Power Lunch - China’s reopening, new surprises for the bond market and stocks Wall Street loves to hate. 12/27/22

Episode Date: December 27, 2022

China loosens covid rules and it could mean more demand for oil. A look at where prices could head in the new year. Plus, the bond market turns in its worst performance ever this year. Will 2023 bring more surprises for fixed income? And, is Tesla a buy as the stock tanks? We’ll trade it in today’s three stock lunch. 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, everybody. Hope you had a great Christmas. I'm Brian Sullivan. Here's what's ahead, China. Once again, one of the biggest wildcards for the energy markets. Now that the world's second biggest economy is easing COVID curves, will the oil bulls retake control in the new year, or will a global recession keep a lid on demand? Plus, no place to hide. The bond market turning in its worst performance ever this year, one analyst says it is nothing like he has seen before. So will next year bring even more surprises. That is all coming up in just a few minutes. Kelly Evans, what are you looking at? Hi, Brian. Hi, everybody. By the way, I'm looking at Tesla, but we'll get to more of that in a moment. Let's take a look at the major averages. The Dow pairing, its gains still up 53. The only

index in the green. Impressive because Apple's the worst performer in the Dow and it's weighing substantially. S&P down about 4 tenths of a percent. Now look at the NASDAQ down 1.3%. We're talking about just over 10,000, 10, 365 for that index. Now, this all comes, interestingly enough, we've had a lot of positive sentiment out of China overnight. That's lifted shares of Chinese-based stocks on the loosening of those COVID rules like the K-Web up nearly 5% today. JD.com, Ali Baba, Alibaba, up 4% Pindo Duo, the rest. Now, the news is also lifting Macau Casino stocks. Melco up 7% in Las Vegas, Sands and Wynn.

Those are benefiting in the S&P this afternoon. And with the S&P on pace for its seventh worst year ever, what are the odds 2023 is that bad? Bob Bassani is at the New York Stock Exchange. Bob? The short answer is it the odds are not very good, that it will happen again, but it could. So there's a lot of people worried with a down year in 2022. We're still heading down a little bit. 2023 could be another down year. It's possible, but it's statistically very unlikely. And this is where it's important to know a little bit about market history. Just take a look. There's actually been only four periods, four series of events where the S&P has been down back-to-back years.

There was down once four years in a row. That was right in the Depression, 29 to 32. Then it was down three years in a row twice from 39 to 41 and then 2000 to 2002. Remember that? Dot com bust at 9-11. And then it was down two years in a row during the big oil crisis in 1973 to 1974. So really only four times has it ever been down back to back more than two or more years in a row. And the last consecutive down years, as you saw there, 2000 to 2002. Another important question is down 20 percent years. That's very unusual. We're almost down 20% we were down 25% peak to trough. These are very, very unusual declines here. Down 20 to 30% has only happened seven times since 1945. There have been a few more extreme events. Down 30 to 40%

happened three times. These are peak to trough. And down 50% remember that, of course, was the great financial crisis 2008 and 2009. So even here, declines of 20%, back-to-back declines. These are very unusual events. And by the way, in most cases, when you're down more than 20%, you're made whole within a year of the trough here. And the reason that things tend to resolve themselves is the stock market goes up long term. This is one of the great investment insights anyone can have about moving into the stock market. It's up about three quarters of the time since 1928. That's, of course, we live in a capitalist system. Now, we have unusual events that have led to big declines. And the question is, is 2023 going to be a part of those big unusual events? So remember what we saw

here, Kelly. The oil price shocks in 73 and 74, big down year. 2000, 2002.com 9-11, big down year. 2008, 2009 financial crisis, 2020 COVID. But these were really unusual events. And the question here, Kelly, is the Fed hiking rates and keeping them higher COVID and the Russia whole thing, another reason for us to be concerned about another big down event. Not clear yet. Back to you. Bob, thank you, Bob Bassani. Our next guest says the market is close to a bottom. He's betting on energy, some retail and payment companies into 2023. Jerry Castellini is president and CIO of Castlelark Management. Jerry, welcome.

And yeah, I'm close to a bottom. I don't think there's any sense in us trying to pinpoint, you know, bottom here or bottom there, bottom everywhere. But what do you think in terms of the Fed and recession risks? Why do you sound relatively sanguine? Well, I mean, the first thing is I kind of sound crazy with Apple trying to make a new low. Sure. And guessing that the overall market, you know, its biggest stock is breaking down. But looking back over all those questions you raise, when you think about it, all this exercise we've gone through

and we're continuing to is this idea that the Fed controls financial markets, earnings estimates, and global growth. And I'm afraid they've had an influence here on financial markets this year by pulling all the liquidity way. But they certainly don't control global growth, I think, to the extent that investors think or believe. And what we see happening is this whole fear, though, an entire purpose for the increase in rates has come based on the view that inflation is going to sustain and be with us for a long time. And you don't see evidence to that.

It's already rolled over on the CPI product. Here's my question. And this is what Steve was reporting last hour. You know, inflation is peaking and it's peaking globally, he says. But you and I look at the market today and we see Apple hitting new low. and the tenure up at 385. I mean, it is, it makes you a little uncomfortable. Well, first of all, you should always invest with a little fear, right?

You usually get in trouble when you're very confident of something. No, we have to have some opportunity to make a mistake. And this is why we think if you set aside the things like Apple that are in the position there and where investors are very, very overweight and very worried about their market. markets and their margins, that's fine. But you forget about why is the market now significantly higher for housing, industrials, financials, a lot of the names that you would have otherwise expected to be working to new lows right now. And they're significantly higher than this summer and falls lows. So there is something else going on right now. And it's not something the Fed

will ultimately correct. It's really there in the valuations of these stocks. Jerry, hey, it's Brian. Listen, let's try to be optimistic going into the new year, shall we? A terrible year for stocks and bonds. And to follow up on what Bob Pisani said, I want to ask you if you've got a view for next year. And here's why. It is very rare that the S&P 500 or the Dow go down two years in a row. We know that.

So that looks good. However, when they do go down two years in a row, I read over the weekend, the second year tends to be worse than the first. So if we're down next year, it might be an even bigger drop. What is your take on 23? My take is each of those examples that you cite came in a financial crisis, the recession or the depression, the great financial crisis. We don't have that type of structural underpinning. The European banks, the U.S. banks, all the banks and the financial institutions of the world are vastly more stable and have better balance sheets going into what, again, is this feared downturn.

And I would also point out, we haven't talked about this, but the fact that China now is going to pull forward a reopening cycle that took us two years, they may be done with their entire reopening here in the next three or four months. And that's the biggest economy in the world set to grow again for the first times. That's not part of these other narratives that I think has been grossly underestimated. And you like Exxon for that reason, Schlumberjee, you like the payments companies, MasterCard, PayPal, retail, Alta, Nike. We can see kind of that China blend there if that demand does come back, like you said. Jerry, we'll leave it there for now. Thanks. We appreciate it. You bet. Thank you so much. Happy New Year. You too. And if gas prices go up, you can pay for the gas on your visa card.

Convenient. Because you might convenience. They get higher fees. There you go. Something is afoot at the Circle K. All right. This year, the single biggest wild card for oil and gas prices has been China. China COVID lockdowns crushing domestic demand. Car and air travel way, way down. But now, China's making a big U-turn, easing up on their COVID curves. And while much of the public in China may be self-quarantining for now as COVID cases pop,

that likely won't last for long, just like what happened here and in Europe. And that is fueling hopes that energy demand will recover in a country that has largely been shut down. Here with more on the impact of China's reopening and other issues, Andy Lipau, President of Lipau Oil Associates. Andy, great to have you back on. when you look at IEA data and maybe you've got your own, the difference in China's oil consumption could be anywhere from two to three million barrels per day based on how their economy is going. What do you see with China and oil demand?

Well, I don't think it's that much of an impact. I think it's closer to a half a million barrels a day, up to a million barrels a day. And irrespective of the total exact amount, I think that's worth about. about $5 to $7 a barrel increase in oil prices, especially as airline traffic comes back. How much do you think, and we're seeing, by the way, air travel and I guess demand for tickets was up like 90% in China. How much do you think that jet travel, air travel, flying, jet fuel, etc., driving more will ultimately drive demand? Is China going to be back to 15.5, maybe even 16 million barrel a day consumption? Well, I don't think that's going to be the case in the near term.

I think it's going to be six to 12 months out. But you combine that with, say, the halt and the strategic petroleum reserve sales, as well as a slower growth rate of oil supplies here in the United States. We have a mix of a number of factors that are going to increase oil prices even more than just the China reopening. So, Andy, let's talk a little bit about what that means for consumers at the gas pump, The fall in gasoline price is probably the biggest positive story of the past couple months, maybe saved Christmas, you know, restaurant spending, even retail spending getting bailed out somewhat. Should we expect this to last?

I don't think so. I think in the near term, we're going to see gasoline prices rise another 10 cents a gallon as oil prices have been increasing, as well as this freeze that we just went through with winter storm. Elliott has impacted about two million barrels a day of refining. capacity just here on the Texas Gulf Coast. Now, it's true it's going to quickly recover, but it is another supply impact. Yeah, what else do you see is kind of the main theme for oil next year? I think the recent weakness has surprised many people, particularly those who can point to about five or six different bullish things and maybe only one bearish thing,

which is the potential for a global recession. What do you see happening in the first couple months of next year? Well, the recession has definitely weighed heavily on market sentiment, but I think going forward, especially in the next six weeks, is what is the European Union ban on the purchases of Russian diesel? How is that going to impact on the oil market because Russia was able to sell its crude oil to India and China, but that's not the case with Russian diesel because China and India are long diesel. So there is going to be a scramble for diesel supplies. And what we just saw with this freeze is the New England utilities came in to burn diesel

as they were curtailed on natural gas. And that being the case, Andy, what's that mean for the prices? And Brian's been doing great reporting on this. What does that mean for the prices everybody's paying and for the resilience of the energy system? Well, it certainly means that the consumers are going to be faced with higher, utility bills, not only from natural gas, but from home heating oil as well. But in addition, all those goods and services that are delivered around the country by truck and rail, they're going to see higher transportation costs that ultimately get passed through to the consumer.

Yeah, finally, Andy, I want to ask you this. Vatimer Putin, maybe just about an hour or two ago, came out and did what was expected and said that we are not going to sell any oil to any nation that subscribes to the price cap that was put into effect by most of the G7 nations and all of Europe. They're selling most of their oil right now under the price cap costs, but if we hit that number, is that going to make any difference, or is this just kind of lip service and hot air by Putin? I don't think it's going to make any difference because the majority of Russian crude oil is now being sold to China, India, Turkey, and Bulgaria. and the first three are simply not going to pay attention to the price cap because they're buying hugely discounted oil. Andy, Lipout, Lipout Oil Associates, Andy, really appreciate your views at important time.

Thank you very much. Thank you. All right, by the way, everybody, if you want to hear more about the energy market and the year ahead, be sure to tune in tonight. We've got a big hour at 6 o'clock Eastern, Jim's off all week on all things energy with guests on oil and gas, and how many American families are struggling to pay their electric and heating bills as well, also a big look at next year. So tune in tonight, really all week, Kelly, for a CNBC 6 p.m. special taking, it's not markets in turmoil. No, not yet. It's not Apple and turmoil yet. But we should point out that you remind us, the utility bill. So you know how over the holidays

you should ever talk about, okay, Bitcoin or I'm talking about the price of gas leave? You know what conversation point came up quite a lot for us? People saying, guess how much my utility bill was last month. That's already starting. Even though there might be an offset with lower prices at the pump, that doesn't mean there's relief anywhere. It's still a huge pressure. I would venture to guess that for most people, based on 50 gallons a month of driving costs, which tends to be the average for Americans, unfortunately their heating bill increases, particularly in the Northeast, have probably mitigated most of, if not all or more of their gasoline savings. I was posting on Twitter that this weekend, Kelly, 30% of.

of New England's electricity generation was oil. Yeah. It's normally zero. How, what are they saying about how close that grid may have been? Oh, by the way, it's five degrees and massive bomb cyclones. No, exactly. Imagine if that price of oil were not as low as it is right now, it'd be even worse. All right.

All right. All right. To the bond market. Sell off that boosted yields. Is the worst over? A veteran fixed income investor tells us how he's positioned, plus rethinking tech regulation, who's most at risk with the EU taking it on. And as we had to break a look at shares of Tesla, it's the worst performing S&P stock right now, down 8.5% nearly on those reports. They're

extending a production halt in Shanghai. The stock is down more than 40% this month. Its market cap is just $357 billion. We're back after this. All right, welcome back, everybody. Bon yields. They are rising today. The Treasury market, getting ready to close out an historic year, and not in a good way, because it has been the worst year in decades, if not ever, for big parts of the government bond market. So let's get a live check now of where we stand. Rick Santelli is at the CME. Rick, the China story, I would imagine, also has to play into the bond market, does it not? Oh, absolutely. It needs to play into the bond market. And if China gets going, I think we'll continue to see interest rates potentially move a bit higher. Remember, a global recession would be if China doesn't come

to the game, doesn't put their baseball bat into the game and start swinging it a few, the global economy isn't in great shape to begin with. And if you look at how investors flocked today, Sully, to the two-year, I was a bit surprised, especially the last week of the year. Look at the interim of two-year right around one eastern, you see yields drop. So even though twos are up seven on the day, they dropped on that news. And when you think about the year, it's been in treasuries, it's mind-boggling. Here's a year-to-date of two-year.

It's settled, yes, at 0.73. Basically three quarters of 1%, which means at current levels, it's up 367 basis points this year. It's currently hovering near a one-month high shit to close here. And if you look at a year-to-date of tens, they closed last year at 151. So hovering at 385, it's up 10 base points on the day. it's up 234 basis points on the year. These are astronomically large numbers. And if we look at year-to-date of boons,

and this is another reason our yields are going out. Boone yields are flying. A year-to-date, boons are up 270 basis points. They settled at minus 18 last year. There were 252 this year, and that's an 11-year high close. So all of that is pushing the spread closer together of our tens versus Europe's tens in the low one-thirties.

It's the closest they've been in 26 months. Yes, things are heating up. And despite all that, many traders I talk to think they're going to be buying yields the first week of next year after they continue to rise for the rest of this week. So traders say. Kelly, back to you. Green of salt, Rick, thank you.

As yields rise again, this will be remembered as the year where there was nowhere for investors to hide. The S&P down 20% worst year since 08. Oh, but what about bonds? 7% inflation eating into your cash and the bond market by many accounts closing out its worst year ever. The aggregate Bloomberg bond index down 12%. Only its fifth negative year since the 70s. Will 2023 bring fixed income back from the dead?

Let's ask Gilbert Garcia, Garcia Hamilton Associates, managing partner and a CNBC contributor. I'm sure you're going to say yes here, Gilbert, but I guess it's a question of where and to what extent. And tell me everything you think about where people. should be in bonds. First of all, is that me? Kelly, I want to make sure that I'm not having some kind of a moment. Gilbert, one second. Are we having some audio issues? We'll come back to you, Gilbert. So you know, you know, like when you're on the phone, you give it a second to wait to see if it's going to get fixed. Do you know what, our viewers will know this, and you know, I'm going to sound a little snotty here.

Use AirPods. I call it the AirPods lag, where you get a call and you put the air pod in and you're, hello? Sorry, hold on. No, I tried to switch. Seven seconds later, you can. connect like hello and then they're halfway through. I try to wait for an opportunity. You know what I'm talking about. They know. Gilbert, are you back with us? I am. Can you hear me? What's eating Gilbert Garcia? Go ahead, Gilbert. Tell us everything. Thank you so much. Microphone. At the end of the day, bonds may be down, but they're not out. And I think people need to recognize when you look at the 60-40 blend, which a lot of, if you look, even with the great financial crisis, even with this terrible year this year, that six, a, that's six, a, that six,

60-40 blend has been a return. I understand that this last year was eye-poppingly negative, but that model has worked, and I think it's going to continue to work. Gilbert, we're going to try to get you back as we smooth out the audio a little bit. Gilbert, obviously, one of our favorite guests here. I know what he's saying about the bottom. I don't want to ever have to fill in the gaps themselves. Yeah, and let's be, if you're not familiar with the historical data,

I know you are, but for maybe our casual viewers or casual, listeners, by the way, a lot of people in the road listening on Sirius XM 112. It's the worst year ever for both stocks and bonds. Usually one goes down, the other goes up. That's why they say, Kelly, you need a diversified portfolio. That did not work this year. But let's be honest, if you're young-ish or young, you want to buy stuff when it's cheap. I'm not saying things are cheap now for next year. No, but. But I'm quite confident the S&P 500 will be higher in 10 years, or we have other issues. Major problems. That, that, that, The stock market probably wouldn't matter.

And there's plenty of people watching who go, yeah, we do. Well, you know what? We'll see if the market can still work as we work through all of them. That's it. Speaking of problems, by the way, a lot of you trying to fly the last couple of days, we get it. And coming up on the show, airlines canceling 17,000 flights. It's Wednesday, but is Southwest the biggest of the big problems? We'll find out.

Plus, stocks Wall Street loves to hate. We'll take a look at some of the most shorted stocks out there and whether or not you should buy them now thinking maybe they'll turn around or perhaps have a short squeeze. We'll call it a segment for all you apes out there, but it won't have AMC. We're back right after this. Welcome back, everybody. We were talking about how there's been no place to hide this year. Couldn't put your money in stocks.

Couldn't put them in bonds, but could that change for 2023? We're going to ask Gilbert Garcia, Garcia Hamilton, Associates Managing Partner and a contributor. Gilbert, great to have you back. where would you be in Bondland for 2023? Thank you very much. First of all, bonds may be down, but they're not out. And if you look at the 60-40 blend, which I know a lot of people focus on, even if you put in the mathematics of Lehman Brothers and this year, that 60-40 blend since 08 has

given you over a 7% annual return, which is pretty good. But at the end of the day, I recognize last year's eye-popping, but I think that's what creates an extraordinary opportunity in bonds today. because it just take the two year. If the two years yielding roughly 435, 450, over a one-year horizon, the break-even is almost 500 basis points, meaning the two-year would have to go up to almost 9 or 10%

before you lose on that trade. And so I think the break-evens are extraordinarily compelling. But there's so many different ways to get yield now, right? I mean, there's pretty good yielding stocks even. you can be in, you know, one-year CDs that'll give you over 4%. Even in the world of bonds, you've got mutis, which people are getting interested now. Then you've got corporates. What are your favorites kind of rank them for us?

Sure. First and foremost, get in the bond market. That's the most important thing. And frankly, I would get as much duration as possible, meaning get as long as possible. And the reason is we are going to see a slowdown because if you look at all the leading indicators, not looking backwards like the Fed focuses on backwards or current data. If you look at the yield curve, you look at money supply growth, which is growing negative now. If you look at all these leading indicators, they suggest that a slowdown is going to occur and a recession

somewhere by the first or second quarter of next year. And if that happens, you should see race go significantly lower. If you look within the sectors of the bond market, and my view, corporate bonds are very vulnerable because in a recession, stocks will correct, and I think credit comes under pressure. But what's very attractive and almost historic attractive or mortgage-backed securities, the old-fashioned agency guarantee mortgage pool. Let me just ask before we let you go, because on the one hand, you're saying, you know, and I want to reiterate, you say get as much duration as possible because you think we're heading

into a slowdown. Is that why you're worried about corporate bonds? I mean, do you really think people are going to default here? or do you just think there's a kind of exposure risk? I think there's definitely exposure risk. I do expect the false to increase, but if you look at the high-quality spray, spreads are so narrow, there's really not an attractive place to be.

I know that they have widened and on the excess return for the year, they don't look good, but you have to remember when you get an extra yield of, say, 100 basis points, that means one thing when rates are 200. But when rates are 400, on a ratio, that's not very good. good value. And that's what credit is today. Well, and that's why we tried so hard to bring you back, Gilbert, exactly for

hot takes like that. Thank you for your time. We appreciate it. Please invite me again. Thank you, team. Anytime Gilbert Garcia. And let's get to Christina Partsenevelas now for a CNBC news update. Christina? Hello, Kelly, and here's what's happening at this hour. More criticism for a newly elected Republican congressman

who admitted to lying about his resume. The Republican Jewish Commission says New York Representative George Santos is no longer welcome at their events. Santos told the New York Post, he never claimed to be Jewish, directly contradicting his remarks to the GOP group last November. On the shore of Lake Michigan, a Wisconsin gift shop has been turned into a block of ice by the historic winter storm. The owner of the store estimates the ice is over a foot thick, the results of three days

of high winds and freezing waves. Look at that video. And a Florida couple, always in Florida, got an unexpected Christmas present. Their long-lost engagement ring was found 21 years later after it fell in a toilet. It turned up when the groom's parents replaced the much now or much older toilet after a much-needed cleaning. The couple got the ring for Christmas. I guess it's good that they just rolled with it. I like that ice castle. That was crazy looking.

Oh, my gosh. Some of the footage out of that. Also a good night. I think 1980s movie was that. Ice Castles? What was that? About 1979? You weren't even born. By the way, I've been to Sturgeon Bay. As you've got, you know, I spent a lot of time in Wisconsin. Look at that. That would be a really cool little tourist. You know what they call that in Wisconsin? No. Spring. Ahead on Power Lunch. Tech is in 23. I thought it said it is 23. It's been a rough year for the

sector. No joke with growing regulatory threats here and abroad. We'll talk about the biggest issues that are facing them down as Apple trades tough here. with us on Power Lunch. We're back in a moment. If there's one thing that actually both parties might be able to agree on in D.C., is that they may have a need to rein in big tech. But it's Europe that might have the

most to say in the Neil term with company and deal busting next year. They've got two huge new rules coming into effect. The Digital Markets Act could impact companies like Apple and Google, while the Digital Services Act could pressure the world's biggest social media companies.

So what exactly are these? And what might they mean? Let's hit it. Well, Steve Kovac. Steve, run us through it. Yes, sir. So I'm going to talk about the Digital Markets Act, Brian, or the DMA, as most people call it. It's one of those two major laws passed this year targeting those big tech companies they mentioned. Now, the DNA will have the most impact on Apple and Google, forcing them to open up their software for smartphones. This is why Bloomberg reported a few weeks ago that Apple is building a version of iOS that would allow third-party

apps and app stores. So here's what to expect next year. The EU will designate so-called gatekeepers under the DMA. These are the companies meeting markers for a number of customers and revenue within the EU. It's written specifically to target Google, Apple, and Amazon. Now, after a bunch of red tape over the next couple years, the companies will have to comply with the DMA rules or face fines of up to 10% of global revenues by March 2024. Now, for some perspective on those fines, that would be nearly $40 billion fine for Apple based on last year's annual sales. Now, Apple and Google may find ways to charge fees anyway, something they've done to get around other app store regulations. It may not also be a huge

financial hit for Apple. In Apple's case, EU app store sales are only a small fraction of what's made in the U.S. and China. Though here in the U.S., a similar bill regulating app stores, the Open Markets Act, did not make it out this year. And if Congress takes it up next year, they will have the European law as a possible model. Kelly? Steve, thank you for the Digital Services Act that you were talking about, but how it could impact social platforms in particular. Let's turn to Julia for that piece of the story. Julia. Steve was talking to the DMA. I'm talking about the DSA. And right now, the social and search giants are bracing for the impact of the EU's Digital Services Act, content moderation regulation

that the EU passed last month. Now, it aims to force the likes of meta, Google, Twitter, and TikTok to crack down on the spread of misinformation and hate speech. And of course, the likes of META and Google have internal guidelines. These DSA regulations are the first regulations on the topic, and they come with the threat of meaningful fines. The DSA mandates transparency around removal orders and reports of illegal content. Criteria for how platforms should act when they detect illegal content. They also ban deceptive design around consumer and data collection, data collection and protection,

and they require that very large platforms take steps to mitigate risk and also do independent audits. Now, the maximum penalty for violating these rules is 6% of global revenue. That as of last year, that would be about $15 billion for Alphabet and $7 billion for META. Now, the regulatory process has officially started, but the enforcement of this law and the penalties won't come until February of 2024. Now, one company that could face a massive risk around this is Elon Musk's Twitter. That's because most of its compliance officers have either been fired or have left. Brian? Wow. Julia Borsden. Thank you very much. All right. So is there a rethinking of big tech

regulation here in the U.S.? Joining us now is Ed Lee, New York Times assistant editor, CNBC contributor. A lot to talk about. First off, Ed, very macro question. We have a Congress divided. Sometimes they actually agree on technology. Do you think any major legislation will get done? Yeah, no, this is the one bipartisan issue, right? There's enough hate on both sides for the big tech companies. Even so, there's a much lesser chance that they're going to pass meaningful regulation next year. Yes, as you said, it's a divided Congress. That's one of the reasons why. And these companies still spend a lot of money in lobbying, right? So, you know, if there are some senators, some congressmen who, you know, are in some ways you could argue beholden to big tech, even if publicly, A lot of them are sort of finding ways to rail against it. So in terms of regulation, it's unlikely we'll see anything in 2023.

We're more likely to see big action on antitrust issues, right? From DOJ and FTC, we've already seen that happening. So it'll be more kind of case law versus legislation that might take effect at least next year. Though at the same time, EU regulations will start to creep in and that will affect how they how they operate could be a model. Well, last year, there was a picture of a congressman from New York, a Democrat who put posted a picture of himself with a coffee mug that said, Wu and Khan and Cantor, basically Tim Wu and Lena Khan and Jonathan Cantor. These are the Democratic antitrust folks of the DOJ and the FTC, and this congressman said, we're coming for you big tech.

That seems like a pretty big notice. Do you think that there will actually be significant antitrust action on some of these big tech? So it's just, come on, K Street. I've seen the Bentley's rolling around near the lobbyist house. Yeah, no, it's a good question, and it's sort of a funny scenario. But I do think what we're seeing with these guys, with this sort of antitrust, they're testing the limits or the definitions of antitrust. We went by the old Bork definition, which was these two companies combined,

does it make things more expensive for consumers or cheaper even? And that was often sort of the boundary or sort of the litmus test. Now it's with Lena Khan coming in, it's, well, isn't so much how much it hurts consumers, how much it hurts other businesses? We saw that with Simon & Schuster, right? That sale was blocked by FTC. And they were looking at, well, how does this hurt authors versus readers, right? And that's a model for how they might look at what, looking at Microsoft Activision, for example,

and any other potential big things. And in a lot of ways, that's a backdoor way into what the EU, is already legislated, which is, is there enough competition amongst providers within the space? And that's a thing that they're going legislative in the EU in the U.S. We're doing it through court system. But, Ed, I'm struck by the fact that big tech has lost basically $4 trillion of market cap this year. And it turns out their biggest foe wasn't regulators, who's probably going to be a friend long term.

It was the Fed. Regulators, they couldn't in their wildest dreams of acts $4 trillion in market cap off of these companies. Right. Leave it up to the markets to actually really hurt the businesses. Look, the thing is that tech has sort of fueled the growth engine, right, for the economy and for the U.S. for so long. And that's what the market has been betting on.

That's why they've been giving them high multiples and rightly so. Now, however, they've gotten so big. And it's not just that regulators coming in. It's just like the market. Are they kind of saturated in some of these bigger places, especially the U.S., also in the EU? So they need to find growth faster. It's not happening the way it should be. The economy certainly, the pandemic, supply chain issues have affected everybody, including

Big Tech. So now if you're in the market, you're just like, well, I'm not getting the returns that I was expecting from Big Tech. I need to go elsewhere, right? So that's where the pullback is coming from. And now Tech is like, well, hey, didn't you love us a second ago? They still love them, of course, but it's just not the growth engine it used to be. And I think that's the other side of this. So they're really getting it from both ends.

At the same time, they're really big. They can afford a lot of these things, and they've got the R&D budgets to find where the growth could be. I don't want to break the hearts of many teens and content creators who have gotten rich out there. But it's that time of year for hot takes and absolutely wild predictions. But I'm not sure this is that wild. Is it possible that if we do this one year from today, TikTok will be illegal in the United States? Like, gone. You know what?

That's actually one of those predictions. that I might buy into that, right? Just given that there's so, again, it's like if there's one thing that there's consensus on in Washington, it's TikTok, right? Both sides of the aisle are really wary and it's not just U.S. government as well. I mean, other other governments are really wary just given how beholden it is to Beijing. So I think there is a very strong chance of that. At the same time, you know what? The market will find its balance, right? You got Instagram out there, emulating a lot of what TikTok does. I'm sure there are other apps come to the four. Twitter itself, you know, Musk, who knows what he's going to do with that and try to find a way

to kind of edge in on that. So there'll be other places for our teenagers to land, certainly. But I do think, you know, from a legislative, from a regulatory standpoint, TikTok is kind of doomed, maybe. Kind of doomed. Yeah, I mean, it's just banned on many government devices. We'll see if that extends, but somebody will pick it. Don't worry, content creators. There will be a platform for you. It may not be real. We'll see. Ed Lee, thank you very much. Happy to year, my man. We'll talk to you again. Anytime. And check out the Dow, which has just turned negative on the session. We're down 10 points had been the only average in the green. But there's energy, speaking of which, it's hitting a three-week high for oil that's lifting the stocks.

We'll bring you the closing numbers right after this. Welcome back, everybody. It's been the best sector of the year. How's doing oil, closing a few moments ago. Let's get to Pippa Stevens with the latest. Pippa. Hey, Kelly, oil had risen to a three-week high earlier today before giving back those gains into the close. Optimism that China easing COVID restrictions will boost demand had earlier supported prices. The country is the world's largest oil importer, and so prices are sensitive to data around how China's demand picture looks. Now, cold temperatures over the weekend also hitting some U.S. production with output in the bach and down by roughly 500,000 barrels per day,

but forecasts are improving, so that production should return very soon. Let's check on prices. WTI at 7961 about flat on the session. After earlier trading above $81,000, brand crude at 84, 44, 4 gain of 6 tenths of 1%. And both are coming off their best week in nearly three months. Now, energy stocks are the best S&P sector today. Data from sentiment trader shows that last week, more than 95% of the sector regained its 10-day moving average, following historic oversold conditions. Brian? All right. Pippa Stevens. Pippa appreciate that. Thank you.

All right. Still to come, today's three-stock lunch, Wall Street, betting big against these stocks. But should you move against the grain? Is there short your profit? That's next. Welcome back, everybody. It's time for today's three-stock lunch, boy, is it? We're sipping on some underdog names that the street is betting against. These all have high short interest. They're down 25% more this year. We've got Tesla, American Airlines, and NRG Energy, Energy. Here to help us trade all three is Victoria Green. She's CIO of G-squared private wealth and a CNBC contributor. Delighted

about that, Victoria. Good to see you again. Let's start with Tesla. Boy, what a trade. What do you say? I'm not touching it. I'm just watching the dumpster fire burn and roasting marshmallows. Look, there's a direct correlation between the Twitter deal and when Elon Musk started selling Tesla shares and when their stock started to plummet. He says he's done now, but is he really? I think there's potentially in a margin call and there could be further selling pressure. So the stock, not only is it facing an uphill battle, it's blown through all the major supports, you've got nothing between it in about the 60s. So right now, not touching it. And you have the slowdown happening in China. I know you're not, you're talking about the charts, not the fundamentals,

but a 21 times forward P.E., that doesn't get you a little excited? It doesn't because if the demand is slowing, you're seeing it across the EVs and you have more competition. It's a little bit different what earnings look like going forward and what their power is going to be, especially with the reputational risk potentially they're facing with everything Elon Musk done this year. So is the Tesla fure and kind of the Tesla, I would say, cult that helped drive the stock to a new high, is that suddenly dying off? And I'd say, yes. Wow.

Roasting marshmallows over the dumpster fire. All right. Speaking of dumpster fires, that was basic. You just described air travel these last five days. Maybe there's not a short-term play here. American Airlines, 13% short interest, down 11% this month. month. You're there in Texas. They're obviously huge at DFW. You say sell this name as well. You're not, you're not buying American. I'm not. If you want to touch a felling knife in airlines go for Southwest

today. I mean, they're the ones bearing the brunt of the storm. But if you look at the catalyst, Americans just the weakest of the large U.S. carriers right now. They're down-tends and tracked on their charts. But if you look at it, they're one of the onlys with negative free cash flow last quarter. They have some of the highest and oldest pilots. So they're going to have higher retirements. They're going to have a lot of pressure and pricing pressure. They don't have a negotiated deal going into next year, and pilots are certainly demanding more. And so I think they're the weakest of the U.S. carriers. If you're playing the China reopening play United.

If you're playing the, hey, travel slowed down, then Southwest is certainly the one most attractive today. I just think they're the weakest pick of the U.S. carriers right now, so I'm not touching it even with short interest high. All right. Let's see if we can get you something here. NRG Energy. This is a little more esoteric for people, but could it possibly peak your interest? It does. It does. This one's a buy for me. And some of us looking at the insider trade, insider trades after the Vivant deal was announced, and you saw some solid insider buying.

To me, that shows that management has confidence in this buy. I think the cross-selling is tremendous. The back-end technology that they bought, and their cash flow are great. I get this company is changing a little bit. It's trying to diversify the revenue streams. The subscription base is great for them versus some of the revenues that are a little more peak in valley. I love this deal for NRG. I think they're going to be able to pay off the. debt that they're taking on pretty quickly. And then they're going to go back to their 50-50 capital expansion plan and return to shareholders. They are committed to growing that dividend. So for me, and especially seeing the confidence management has that this deal will work on buying NRG. And there we have it. And Brian loves it. We're just happy there's a stock in here that

you'd like Victoria. We appreciate it very much today. Thank you. Victoria agreed. NRG, big energy company, by the way, the former CEO, David Crane, about to get a big new job in D.C. and the Biden administration based in the coal and oil capital of the world. Do you know where that is? No. Princeton, New Jersey. No. The original?

No, their headquarters is right on Route 1, giant building. But do you think there's still that kind of energy market in Princeton, New Jersey? Well, I'm just saying, NRG, they have coal. Maybe they're what, 150 years ago? Capital of coal, central New Jersey. Southwest mass cancellations getting the attention of the Department of Transportation. Are you doing? a refund. If you got left out in the cold on love, we'll talk about it next.

All right, welcome back. It was a huge weekend for travel, assuming you were able to travel, because it was an even bigger week for flight cancellations. Airlines canceling more than 17,000 flights between December 21st and 26th. The biggest culprit, Southwest Airlines, canceling more than 70% of its flights on Monday alone, and warning of more to come. The Transportation Department concerned by Southwest, unacceptable rate of cancellations and delays and reports of lack of prompt customer service. I'm sure you know people that are still somewhere

they don't want to be. We have... Not just Southwest, by the way. No, not at all. And we have tweets. We've heard from Biden on this. We've heard from Pete Buttigieg, who we spoke with going into this week,

obviously. He's saying that you might qualify for some kind of reimbursement. Senator Blumenthal here are some of the tweets from the president. He says, been affected go to this dashboard to see if you're entitled to compensation. I've, of course, always watching to see if he's going to start going after the companies more specifically. Here's Senator Blumenthal. He says Southwest must allow customers to switch to other airlines and provide refunds right away. Yeah, and that's fair, but we also know that since COVID,

insert reason here, there has been a shortage of things like air traffic control agents. Some of them probably, some were fired. Some just couldn't get to the airport. There's a lot of reasons why air travel has been screwed up for a long time. Yep. Right? This next-gen radar that they've been talking about for 20 years. And now this horrific storm. And some reports that Southwest systems went down and they had to kind of manually book everything.

They're trying to even explain to their own staff what happened. So one of the major debacles that we've seen. And you're right. The brittleness that COVID delivered. Right. It's also 20 degrees. They don't do that. No.

They don't do 20. No. No, they don't. Thank you for watching Power Lunch today.