite a while. So, Jack, let me ask you this.

Can you get inflation down to where the Fed wants inflation? to be without crushing housing inflation, rents and house prices. And if you do that, don't you almost by definition have to put a lot of people out of work and cause a recession? Yeah, and there's new study that says not necessarily. There's a Fed study now that says the linkage between wage growth and inflation is not quite as tight as we originally thought. So we may not have to kill the jobs market, for example, in order to quell inflation. I like the trend that's inflation. Look at the relationship between CPI and PBI and CPI's following right along.

Where's PPI year over year? 2.8. You know, it's interesting, but Roger Ferguson wrote an interesting piece that was on LinkedIn, the former Fed Vice Chairman, talking about a relatively arbitrary 2% inflation target for the Fed. When you look, go back to 1960, the average inflation rate annually over that period through 2022 was 3.8%. So whether we should be at 3, whether we should be at 2, whether you could risk one if you drive the economy into recession. I think there's an open question. But going back to 2 is just, okay, you know, why?

We should mention that it took them a very long time even to get, I think there's an economist on Twitter who always talks about this, but it took until in 1995 until we got to target after the inflation that we saw in the 70s. in 80s. So I don't think we should expect. And Jack, maybe you can react to this. I'm not even, does the Fed itself expect to get anywhere close to that target before they know that they can stop hiking? I don't know if they can get to 2%. But I think that just all other things being equal, if the Fed were to just pause right here, I think we can get easily into the threes by year end. And, you know, like Ron said, as we were modeling portfolio inflation growth back before the financial crisis, we routinely use 3%. So I'm not suggesting necessarily the Fed needs to back down and get off that 2% target yet. But I think that we're

navigating our way back there pretty well on our own. And I think we can do it without killing the jobs. Why are equities doing what they're doing, Ron? A couple of reasons. Number one, the soft landing scenario seems to be playing out reasonably well. Earnings estimates are going up now, rather than down. Inflation, as Jack just pointed out, is coming down, and in many ways, coming down pretty aggressively. When you look at six-month annualized rates of inflation, when you look at inflation break-evens, they're all moving back towards 2%. So the markets believe that inflation is now becoming self-correcting. And I think in future months, Steve Leeson brought this up. You know, as some of the stronger numbers roll off from last year and that base effect

disappears, inflation's going to moderate. And then you have the AI boom that's going on right now that's driving, obviously, a handful of stocks significantly higher than NASDA. 100's up 38% year-to-date. That's close to the pace that we saw in 1999 for the NASDAQ itself, when it went up 85% at the height of the Internet bubble. I'm not saying this is a bubble we talked about this last week, but certainly we're starting to discount different things than a horrific recession, inflation that can't be beaten.

And Michelle was right. China's exporting deflation right now, and that's probably a big help in a certain sense. Jack, last word to you. Does this rally, which already has legs as far as I'm concerned, it feels to me like almost a new bull market. Does it continue? I think it does, but I think it's not going to be led necessarily by the seven largest stocks in the S&P. I think we're going to get a broadening. Keep in mind, the average stock in the S&P is flat year to date. And I think the catalyst, Tyler, is going to be once the investors believe the Fed has done, then I think we start to pass the baton to international large caps in Japan, for example, is actually beating the S&P

year to date. So if we see a weaker dollar, we see broadening, and we see non-dollar large caps lead the way higher. It's interesting that given the discontinuity in global economies, Japan's up over 20%, Europe's up about 11% on average, roughly close to the 15% gain in the S&P. So you've seen actually global markets ex-China do quite well. All right, gentlemen, thank you very much. Ron, Jack, thank you. Cumbaya.

Coming up with concerns that household savings could get whittled away amid a slowdown, should investors feel the same when it comes to companies? With less cash, corporations would want to more carefully control their business spending. In today's working lunch, we'll hear from the CEO of one company looking to overhaul, oh yes, the corporate card.

Stay with us. Welcome back to Power Lunch, everybody. The NASDAQ is lower today, but as you know from watching CNBC, we've seen a huge tech rally lately, and the money is following the momentum, more than a billion dollars, of net inflows into technology funds in the latest week. That according to our partners at Track Insight, the QQs up 4% for the week. Other tech ETF seeing similar gains. More information available on the FT Wilshire ETF hub. There you see, the number's pretty impressive, better than 4%.

across the board there. And that's even with some firmness and bond yields. Let's turn to Rick Santelli. With yield, for a second, I was like, wait, is he here? He's here. He's here on this Friday in Chicago. Hi, Rick. Hi, I wish I was there, actually. It's been such an exciting week. And every day we seem to find another nugget that potentially has fed implications. Today, it was the one-year outlook on the University of Michigan sentiment survey. At 3.3 percent, that one-year inflation outlook, was at the lowest level since March of 21, as you see on that chart. And immediately, we've had a response in the marketplace. Look at an intro of twos and tens at the volatility at 10 o'clock Eastern.

Most likely, it changed the course of the day. Even though yields are higher, they're not as high as they would have been. And if we look at the week in general, right now is two sit at 472, Kelly. They're up seven on the day, but they're up a dozen on the week. But if you look at tens at 376, they're up. what, four on the day, but they're only up two on the week. And that is very important to keep in perspective. We've seen more inversions on twos to tens. You can see there right now, minus 95, basically the most inverted. It's been in three months. But we've been there. We've done that. Three months ago was

March open a chart up to 1980, the comp. In March, we're at minus 107. But it's important to understand the horsepower on some of these moves has been on the short maturities. And finally, you know, the Bank of Japan didn't do anything. The European Central Bank did. And what that happened to accomplish is putting that cross-trade spread, Euro versus yen, at a 15-year disadvantage to the Japanese. Kelly, Tyler, back to you. And Tyler, have a very good Father's Day.

And the same to you, Rick. Thank you. Let's get to Kate Rogers now for the CNBC News Update. Hi, Kate. Hi, Kelly. Daniel Alsberg, a former military intelligence contractor who leaked, the Pentagon Papers has died. The Washington Post says Elzeberg died at the age of 92 from pancreatic cancer. The disclosure of the Pentagon Papers deep in the U.S.

divide over the Vietnam War and led to illegal measures by the White House to discredit Ellsberg, forming crimes known as the Watergate scandal that resulted in President Richard Nixon's resignation. The American woman accused of helping to kill her mother during a luxury vacation to Bali nine years ago changed her plea to guilty today. Heather Mack was convicted in Indonesia for helping her then boyfriend murder her mom and stuff her into a suitcase so she could gain access to her $1.5 million trust fund. Mack was set to go to trial in the U.S. in August for conspiracy to commit a murder in a foreign country. She will now be sentenced in December. And President Biden traveled to Connecticut this afternoon to speak at a gun safety summit.

It comes on the one-year anniversary of the passing of the first significant piece of federal gun safety list. legislation in nearly three decades. The law strengthens background checks and helps to get guns out of the hands of people who are deemed to be dangerous. Tyler, back over to you. Kate, thank you very much. And ahead on Power Lunch. There are two paths ahead for regional banks in America. The first, they're survivors who endured the demise of two competitors this year and will come out stronger for it. The second, they are victims of flaws which they in part created and will continue to live in the shadow of that crisis until a serious change is made to the end. industry. In some ways, it all depends on how they deal with new risks emerging in the commercial

space, the lending industry, and the overall economy. We'll discuss that with our friend, the CEO of Valley Bank. Next. Welcome back to Power Lunch. It's been just over three months since the collapse of Silicon Valley Bank sparked a global banking crisis. The KRE Regional Bank ETF down about 19 percent since then. But as the turmoil continues to ease, some of the smaller firms have been able to climb back, including Valley Bank, which is up more than 23% over the past month. For more here, let's bring in Valley Bank CEO Ira Robbins. Ira, welcome back. Good to have you with us. The Wall Street Journal has a regional bank forecast saying, among other things, regional banks face years of trouble. You agree with that or disagree?

I disagree. When I try looking at the events that have transpired, my mind just take a very simplistic approach. How much of what we're dealing with is cyclical and how much of what we're dealing with the structural. When I think of the cyclical issues with regard to the inverted curve, I think to the cyclical issues associated with whether or not we're going into a recession, what the severity of that may actually look like. And then I try to look at some of the structural issues that may be having long-term implications on what's going on from a banking perspective. Structuring the too big to fail and what that does to us and our ability to gather deposits is definitely something we should look at. But more from a broader perspective,

the speed of money today and the movement of that money in relation to the speed of information is something that all banks are going to need to look at, not just the regional banks. Your bank is healthy. Your deposit base is stable. It is diversified. It's in good shape. And your loan reserves are not skyrocketing or anything like that. So why are so many people so worried? Not about you and your bank, but about regional banks. I think it's just natural, once again, going to some of the cyclical issues. I think you look at an inverter curve and my biggest competition today isn't the bank next door. It's the federal government offering $5.50 on treasury rates and that's where a lot of deposits move to. Now, that's just cyclical in

nature. When the curve goes back to a more normalized slope, those deposits will come back on balance sheet. I think once again the concern about what happens going into a recession, a lot of commercial real estate fears, I think those are issues that are definitely impacting valuations when it comes to regional banks today. I mean, if you look at the forward earnings on regional banks, we're only trading at nine times forward earnings today. The S&P is trading at 18 times forward earnings. You go back five years ago, we're sitting right on top of each other. So I think there is a lot of concernation right now with regard to regional banks in general. But once again, I believe those are just really cyclical issues. Ira, I've been excited to talk to you because when I looked through the

list of bidders for SVB, there popped up Valley Bank. Tell us as much as you can about that. Was it a pricing issue? Did they want someone bigger? You know, but, you know, you know, but, you You lost, I mean, would you look at other assets if they come available down the road? Yeah, I think it's a wonderful opportunity for organizations like ours. You know, we've been around for 96 years. We've never had a losing quarter. We've a diversified portfolio, as Tyler was mentioning, our average deposits only $58,000 around $625,000 individual clients.

So we have a wonderful franchise. And I think as we think about what's happening in the space today, if there are banks that are going to be troubled as they continue to move through this, I think, Valleying and other peers like us have a tremendous opportunity to increase franchise value and to increase what our value proposition looks like. So as I mentioned before, we were definitely a bidder on SVB. Unfortunately, it didn't work out, but I think it was a wonderful exercise for all of us. But I have to wonder why you would want it.

I mean, I understand at some price, but maybe even if that price is zero, you take over a bank that's kind of underwater, right, and made a bunch of mortgages at, you know, I don't know, one and a half, two, three percent, has a bunch of securities that are still problematic, even if you, kind of move them, you know, I don't know if you move them back into hold-to- me. You know, explain to me how you would have created value out of an economic franchise that appeared to not have any. I think at the time, a lot of focus and concern was on liquidity across many of banks to, and I think our bid wasn't a very traditional bid. It was an all bid, so it included

every single asset, but we had partnered with a lot of other firms to take many of the assets that we weren't very comfortable with. And I think we do certain things very, very well, and sticking within that footing is very important to us. So as we looked at the SBB bid, we were only taking the assets we were very comfortable with that we had on our portfolio. So it was a much smaller size, I think, than what the entire both looked like.

We had partnered with some tremendous firms to really take down the rest of the assets. Then we would have been left with a tremendous amount of liquidity. And I think as we look at our clients and our ability to really put that money back into place in the markets that we operated, it would have been a tremendous, tremendous win for everyone. You know, you mentioned earlier that the first,

federal government is your depositor competition. In other words, they're paying so much. So how have you retained deposits at roughly the same level in the face of that competition? Have you raised deposit rates substantially to retain those deposits? I think we've had to raise deposit rates just to be competitive with many of our peers and to be competitive with the federal government. I think a lot of people still want to do business with regional banks. I know there's too big to fail on what that impact is.

You know, we've up 16,000 more checking accounts just this quarter alone versus where we were last quarter. People want to bank with regional banks. They like the relationship. They like the ability to serve their clients and to invest back in the communities that we serve. I think it's very difficult today based on where the economic and interest rate environment is. But regional banks are really here to say, you know, unfortunately right now, there's a barbell approach really within the system today. a lot of too many to too big to fail and a lot of the two meant to small that are on the other side of the barbell. There's only handful of regional banks.

And I think there is a real value proposition and we provide a tremendous service to the overall economy. All right. Ira, thanks for joining us today. It's good to see you again. Thanks so much. You have a great day. Ira Robbins with Valley Bank. Still ahead, picking up the pieces.

We'll hear from a fintech player scooping up lots of SVB's former clients and business in the wake of its historic failure. And as we head to break, June is Pride Month, and CNBC is recognizing it all month long. Sharing stories of corporate leaders, here is LaFawn Davis, senior vice president at Indeed. The LGBTQ Plus community is not a monolith. There's lots of letters for lots of reasons. But those letters and identities intersect with race and ethnicity and disabilities. And so really focusing on setting an environment where people feel like they belong, where they feel that safety in being themselves,

that is what companies can do right now to make sure that people can show up as their best sell. There's less talk of meme stocks and crypto these days, but fintech is still a really active area in software, especially for small and medium businesses. Today, John Ford brings us up close with the co-CEO of a startup that offers software-driven options to startups, John. Yeah, Kelly.

Henrique Adubograuss is co-founder and co-CEO at Brex, which started in corporate cars. The companies raised $1.5 billion, has expanded into offering banking and expense management services. Enrique is young, but he's been in business a long time. His entrepreneurial efforts began in his home country of Brazil when he was barely a teenager. While he built his engineering skills, he also met other kid coders online in the time before webcams were popular. And once, a new acquaintance from a message board offered to help him solve a complicated problem. And we went to a messenger and I was like, okay, just do it.

And he did it and he was perfectly. I'm like, how old are you? And he's like, I'm 11. I'm like, there's no way. There's absolutely no way. I'm 13 and, you know, there's no way you're 11. You already know how to be transpilers. Like there's no it.

He's like, I am. I was like, turn on your webcam. Like I don't have one. I'm like from this, you know, remote part of Brazil. Stop line. So I don't know. I stopped talking here because I don't want to deal with lies in the internet. And then years later, we're starting our first company and, you know,

I'm fed him. I co-founder. Who's the best engineer you ever worked? He was like, well, this guy, but he's kind of a lie. He's lying about his age. So I reached out to him and it's like, okay, so now tell me, like, how old are you? He's like, I'm 14. I was like, what? There's no way. So he actually were 11. He became the first engineer in our first company and then came to the U.S. He became first engineer Brex and is still at Fustil this day. Still this day working with him. Okay, the weekend of the SVB collapsed back in March. Henrique worked the phones calling affected startup CEOs trying to arrange emergency credit lines.

to keep their businesses going. His gut sense was that by showing Brex could help them in a moment of need, he would attract deposits to the platform. Now he says that did work. Brex's banking and spend management products recently each hit $100 million in annual revenue. Regional banks today are interested in partnership with Brex, he said, to punch above their weight. So you could still be competitive of the larger banks. We're investing, you know, billions of dollars in IT.

And we're seeing a lot of demand for that. like our Empower product, which we're also announcing crossed over 100 million in revenue, which is our spend management plus card product, which, you know, we replace concur basically, right? Do card expense and travel all in one place from customers, from early startups, all the way to larger ones like DoorDash or Indeed, you know, that are like thousands or even tens of thousands of people. And we've been partnering of some of these banks, you know, around how can we provide what we are good at So that can complement the offering to your clients to be able to be competitive with, I would say, even larger banks.

I know you're just talking to Valley Bank about exactly that and they need technology to help them do it. There are a lot of well-funded startups now tackling spend management and banking. And post-SVB, companies have been more eager to spread their deposits around. So all their eggs are in one basket. And I think in the next couple of years, we're going to get a lot of disruption there. So explain to me again what he does. does, what his company does. Is it like Conquer? Yeah, part of it, the expense, the spend management part is like that. But then they also do

corporate cards, right? So if you're a small business, you can, your employees can have cards and you can have a deal on that. And so rather than... A corporate card to use for my expenses. Yes, exactly. Corporate card are used from my... Yeah. And so... But it's issued by a bank, not by him. Well, he helps the regional banks. He's got the back end so that the regional bank can offer it through Brex. And it's just easy for them that way, rather than having to stand up their own IT. Their own infrastructure. Yeah. Okay. Cool. Yeah, a lot of companies have those now, I guess larger companies who might have them with larger credit providers. And this might be one way to help both the smaller

company and maybe the smaller bank. Just talking to Navan, formerly Trip Actions. They've just launched this capability as well. They're also, you know, late stage close to being able to go public. He just said he doesn't think that SaaS companies are getting the multiple right now that he would like. So you got players like that moving into the space. So, you know, SAPs concur. Watch out because AI is playing a big role here. Now you can rig up AI so that it auto-populates, say, your restaurant expense with the people in your calendar who were, right, guess. So the AI can go and pull that information.

I would like that very much. I have to be better about my calendar invites. I have to be better who I put in my calendar. I am bad. John, thank you. John, great to see you. Happy Father's Day, man. Yeah.

All right, Delta Airlines riding a record 15-day winning streak and just announced it's resuming its dividend. It's suspended it back in March 2020. We're going to trade Delta and some other big movers of the day on three-stock. Time for today's three-stock lunch. First up on today's menu, cybersecurity, Pallo Alto, firm Pallo Alto Networks. It will join the S&P 500 on Monday replacing DISH networks as part of the index is quarterly rebalancing here with our trades. Gina Sanchez, Gina is Lido Advisors' chief market strategist, and a CNBC contributor. Gina, what do you think of Palo Alto networks?

So we love Palo Alto networks. This is one we've owned for a while, and we think if you own it, keep owning it. Now, the challenge with this is that they have had tremendous, I mean, blistering revenue growth. And that is in line with everybody expanding. Most businesses are expanding to the cloud. With the cloud comes the need for cloud security. So you're seeing a lot of names, you know, a lot of these names getting a lot of traction. So, you know, checkpoint, you know, all of the competitors are doing it.

But quite frankly, Palo Alto Networks is just out ahead above the rest. And they have been growing tremendously. And so not surprisingly, their valuation is tremendously high. Well, tremendously high is definitely reflecting both their rally and some others lately. What about SOFI where analysts are saying that's also tremendously high? They're getting downgrades at B of A and Piper Sandler. They're saying the recent rally has run its course, even though they, in the long run, think that student loan moratorium expiring will still be a positive.

Do you like it? So, look, SOFI, I actually am not as positive on SOFI. So far. So far, these are two very different stories. Palo Alto Networks has, you know, the sort of the trends working with them. And this is a secular trend, not, you know, not something that's happening alongside the sort of economic environment. SOFI, on the other hand, they have things going for them against them. You're right that the debt moratorium, the student debt payment moratorium will be a positive for them. It will also spur

their debt holders to potentially refinance into new products. And so all of that is definitely a positive. The negative for them is that as the stress and the banking system really started to ramp up and you saw a lot of small and regional banks pull back on lending, you saw a lot of of personal loans start to kind of roll over to SOFI as a lender. And so that loan book has expanded as we're going into slowdown. So here's what you're gonna figure out over the next six months is how well underwritten were those loans. And that's a question mark right now.

And that's really where the Achilles heel is with that. As that loan book gets bigger, you can have more exposure to the slow, the natural economic slowdown that comes with the economy. All right, let's do a quick thought on our last one, which has been on quite a run in terms of the number of days, consecutive days, it's been higher. Though that looks like that streak might be in jeopardy. Delta Airlines, what do you think? So Delta Airlines has definitely pros and cons. We own Delta Airlines. Part of the reason is that you have seen air travel really finally start to come back.

This one took a while to finally get some action. You know, hotels came back very quickly and on. And so now you're starting to see growth in the air travel space, and Delta is definitely benefiting from that. And the outlook by the CEO is very, very positive. And obviously the summer is their strongest season, just, you know, as a matter of annual seasonality. And so this is all very good.

But most economists are expecting that sometime toward the, you know, sometimes toward the end of summer, beginning of fall, we're going to start to go into a slowdown. So the question is, does this reopening and re-emergence of air travel, how does that square against the slowing in the economy and eventually pull back in spending and pull back in budgets? All right. Gina, before you go, we got to check those stock draft standings. Charlotte Flair, by the way, is leading the way because of her NVIDIA pick and its massive move higher. Gina and WNBA star Diamond to Shields, the dynamic duo, you're in sixth. Remind us, what were your picks?

There we go. PayPal Alphabet? I mean, geez, Alphabet's been a monster. Yeah, absolutely. PayPal has been the laggard. Google has been. We literally picked the best and the worst stock in right now in the 20 stock pick. However, we think that PayPal has a chance of recovering as we get to the end of the recovery, which is right around the time we should finish across the finish line. So this is a marathon, not a sprint. All right. Gina, thanks. We appreciate your time today, Gina, San.

A potential strike could disrupt your home deliveries. Michael Jordan shaking up the NBA and the kids' birthday party staple that's growing popular with grown-ups too. It's all coming up when Power Lunch return. Welcome back. A ton more stories to get through everybody in just three minutes left in the show. So let's get right to it, starting with the latest from the world of Elon Musk. At a tech event in France, he weighed in on a bunch of his projects. On Tesla, he says the company's value is based on them solving autonomy soon. He says Twitter usage is at an all-time high.

brain chip startup Neurlink will do its first human device implantation this year, and he stressed the need for AI regulation. He also had lunch with the only person richer than he is, at least publicly, that we know of LVMH's, Bernard Alnall. I wonder what they talk about when they get together like that. I have to say that I am a bit of a skeptic on autonomous driving. I'm not sure how much people are going to trust those cars. As am I. He's overpressed and under-delivered a lot up on front so far. We shall see. All right, a potential strike that could disrupt the delivery industry. UPS Teamsters overwhelmingly authorize a strike if no deal is reached by August 1st.

The company says it remains confident there won't be a strike this time, but that would certainly be another wrench in the package delivery space. I just watch it because it tells us those wage pressures aren't totally gone yet. The labor market still tight. Michael Jordan is selling his majority stake in the Charlotte Hornets. We don't know the exact numbers on the sale, but we do know he only paid $275 million for his majority stake 13 years ago. The sale now values the team at $3 billion.

I think we can do that math. He's making out pretty good. And he'll keep a minority stake. He's got two people that he's selling it to, Gabe Plotkin and Rick Schnaul, I think. This will leave the four major sports without a black majority owner. All four major U.S. sports. Wow. Hockey baseball, football, basketball.

Wow. All right, the rise of hybrid work leading to increased demand for hotels, sports. suites and connecting rooms, not just adjoining rooms. There's a difference here, folks, as more families and friends opt to travel in larger groups. Hilton says the average monthly booking rates for connecting rooms, jump 10% year over year in the most recent quarter. The difference is the connecting rooms actually have a door between those two rooms so that the kids can be in the next room. And adjoining rooms means that the door, that the room is just next door with no connecting rooms. I've been in plenty of hotel rooms that have the connection. You just got to

sure it's locked. Yes, you do. From both sides. From both sides. Yeah. But by the way, hotel stocks have actually been kind of weak lately. It's something to watch. For all this talk about, the airlines are taking off the cruise lines, not the hotels are sitting at. Here's my favorite story. You read it. I don't really. Bouncy houses are big business for kids. I can't. Every weekend I met him like four times for birthday parties. I really am. But apparently adults won it on the fun. I'm not one of these adults. No. Street Journal says the year they're becoming more and more popular with grown-ups, common at birthdays, weddings, and even company outings. I can't imagine. And the article talked about people having a couple of beers and then going in

and jumping and bouncing around. Maybe if you gave the two of us a couple of drinks. Oh, my God. I can't imagine anything more just. I don't want to bounce around in any. No. Oh, my back, my legs. Thanks for watching, follow much. Have a great Father's Day.