Power Lunch - Countdown to the Fed, and Reddit Rebellion 6/13/23

Episode Date: June 13, 2023

We’re just 24 hours from the latest Fed decision on interest rates, and many market watchers think there’s cause for a pause.Today’s CPI data also showed the slowest growth in 2 years. We’ll discuss what it all means for the Fed and markets.Plus, Reddit users are shutting down parts of the site to protest new fees, as the company gears up for a potential IPO. We’ll discuss. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon and welcome to Power Lunch, everybody. Alongside Kelly Evans, I'm Tyler Matheson. And coming up, we are 24 hours, almost to the minute from the Fed's decision on interest rates. Many market watchers think there's a cause to pause. Today's CPI, big inflation reading, showing the slowest growth in two years there. We're going to discuss what it all means for the Fed and the markets. Plus, a Reddit revolt. Users shutting down parts of the site to protest new fees.

As Reddit tries to raise revenue ahead of a potential IPO. Where are people going to go to get their stock advice, Kelly? Wall Street bets, don't mess with that. Hi, everybody. Let's get a quick check on the markets before all of that. Dow's up 173. We're pretty much at session highs. We're now about 50 points off.

S&Ps up 31 to 4370. NASDAX up 8 tenths of a percent. Tesla is higher again today. 13th day in a row in the green if it closes here. Never had a streak like that of 41 percent. during this wind streak, which began on May 25th, up 3.5% today, too, so a nice margin. Netflix, another stock on a roll of 25% in a month. B of A, the latest brokerage, to say their password sharing crackdown is boosting subscriber growth. Netflix also taking a stab at live

sports. They'll be hosting a celebrity golf tournament later this year. Those shares are up 2.5% today. And got to mention Oracle, rising to an all-time high after earnings, beating expectations on cloud computing growth, unveiling plans for generative AI for businesses. Larry Ellison's net worth climbing quickly on the back of this monster move in the shares to an all-time high, Tyler. All right. Thank you very much, Kelly. We start with the Fed, as we are less than 24 hours away now from the big decision on interest rates. The Fed widely expected to pause tomorrow, but could signal their intent to hike again as soon as July, kind of pause with some teeth in it. This comes as today's CPI report on inflation, shows that prices

rose 4% from last year. That is the slowest pace of growth in two years. If you break it out, prices for car repairs, pet food, frozen food, vegetables, they are growing the fastest. Airfares, gasoline, health insurance prices falling the most. I question the thing on the airfares, though. Here with more on how all of this impacts the Fed is Joyce Chang, Chair of Global Research at JPMorgan. So where in what camp do you fall or do you believe that the Fed will pause tomorrow, signal its readiness and willingness to continue raising rates as needed? Well, I'm in the pause camp, but a pause is just a pause. And I think they will signal that their bias is to hike.

And even though you've seen inflation come down a tick, you see that something comes down in inflation, energy, but then food prices go up. And so just U.S. core inflation, it's been resilient. It's been sticky. And I think that Jefferson signaled this very well. They're going to pause, really assess where they're at. But I think the bias is for hiking, particularly when you look around the rest of the world, because that's what we've seen other central banks really doing as well as inflation has remained resilient.

So what is the terminal rate then? Is it a quarter point above where we are now? Is it a half point above where we are now? Can you say? I think it could still go another 25 to 50 basis points from here. And you could really well see that we're still talking about the recession. risk, but everybody's talking about, is this a first half, 2024 recession? Because the macro data that's coming out is just, you know, also very resilient. So the global expansion has been

resilient, but inflation has also been resilient. So I think that is still an ongoing risk. I know soft landing is what a lot of people are talking about. But I would be more in the no landing camp and that you have this risk, just wait for it. It could play out later in the year, early next year. The markets are something to ponder. You know, when they look at some of the all-time highs we're notching today, when they look at the strength of, you know, tech stocks in particular, but just any kind of momentum area. We mentioned Tesla and Netflix just a moment ago.

How do you think that factors into the Fed's decision? I think that the Fed has actually looked at the market movements and really separated this. I mean, they've separated also some of the financial stability concerns from really looking at inflation. And I think a lot of the central banks had sort of multiple things they were looking at, and they've really come back to their core mandate on inflation. So it wouldn't surprise me if some of this momentum continues a bit, but I would also not be surprised in the summer as liquidity gets weaker, and particularly when you look at what's

happening in the Treasury market bond markets, that you have more of a sell-off in risk assets, and that is more of a July-August phenomenon that could play out. Treasury yields up a little bit today. What are bonds implying about equity pricing over the next? Well, you know, we've taken a look at this. And, you know, if you look at equity vault, it's pricing in like a 3% chance of recession. We've really looked at this and said, if you have the same inflation dynamics being priced in that bond markets are pricing, and you'd see equities 20% lower. So you're seeing some real dissonance between bond and

equity markets and the Fed. Well, you know, I think that the bond market has it right, but the timing has been really tough on this one because we've had so much government support. You know, we still had 5% government spending in the first. first quarter of the year that, you know, everybody's been waiting for the recession. Since Russia's invasion of Ukraine every quarter, we said the recession is starting. So I think there are many people thinking, well, you know, I can't in the equity market afford to miss this rally and you're getting pulled back in. Now, for a fixed income investor, it's different because you can stay in cash and, you know,

and in the short and then still get a very decent yield. But I think in equities, there's a sense of, well, if you think this recession is not coming until next year, am I going to be missing out on this? As you look at the data that's printing. It's funny, too, because we start to see jobless claims ticking up. Continuing claims are already up with levels consistent with, you know, us going into recession in the past. So you also have a situation where people are saying, okay, well, maybe there's no landing for now,

but it seems to me like they're not ruling out the possibility that this ends that poorly altogether. And it just seems odd to say, well, the market would, you know, it's sold off early last year. Okay, we bought them really. Like, well, that could be 18 months to two years before the recession starts. And it just feels like there's no precedent for that that we would, of course, begin to sell off again, you know, if the slowdown does eventually come. Yeah, no, and I think that this is the challenge. I mean, you've had the Fed raising rates, but real rates are still so low. So this recession risk will take longer to play out.

But you're starting to see some shifts in business sentiment. You're starting to see bankruptcy levels rise. But you've had such strength in both the household and the corporate balance sheet and still strong government spending that it's just taking. longer. But I wouldn't, you know, downplay some of the risks that you still need to monitor. It's just a lot of these are slow moving, a slow burn. It's not fast and furious. Let me just come back and make sure I understand correctly. You said that bonds are basic, if you look at what bonds have been doing, they would, and you look at equity, volatility and so forth, you would say that equities are 20% overvalued? Did I hear you correct?

So if you were actually pricing in the same inflation dynamics into the bond market, into the equity market, it would imply that prices would be about 20% lower than where they are. So are you then saying that we should be more prepared for a declining equity market than we are today? Definitely. That has been our view. And we do think that some of this excess savings, the rising cost of capital. I mean, that's going to eat into earnings at some point. But you've had more momentum now, partly because the consumer, demand has remained very strong. The government spending has remained very strong as well. But some cracks are beginning to show, but they are a slow burn, not something that's going to play out necessarily fast and furious, even when we look at things like commercial real estate and the regional banks. Joyce, good to have you back in the house. Great to be here.

Appreciate it, Joyce Chang. All right, quick programming note, folks. We will be in D.C. again tomorrow, as we were the last time, for tomorrow's Fed decision. Don't miss a two-hour Fed edition of the exchange. and power lunch. That begins at 1 p.m. Eastern. We will be there covering it all for you. Looking forward to that. The 10-year yield, like Tyler mentioned, up somewhat after the cooler CPI data today. Shorter-term yields are dropping. Maybe Rick Santelli can explain. He joins us now from the CBO. Rick? There's always an answer to every question, isn't there? As you look at twos and tens on one chart,

we know that the CPI data had a little something for everybody. But twos and tens moved about the same. Look at a one-week chart. They moved about the same in the rain. really we're kind of still in that range. And to answer your question, well, let's let the charts answer it. Year-to-date S&P in 10-year. You know, when I used to trade in the pits, if interest rates were going up, I expected the economy was getting a bit better. And that's what I think what stocks are telling us at the moment. Let's see what Mike thinks about it. Mike, here's the big question that was asked. Does it surprise you that the S&Ps, the Dow, the NASDAQ, all looks so good when interest rates are going up? What do you think of that relationship?

I mean, interest rates have been the primary driver of volatility this year. People looked at unemployment for what would happen in interest rates. They've looked at obviously CPI for this reason, and naturally they looked at the Fed. Of late, these haven't been big volatility catalysts for the market. We really haven't seen the market reacting dramatically to any of these numbers. Tomorrow should be interesting, but I don't really expect much out of the Fed as far as that goes. CPI today was a pretty muted number. We're not seeing these big inflation numbers we saw it.

See, I agree. I don't know. Anybody thought we were going to see it drop. like a boulder from the Sears Tower or Willis Tower. I think what we've seen is the 11 straight month that we have seen year over year headline inflation dropped that's not so true with Core, but Core is making a debt. And I guess the issue really becomes, if the Fed does nothing and kept the rate at 5, 5 and a quarter, over time, do you think that'll make a difference with inflation?

I think the idea of having very stable numbers in inflation will actually make people more confident in the market. It's when these numbers move around that people get scared. Just last week we had something like a 30% chance we're going to see a rate hike tomorrow. Now that's in the single digits. We're looking at somewhere 50, 60% for the July meeting. Those type of like kind of planned out, everybody's comfortable with these numbers. That makes people confident in the market.

That's why we're seeing the market at yearly highs. People are relaxed with what they're seeing. Now, whenever I'm in a group context, and I bet you it happens with you too, our friends and relatives want to know about this recession. And you had an interesting comment when I said, How do you trade? Do you trade as if there may be a recession, but don't concentrate on it, really disrupting your strategy in the here and now? We have been one month away from a recession for the last 18 months. Exactly.

And the idea of being scared at all times is usually a really bad trading strategy right now. As we see it, the fix is under 15. The regional bank story is more or less gone away. We had obviously the debt ceiling to contend with. That's gone. We're not seeing huge inflation numbers. For the time being, it doesn't seem like a recession is in the cards. Now, who knows what we look like six months down the line?

Maybe there's some other catalyst we're not even thinking about. But for the time being, I don't think there's any reason to really, like, get really scared. It seems to me, like, can't worry about that. Just now, the economy is surprisingly strong on labor, leisure and hospitality. We're bringing those workers back. That's most likely pushing rates up. When that wave ends, then we probably have to pay more attention. That sounds exactly right.

Mike, thanks for joining me today. Tyler and Kelly, Mike and I are tossing it back to you. Mike and Rick, thank you both. We appreciate it. Coming up, a Reddit revolt underway, but this time against the company itself, what it could mean for the social media platform as it prepares for a long-awated IPO. Plus, it's a wonderful life if you're wealthy. George Bailey was the richest guy in town because he had friends.

But in 2023, what does it actually take to be considered wealthy? The answer might surprise you. And as we had to break, a quick power check on the plus side of the S&P, Halliburton, up 4.5% along with oil today, more on that later. On the negative side, biogen down 3%. Some traders citing changes made to their board. Power Lunch is back after this. Welcome back.

Another Reddit revolt is underway. But this time, it's a civil war, a house divided against itself. The Redditors are feuding with corporate leadership over a push to monetize certain services on the platform. All this clearly as the company looks to shift profitability ahead of a long-weighted IPO. But users aren't taking the changes lying down. They're effectively shutting down chunks of business. the site, Steve Kovac is here to explain. And Steve, it's kind of funny or peculiar, I guess, because they, I don't know, they're, it's like a Robin Hood story, but I can't figure out

who, like, the good guy is. You know what I mean? This is a really complex story, as is everything with Reddit, because Reddit is, the pages, the subreddits, are run by communities of people with moderators. What they are angry about right now is Reddit is making a change saying, if you want to use our data for your own app, there are a lot of third-party Reddit apps out there, very popular ones, in fact, that just kind of suck up the data from Reddit and put it out on their own app. There used to be Twitter apps like this, too. Exactly. And because of this change, those apps are going to have to start paying for access to that data. Now, there are a lot of reasons why Reddit wants to do this. One, you know, diversify the revenue outside of advertising

ahead of IPO. They filed for an IPO way back in December 2021. That's been delayed because of what markets did last year. And then the other reason is they don't want chat cheap ET and other AI services, scraping their site for free. Reddit is full of great information that these AI, large language models would love to get their hands on. So they're basically saying... So who's the aggrieved party here?

These outside scrapers and people who are scooping up Reddit data? Correct. Not the people inside who are on Reddit or working at Reddit. Well, both. Why would they be? It's also both because they're upset because they can't use the apps

that they would want to for free. So Reddit has its own app, but there are a bunch of third-party apps that these people love to use. And in protest, a lot of popular subreddits got shut down by their moderators in protest of this change. Basically, they say, you know, Reddit's just chasing money here. This is, you know, hurting the community and so forth.

This is something Twitter went through, a very similar thing around the time of its IPO as it was trying to get profitable and monetize. There were a lot of third-party Twitter apps out there, and they started raining in their data as well, closing it off. But the AI bit is really interesting because this is a lot of. a way for them to kind of capitalize on this large language model, generate the AI boom, and say, great, take our data. Just pay us for it. That's a really good model for them, especially because of how much interest knowledge.

How angry about this? Very angry. So the Verge just reported this, and this is actually really sad. Steve Huffman, the CEO of Reddit, sent out a memo to employees saying, do not go outside wearing Reddit gear because there's fears of physical violence. That's the implication there. But wouldn't the violence be inside? I mean, Right, right. Who's going to attack them from the outside? Redditors, certain corners of Reddit are very interesting people, and to say the least. And, I mean, I can't imagine myself getting so angry over a website making a change like this.

I'd want to hurt someone who works on that website. But there's clearly, they're getting indications enough that, you know, they had to send out that warning for sure. Yeah, it's, yeah, it's, but look, this company is going to IPO. How many people use Reddit? Do we know? I forget what the latest. It's a lot. It's well over a couple hundred million. Yeah, but I forget the exact number.

There's a lot. There's a scale of Twitter? Oh, yeah, bigger than Twitter, I would say. Yeah, Twitter's maybe 200. So it's huge. And it's also a very passionate community, too. So it's not just people who check it randomly. It's people who care about it so much, basically for free.

They'll manage these subreddits and manage these mini communities. There's just a lot of heart and soul people put into this. That's why we see such passion around any major change. they make. So now the question, obviously, this is more than a distraction. It comes, I don't know what the latest reporting is, about how quickly they might try to IPO, but they're going to have to put this to rest, answer questions about, you know, whether they've seen any fall off in user data, and profitability if they are really preparing to do this imminently. Yeah, and we know it still, most of their money comes from ads. They do

have a paid product and so forth. And this might not be a huge business for them. But look, it's very similar to Facebook. Facebook has its own data locked in. Google can't just go there and scrape it. Chatbots can't just go in there and scrape it. They own the data too. It's Reddit's right to do this whatever they want with their data on their site. To me, it sounds smart, especially because we talk about this in journalism. I think we had a discussion about this last week on the show that the last thing you want to do is give away all this IP for free and then have the chatbots and Microsoft and so forth make the money instead of the people who actually created the content. That's what they're going for here. All right. Thank you, Steve. Thanks. Appreciate it.

Steve Kovac. Oil prices higher today following big declines yesterday. Goldman Sachs slashing its forecast as demand worries remain. We'll tackle that one next. Welcome back to Power Lunch, everybody. Oil rebounding today after yesterday's big drop and really big declines all year. Still below 70, I think. Let's bring in Pippa Stevens for all the details. Yeah, W. Tai is still below 70 right now after that big drop yesterday when it dropped about 4.3%. So it is making back those gains, but once again, still below that $70 level. A couple of factors driving the bullishness today, including China cutting a key short-term lending rate.

And so the idea there is to inject some optimism into that post-COVID recovery that has yet to actually come to fruition. Then, of course, we had cooling inflation data, which then sets the stage for tomorrow's Fed decision. And so if there is a pause, then people are more optimistic that we'll still see demand growth for WTI.

And actually, Goldman Sachs out today with a note saying that the E&P stocks have underperformed, but they think that they are now starting to look better, in part because of cooling raw material costs. Things like sand and tubular piping, those prices have started to ease. So they said, that's beneficial looking forward. They did upgrade Devin, but downgraded EOG based on a less favorable outlook for natural gas prices. Where had Goldman's price been, and where is it now? So yesterday there was that big call on oil. So today is about energy stocks, but yesterday for Brent, it was 90, I believe, I believe

it was 96 going down to 87, somewhere in that range on the Brent, I'll have to double check. I can't throw it to you. But it mattered because they'd been so bullish for such a long time. I thought they'd been bullish. Yeah, and so they said it was all about those supply, the supply, just more supply

than we had thought based on Russia and Iran. Short term throwing in the towel, not throwing in the long term towel. Hanging on, that's what he said. It's sort of okay, the near term upside is gone, but we remain structurally bullish for the longer term. Well, balancing the short term and the longer term. You know, you can add in quite a few qualifiers there.

All right, PIPA, thanks. PIPP Stevens. Let's get to Contessa Brewer now for CNBC News update on Pesah. Tyler, former President Donald Trump arrived at a Miami courthouse within the past hour to surrender to authorities and be arraigned on federal criminal charges. He was escorted in by a fleet of armored SUVs and police motorcycles. Now, no cameras are allowed in the courtroom, so we won't get a look inside at the proceedings, but we do know the booking process just wrapped up moments ago. Trump was indicted last week on 37 counts related to more than 100 classified documents recovered from his Mar-a-Lago estate last August. Three people died in two van attacks in the English city of Nottingham. Police say the first two victims were found dead

about dawn and then a third person was later found on a different street more than a mile away. Police arrested a 31-year-old man on suspicion of murder. They're working with counterterrorism officers to try to establish a motive. And India is suspending cargo activities at a port in West India as a cyclone barrels toward the country. At least 3,000 people have evacuated. The storm is classified as very severe. It's expected to make landfall Thursday. We'll keep an eye on that. Kelly. Absolutely. Contessa, thanks. Ahead on Power Lunch, AMD is looking to invade Nvidia's turf, showing off its new AI chips. We'll trade that name and others in today's special deluxe three-stock lunch. Plus the biggest public pension planning a multi-billion dollar push into venture capital.

We've got more details in today's tech check. We're back in a couple of minutes. Don't go anywhere. Welcome back, everybody. It's time for our three-stock launch. We've got a deluxe edition today with three key stock stories on our radar. Our team of reporters will give us the news and moves. There they are.

Then our Trader Scott Nations, President of Nations indexes, will give us his trades. Welcome, everybody. Let's start with Home Depot with our very own Dom Chu. Don, what's going on there? All right. So Kelly, Tyler, Home Depot shares have been wavering between gains and losses, as you can see there, pretty much all session long. But none of the moves have really been all that dramatic, meaning perhaps that Home Depot

and CEO Ted Decker pretty much gave investors exactly what they were already expecting at today's investor day. Now, Decker and the rest of the Home Depot management team affirmed their full year forecast for America's biggest home improvement retailer, adding that it expects overall home improvement markets to grow by low single digits with gross profit margins pretty much in line with what they were last year. Now, one of the things that Home Depot and other retailers will be struggling with is the concept of shrinkage. Now, that's industry jargon for the negative effects of theft on a company's financial results, something Ted Decker spoke about in his interview with Becky

quick earlier today on Squawk Box. It's a big problem for retail, and it goes across. retail and just to take a minute sort of at the root cause of this this isn't the random shoplifter anymore these are organized crime reigns that are organizing and sending runners in two stores to steal en masse and then you know this fencing is much more sophisticated it isn't just pawn shops anymore a lot of this product is fenced on online marketplaces all right so Kelly Tyler shrink shrinkage Those words will be heard a lot more from retailers in the coming months and quarters. I'll send things back over to you.

That is quite something. A company like Home Depot especially. All right, Scott, what's your take on the stock? What do you do with Home Depot? Downlight it out really well. I think it's a buy. Again, the fact that they reaffirmed guidance is disappointing because both revenue and earnings expected to fall this year.

But this is the name that can take advantage of stabilization of the home improvement business. P.E. is still below 20s. It's not exactly a bargain, but the stock is down 5% year-to-date. So this is an investor stock. This is when you're going to look back in three years and say, you know what? I did really well there just because of where they are in the space. They're the leader in the space. All right. Let's get to Christina Parsinavelas, and she's going to tell us about AMD. Hi, Christina. Well, hi. AMD's presentation just ended. Lisa Sue took the stage. She said AI demand

is going to be quote a lot, which is why they believe their total addressable market is going to go from about $30 billion this year to literally over $150 billion in just four years in 2027. And how they're going to do that, they announced a new GPU chip, which is the MI300X. What we need to know is that this chip is going to be very strong when it comes to memory about 192 gigabytes. And it's going to start sampling in the third quarter of this year with customers. So this is seen as very good news for the company because it could be seen as an all. alternative to Nvidia's GPUs. Invideo already dominates the market, already owns roughly 70% of the AI data center market. So this is an opportunity for AMD to steal market share.

They also announced software that would go with said GPU chips. This would be open software. And then lastly, there were many announcements around their CPU, their central processing units. But really, if I were to read the room, and they're literally coming out right now, all of the analysts seem to get up when Lisa Sue spoke about AI. They were all snapping pictures, and that seems to be a lot of the excitement around this next generation GPU that will allow AMD to compete with NVIDIA. And I'll have more later on at 4 o'clock with my interview with her. All right, Scott, a very rosy picture being painted there on AMD. You buy it?

It's rosy because it's a bubble. And while AI may end up doing wonderful things for mankind, the stock is up 30% for the month. It's up nearly 100% year to date. And it's a bubble. The company is actually expected to see slightly lower revenue, slightly lower earnings in 2023. PE of 40. I'm old enough to have seen a couple of bubbles.

So it's a hold. I'm not going to buy it. That doesn't mean you're short it because it can't get more of a bubble, become more of a bubble. But the business side of this isn't really going to play out for two or three years. All right, let's remind viewers not to miss AMD CEO Lisa Sue in a first on CNBC interview. That comes this afternoon. She'll join John, join the closing bell overtime live at 4 p.m. Eastern Time.

We'll see her then, and we hope we see you there. And let's get to Boeing now. Phil LeBow here with the news. Hi, Phil. Hey, Kelly, when you look at the May orders and deliveries, let's start first off on the order side. 58 plans in the month of May. You take a look at shares of Boeing, which are pretty much at. a one year high close to it if they're not there already. 127 year to date have been ordered.

But it's the delivery side that people are focused on. Some 737 max have to do some inspections, potential rework. Well, they're still delivering. May 50 they delivered, 36 of those being maxes, given the fact that they're going to have to start doing those inspections and reworks. There you see the year to date number 206. As you take a look at Boeing and Airbus shares, keep in mind that we get the Paris Air Show next week. We will likely hear some large orders for both of those companies.

Guys, back to you. All right, Phil, thank you very much. Scott, Boeing, what do you do with this one? It's a great business and a great company. Unfortunately, it's a hold. It's a 15% year-to-date. And as Phil laid out, they've got too many problems right now to get very enthusiastic about a company that's nearly doubled from the low in September. they've had trouble making deliveries. Bill laid it out, but 64 deliveries in March, but only 26 in

April. They're pausing the 787 deliveries. They're not going to be profitable this year. And even if you go out to 2025 when they will be profitable, given the current price, the PE is still almost 25, a great company with a great legacy. They're going to do well in the future. They're just not going to do well in the very near future. You know, we had a guest earlier today from J.P. Morgan, Scott, who said that if equities were pricing in what bonds seemed to be pricing in, equities would be prone to a 20% decline from current values. You buy that? I think the problem for equities in general is that the indexes have been supported by just a tiny number of names. And I think what might happen, if we get a little bit of bad news, then those biggest names are really going to take the brunt up.

of it because that's where people have gains, but it's also going to be where they feel like they can get out at the best price. They can get some liquidity to get out. So the fact that we've had a run up and it's been focused in so few names, I think that's really a vulnerability for our market. All right. Interesting take there. Scott Nations, thank you very much. We appreciate it. Thanks, guys. All righty. The biggest pension fund, public pension fund in America, planning a multi-billion dollar push into venture capital and more risk-on assets will ask a different public pension fund manager if he would make the same investment here. And as we had to break, June is Pride Month, CNBC celebrating all month long, sharing stories of corporate leaders.

Here is Julie Beal, Kanye Anderson, and Rudnick portfolio manager and a CNBC contributor. When I started my career on Wall Street, there was very little representatives. You know, you may know that someone was gay privately, but it wasn't someone who was out and who was comfortable. And so it didn't leave a lot of room for anyone else to feel safe to step out. And I think that's the responsibility for, you know, us elders to be out there and to create space and create safety for the younger gay people. There's just as many gay people now as there were back then. There's just way more room for them now. Big investors might now be looking to the private markets for a tech comeback.

Earlier this week, CalPERS set out plans to push into venture capital as part of its private equity portfolio. Deirdre Bosa joins us now with a special guest for today's tech check. Deidre. Tyler, thank you very much. And I am pleased to have Chris Ailman, Chief Investment Officer of Calcers' second largest public pension fund in the country. Join me. Chris, it's great to talk to you again. You just heard what Tyler said.

CalPERS, as I'm sure you know, increasing its allocation. to venture. What is Calsters, and how are you thinking about it as an investment class at the moment? You know, Deirdre, we're staying as a steady investor in venture capital and in private equity. Both we in CalPERS, sadly, I would say, being in California right next to Silicon Valley, we're both underweight venture capital, and it has a lot to do with our sheer size. But then the disclosure laws in California, a lot of the VCs would rather take their other money. I think it's a great move for them. They've been behind the curve in private equity.

They haven't done a lot of investing in the last decade. Believe me, I like to throw rocks at them, but it is my pension plan, oddly enough. It's just down the river. But, you know, I think we've been a steady, state investor in private equity through the decade. They were in and out for us. We're actually 15, almost 16 percent in private equity. So pretty comfortable where we're at right now. Right.

And CalPERS called it a last decade. And you just said that you guys perhaps under-allocating. as well. Is it too late? I mean, we've just seen a decade plus of this boom in VC and the startup world in an era of low interest rates. We're in a very different one it looks like for the next upcoming years. So how can you capitalize that you guys as well in your allocation and CalPERS if this sort of moment is subdued? Well, what I'm saying is that at our sheer size, $300 billion for us, $500 billion or something like that for them, it's just hard to put a lot of to work in venture capital. And literally our disclosure rules, a lot of the VCs throw us out.

They'd rather take money from the sovereign wealth funds. So even if we'd like venture capital in this area, and it's, you know, it is part of our portfolio. I would say U.S. venture is the most interesting area. I know their private equity guy mentioned going into non-US VC. We found those markets kind of challenging. The dollar has been so strong. You know, the innovation is here. in the USA. So it's still an opportunity, but not something we're going to be able to overweight just because of our size or them. Chris, they have just been out of that market. It's Tyler here. You've mentioned a couple of times the idea that the VCs kind of don't want your money. They'd rather take money from others because of disclosure issues. What specifically are those

disclosure issues and why are they so vexing? Tyler, you know, it's a great example of California wanting to be open and share our portfolio and have us provide information. The San Jose Mercury News was the one pushing on the other side. And so it's very unique to California pensions, not just persons and stirs, but even the counties. We have to disclose a lot of information about our private equity portfolio. And frankly, in Silicon Valley, they love to be private. They don't want to talk to anybody. So, you know, maybe we're sort of the Rodney Danger Field of the

country club, they like other people more than they like us. So one more question. If you look at venture capital funds, what is their hit rate? Are they looking to hit on one out of 10 investments they make? Three out of 10? What is it? Yeah, you hit it on the head. One out of 10. No, it's amazing. I, you know, Tyler, you know I've been to the business a long time. I invested in venture way back in the 90s, and I remember a fund returning over 100%, they said. In the end, the return wasn't there. It's a very uneven hit rate, and you're right. If they can break even on five of the investments, only lose money on four, but have one out of ten as a home run, they're going to invest in that area. And that's what makes it worthwhile. The U.S. is the home to amazing innovation. And Lord

knows, in the next 20 years, I care about climate change. We need that rate of innovation and change. We'll see what AI is. I think Wall Street's overhyped AI, but we'll see where that goes. How so? How is Wall Street over hyped AI? Are you talking about the mega-cats?

This morning I heard on CNBC that we're talking about the fact that it's all CAP-X right now. It's huge CAP-X. Last time I checked, and I think Tyler and you and I've talked about this, Cap-X is actually not good for EPS. So right now it's all on hype, which Wall Street makes money.

There's revenue too, Chris. I mean, take a look at Nvidia, right? That wasn't just CAPEX. I mean, that's actual billions of dollars more than expected coming in the door. And can you not see that path for some of the other names like Microsoft Google? Or who exactly are you referring to? Well, no, I'm, you know, they're the old adage of they're doing the shovels and the picks because Nvidia is making the chips, which are in high demand.

But that's part of that CAPX. So we'll see. It's the big names that eventually will make money. Okay. But when you have the CFO warning you of Microsoft that they're going to be spending a huge amount of money, I think you ought to listen to that. Doesn't mean the tech rally is over, but I think it's overhyped on AI. Okay. So, Chris, is one of the largest pension funds in the country then. How are you thinking about your tech exposure? If you think that this is a big AI bubble, what are you doing?

Well, and I wouldn't say bubble. I just think it's overhyped. And I think that tech, I'm concerned. Tyler and I have talked a lot about the fact that we're a passive investor. We hold the entire market. So I am very concerned at how narrow this market is. 40% of the S&P is actually down on the year. This is not exactly feeling like a bull market like we usually see. So we're cautious in here, and I'm worried that tech is, especially the big tech, is getting ahead of itself.

Yep, the so-called magnificent seven basically carrying the broader markets. Chris, great to get your insights. I wish we had more time. Talk to you again soon. Chris Ayleman, Chief Investment Officer of Calcers. Dear, Dr. Thanks for bringing that to us. We appreciate our thanks to Chris as well. Coming up, what it takes to be considered wealthy. Is it dollars and cents, the size of your investment portfolio, or is it intangibles like free time and well-being? The results of our exclusive CNBC survey when Power Lunch returns.

How much money do you need to have to be wealthy? Sharon Epperson joins us now with one answer, but also how being wealthy and feeling wealthy are different things, Sharon. They are different things, Kelly. You know, people seem to be. to be rethinking their relationship with money. The new Charles Schwab Modern Wealth Survey asked people what it means to be wealthy. And in a new twist, more Americans mentioned their well-being over money and assets to define their wealth. Charles Schwab polled 1,000 adults and nearly two-thirds of them say being able to enjoy healthy relationships with their loved ones better describes what wealth means rather than having a lot of money. And 70% say wealth is not about not.

having to stress over money. Only 30% say it's actually having more money than most people, you know. The survey finds it takes an average net worth of $2.2 million to be considered wealthy, but that's for other people. What about you? Well, among the 48% of Americans who say they already feel wealthy today, their average net worth is about a quarter of that at about $560,000. We're going to have a lot more to talk about in terms of wealth and money at the virtual CNBC Financial Advisor Summit on June 15th. And to join us, you can scan the QR code there. Register at CNBCEvents.com slash financial advisor. I find it interesting that wealth and well-being get intersected here.

Yeah, people think there's a magic number. And that magic number doesn't make people feel happy or wealthy necessarily. So I think this is showing that more people want to just not be stressed about how much money they have. They want to have a better balance, if you can call that, or figure out what their priorities are in terms of work and in terms of their life. And they want to have relationships and enjoy experiences more than having a lot of money. It gives you a sense of where people are willing to spend money. Exactly. And, you know, it has been well documented as society gets lonelier, that idea of spending to create or support connections with people who you already have. That's vacations. That's travel. That's different arrangements. You know, maybe spending on that

chat GPT AI friend on Snapchat or something. I mean, but it kind of tells you where, you know, where they want to put that money to work. Yeah, when we are always talking about in a faltering economy, why is travel still okay? Or why are the people are having these experiences where they want to spend time together. They want to make memories in that way rather than, you know, actually their investments necessarily or having a significant amount of money. Even the cruise ship the other day, I think it was Carnival, said a big driver of their bookings and their revenues are multi-generational families traveling where the baby boomer is booking the cruise and then kind of

bringing everybody else because it's time intensive to book these things and you have to kind of figure it out. So it's just funny to watch that dynamic play out. Millennials and Gen Z also may be looking at what people are doing in terms of their experiences, the social media impact that's driving wealth. What does it mean to be wealthy? People are looking at what they see wealth to be and wanting to do that. They're also looking at social media to get advice. whether it's financial advice, investment advice, particularly millennials. Very interesting.

Sharon, thanks very much. We'll see at the FAA summit later this week. Still to come. Breakfast lovers rejoice. Egg prices just posted their biggest monthly decline since the Truman administration. Some of those eggs have been around since the Truman administration. Details on that and much more when power lunch returns. Welcome back, everybody.

Three and a half minutes left in the show and a bunch more stories that you need to know about. So let's get right to it, starting with apartment rental growth. declining fast, shifting the market to the tenants' favor for the first time in years. The largest deceleration over any year in recent history, according to data firm, Co-Star Group and rental software company, RealPage, if we get an annual decline to be relief for millions after rents was 25% nationally about the two years prior to that. I don't know where they're measuring this, because in my town, rents are doing nothing but going up still. Part of the question is, and this goes back to a CPI issue as well, and obviously the whole reason

we care is because it's a big CPI input, well, and also just, just because we care. New rents versus existing rents that are being renewed. So it's a lot easier to capture the new rents, but those often overstate the degree of rental price inflation. So when you start to see existing rents where, you know, you might still think the price is high, but it's just not going up as fast as it was. And in some cases people are negotiating kind of soft ways of bringing that down. A lot of the places in our town are new rentals. So they're coming on the market at the first time and they're $6,500 for a two-bedroom. Same. Absolutely. It's wild Manhattan prices. Manhattan prices in the suburbs.

Yeah. Overstock.com trying potentially to scoop up bedbath and beyond's assets from bankruptcy. It has an offer on the table for $21 million for intellectual property and business data, among other things. And another bankruptcy in the space, Instant Brands, the company behind Instant Pot and Pyrex filing for Chapter 11 protection. That one has been owned by, I believe, Pyrex and Corningware owned by a Cornell Capital Company, I guess a private equity company. I assume that those two were loaded up with debts, and they... Listen, instant pot going bankrupt. Tyrex going bankrupt.

I have all of these products. We all do. I guess that's a problem. You buy them all once, especially during the pandemic, and you're making all these... And then you don't need to buy it ever again. And we'll see what happens with Bed Bath and Beyond. I think the auction is supposed to be next week like Wednesday.

$21 million from overstock.com can't be the sum total of the value there. That's just what I'm curious about. Kind of related. We have some relief for people's grocery bill. It could come at a cost for the largest egg producer, though. Shares of CalMaine food slipping today after the latest CPI report showed egg prices down 14% in May. That's the biggest monthly drop in 72 years. So go to your rental apartment, boil some eggs.

Buy some eggs. It's all going to be cheaper. It's going to be much better there once you get there. You know, the egg thing, I'll just say, is so idiosyncratic. I've never found it to be that interesting. I mean, there was avian flu. There's not a lot to read from this, except that, of course, now they're drunk. It's the shortages to glut story all over again playing out with it.

Friends in town who have chickens, they grow their own eggs. So do we. Price protection there. The eggs are better. Tractor supply said people were buying chickens because of that. Absolutely. All right. Shares of Manchester United surging after a tweet from a Katari newspaper.

Field speculation, the team is close to being sold. The tweet in question cited press reports that a bid from a Qatari business mogul to buy the soccer team was, quote, successful. But ESPN reports that multiple investors are still waiting for an answer on their bids to buy Manu and that no decision has been made. Manu on pace for its best day in the stock market since February, we shall see what happens there, whether yet again another big-pocketed sort of government-supported investor will get a big franchise.

And congratulations to the Denver Nuggets and to Stan Cronky, who's the Avalanche won the Stanley Cup. He owns the Rams who won the Super Bowl, and he owns, you know, the Nuggets. Good for him. Congrats to them and Yokic. All righty. We'll see you tomorrow from watching.

Washington with the Fed decision. See you then.