Power Lunch - China’s bounce back, and Waning Confidence 11/29/22

Episode Date: November 29, 2022

China-related stocks and commodities are rallying today, from steel, to oil, copper and more. This despite ongoing protests in the country. But how much exposure to China is too much for investors? We’ll debate. Plus, the head of the Conference Board joins us to discuss inflation, rate hikes and the challenges they pose to growth as we head into the new year. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch. I'm Sima Modi. Here's what's ahead. The bounce back. China-related stocks and commodities rally from steel to oil to copper and emerging markets. This despite the ongoing protest. But how much exposure to that country should you have in your portfolio? We will discuss. Plus waning confidence, the outlook gloomy, the likelihood of a recession elevated the head of the conference board. He's here to discuss inflation, rising rates, and in challenges they pose to growth heading into the new. year. Brian? All right, Seema, thank you very much. Well, overall, stocks there are lower for a second day. The Dow, the SP, and the net. Well, you know what? I said it and it's wrong. I'm sorry, America. The Dow is now actually up by five one hundredths of a percent. We are in the green

one of the major indexes. The other ones are coming back as well. And it looks like the SEPs about ready to turn positive as well. Energy inside the market, the best performing sector, led by Halliburton, APA, Katera and others. Apple, company we just talked about, among the most volatile stocks, session on concerns over reduced iPhone shipments due to the protests in China. I think maybe we should be more focused on the human stuff in China than iPhone shipments. Seema, but hey, it's a business story. No, it's a great point. Brian, speaking of China, a big rebound in the country today as investors bet on a further loosening of COVID restrictions. Take a look at the Hangsang. This is Hong Kong's stock index rising more than 5%. The Shanghai, the Shenzhen, up over 2%. Chinese-related ETFs, getting a lift

as well. There's the K-Web ETF up 6%. And then China's large-cap FXI up 5% with names like JD.com, Ali Baba, Pin Duo Duo, which came out with better than expected earnings all surging at this hour. The momentum ripping through global markets, steel,

copper, emerging markets, all higher as well. So how much exposure to China should investors have and how much is too much? Joining us now is Patrick Chavonic, Economic Advisor at Civil Crest Asset Management. Patrick, good afternoon. Good afternoon.

So the resilience we're seeing in Chinese tech today and yesterday, despite the growing protests on the mainland. Does that tell you investors are looking past the protests and are sort of banking on a reopening in the economy? Well, they've been hoping for that for some time. And I think one of the reasons why you have a lot of people rooting for a comeback in China is that China is an important part of many indices, many global indices. And so, you know, investors have to justify why they are underweight on China if that's what they are. So they'd like to see China come back. But China's dealing with a whole host of issues that go well beyond the protests over COVID that raise some real risk factors that people need to be aware of. Yeah, I see here that you're pretty bearish on China.

So I guess the question is, what would it take for you to have more confidence in putting more money to work in China? Is it rising vaccination levels? I was just looking at the latest data. 32% of China's citizens who are above the age of 60 have not received their third vaccine dose. And that number jumps to 60% for Chinese over the age of 80. Well, you know, I wouldn't say I'm bearish on China, but I've been critical of China for a long time in terms of being conscious of risk. You know, you go back a couple of years. And there was a feeling among most investors that, hey, a rising tide lifts all boats,

China's growing. The risks that people mention are kind of negligible or they just haven't realized themselves. But things have really changed on a corporate level, on an investment level, on a corporate level, you know, all the consultants who I knew back in China when I was there who were advising companies on how to increase their access to China are now, they've changed a business model and they're all advising them how to limit their China exposure. On the investment side, You know, it's not just there's the threat of lockdowns, obviously, the protests that have arisen from that. But there's also the overall direction that China's taking under C, which is much more closed. You know, Patrick, hey, sorry to jump in. It's Brian Sullivan.

And, you know, a number of years ago, not that many years ago, we kind of wanted to invest in China because we felt like they were opening up. They were, they were maybe coming a little more toward the West. Capitalism was kind of creeping in. Now it appears that they're going the other way. I mean, human rights abuses, work camps, what we're seeing with COVID, sort of these inhumane treatments. And is there a question here about even if there were a lot of money to be made, should we invest in a country like China until their government changes its course? For me, I view it as why would I want to invest there when I feel like I'm just going to be helping them do bad things? Okay, so from a practical point of view, you know, you raise some moral questions, which you can ask about many different,

markets around the world. But from a practical point of view, a lot of these issues have raised tensions, both from activists, but with the U.S. government and with the West in general, the prospect of sanctions, whether it be about Hong Kong or about Xinjiang or any number of things, that have to be on an investor's radar screen. And if they're not asking the question, what if, what if this happens, what if there's a real conflict over Taiwan? What if a number of sanctions affect the tech sector or other sectors. If they're not asking that question, what if, then they're asking for trouble. Yeah, hearing these risks, it's very convenient for people to say, well, then these companies,

they just have to diversify away from China. But you know what, it costs a lot of money. And countries like Vietnam and India, which are doing all they can to really ramp up their manufacturing capacity, they're still short of highly skilled labor. And that's one of the reasons big companies like Apple, right, can continue to diversify. Well, you know, people have been saying that for some time, and you're right, there hasn't been a movement away. You know, there was China plus one. Everybody talked about China plus one, and they looked around and said, well, I don't really like the plus one option. So I'm just going to stay in China. But I think COVID has really dramatically changed that and the lockdowns and the drift away in terms of U.S. China tensions has made it so that that's something that companies can no longer ignore.

And I don't think that the fact that these protests are taking place right after the party Congress, I don't think is a coincidence because up until then you could kind of tell yourself a story that, well, maybe things will change. But I think even within China, there's a feeling like the party Congress just slammed the door and there's not going to be a lot of change in China's direction for the foreseeable future. And that's weighing heavily on a lot of people's minds. Yeah. And I was reading the tea leaves in the meantime.

Patrick, thanks for your expertise today. Appreciate it. Patrick Javanek. All right. In the meantime, as we showed you at the top of the show, stocks overall are mixed. The Dow has actually gone positive again. The S&P and NASDAQ is still a bit lower here, but let's talk about the overall markets and whether or not there may be a silver lining forming. Our next guest points out that despite the four biggest U.S. stocks underperforming since the end of September, the S&P 500 is up nearly 9%.

He says, that is a good sign that a bottom may indeed, a longer term bottom may be forming and it's bullish for stocks overall. For more, let's welcome. And Chris Grosanti is the chief equity strategist at MAI Capital Management. And we'll call it a Jennifer Lawrence market. Chris, give us the silver linings playbook. Sure, you got it, Brian. Well, you know, I'm not pounding the table on stocks here, but I think you can make a good case

that we're in a bottoming process around those September lows. And you've got the four biggest stocks in the country, Apple, Microsoft, Google, Amazon. They've done pretty poorly since September 30. The best is Apple up 4 percent. Amazon's course is down almost 20 percent. So yet the market's up 11 percent. So I like to say the market is hurting in all the right places. So we are seeing the market leaders for the last five years finally take it on the chin

while at the same time the market goes up. That's a good sign. Moreover, under the radar screen, there's lots of industries and sectors that hit lows months ago and have been building on that. The auto stocks hit a low in July, the housing stocks, you know, the perennial whipping boy, they hit a low in June. And when mortgage rates were 2% lower than they are now, and they're up about 10, 15% since then. So it looks like a healthy, bottoming process that we're observing. So far, so good. So then where would you be looking for opportunity? Clearly, some nice moves in certain sectors in the month of November.

The S&P 500 has gained about 10% since the low we hit on October 12th. Where else do you think there could be gains going into December? Well, you know, today, CMA, I brought with us two iconic companies that are right in the middle, just in the last few weeks, are switching their focus from, you know, growth at all costs, to focusing on profitability for a change. And then those are, these are widely owned companies. One's Amazon. Amazon doesn't have a competition problem.

They have a cost problem. It's just spending way too much money. So again, in the last month, they have started layoffs. They're cutting streaming content. They're canceling expansions. If they can continue to slowly grow the revenues, the sales, which I think they can, and just cut these expenses, boy, profit can really explode, I think, higher than investors' expect. The second company is Disney. So there's no better entertainment assets anywhere than Disney.

Yesterday, the news slash old CEO, Bob Eiger, said that he would now focus much more on profitability of the streaming rather than subscriber growth. That's what investors like us have been dying to hear. So both of these stocks are down about 50% from their highs a year ago. And I think their fertile long-term investment opportunities. On this radar, we have the core PCE deflator on Thursday. And before that, we have Powell speaking tomorrow, followed by the jobs report on Friday. What would you say is most pivotal to investors going into this week, Chris? Well, if I could know the answer to one question, Seema, it would be how high is the Fed funds rate going to get?

And right now, consensus is about five to five in a quarter. And I think the Fed thinks about that also. And if that's true, we're two to three. three rate hikes away from being at the top. And so if we have a base forming, like I mentioned, if we have the end of rate hikes approaching, and investors remain pretty pessimistic like they are now, that seems like a pretty decent environment for equities, especially if I'm kind of a lonely guy saying that. So that makes me feel good. That's it for me. Chris Cresonti, we're going to leave it there. We like it. We got the Disney in there with the new old CEO. Chris, thank you very much. Chat with you

soon. Thanks. Coming up here on Power Lunch, Generax competition is intensifying, and it's coming from an unusual place. Your car, the stock on pace for its fourth monthly loss in a row. We'll speak to the analyst who says it is time to sell. Plus is Cash King in this market. We're going to trade three stocks in three very different sectors

with strong cash balances to see which could be a buy. And as we had to break, a look at shares of Carnival Cruise Line popping here. revealing that Cyber Monday bookings were up 50% from the same day in 2019. More Power Lunch. Straight ahead. All right, welcome back. Let's talk Power.

Not Power Lunch, but actual power. Shares of Generac are on pace for a fourth consecutive down month off about 70% this year. Now, Jeffrey's downgrading the stock to an underperform today and for a really interesting reason. They are citing rising potential competition from EV biode directional charging. What the heck is that? All right. It's effectively using your car, your electric car, to charge back into your home. Surrey Boroditsky is the analyst behind that call and joins us now.

It's an interesting concept, Surrey. But I guess the pushback I would give you would be if I use my F-150 lightning or Rivian or whatever it is to put power back into my home because a tree knocked out of power line, then I kill my car effectively. So there seems to be some way you're losing, you're losing power nonetheless, are you not? Yes, thank you for having me. Look, I think you're right. I think there will be some cases where you still need a generator, like if you live in a remote area.

However, the average power out is only eight hours. So you could essentially power your house and still have extra if you do have that F-150, which does allow you to power your house for up to three days. Another example, you could power your house. You could drive where there is power. charge it up and come back. So I think there are a lot of use cases for bi-directional charging, which is going to limit penetration for generators over the long term. Go ahead. No, I was going to say, let me follow very quickly. So we thank you, Seema, which is the, you know,

when we talk to Generac, they'll say, hey, we're getting into, we're like Tesla. We've got the battery packs on the walls. I mean, they're kind of getting also into, if not the EV space, at least sort of on the fringe of it, like a Tesla, that's been the bull case. It doesn't sound Like that's enough to convince you to not downgrade the stock. No, look, 60% of their sales are from home standby. They have 75% market share. It's a very good business for them. You're right.

They've spent over a billion dollars on acquisitions in the clean tech space. However, there's a lot of competition there. As you mentioned, you have Tesla, you have Google Nest. So it's just not clear who the winners are going to be in clean tech at the moment. We saw sales at Jennerat grow by 50% last year. How fast do you think EVs can start to hit the sales of this company? Is it a fourth quarter hit or are we talking a year from now? No, listen, I think this is going to take time.

We ran an analysis that's suggested by, you know, 2037. You should have enough battery power on the road to power every single U.S. household for one day. But, you know, it's going to take time. I think in the near term, you're going to see negative earnings revisions, you know, just from, you know, over-earning over the last. few years on housing and work from home trends. So this is, this bi-directional charging is more of a question on terminal value than near-termering. There's also some talk about rising inventory levels of these generators. Why do you think that is? Is that tied to the economy? Look, I think you had a

period of time. We've had a very strong housing market. You had work from home trends. They increased their capacity. So they shipped a lot of inventory into the field. And what you're seeing now is some lower orders and having to work through that inventory. They came into the year with a billion dollars of backlog, and that's going to be largely depleted by the end of the year. So you're going to have a lower starting point as you enter 2023. All right. Suri-Bor-Woditsky, interesting call there on Jeffries, or Generax, but a tough, tough year. But really interesting theory there, the bio-dictority.

I think this is the first time we've said biodirectional charging on the network today, and I'm proud of that. Probably not the last. Not the last. And visually speaking, I like the idea of a Ford 150 pickup, actually powering a home. I mean, one day. This segment brought to you by Ford. You know how I know it's not the last time we say biode directional charging?

Biodirectional charging. There we go. All right. Up next is Seema reading this tease. The blockchain. It was supposed to be at the forefront of technological innovation, but now it's home to a growing number of mega frauds, with some estimates pointing to more than 4.4 billion in alleged scams this year.

Plus, green-backed buys. We're going to take a look at some names rolling in cash and trade them in today's three. stock lunch. Welcome back. Cryptocurrency investors have lost billions over the last year in declining asset values and in several high-profile collapses. Add to that,

several mega fraud cases, stealing even more. On that note, Amon Javers, excuse me, joins us with the latest on this story. It just gets worse and worse when it comes to crypto, Amon. Yeah, that's absolutely right, Seema. The crypto analytics firm, TRM Labs, tells CNBC exclusively that it has identified

seven fraud schemes operating on the blockchain that have each taken in at least $100 million just so far this year. Now, the largest alleged fraud that they're spotting here has taken in an astonishing $700 million so far this year. There you see, entity one on the left-hand side of your screen. The small list is taken in just over $100 million. TRM says investors or others have sent as much as $4.4 billion to this group and a handful of more widely identified frauds that exist right now on the blockchain.

So some of the fraudulent investment opportunities, they say, advertised returns as high as 2% per day. And in many cases, TRM says the investors into these crypto schemes may not yet know that they've been taken advantage of, and many of them may not be able to get their money back. The firm says it identified these entities as frauds based on a number of indicators, including advertised returns above a realistic threshold, advertised source of profits, pyramid-like referral structures, purported operators of the scheme, and also the website's own. metadata. Now, TRM Lab says it's not naming these organizations that are behind the alleged frauds so as not to interfere with ongoing investigations. The firm says it has communicated what it's seeing to law enforcement. And as for the people who invested in these schemes, there's just no telling how long it will take for them to see their money back if they ever do see them.

And the question is, you know, what are lawmakers doing about this? Clearly not enough if we're continuing to see more fraud year over year. Yeah, absolutely. There's a lot of interest in crypto on Capitol Hill, both from a regulatory perspective, but also seem, frankly, from a fundraising perspective over the past couple of years. Crypto is seen as the big new money bags come into Washington, an opportunity to raise a lot of money, so a lot of lawmakers are looking at it as a fundraising opportunity, as much as a regulating opportunity. Now we'll see sort of where everything shakes out at in the wake of FTX.

I think that dynamic might be changing pretty dynamically here in the next couple weeks. Yeah, I think it's safe to say that will be the case. Amon Javers, thank you. Appreciate it. You know, you wonder when we're actually going to get an update on FTX. Right. Where is he? What's going to happen?

Where are we in the process? It's just gone almost completely silent. I believe he's speaking to our co-worker, Andrew Ross-Lorkin. At the deal book conference. But I mean, from an authority's perspective, you think we're going to get an update. Every day, we should get some kind of an update. Right. But because it's related to crypto, you think we're not getting that type of transparency.

Hundreds of thousands or more than a million people, including some small investors, that are out of money. Right. And every day, where's my money or at least can I get an update on my money? If you're out there, regulators, let us know something. All right, Bertha Coom's going to let us know something. She's got a CBC News update. Bertha. Hey, Brian, here's what's happening at this hour.

Within the last hour, the White House said President Biden is confident that there will not be a nationwide freight railroad strike next month. After meeting with Biden today, congressional leaders from both parties are saying both chambers will move quickly to impose a settlement. The unions say Washington's intervention would sicken, infuriate, and disenfranchise railroad workers. A survey of last week's Walmart shooting, or survivor rather, of last week's Walmart shooting, is suing the retailer for $50 million. The store worker's suit accuses Walmart of continuing to employ the shooter as a supervisor, even though he, quote, had known propensities for violence, threats, and strange behavior. And British royals are coming to America.

Prince William and his wife Kate will attend an award ceremony tomorrow in Boston. A few days later, Prince Harry and his wife, Megan, will make a high-profile appearance in New York. Reuters says the British press will be comparing the U.S. popularity of the two brothers after they're falling out. Meantime, Prince William has to mop up being very enthusiastic about rooting for England and getting grief because he, is the Prince of Wales. And right now, Wales and England, and by the way, nobody tell us the scores. USA is playing as

well, but the other game is England versus Wales. So how do you birth a route against... If you're rooting for England, you're also rooting against Wales. You hope for a tie? I think he was trying to just sort of say, hey, we're all behind you, but the folks in Wales were

saying, wait a minute, what about us? It gets tough when you're talking about football, soccer. People are very passionate. Well said. No, you're right. Yeah. By the way, popularity contest, it's hands down going to be Prince Harry and Megan over Prince William and Kate. Don't you think? They just had they have that star power. What? Yeah. In a good way or bad? A reverse popularity contest? I'm just saying if you were to rank over Kate Middleton? Over Kate Middleton? By the way, used to date one of our former colleagues

before she got married. Good to know. Did not know that. Did a little marks. Ah. I'm sure he appreciates that you just share that. I think it's public all over the dinner thing. Good to know. Random but interesting. All right, ahead on Power Lunch. The consumer conundrum, some signs pointing to a relatively healthy consumer, but at the same time, more red flags as well, CMA.

Yeah, that's right. Plus today's working lunch. We will hear from the head of Amazon's AWS business about the future of Cloud and the business opportunity there. Power Lunch. We'll be right back. 90 minutes left in the trading day. We want to get you caught up on the markets, stocks,

bonds, commodities, and the state of the consumer. Let's begin with the markets, though. Stocks are lower. No rebound from yesterday's big late sell-off, but we are off the lows, edging and waiting for Fed Chair Jerome Powell to speak tomorrow. The Dow is currently down 54 points. Apple helping lead tech lower concerns remaining

about production in China and whether Apple can recover those lost sales. Now to the bond market, though, rising yields. That continues to be a story, at least over the last 24 hours, ahead of Fed Chair Jerome Powell's speech. Rick Centelli tracking all the action in Chicago. Hi, Rick.

Hi, Seema. Indeed. Yields are moving higher, and they're moving higher in a way we don't normally see. Look at a two-day chart of two-year note yields. You can see they're slightly higher, up four basis points. But the further down the curve you go, the bigger the yield gains get. Look at a two-day of tens. They're up over seven basis points, so we are actually seeing some steepening for a change, and even though the 2s to 10s curve is inverted, it is a positive sign.

Now, if we look at Boones, you can clearly see that they were down seven basis points to a yield of around 192. That isn't far from some of the lowest yields they've had in the last couple of months, and one of the main reasons is that we see that various parts of Germany's inflation rates are coming down, and they're not coming down quickly, but they are coming down. As a matter of fact, month-over-month changes were all negative. The blended year over year was 11.3 versus 11.7, which was the high watermark. If we look at what's going on Tuesday, tens, you can see that the third day of light steepening is today,

considering where the markets are trading, and that is coming off four decades of the most inverted. The yield curve's been at minus 78. The gains are small. We're at minus 73 currently. And finally, here's a two-day chart of the euro versus the dollar. The reason it's interesting is with less inflation in various parts of Germany, we are seeing some jump to the conclusion. We've reached peak inflation. So the euro is coming down in price. And do remember, this is the first time from an intraday basis that we are starting to see some serious selling in the euro currency, which really has taken away many of the gains in the dollar index recently.

Seema, back to you. You're at 103 against the dollar. Rick, thank you. Let's turn our attention to energy where oil is slightly. slightly higher on the day, the market's doing a balancing act between demand from China and output from OPEC. Pippa Stevens here with the full story. Hi, Pippa. That's right, Cima. This is an uncertain market with OPEC deciding today to make Sunday's highly anticipated meeting a virtual one, rather than in person as initially planned, according to a source.

That's fueling speculation around what the group might do, whether it will roll over the current policies or implement deeper production cuts amid the recent weakness in oil. Now, RBC's Halima Croft saying that opting for no drama optics seemingly increases the likelihood of a rollover decision. She added that it shifts the focus to Monday, which is when the EU ban on Russian oil goes into effect. Now ahead of that, members are still trying to agree to a price cap, which would be softer than an all-out embargo. But so far, they haven't reached an agreement and time is running out. Let's check on prices. WTI up 1.7% at 7854.

Brent crude at 83.52, a gain of four tenths of 1% with NAC gas also up about 1%. Sima, there we go. Pippa, thank you. Now to waning consumer confidence. The U.S. Consumer Confidence Index fell to a four-month low in November, while inflation expectations jumped to their highest reading since July. Is there any turnaround in sight? Let's turn to Steve Oedland. He's the CEO of the Conference Board and a CBC contributor.

Steve, it's good to have you on. What would you say is the biggest move here behind the confidence number dropping? I mean, is it inflation? Is it rising rates? Yeah, it's inflation. Clearly, Seema, thanks. You know, the confidence index declined again. And as we know that there are two components to it, the present situation index and then the future expectations index. Both of them declined, but the biggest worry for consumers is the future and what's going to happen. All of this ties to inflation. And as we know, food and gas are front of mind for all consumers. Ironically, gas prices and the consumer confidence index have been tracking very closely over the last six months. And so we saw it decline very

heavily during the summer when gas prices rose. Then we had consumer confidence bump up a hair in September when gas prices came down a little bit. Now the consumer confidence index has gone down again. The interesting thing here is that you see differences in Democrats. graphics. So people who are 55 plus rate their confidence lower than the younger generations, and of course people who are making less money, the lower socioeconomic groups, also are much lower in confidence than the other groups. One other thing is that this is very unusual to have such great confidence in jobs, which is typically where you see, you know, in a recession, you see the jobs get killed. It's not happening here. And so even though

consumers' confidence is down, you know, they're having great confidence about the job market. So there are some mixed signals here. And yeah, is it the confidence in the labor market that you think is behind some of the record spending we saw, Steve, over the holiday weekend for not only Black Friday, but Cyber Monday as well. That's telling a very different story about how consumers feel about the economy, you could argue. Well, it absolutely is. But you see differences, you know, by retailer too.

So the high-end retailers are all doing great, as we know. You know, the Walmarts of the world, Amazon are doing well. It's the middle that it's getting killed from a retail standpoint where you see declines. Now, we're seeing overall sales for the holiday season and for Cyber Monday up about 2.3 to 2.5%. Now, in a 7 to 8% inflationary period, that's actually lower volume, which also is driving, you know, bigger discounts. And so you see retailers putting more of their items on deeper discounts than they did in prior years. But if, you know, you would expect to see if inflation was reflected all the way through, you'd expect to see 7 to 8% increases.

And, you know, you're simply not seeing that. So the question is, how sticky is this inflation going to be? And consumers expect it to continue. And for food prices and gas prices to stay particularly high. Steve, got to get your take on China. As a former CEO of Office Depot, we're clearly seeing analysts bring down their Q4 iPhone estimates for Apple. But, you know, what do you think this impact could have on retail, especially big names like Office Depot, that import from China.

Well, you have these protests, which last time we saw protests like this, as we know, was Tiananmen Square in 1989. You know, the Chinese have a history of putting these things down. But the reason is because of the shutdowns. And so you're starting to see some reaction to their zero COVID policy. The problem with this for all of us who are in America dependent on China as our manufacturing sources that these shutdowns continue to roil the supply chain. And so you don't know what's going to happen to, you know, whether it's parts or whether it's completed goods like iPhone 14s,

but these are causing great shortages. And so CEOs are very concerned. And I think what you see as a result is CEOs moving very quickly as quickly as they can to more friend-shoring or near-sharing, meaning moving manufacturing out of China as quickly as possible. But that's going to take many, many years. So we're still going to have a period of time here over the next couple of years where, you know, it depends on what the Chinese policy is and whether you're going to have any product to sell. I mean, but I guess, Steve, listen, it's, it's, why now? I mean, China's record on human rights has not been great. We talk about it all the time. And I understand CEOs are concerned about supply chains, but if I, maybe if I'm a CEO, maybe I, and I'm not trying to,

he's moralistic here, but maybe I'm more concerned about 500 people, including children being welded inside their own apartment building for 10 days, potentially with no food or water, right? I mean, at what point does business take a stand to China and say, listen, until you clean up your act, that we're not going to give you any more money or business. Is that even possible? Yeah, no, it's, you're exactly right. And these are the conversations that are happening in every boardroom that has businesses in China. You know, in the coastal areas, you don't see so much of that. in the interior, you see more of it. A lot of people are manufacturing on the coastal areas, so they're saying, well, we don't see it. The issue is, though, that they know now it's happening,

and they've got to move. But, you know, to move a chip plant, it takes many years and $100 billion, as we know. Agreed. The U.S. government has stepped up here with a lot of money for incentives. You go down our entire supply chain, every part of every electronic. Everything we make is in China. And so it's going to take a long time, Brian, to get this moved. You know what I mean, Steve? We've got a lot of companies that'll, that'll say a lot about political stuff here. You got all this stuff going in China with the Uyghurs and forced labor camps. And now people get locked into homes, literally, you know, taken away in the middle of the night.

And they've gone silent. Yeah. No, they haven't. I mean, you know, CEOs are speaking out and businesses are moving. But it is very hard to pick up a factory and to move it. And then, you know, what do you do? You know, do a Russian-style exit, you know, which is another thing that is being discussed in, you know, all of these areas. So these are big ethical areas of discussion, but they all are happening, Brian.

All right. At least there's a little light there, Steve Adlin, because I think business and money is probably going to be the only thing that forces real change. Steve, thank you. All right. Still the comment is today's working lunch. Mr. John Ford is here to bring us his interview with the head of Amazon's AWS. And for more investment ideas, do not miss the second event of CNBC Pro Week. That is today at 3 p.m. Eastern Time.

Stratz, Tom Lee. We'll join Frank Holland with his thoughts on the market and more. Take your questions. Sign up at CNBC.com slash pro talks. By the way, tomorrow is Leon Cooperman. I wish you are celebrating. Leon and I will take your questions. We'll laugh. It's going to be a great. It's going to be a great event. Sign up today. We're back. Whatever. All right. Welcome back. Amazon's annual cloud conference is back in full force for the first time since the pandemic. And AWS Amazon Web Services is introducing features it hopes will keep customers loyal in a slowing economy. This week, John Ford sits down with the Units CEO. Yeah, that's right, Brian.

It's been 364 days, actually, since our very first working lunch with Adam Slipsky. Things have changed. AWS is absorbing spikes in the cost of energy and tech labor, making the case that its scale and experience in cloud technologies make it important the storm of a volatile economy. It's also nearly 18 years since Slipsky first joined the company to work on AWS after an executive recruiter called him with a wild-sounding idea. She was explaining to me something about turning the guts of Amazon inside out so that others could use it. And I didn't really understand what that was all about. I was thinking, are they going to let small, you know, e-commerce merchants, you know, use AWS's, I'm sorry, Amazon's e-commerce abilities. And so I talked with her, and I guess I didn't completely mess it up because then she had me come in and talk with Andy Jassy.

And after that, talked with a number of the other senior leaders at Amazon. It seemed like one of those, you know, aha opportunities where, I don't know if it's possible or not, but if it is, if we can do this, it could really be of enormous benefit to customers and can turn into a really significant business at Amazon. So that was the promise of it. That was a dream of it at the start. Yeah. And it has turned into a significant business. Today, Solipsky is announcing new AWS features, including Clean Room, a service that will let two companies run analysis across their sensitive data and draw out insights without sharing the proprietary information.

He's also announcing AWS supply chain software to help customers better track goods and balance inventory. Amazon.com does have over a couple decades of experience managing a very sophisticated and complex set of supply chain issues. And of course, AWS has deep expertise in infrastructure and also machine learning. And I think bringing together all of that experience with all that technical capability is unique. One example of that is machine learning. So we're able to look at the data

that you're bringing in from lots of different systems for this new supply chain offering, including data from SAP, for example, a lot of other sources, other ERP solutions. We're able to run machine learning over it to really figure out how to build the right data models and how to harmonize and normalize that data so it can all be analyzed. You can figure out what you need to do with problems like balancing inventory across your system. Salypsky also told me AWS is in a temporary

hiring freeze right now. They'll be closely watching the economy for the next couple of quarters. These announcements today, part of a broader shift where customers seem to be getting more excited about software that solves a problem today versus affordable tools they can use to build their own solutions, guys? The fact that they're investing in AWS and bringing in new innovations, does that tell you they're confident about growth

going into 2023? Well, they're confident, Solipski said, about the continued adoption of the cloud. You know, this idea that the big spike in cloud adoption is over, he says that's not the case, but they're trying to tamp down on hiring more people. He said they hired plenty over the last couple of years, so they're taking a pause for now.

He wouldn't tell me how long of a pause. That's why he's waiting to watch the last couple of quarters, see how the economy does. They don't break out how big they are, right? Inside, does Amazon say how much it does in sales? Because I wonder if AWS, roughly, was its own company. Like, would it be like the 20th biggest company in America probably? It would be way up there. It's actually one of the biggest enterprise technology companies out there on its own.

And right now, it's the profit center in Amazon. Amazon, right? When they do earnings, they break out. That's where a lot of the profits coming from and it's subsidizing retail during this difficult time. The profit margins have come down a bit. It's around 26.3% operating margin, I think, compared to 29% a year ago. They're absorbing a lot of that inflation spike on behalf of customers saying, we can be that port in the storm for you. Interesting. He's sort of an M&A guy. He led Tableau's acquisition by Salesforce, right? That's right. And came back to Amazon after that. He was there for the beginning of AWS, Laughton, now he's back.

We'll see what he does with it going forward. John, thank you. John Ford. Coming up, today's three-stock lunch, we will lay out some of the names with strong cash balances. Do you hide in these cash kings amid slowdown worries, or should you be cashing out? That's nice. Hi, it is time now for three-stock lunch, and today we are talking about the cash trade. According to Morgan Stanley, PayPal, Merck, and Broadcom are three stocks that are flush with

They've got sufficient liquidity, and they offer a hedge position with potential for growth. Is it time to buy into these names? Let us ask. Quint Taitro, he is the founder and CEO of Jewel Financial. All right, let us start here, Quint, with PayPal. Here's the thing about PayPal. Anytime you buy anything online, maybe with the exception of Amazon, PayPal pops up, right? But yet the stock can't get out of its own way. What's the issue? That's a really good question because it's not just online, but most of payments between people and friends, obviously they're using Venmo as well. So they have the brand, the brand power. They're facing a couple of things, Sully. First of all, they were ridiculously overvalued trading at 310 a share, as well as some significant headwinds regarding regulation and what's going to be happening there. But now I think the risk reward for PayPal is just fantastic. Stocks off 75% off all-time highs, trading at a valuation that's attractive 16 times forward. EPS set to grow at 16%.

But as you mentioned, the cash position. I mean, we're talking about $10 billion, almost $10 billion in cash, $10 a share in cash and a very attractive balance sheet. So risk reward here, I think, is phenomenal. We're a buyer of the stock and certainly going to give it some time and room. I don't think this is an overnight sensation. It's going to take a long time to repair, but one to buy here in the trash can. Okay. What about Merck?

Yeah, so flip to the other side, right? This is a company that's in a bull market. I mean, this stock has been on a tear this year trading at all-time highs. Most importantly, for the technical analysis folks out there breaking out of a multi-decade-long or base. So, longer the base, higher in space, as Luis Yamada always says. says, but this one is great. Also about $10 billion in cash, so they can go on continued acquisitions to get that accretive earnings and also pays a two and a half percent yield. So a very attractive

name. Maybe don't chase it up at these levels, but any pullback, I think this is a buy, certainly a name to have on the books going forward. Okay, final name there is very different than Merck and PayPal. That is Broadcom. Theesis idea, what is it on Broadcom? I'm not a fan, unfortunately. I mean, yeah, they've got a lot of cash, but they're not attractively valued. They're basically, you know, trading it around 13 times forward, but their growth rate is not attractive. But the biggest concern for me here is the debt levels. Their debt to equity is almost two to one, which basically means for every dollar they have, they owe $2.

So they've got an attractive yield, but they seem to have sort of finance that yield over time. So this is not one I'm interested in. I would stay away. I think there's better opportunities out there. Quint Taitrope, pre-stock lunch, PayPal, Merck, and just stay away from Broadcom. Quint, thank you very much. All right, up next, we have the NASDAG breaking below 11,000, and also travel and focus, visa delays impacting global travel. It's costing the economy billions. We've got that story next. Welcome back to Power Lunch. It's been about a year since the U.S. lifted restrictions on

international visitors, but that has not opened the floodgates for travelers. And that's because on average, it takes about 400 days to get an interview to apply for a travel visa to the U.S. Brazil, India, Mexico are experiencing the longest wait times. And that's a lot of money left behind. International tourists spend about three to four times more than domestic travelers. They tend to stay longer at hotels. And it's why travel CEOs are urging the Biden administration to speed up approvals. Travel industry is working closely with our allies on Capitol Hill, as well as with the Biden administration.

to help them understand the consequence of these massive visa wait time delays that we're seeing in India, Brazil, Mexico, in too many markets around the world. We're losing millions of travelers at a cost of $12 billion. $12 billion. Now, I spoke to the CEO of Trip Advisor Matt Goldberg. He tells me clearing up visa bag logs, especially in key U.S. inbound markets, is a big part of returning to a strong and robust travel and hospitality economy. States that rely most on foreign travelers, Brian, Florida, New York, in California.

But this has been a big topic. Even American Airlines mentioned visa processing delays on its earnings call. And Steve's been doing this thing on legal immigration. It just sounds like I understand COVID pandemic. I get it. But so much this stuff is supposed to be automated, right? Or is there still so many humans involved that? A lot of humans still involved in visa approvals.

And so what the State Department is doing is sending more officers to their consulates in different. parts of the world so they can speed up those visa interviews and get more people approved to come to the U.S. because, again, it's a big boon for our U.S. economy. Yeah. It's an unbelievable story because it's so necessary from an economic perspective, from a health care perspective, as Steve Leasman laid out about nurses, not considered skilled, now we've got people that can't come visit. And all these hotels that really built their presence overseas, so that foreign traveler would pick Marriott or Hilton when they come here. That return on investment changes, right?

when you can't get individuals here in the U.S. A lot of fun today. Always a fun with you. I'll be back on this show tomorrow. So am I. Yay! You're there. Thanks for watching.

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