Power Lunch - China’s covid chaos, betting against the consumer & value hunting 11/28/22

Episode Date: November 28, 2022

Protests against Covid controls spread across China. We’ll look at the impact on commodities, on Apple and on American companies that do business there. Plus, a former retail industry insider says it may be time to bet against the consumer. And hunting for value in this market. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Ryan, thank you and welcome everybody to Power Lunch, along with Morgan Brennan. I'm Tyler Matheson, and here's what's ahead. China's COVID chaos protests mount against the country's virus restrictions. The effects rippling through global markets on this Monday. We will look at the impact on stocks, commodities, tech, and American companies operating in that country. Plus, inflation looms over holiday spending. We'll talk to a former industry insider who says it may be time to bet against the consumers. consumer, Morgan. Well, Tyler, stocks are at session lows right now. Those protests in China injecting fresh volatility into the market with the Dow down about 1.3% right now, 437 points. The S&P also down about 1.4%, 3970 falling back below that 4,000 mark. And the NASDAQ also down 1.3% right now. It's a volatile day for crude. Energy stocks are actually some of the worst

performers in the S&P as well. But in terms of crude, it is lower from earlier on the session, the unrest in China. It has turned higher midday, though, after the ERAG group said that OPEC Plus will seriously consider a new production cut. So you can see, we've jumped up 1% to 77 and changed for WTI crude. Finally, Treasury yields also recovering from earlier lows. The 10-year yield is now trading around 3.7%, as you can see right there. Tyler. Well, more, we begin with the rare show of dissent happening this day and over the weekend and across China, those protests leading concerns about the economic outlook for the world's second largest economy.

Key commodity prices are moving, everything from oil to copper, on questions about future demand, as well, the tech industry and Apple in particular with big production facilities in that country, they could be hit especially hard. Now, we've got a team of reporters on the story, beginning with Eunice Yuni Un in Beijing, Pippa Stevens on the commodity ripple. and Steve Kovac will take a look at the Apple Impact. Eunice, let's start with you and the latest development over what has been an extraordinary weekend. Absolutely, Tyler.

Shanghai residents have been complaining tonight that police at transport hubs have been checking their phones, asking to see if they have VPNs or foreign apps like Instagram, Twitter, or Telegram. The encryption service, a Twitter, a telegram is often used by, protesters as well as activists to communicate. Now, this is all coming after weekend protests had erupted in multiple cities, including here in Beijing, triggered by a deadly building fire in the far western city of Urumqi, which many people suspect could have been worsened because of COVID controls. Now, much of the public anger is being directed at the zero COVID policy. However, there are some indications that there's a wider dissatisfaction.

with the freedoms here. In fact, in Beijing, there were several people who were holding up blank sheets of white paper to protest censorship in Shanghai. There are even some people who are calling for the resignation of President Xi Jinping. Now, Beijing has continuously signaled at this point that is going to stick with the zero COVID policy and mitigate some of the more excessive curbs. But the big question is whether or not. not this a slightly relaxed policy would be able to contain the virus. Tai? Thank you very much.

Eunice Yun. Working late into the night for us. Pippa, we're going to turn to you now. She's got a look at China's importance to the commodity market. Pippa. Hey, Morgan, well, fears around a slowdown in Chinese demand to send oil tumbling earlier today. WTI briefly went negative for the year, touching its lowest level since last December, with Brent sinking to.

its lowest since January. Now, China is key to the global oil market since it's the world's largest importer. This year, it's on track to import about 9.3 million barrels per day of seaborne crude, according to data from Kepler. That is down from more than 10 million barrels per day in recent years. Now, on China's demand side, J.P. Morgan said it's pacing to contract for the first time on record. The IEA forecast total demand at just under 15 million barrels per day this year. That's still about 15% of worldwide demand, but it is down from last year's levels. Now, oil did reverse those big losses right around noon, with traders pointing to a possible output cut from OPEC. Tyler. Thank you very much. PIPA, let's get to Steve Kovac now and the potential impact on Apple and, of course,

those newest iPhones. Steve. Yeah, Tyler. So look, the factory of Foxconn and China, that lockdown in protest last week could mean even fewer iPhones on shelves this holiday than even. even Apple warned about earlier this month. So what's moving shares down about 2% or over 2% today is Bloomberg reporting, citing a single source, by the way, that Apple will ship 6 million fewer iPhones this quarter than originally expected due to those protests we saw interrupt production last week. That's double the 3 million shortfall expected just a few weeks ago when Apple initially warned about it. Meanwhile, JP Morgan analysts this morning tracking shipping times for the iPhone 14 Pro. They say it will take 33 days to

to deliver it here in the U.S., which is a bit better than the 40-day wait from a week ago, but it likely doesn't reflect the impact we've seen from these protests. It's going to take another couple weeks for that to make its way into the supply chain. Now, Apple declined to comment on these latest reports. The last week heard from Apple was on Thanksgiving evening that evening, or Thanksgiving Eve, rather, that evening. Apple had people on the ground monitoring this situation at Foxcon. We have no updates from Apple or Foxcon since.

So what this means, most people are not going to be able to get an iPhone 14 Pro in time for Christmas. Apple could also miss targets for iPhone sales growth this quarter, and a lot of demand could pull forward into January. Not to mention this exposes the risk of Apple relying on China, including the human cost of making products there, guys. Yeah, Steve, that's kind of where I want to home in, this human cost. Obviously, it's awful from a human standpoint. but in the case of Apple specifically, such a major company on the world stage and certainly one that is very focused on things like ESG here at home,

I've got to think that this is, from a PR standpoint, a very difficult situation for this company to navigate, and I wonder what it means for the company from that standpoint and also in terms of its ability to now move more and more of that production to other places. Yeah, Morgan, there's a lot of aspects to this. There's a lot going on here. So, look, this is probably the worst look for the Apple labor throughout their supply chain in China since about 2011 when those reports came out. We heard these awful tales of Foxcom workers committing suicides and stuff, you might remember.

Since then, Apple has put out in a lot of safeguards in place. You know, they audit their supply chain. They make sure everyone, you know, no underage laborers or anything like that being put out through their supply chain. And they've been, you know, credited for doing a good job with that. But then when something like this out of their control happens, when the Chinese government decides to send in security forces into a Foxcon plant to keep workers basically locked in, yeah, it becomes a bad look for Apple as well, which has made this commitment to make sure these kind of human rights abuses do not happen within their supply chain. So I'm curious to hear from Apple what they're doing and what they've learned over the last week or so. They are on the ground about how they're going to mitigate these effects. But to your point, Morgan, you know, they are trying to expand their supply chain and become less reliant on China.

We've heard these reports that India is ramping up in a more significant way to make iPhones. But look, they really, China is really the only place where most of the iPhones are made and where they have the labor force in order to do it. For example, when that first lockdown happened at that Foxconn facility, Morgan, they had to hire 100,000 more workers just on and turn on a dime and get those people in. they can't do that in many other countries. Eunice, let me ask you, what are you seeing or hearing about how the authorities are addressing the protests, cracking down, would be the verb to use, I suppose. Yeah, well, in Beijing, as well as in Shanghai, we are hearing more about a heavier police presence, especially around the areas where there were protests.

So these are police who are uniformed, as well as those who are plain clothes, And so anybody who goes to those locations is usually asked several questions. As I mentioned before, there have been several people in those areas that are being asked specifically to show their phones and to see whether or not they have these different foreign apps. That's a development that we hadn't seen in the past. And a lot of that is because Chinese use these VPNs to try to jump the firewall. here and also to communicate using apps such as telegram. So this is kind of a more technological way in which the security here is trying to get a little bit ahead of the protesters and any potential protests that could happen in the coming days.

Do we know, Eunice, what the size of the protest crowds are, measured in the hundreds, measured in the thousands or what? It's difficult to say, but just based on the number of videos that have been emerging from all the various cities across the country, it's probably in the thousands or so. Definitely in the hundreds. We've seen hundreds just in, you know, one city versus another. But it's, again, it's very difficult to say. And also because there are so many videos and some of them, because of that, it's difficult to verify all of these various videos. But definitely there is some, there is some, uh, various locations that are very frustrated with these COVID controls. And to your point, the fact that in China, which is so much of a surveillance state, the fact that people would be doing this, it really sort of speaks to them essentially risking their lives. PIPA, I want to get your thoughts on the commodity impact here in what is shaping up to be a very busy week or two weeks, because obviously we have the weakness, or we did have that weakness earlier today,

in crude prices because of the China headlines. But then you've got OPEC. You've got sanctions, more sanctions kicking in in Europe as well. I could go on down the list over the next week and a half. Expectations about what all of this is going to mean for these conversations about the supply demand equation. I think the most common expectation here is that we just really don't know at this point because, as you mentioned, there are so many moving parts. And the Chinese demand story has been one that's been impacting oil for the past several weeks.

Both WTI and Brent are coming off a third straight. week of losses. But looking forward, we have that price cap coming up potential price cap. We have the EU embargo on Russian oil, as well as the OPEC meeting on Sunday. And there are these reports that OPEC might be prompted to implement another production cut based on how much oil has fallen in recent weeks and months. But then looking forward, I think once these sanctions are implemented and once countries do start moving away from Russia, it's really hard to reverse those. And so kind of what people are now talking about is a new reordering of the global energy system, including even just Russia cutting off gas to Europe. They had been such a key supplier for so many

years. And so right now there are all these moving parts that are getting sorted out, potentially that could reshape things. But it's certainly a pivotal couple of weeks here for the commodities market. All right, Pippa, thank you very much. And team, thank you as well, Yunus, Steve. We appreciate it. So what do you do if you're a U.S. company with operations in China or investors who have lot of exposure to China. Let's ask Dennis Unkavik, partner at Meyer Unkavik and Scott, and a long-time visitor to China as well as a dealmaker over there. Dennis, welcome. Good to have you with us. Tyler and Morgan, thanks for having me on. I guess what leaps out to me is it's not easy being Supreme Leader, especially when Supreme Leader's policies aren't working very well.

This is probably the worst day for his Xi Jinping since he became head of China in 2012. And it looks like it's going to get worse. And you would describe this, what, as second only to Tiananmen Square in terms of the threat and the visibility of the protests that we're seeing? There have been no threats to the Chinese leadership since Tiananmen Square in 1989. And this is the first time, I think, in multiple cities in China, you've seen, and I don't know how many people who are on there, your reporter just was talking about that, but there's major dissatisfaction of the Chinese people with the government.

And we haven't really seen that in more than 30 years. So let's talk about, let's talk to boards of U.S. companies that may have operations or be dependent on supply from China. It's late, you know, it seems like the cup of coffee is mostly drunk over there. It's late to be making changes, but companies can't be as dependent on China as they have been. Isn't that obvious? Tyler, our CEOs and board of directors needed a wake up call. This is it. Now, a lot of them have been saying, well, things are going to be getting better.

The elephant in the room here is the relationship between China and the U.S. on a political basis. And if that continues to get worse, the opportunity for reliable sources of supply and commodities and products. You talk about iPhones a few minutes ago is really going to drop. That's why I think you're going to see boards, hopefully, if not for the first time, in their next board meeting, sit down with the CEO. and say, where are we? How committed are we to China? Should we diversify? And if they're sole sourcing out of China, I think they're late to the party, but it's time to do it. So how quickly can it be done? If you're an Apple, for example, we're just having this conversation where maybe you are starting to see some diversification in the supply chain, but not

necessarily in a meaningful or major way in the near term. How quickly can you actually pivot and make those moves happen? Morgan, when I was on your show a couple of months ago, we talked about Apple. It started to look at China. About 5% of Apple's phones are now produced in India. I think you're probably going to see that raised the 30 or 40%. But as you pointed out, nothing happens immediately. It takes time to get it done. That's why I think boards have to give this a really top priority. Because in the past, companies said, well, I don't know about the financial problems. But now there's not just a financial problem. There's a reputational problem. How does Apple look going into Christmas and the holidays and a a couple of months from now saying, we're not going to have enough phones for you.

These are the kind of pressures that I think board of directors have to put on the CEOs and the C-suite-level people to say, what are you doing? The flip side of this is you have companies that manufacture in China who may be looking to diversify, but you have many companies, many international companies, many American companies that are looking to sell in China and into China as well. So how do companies walk that line and continue to appeal, continue to join? drive sales and continue to appease their investors, but also potentially appease the leadership of a country that is going into even fuller crackdown right now?

I think Xi Jinping has told you what China's future is going to be. He's not going to double down. He's going to triple down now on the COVID-19 problem that your reporters were talking about a few minutes ago. So ultimately, I think companies are going to have to make a balancing judgment. Obviously, if the Chinese market is the only market you have, then you probably have to go along with this. But as the global market is changing, and you've seen what's happened to the supply chain, really over the last three to four years, I think it's time that tough decisions are going to have to be made. And that's why the CEO and boards are there. And I think it's time to stop putting their head in the sand and say, how am I going to make these decisions?

Let's say I'm an American investor, and I am tempted to put money to work in a mutual fund, or an ETF that has significant China holdings. What would you tell that person? I would tell them to be very careful. If you've seen what's happened to the Chinese market overall, over the last year and a half, when these pressures have grown, there has been pressured downward on the value of those investments.

So I'm not saying don't do business in China. I'm not saying it's bad, but I'm saying the risk are higher there than I think most of the analysts and the CEOs have put on it in the past. Dennis, thank you very much. Appreciate it. Thank you.

Dennis Unkovic. Thanks. Coming up, value hunting, there are two companies with improving balance sheets that a long-time investor says are worth owning. He's going to name them for us next. Plus, the former Toys R Us CEO says he's not buying into the hype around the record, start to the holiday shopping season. We're going to ask him why he's expecting overall sales to disappoint. And as we had to break, some names hitting all-time highs today. Ulta, General Mills, Kenberg.

Welcome back to Power Lunch with stocks in your session lows. Our next guest says the market is not completely discounting earnings estimate cuts and says multiples could compress further from here. Let's go value hunting with Sarat Sethi, managing partner and portfolio manager at DCLA. He's also a CNBC contributor. Surat, great to see you today. Before I get into your specific names, though, I do want to get your take on the weakness that we're seeing here to start the week in the equity markets. Is this all just a result of everything that we're seeing on the geopolitical front and these protests that are happening in China right now? Or is there more happening?

Is there more to consider? I think it's a combination. I mean, definitely what we saw overseas in China is adding to this uncertainty. What does it mean for demand? What does it mean for even if we're talking about frictional cost in the supply chain? But I think overall the market is now looking ahead to next year and saying, where earnings are going to be on the S&P and where earnings are going to be in specific sectors. And I think that's where as investors, we need to be a little bit careful because if you start

extrapolating where earnings are going to be and we really haven't seen earnings come down meaningfully, most of the return this year, especially in the EPS of the S&P, is an energy. So right now we're going to see that. And really going forward, kind of where is that growth going to be? And until that's answered, I think you're going to see volatility in the market and sell-offs, and especially in some of these sectors that have high PEs. Okay, so if we dig down and we go value hunting, where would some of that growth be?

So the way I want to frame it is to look at companies that will not be affected that much by a potential decline in the overall market or in an earnings basis. So look at companies that have a margin of safety and whose earnings aren't really that, quote, inflated or high PEs. So, for example, look at Glaxo.

Glaxo trades at 10 times earnings. a lot of bad news baked into this stock already. If you look at kind of the Zantak litigation, you look at they've already spun off Haleon. They've been a pristine balance sheet. And the reason we also like it is, look, you're going to have earnings growth of about 10% for the next couple of years, 5% revenue growth. And if you look at that pipeline, what's really important is as we've gone through COVID, really people have not gone out and gotten new vaccines.

And the pipeline for Glaxo, a lot of it is focused on vaccines like the shingles vaccine and a couple other. So if you look at this macro level, it's not going to be affected that much, no matter really what goes on in the world. And they have their own uncorrelated earnings that are going to increase over time. So let's move on to another one, which I think is XPO logistics. Right. So XPO is kind of a special situation, Tyler. They just spun out RXO and GXO. I know it's all similar acronyms, but this is less than truckload. This company helps their customers put goods on trucks that don't necessarily have to be full. So in a slowing economy, you want companies like them that are not asset heavy.

They're going to be able to help their customers put goods in other companies. The company is two times levered, which is not a lot. They're selling the European business. Again, if you look at their earnings projections, only trading it about 11 times earnings, but historically, most of the LTLs trade at a much higher level. So already discounting the lower earnings, we think there's a lot of positive here with this company truly focused on the LTL model, which actually can be successful in a slowing kind of supply chain customers really focused on costs. So two value stocks, trading below market multiples

that I've already discounted, a lot of earnings slowdown and can have potential upside in a market that we think is not really going to go that far, given where we see EPS and the S&P. But when you're talking about transports, when you're talking about freight in general, I mean, is a name like this, XPO, is that going to be recession proof? It's not, but that's why I kind of, I like what they do with the LTL piece of it. The LTL piece of it gives them the ability you don't have to buy the whole truck. You can buy pieces of it and you can ship it. And they don't own the truck and that's the best part of the business.

So they make money based on the percentage of what they sell. So again, you're reducing your overhead, you're reducing your capital costs, and you're also using a business that can help other customers cut costs. And yet they can do well in this environment. Sarat Sethi, great to see you. Thanks for joining us today. Thank you. All righty, further ahead, more than just a support wall. We're going to take a look at one startup that is making energy efficient and fire-resistant wall material. Plus, game over for Microsoft's deal to buy Activision. Well, growing reports that the FTC may block that merger. We will trade that news and some other big headlines in today's three-stock lunch.

All right, welcome back to Power Lunch, everybody. Disney lower by about 3% right now. The company's new, old CEO, Bob Eiger, holding a town meeting with employees. Of course, addressing why he came back, saying he loves the company, the people, the creativity, but also addressing some business matters. On Disney Plus, saying instead of chasing subscribers with aggressive marketing and aggressive spending on content, the company needs to start chasing profitability. Also on cost, saying the previously planned hiring freeze will remain in place. Iger's shooting down rumors, by the way, that Apple would buy Disney and also saying don't expect Disney to do any buying of its own right now. It's interesting, too. It seems

to really have stressed creativity. And it comes off of a weekend where Disney was not only the biggest winner, but also the biggest loser at the box office. Winner being the new Black Panther movie, loser being this latest animated series, Strange World, which seems to have bombed. It's the worst three-day opening for a Disney animated feature since 2000. So kind of speaking to how important the talent piece of the puzzle is at a company like Disney. Keep your creatives happy if you're in that business. All right. Well, let's get to Brian Sullivan for the CNBC News Update. Hi, Brian. Hey, Borgas. Thank you very much. All right, a guilty plea to all state charges today for the 19-year-old white gunman who killed 10 black people at a Buffalo supermarket in May. Peyton Gendron admitted

the murders were racially motivated. He will spend the rest of his life in prison. no chance of parole, and he also still faces federal charges. Take a look at this from Maryland. Two people miraculously rescued from a small plane that crashed into high-voltage electricity lines about 100 feet above the ground. It took seven hours, because workers carefully extricated these folks to make sure the plane also did not fall to the ground. They were rescued safely.

And the World Health Organization has a new name for Monkey Pox, which has been widely criticized for being stigmatizing. It will now simply be known as M Pox. Back to you. Okay. Brian Sullivan, thank you. Ahead on Power Lunch. A record-setting Black Friday online sales,

topping $9 billion with consumers buying big-ticket items. But despite that number, our next guest isn't impressed with the consumer turnout this year. Plus, more Bitcoin businesses going bust. Another major lender BlockFi declaring bankruptcy today. we've got those details when Power Lynch returns. Welcome back to Power Lent. Right now, stocks are at session lows. This is largely driven by COVID concerns out of China.

Those China worry sending oil to the lowest level in nearly a year earlier in this session as well. But oil turning around midday on suspicions, OPEC could respond to falling prices with a production cut. So I just want to give you some rundown of some of the numbers here. As we just mentioned, it was a volatile session for oil. That finished the day up 1%. The 10-year note, 3.68% is the level there. And as I said, equities are at session lows right now. Really, every S&P sector is lower.

Energy, tech, materials, some of the names leading the charge there. Tyler, I'll send it over to you. All right, thank you very much. And let's talk retail, shall we? Consumers spent a record $9.1 billion online shopping during Black Friday. This, according to Adobe Analytics. Overall, online sales were up 2.3% year over year with electronics and toys, the big winner. In-person shopping also up 2.9% according to these numbers.

But our next guest says this was a disappointing start to the holidays for most retailers. Gerald Storch is the CEO of Storch Advisors and former Toys are Us Chairman and CEO. Jerry, welcome. Good to have you with us. A couple of questions. Number one, those 2.3% online spending gains. and 2.9% that we just referenced there. Are those inflation adjusted or are those just moved up because things cost more?

No, they're not inflation adjusted. And these sales are record-setting only in the sense that they're $1 higher than they were last year. But they're below the trend of retail sales for the last three months and certainly below. They're trying to an online sales. Look, online sales have been up in double digits the last couple of months, like 12% last month. And total retail has been up 8%. You know, when you look at it year-over-year the way these numbers are. So 2% is below trend, you know, and for the Internet to be up only 2%, when inflation is 6% to 8%, the whole, the record-setting narrative just doesn't hold up.

And by the way, these sales are highly promotional. I doubt these companies are making a lot of money anyway. Let me talk to you about another narrative that seems full of hocus-pocus, and that is Black Friday and Cyber Monday. They feel so 2002 to me. I mean, the whole thing, I mean, it's just, it gets meaningless. It used to mean something, but now it's been so watered down. There was Black Friday in July. There were massive Black Friday events going in.

Every major retailer starting early October. So the sales have all been mushed around. No one knows where we really stand for the holiday season. You know, and when you get to these Black Friday sales for this week, they started on Sunday. No one even ran special ads for Friday. That used to be one of the biggest ads of the year. So you're an ad running Sunday through Saturday, and you say it's Black Friday week. You know, Walmart calls it deals for days.

It's like days and days and days. You know, long ads like that. I'm over it. So the sales obviously gets spread around. And then Cyber Monday, that used to have a reason, too. You know, that was when the Internet was small. And that was kind of a day you could order and make sure you got up by Christmas or something like that. I don't know what.

It was years ago. Now it's just another excuse for a big sale on the heels of the Black Friday week. So, Jerry, the part I'm trying to suss out here is when you, see these promotions and these sales happen earlier in the season, does that just pull forward the demand and the sales? Or does it actually create a situation where when things are marked down and marked down for so long, consumers actually go out and buy more over a longer period of time? Well, my decades of experience in retail say you can't generate a bigger market just by having the sales at a different time during the season. You might be able to take share

from your competitor by having your sale earlier, but you're not going to grow the market. I mean, Morgan, I love you. I'm not going to buy another Christmas present just because the sales started earlier. You know, same thing for my kids. You know, it's just not going to happen. You still buy everybody one present. So it doesn't really change a thing when you start earlier and or end or all that stuff. But people are trying to find any way to win.

And what is a very, very difficult retail environment, if you're selling electronics or clothing or home goods right now, you know, where all the money's going is towards necessities, towards food, towards gasoline, people to pay for those. first, and what's left over is what you get to spend on toys. Okay, so in light of that, what's winning, what's losing this season? Well, I think there are some very good retailers doing well. Walmart, Costco. Home Depot and Lowe's continue to thrive.

People are spending money fixing up their homes, even though buying new homes. Dix is doing very well. I think it still has kind of a, you know, people are staying at home a lot more, a lot of these schedules where you don't work five days a week. You know, you get time for athletics. So Dix is doing well. I think T.J. Max is a perennial winner. I would always go with them.

The restaurants were up. huge over the weekend, by the way, clearly double-digit gains in food service. So I'd go with any of the big restaurant brands. I think they're very well positioned for the future here. So I think a lot of big winners. Apple obviously would be a big winner

if they get the supply of the product. Everybody wants an Apple phone. So they generally did very well with Apple gadgets, everything else for the weekend, but they're struggling with supply, as you know, and report it on all day. But if you say, and I heard you say, that the consumer is increasingly concerned

with paying for the essentials. Now, some of those essentials, they're buying at Walmart and Costco groceries and the like. But if a consumer is really concerned about the essentials, those incremental or impulse buys are just not going to be there. That doesn't sound strong for the consumer. Again, I don't want to be negative. I really believe in the consumer, but they're starting to get leverage. They're spending more on credit cards. We've seen all this.

The money's running out from the COVID times. And so we're just seeing a very different consumer as we had. towards this holiday. So it's going to be so, so at best. I would be shy away from apparel companies, department stores, specialty apparel, really worry about furniture companies, you know, the Williams Sonoma of the world, or restoration hardware. That was then, this is now, and people just simply aren't spending the money that way. Let's leave it on that note. Jerry Storch, thanks very much. We'll see again, I'm sure, before the holiday season is over. Well, today's clean start is looking to solve the building industry's carbon issues right at the

source during construction. That's next. Global warming is rapidly changing the way we build homes, a process that really hadn't evolved much over the years. Until now, Diana Oleg is looking at some of the new technology in her continuing series on climate startups. Hi, Diana. Hey Morgan. Yeah, styles certainly change over the years, but materials really haven't, mostly concrete, steel, and lumber, all of which contribute heavily to global warming. Now new products are moving in with new companies hoping to green this age-old industry. Homes and buildings account for 40% of global carbon emissions, much of that during construction. Building with lumber, steel, and cement is neither clean nor energy efficient.

But replacing those materials is difficult because of outdated building codes. Now, innovation is finally taking shape from the ground up. The carbon footprint the Vantam has in our homes is about 80% lower carbon footprint than traditional construction. Vantam, a North Carolina-based startup, is one of several companies like RSG3D and NXE, experimenting with new wall materials. It invented a factory-made light panel consisting of fire and weatherproof ceramic-like faces and insulation made of a proprietary material. The company's CEO says the panels are less expensive, take a quarter of the time to build, and are five times more thermally efficient. What we deliver to the job site are complete homes that have everything in them, the electrical, the bathroom,

with a very, very efficient thermal envelope, which is what allows us to hit net zero at low costs. The modular homes or buildings are trucked to the site and put in place like Lego pieces. Calibur companies, a client, says it reduces construction costs by 15% compared with stick-built homes, as well as consumers' costs. The structure is actually more structurally sound than a site built. The thermal envelope of these is second to none, so you're going to have less electricity cost to heat or cool your home. Vantam's backers are Breakthrough Energy, Quadrant, and Tem Capital.

Total funding so far, $25 million. Now, the company plans to build 15 U.S. factories over the next seven years, each capable of producing a million square feet of homes each year, Morgan. Wow, they're moving quickly. I'm just curious about this, though, Diana, because we've seen technologies advance over the decades dramatically in so many other industries. And yet we're just having this conversation now in real estate. Why is it taken so long for real estate to adapt? Yeah, it's funny, Morgan. I walk around a lot of construction sites. And you'll still see people

using clipboards and Excel spreadsheets instead of tablets. They really just haven't. And when you ask them, they say it has to do with the lack of skilled labor, lack of training, and workers' inherent adversity to new technology. And an interesting stat, just 60% of construction firms say they do not have a dedicated R&D budget, which to me is just amazing. All right, Diana, Diana Oleg, thanks very much. We've got three key headlines and three analysts calls. Today's three-stock lunch, diving into Macau, video games, and chicken prices. We're right back.

Welcome back. Today's three-stock lunch looks at three headlines and three calls. First, chicken. The headline, a drop in chicken prices is prompting Wingstop and Popeyes to expand their offerings. The call. Barclays downgrading Tyson to underweight, citing feed costs and inflation. Second, casino stocks.

Macau casino names rising on license renewals. The call, JPMorgan, upgrading win resorts to buy on a Macau recovery. And third, there are growing concerns the FTC will move to block Microsoft's takeover of Activision Blizzard. The call Wells Fargo and Morgan Stanley upgrading Activision to a buy, calling it an opportunity for investors. So let's bring in CNBC contributor Boris Schlossberg, managing director. of FX strategy at BK Asset Management. Boris, great to see you. First up, the trade on Tyson.

Your thoughts? So Tyson, Tyson actually getting hurt more on beef rather than chicken. The problem is that many investors feel that consumers are really tightening their budgets and moving down from beef. Since 36% of Tyson's revenues comes from beef, that's where they're getting hurt. But I think at this point, the stock is really beaten up. And it's almost like throwing baby out with the bathwater. Unless you think there's something inherently wrong with Tyson, which is one of the preeminent food producers in the world, I really like it here on a longer term basis, although the stock can certainly just basically wallow at these prices for quite a while. So I think, you know,

if you want to be an investor, you probably want to be a little bit tactical. One idea, possibly you can sell 60 puts, which will give you a 57 basis in the stock all the way until April of 23. And that actually gives you at a very, very good price at about a 3.3 percent dividend. And you can just simply wait until the macro picture improves. But generally, I think the stock has gotten so badly beaten up at this point that, you know, it's more of a buy than it is a sell. Let's talk about when resorts is a renewal of gambling licenses in Macau, enough to power the stock as it is today? This is really, I think, a value play, right? I mean, there's lots of, lots of parties that seem to be very interested in win purely from a value proposition.

He's just said, of course, yes, there's only six. six Macau licenses. And Wynn gets one of them, incredibly valuable asset, given the fact that Macau is actually five times as large as Las Vegas in terms of, I think, betting at this point. However, there's just a enormous amount of risk also because, you know, zero COVID. Everybody's been hoping Macau comes back, but that may be put off for quite a while. On the other hand, there are a lot of parties, including the Houston Rockets owner, Thelma Fratida, and there's rumors that LBS is interested in the property. Bottom line is some analysts think there's about $95 value in Wynn and it's trading at 73.

So I think it's probably a very interesting value play at this point given going forward. Okay. Final name, Activision Blizzard. Well, I've been bullish Activision many times on the show. I love the stock. I think the whole gaming industry is actually very, very strong. Now, the story with Activision, of course, is this fear now that the Microsoft deal does not get done. But I think there's a bigger story here that even if it doesn't get, done. Activision in of itself is a really great play this year. First of all, if the deal doesn't get

done, they get a $3 billion a breakup fee. So that just simply adds to their cash flow. Secondly, they have two very big, you know, call to duty coming out in 23, and I think Overwatch, right, too. So both those titles are just expected to be huge of the box office at this point. And of course, you know, the box office in gaming is much bigger than box office in Hollywood. So I think you just have to be secular bullish the stock from every angle. If the deal of Microsoft gets done, it's going to be a cherry on the icing on whatever. I forgot the expression. I see on the cherry on the icing on top. But bottom line is, I think Activision, in of itself, aside from Microsoft deal done or not, is a great stock going forward. Okay. And finally, Boris, I just want to get your take on stocks in

general right now starting this week lower. We're poised for gains for the month, though. Given all the geopolitical and macro headlines that have been moving things here in recent weeks. Your take? You feel me biting my tongue at this point. It's very, really hard to be confident one way or the other. I've been relatively bullish. I thought the inflation story has done, and I thought we would get a lot of support. But of course, you know, the geopolitical risks are just, I think, the greatest unknown,

both in Russia and in China. And that is one thing that's just impossible to predict. I think overall, if things kind of calm themselves down geopolitically, we're in very, very good shape for stocks to rally. But that is the big unknown. That's why the risk factor in the stock market still remains. Okay. Boris Schlossberg.

Thanks for joining us. Thanks, guys. All right. Still to come, the latest victim of the crypto collapse allowing, following, excuse me, F-TX's scandal. We'll be right back. Welcome back to Power Lunch, everybody. The price of Bitcoin right now.

just above 16,000 as we're learning about another crypto casualty. Today, BlockFi filing for bankruptcy protection. And Kate Rooney joins us now from San Francisco with more details. Kate. Hey there, Tyler. Yeah, this is the latest collateral damage we're seeing from FTX's downfall. The crypto lender BlockFi filing for Chapter 11 protection this morning in New Jersey. And BlockFi was one of a handful of firms that was supposed to be bailed out by FTCX, which of course is now going through its own high profile. bankruptcy. We did just get some more bankruptcy paperwork where BlockFi says it was faced with what it called a severe liquidity crunch due to the unprecedented expedited collapse of FTX.

They go on to say that FTX's apparent rescue, which began in the summer of 2022, stabilized BlockFi, but they say that was short-lived and over the past few weeks exposure to FTX exacerbated rather than cured BlockFi's ailments. It also says that BlockFi has substantial exposure. to FTCX and the Chapter 11 process, they say, will allow BlockFi to run an orderly process and to maximize value. They say they can deliver to clients at this point. The trouble for BlockFi started back in early summer, if you remember that implosion of the hedge fund, Three Arrow's Capital.

FTX had first swooped in with about $250 million in the form of credit, the line of credit back in June. That increased to $400 million in July when FTCS had also agreed to buy the company, or had the option to buy the company. As FTCX went under just a couple weeks ago, BlockFi once again had to halt customer withdrawals. And in the filing, BlockFi does say it's got more than 100,000 creditors and then liabilities and assets stand between $1 billion and $10 billion, guys.

Back to you. So how does this get all unwound? I mean, these customers, are they ever going to be made whole? That is the big question, Tyler. And one recent analogy, really the only other high-profile crypto bankruptcy to look to is Mount Gox, which customers just now, about eight years after that company went bankrupt, are getting some of their money back. So with that expectation, and that really is the one historical analogy that people look to, there's not a lot of hope that if they do get their money, it will be any time soon or that it will be an expedited process.

But I was looking through, again, this bankruptcy paperwork that just came out within the last hour, and they do say that they are in a better position than FTX. While the crypto economy has really collapsed in the past few weeks and months, they say there's still value in this company. So the thought is, if that is the case, maybe there's a buyer, and maybe that helps make customers hold, but there's not a whole lot of confidence out there. Kate, quickly, I mean, between 1 and 10 billion,

then you look at liabilities and everything else at FTX. We're talking about tens and tens of billions of dollars here. Who are the customers for these companies? So the customers for BlockFi and for FTCS for that matter tend to be, in a lot of cases, high net worth individuals who were looking for yield on their crypto. So BlockFi was a lender. It was offering 10 to 20 percent cash back, essentially, a yield or what looked a lot like an APY. So they had some high net worth customers, but also just some average Americans who were

looking to get more return on their money when interest rates at the time were at historic lows. So that's on the BlockFi side. FGX catered more to hedge funds and high-powered traders, but they're also retail traders out there. So a lot of exposure to all kinds of investors. All right, Kate, thank you very much. We appreciate that. Thank you very much for watching Power Lime. Closing bell.

Starts right now.