Power Lunch - Debt Ceiling Talks Resume & The AI Rally 5/22/23

Episode Date: May 22, 2023

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Good afternoon, everybody, and welcome to Power Lunch. Alongside Kelly Evans, I'm Tyler Matheson. Coming up, the debt ceiling deadline, President Biden and Speaker McCarthy set to meet shortly after what was deemed a productive call last night. I think 5.30 is the date time. But McCarthy says the sides are still far apart. Can a deal get done in time and what is the real deadline? Plus, is artificial intelligence creating an artificial stock market rally?

A small group of stocks driving the gains based more on... hope than actual earnings. Could this reverse just as quickly as it began? Kelly. Tyler, thank you. Hi, everybody. First, let's get a check on the markets. Very similar this afternoon to what we've been watching all day long. The Dow down about a third of a percent, 109. The S&P up 5 to 4196, just a hair below 4200, and the NASDAQ composite up a half a percent. And some news from the second hottest area of the market, if AI is number one, weight loss drugs. Pfizer shares popping midday after a study says it's oral weight loss drugs. is as effective and works more quickly than the injectable OZembek from rival Novo Nordisk.

You can see Pfizer shares at 4% today. Novo Nordisk were lower and now they're up just fractionally. Also watching shares of Micron falling after the Chinese government says the company poses a major security risk. We're seeing about a three and a half percent decline and we will have a whole lot more on that coming up in TechChak Thai. Kelly, thank you. We start with the debt ceiling drama. President Biden set to meet with House Speaker McCarthy 5. 5.30 p.m. Eastern time, while the president and congressional leaders offered glimmers of hope over the

weekend. It was a cloudy kind of progress there. Reaching a deal? We'd say probably little progress so far that we know of. Here with more on the negotiations, Brian Gardner, Chief Washington Policy Strategist at Steeple and co-host of the Potomac Perspective Podcast. And Maya McGinnis, President of the Committee for a Responsible Federal Budget. Maya, let me talk to you first. Responsible budget, is having a debt ceiling really responsible policy? Why isn't it, why doesn't it work this way? When Congress appropriates spending, why isn't it part of the bill that says to make that spending come true, you have to have the ability to borrow if there aren't tax revenues sufficient

to pay for the problems? Why do we keep banging our heads against this debt ceiling stuff? That's right. I think you're on to the kind of debt ceiling reform that hopefully we are going to see after this, because the showdown, the waiting until the last minute, the uncertainty it's creating is clearly unhealthy for the fiscal environment, the economic environment. The truth is that the debt ceiling in the past has been used many, many times productively, where measures were attached to it, the generated savings, whether it was spending caps or actual savings or the Simpson Bowles Commission. But now, as the polarization in Congress has gotten even worse, it's clear that we are unable to use the debt ceiling for productive changes. Under President Trump, for instance, three times they increase the debt ceiling and attached measures that made the debt worse. So what we need to do is reform the debt ceiling so that if you are voting to engage in borrowing, passing legislation that isn't paid for, perhaps that's when you lift the debt ceiling or we would place it with some other kind of measure that makes us to assess our fiscal situation, but not with the threat

of default, which has just become too chaotic for a polarized Congress to handle. And we come up against this all the time. It's just, it's just, it creates a cynicism toward the governing process, among many other things. Brian, let me turn to you. You know, Secretary Yellen has said that the ex-date, the date at which the government will run out of its sort of accounting gimmicks that enable it so far to have, to keep paying our bills, is June 1. But practically, legislatively, isn't the, isn't the X-date sooner than that? Because Congress is going out on front. Friday for the long weekend, number one, number two, there are requirements aren't there that there be a certain number of days between the introduction of a bill or the or the introduction of the bill and the voting on the bill? What's the real date we're looking at here?

Yeah, you nailed it, Tyler. I think the real deadline, if June 1 is the X date, then the real deadline is probably the end of this week. Because once you get an agreement, you do have to write the bill. That doesn't happen overnight. That could take a day, two days, and then House Republicans especially, they're going to want 72 hours to review the bill. So there's no vote coming up, and Congress will be out of session next week. Now, look, if they can get a framework and an agreement in principle by the end of the week before the Memorial Day weekend, then I think Congress can probably pass a short-term suspension to buy them that extra week or two that they need to then debate and probably pass the death ceiling bill. But without that framework, without an agreement and principle, it's going to be really tough.

So, yeah, I'm looking for the end of this week to be the practical deadline. And if that were all true, Brian, and the market was down, you know, two and a half percent, I'd go, okay, I understand. But then why it isn't the market? I mean, the stock market has done nothing to create any urgency here. Why? Yeah, you know, I think part of it goes back to 2011, 2013 that we went up, especially in 2011. we went right up to the edge and Congress and the Obama administration reached a deal.

And so I think there's a view among investors. Yeah, that's going to happen again and we'll go right up to the limit and they'll get a deal. The other is I think the talk of prioritization and the fact that there is some comfort level in that the Treasury can pull off the payment of bond payments. I think that has led some investors to say, you know, it's just not going to have a big impact, at least in the financial markets and at least immediately. And I've been on with you before and we've talked about kind of the secondary effects. Even beyond Social Security and payroll, you know, I'm looking at the economic effects

from miss payments to a vendor or a contractor. But for financial markets and investors, they think if bondholders are getting paid and I think there's a high degree of confidence in that, I think it takes some pressure off the market. And if the market's not pressuring Washington, it becomes this odd cycle that it's not pressuring Washington to deliver a debt ceiling deal. How do you react to what Brian just said, Maya? I mean, if there is this kind of Thelman-Louise moment between the Speaker and the

president, they drive the thing off the cliff here, what does it, what does a, what does a default really look like? And how searing would the consequences be if, as most people figure, the government would still find a way to pay interest on its debt, would still find a way to pay interest on its debt, would still find a way to pay Social Security and veterans benefits. It would still find a way to pay other kinds of obligations. And what might not get paid might be some contractors, might be some employees who get furloughed. Right. Well, the response will be negative. The question is whether it will be an abrupt kind of crisis-like situation where markets really kind of freak out

and interest rates spike up and this is a problem that is exported around the world. or whether it's more of a muddling along, and business leaders and the markets continue to kind of yawn at Washington and say, we are so tired of you not getting anything right, we will go on about our business and you continue to fail to govern. But it will slowly erode our place on the global stage.

And that's already what's happening. If you look at the views from around the world at how the US is acting, it's hard to believe that this is the behavior of a reserve currency and treasuries have a special role in the global financial security. global financial economic system, and that will last for a shorter amount of time if we continue to abuse it. So either there'll be a crisis or there will be kind of a eye rolling from other

countries who start to look to other ways to diversify away from the U.S. or I think what will happen is we will avoid default. We will not have anything close to the crisis, but it will be the continued erosion of faith that Washington can get things done, and the business sector and the markets will continue to look at ways to work around Washington, not with Washington. That's not good for anything. That's the sign of an unhealthy sign about where our democracy is right now. Maya, thank you very much for your perspective. Brian Gardner, thank you as well. We appreciate it. Thanks, Tyler. Thank you. Now, the debt ceiling isn't the only headwind for markets. Investors are also fearing higher rates, shocks from bank instability, and of course recession fears. Yet the markets are higher. Later this week, we'll mark the 100th trading day of the year. The S&P is up nearly 8%. Historically, that's typically a sign of more to come, more upset. that is. And AI is a big reason markets are overcoming all of those worries.

Excitement about that technology boosting tech. According to Raymond James, the Big Seven tech stocks have contributed 13% near to date to the SMP's performance, or I should say to performance on the S&P 500. And it's forcing strategists to play catch up and to raise their price targets. Savita Subramanian, for instance, just the latest this weekend, raising it to 4,300. But is the rally real or artificial? Are the gains around AI justified? Or is it just something investors are using to keep the party going. Joining us now is Ed Yardini president of Yardinni research, who says AI can be the thing that kicks off the Roaring 20s.

Stephanie Link also feels there could be a lot of industries that benefit and welcome to both of you. Ed, I'll just start with you. You say Roaring 20s, I say, you know, hard landing. And markets are voting with you right now, I think. Oh, I say potato. You say potato? Yeah.

Look, I think that the 1920s is maybe a good model for what could happen during the 2020s. The 1920s started out a couple of years before that with a global pandemic. The Spanish flu that killed millions of people. And then we had a depression in the United States in 1920. So things must have felt absolutely horrible at the beginning of the decade. And yet it turned out to be the roaring 20. 1920s because of all the technological innovations, I think that a lot of the technologies we have now

are kind of coming together, robotics, automation, nanotechnologies, and I think AI is sort of the glue that puts all these things together into a technology that increases the productivity of the brain. Technologies in the past increased the brawn of productivity, lifting things, whereas this is going to supplement our ability to just think faster and come up with IDs faster and solutions faster. Stephanie, how to react to that? I mean, is the potential of AI so vast across so many industries that it could be a real productivity and prosperity lifter? Yeah, I mean, I think it's the real deal, right? The total addressable market for AI is going to be something like $2 to $3 trillion by the end of, of this decade.

And annual growth on a compound annual rate is about 37.3% per year. And only 25% of the companies in the United States actually use AI in any way. And we've been hearing from companies all across every different sector talk about AI. I mean, I was just going through some of my industrial companies and how they talked about on the conference calls

a lot of different kinds of AI, right? I mean, Ingersoll Rand and Rockwell Automation and Emerson Electric. But then I'm also looking at some of the hospitals And looking at smart health care, that could actually be a $200 billion total addressable market. Think of processing, right, and data records and that sort of thing. And then, of course, there's also robotics. As Ed mentioned, that's a really big part in like the industrial side, agriculture, and that sort of thing.

So I think there's a lot of areas, a lot of sectors that are going to win. I think this year it has been interesting that it's been really focused on the technology companies. Almost everybody else is getting ignored. But I think over time, we will recognize that this is definitely a productivity enhancer. You need stronger compute power, more storage, and faster networking, and that's going to benefit many different industries. You know, Steph, I think sort of trying to think through the AI and the sort of macro or the business cycle at the same time.

You might say, OK, AI is certainly taking the sting out of what would have otherwise been, you know, a harder landing so far. No question, especially for semis, you know, coming out of the cycle. What's happening with the rest of the stocks? Is it true that everyone else, you know, there's the debate between the equal-weighted versus, you know, the market cap weighted. And because you have the granularity of following so many other companies, do you think they're healthy right now?

You know, are we going to be okay for the rest of the year if we kind of exclude the AI story? Is that masking weakness elsewhere? Well, I think the companies, there are a lot of companies in sectors that have actually done quite well in this past earnings season, but they're really not getting the credit. And I think when you go back to tech, yeah, the top seven mega-cap tech companies account for 90% of the year-to-date returns. But there's other parts of tech that's done well, too, Kelly, right? SMH is up 30%. Software is up 40%. Cybersecurity is up 30.

Now, that's tech and comm services, and that's 35% of the S&P 500. So to the extent they hold up, I think the market can hold up. Hopefully, eventually, we will get credit and give credit to some of these other sectors that are doing a lot of wonderful things too. But so far, not so much. Ed, let's talk about the rest of the year and what you see for corporate profits and economic growth. The earnings have, as Stephanie points out, been pretty good for the first quarter. Do you see that continuing, or are you concerned that not only the comparisons will get tougher, but number two, the economic prospects might get tougher?

Well, as you know, they were better than expected, but they were still probably going to be down 3% on a Eurobe. year basis. Before the earnings season got started, I think there were expectations that earnings would be down 7%, instead they're coming in down 3%. And that's a positive surprise relative to expectations. I think we'll probably make the low on a year over year basis in the second quarter. I think that's where the comparisons really stopped being tough. And I think once we get into the second half of next year, we're going to see some single or maybe a low double digit increases on a year-over-year basis. I think we've basically had a margin in recession.

The revenues of companies are an all-time record highs. The earnings have been squeezed by higher labor costs, higher commodity costs. And I think a lot of those issues are kind of being addressed. I just want to add one more thing that the good points Stephanie made, and that is let's think about every company as being a technology company. In the past, that not all technologies were applicable to all business models, but I think between artificial

intelligence and a host of other innovations that are getting integrated, any company that doesn't use technology is going to be, to increase productivity is going to be left behind. All right, Ed, thank you very much. Always good to see you. Ed Yardani, Stephanie Link, same to you. Thank you very much. And coming up, shares of Draft Kings jumping again today, and they have more than doubled so far this year. UBS upgrading that stock is our trader bullish as well. We'll find out in three-stock lunch. Plus Uber cutting back on office space, planning to lease an entire building in San Francisco. Vacant offices, a big problem for many big cities. We'll dive into that when power lunch returns. They say you should dress for success. An LVMH might just be proving the

rule there. Less than two years after buying Tiffany, the company has doubled, yes, doubled its profits. The stock up 59% over the past year. Robert Frank sat down for a rare interview with Alexandra Arnaud. What did you tell you, Robert? Well, Tyler, you could call it the LVMH formula. They buy brands, they turn them around and they expand their dominance of every sector of global luxury. Now, with Tiffany, that formula involved a lot of flashy marketing. Remember that campaign with Beyonce and Jay-Z? They've got new higher-priced products and they're renovating many of its stores, including the Manhattan flagship store, which cost hundreds of millions of dollars. Alexander Arnaud told me that LVMH thinks about the next decade rather than the next quarter

when it comes to investing. We were able to invest as much money as we wanted. We were able to take the time we needed to make the store the perfect jewel box versus being pressured by the street or others saying we have to open, we have to open, we have to open. So I think this store is the real definition of how long. term vision. LVMH is also boosting its high jewelry line with pieces costing six and seven figures. You're looking at pictures of the new VIP sales room with a New York store where the least expensive pieces start at around $200,000. Now guys, the art in this store alone is probably

valued at over $100 million, which they hope will bring in even more people. I didn't realize that the Tiffany's store, even before this renovation, was one of the top five tourist destinations in all of New York City. They're hoping to make it even better now that it's reopened. Have you, have you been in it? I mean, I always, I've been there and picked up a few things for Kelly, of course, but I haven't been in the new one. Have you been in? I did. I got to spend quite a bit of time there, and it's interesting. All the floors are sort of different themes, different textures. The top floor that you're seeing there, that is the VIP sales room. It almost feels like a very, very luxurious penthouse.

overlooking Central Park. And the first floor where you walk in is just super bright. Remember, Tyler used to be wood paneling and that green enamel. Now it's just white marble, mirrors, lots of silver, shimmering when you walk in that place. I did go in once because you, anyone can walk it off the street and get sized for an engagement ring for free. No charge. You don't have to buy anything. It's, you know, if you want to just get the experience, I don't want to sidetrack this from one of the greatest businesses empires of all time, which is LVMH and R. No, I mean, what he has He's like the Buffet of, I don't know what you call it luxury. It's unbelievable.

He is the richest man in the world for a reason. He has done something that everyone thought couldn't be done. Even when he bought Tiffany for $16 billion, they say he was overpaying at a terrible time. This is a brand that was already hugely successful. And how could you make it even more successful? And they are bringing it around the world with this new formula. And it's working so far very quickly, much faster than anyone expected. Well, that's not the only news in the super high role.

The Beyonce House, Beyonce and JC, $200 million job. And as soon as we saw this news, I was like, I bet there is a whole backstory to this. One of the most expensive real estate transactions ever. You've got to give us the whole scoop. All right. So the whole scoop is this is just their beach house. This is not their main house. Their main house was an $88 million property they bought in Bel Air back in 2017.

I remember that deal. I had actually seen that house before they bought it. This house no one had ever seen because it was a whisper listing was really for sale but off the market. $295 million was the asking price, Jay-Z and Beyonce paying $200 million. That makes it the most expensive home ever sold in California, the second most expensive home ever sold in the U.S. It's 40,000 square feet. It's on eight acres on Malibu. What's amazing about Malibu is that their next door neighbor is Mark Andreessen, who paid $177 million for

his place. So the rest of Los Angeles is sort of seeing the market top out at the top. Malibu just keeps drifting higher. And again, what's amazing is this is just their beach house for what is, at least for now, their main house in Bel Air. Interesting to see how they end up using it. 40,000 square feet. I mean, that is, I don't know how many of my houses you can spin in there. Money on it, Robert. I mean, at some point, these are not, you know, I could see the argument for people, like when we look at, you know, certain people have bought up tons of real estate, okay, maybe it's a hedge over time. I don't know what financially, how this would be expected to perform. Well, the history of Malibu is people buying properties for prices that at the time seem vastly

overpriced, and then they end up making money over a long period of time. This is eight acres in Paradise Cove, which is kind of the billionaires' row of Malibu. So it's a great location, big piece of land, extraordinary property that we'll see how that property holds up over time. It's very modern. It's all concrete. I don't know. Will it look great in 20 years? We'll have to see. Eight acres in Malibu. That's in and of itself. That is shocking to me. Robert Frank, thank you very much. Good to take a peek at how the other halves live. All right. Speaking of L.A., the city of angels facing a similar issue to Manhattan with respect to office space. As a matter of fact, vacancy rates are even higher in L.A. than here in New York. Niana Oleg has more. Hi, Dye. Hi, Ty. Yeah, you're right. Look, L.A.

may be a smaller office market than Manhattan, but it's got bigger problems. The office vacancy rate in L.A. soared to 22 and a half percent in the first quarter compared with Manhattan at 17 percent. This represents 50 million square feet of empty offices, about 61 percent more than pre-pandemic. L.A. office leasing volume in Q1, also very low. What is leased is also still not being used very much. Average occupancy in L.A. is 49 percent. That's lower than the national average. saw those two big Brookfield defaults. But the market's pretty bifurcated. West LA, which has less of a crime and traffic issue,

than downtown is faring better. Its tenants are mostly tech, advertising, and media, while downtown is finance and law. Now, the REITs with the biggest exposure, stopwatch, are Douglas Emmett, Kilroy Realty and Hudson Pacific, the first two down about 30% year to date. Hudson Pacific down more closer to 50%. Douglas Emmett, by far the most exposure,

but all of these are heavy in West LA, or in other areas surrounding downtown LA. Now, as with everywhere else, there is a flight to quality. So the buildings that offer the better amenities, the newer buildings, they're faring better than older buildings, which are mostly downtown, guys. Well, how does L.A., you talk about how it compares with New York, how does it compare with sort of the median city across the country in terms of office, vacancy and occupancy?

Well, it's faring worse. And the issue with L.A., of course, is because when you have back to, office in some places, it's, you know, in D.C., you see a lot more back to office because you have really good public transit, whereas in L.A. people live farther out. They have a huge traffic problem, of course, and the transit system is not nearly as good as in some other areas. So you have people less willing to come back, especially into the downtown area. Yeah, it's really the commute, I think, as much as anything that keeps people wanting to work from home, no matter where you are. If the commute is bad, you want to stay home. And the crime rate. And the crime rate.

and the homelessness problem that we all know about in L.A. and other cities. Diana, thank you very much. Coming up, caught in the crossfire, Micron may have just become a pawn in rising U.S.-China escalations, being deemed a major security risk by China cybersecurity regulators. So shares are down about 3%. We'll have a whole lot more details in Tech Check next. Welcome back to Power Lunch, everybody. Micron shares falling nearly 3 percent today.

They're off the lows, though, after China says the company post. poses a security risk and is barring Chinese companies from buying its chips. Christina Partsenevelas has more in today's tech check. Christina, why Micron? Well, it wouldn't be a complete ban on Micron's products. Only those network and infrastructure-related memory chips, which is actually a smaller business compared to the smartphone PC memory chips that Micron also sells into China.

Management earlier this morning said those chips should not be affected by the ban, which should mitigate the revenue impact to a certain extent. Last year, 11% of its total revenues came from China since the ban pertains to the what they're calling the critical information infrastructure. So really, that's just networking and all that. That 11% would shrink down to about 2% of total revenues. And this according to Bernstein analysts, so it's a little bit smaller than what we would normally think the impact would be. And falls in line with what the CFO said this morning at a J.P. Morgan event that revenue would be impacted by single digit percentage. Shares are falling, but they're off the lows from this morning.

But there's an overhang, Kelly, that remains. And Tyler, Chinese customers could start to pivot their supply chains away completely from Micron for fear of further restrictions in the future. And that would also benefit South Korean competitors like Samsung and SK Hinex. But the U.S. does have some leverage, given Samsung and S.K. Hinex, are currently relying on U.S. licenses from the Department of Commerce to maintain normal operations in China amid all of these export restrictions. That's because those two companies have foundries in China.

So sentiment on the street right now is still pretty bullish, and that's because of the notion that the memory market may actually be bottoming with strength in the second quarter, and that would offset any drop in revenue that we're seeing from this bat. The scuttlebutt from traders, Christina, is that China's targeting micron because it's easier to replace, you know, and look at the spat with Korea already where we're trying to ask them not to step in and fill their supplies. They're sort of saying,

up to the companies. But could at some point as China's supply chain continues to grow in advance, you do wonder, or people are speculating, okay, well then could some of the more significant tech companies be next, those who make GPUs and CPUs and maybe even an Apple someday? Well, you just, you really touched upon it. Micron, unfortunately, is the least important to China compared to the other players, because the other players like AMD or Qualcomm, etc., are used for military, are used for artificial intelligence. They're more important to the country, which is why they may not be targeted like Micron. Qualcomm, though, there was a quick little note from Evercore ISI,

and they said potentially China could stop paying Qualcomm's QTL, which is really just their patent business, stop paying those payments. So maybe Qualcomm would be affected, but the United States right now needs to get other allies on board, like South Korea, those two names that we talked about, or else this could escalate a lot further. And it just shows how intertwined all of the supply chains are right now. But lastly, Kelly, there has been,

before with Micron. Micron sued United Microelectronics several years ago, which is a Taiwanese firm over IP theft. So that could also be part of the reason, too, why Micron was a little bit of a target in this escalation. Interesting. Christina. Thank you very much. Christina Parson-Evelas.

Well, let's get to Bertha Coombs right now for the CNBC News Update, up to the minute. Bertha. Hi, Tyler. Here's what's happening at this hour. Russia is claiming it battled a group of what it called Saboteurers who crossed into the country from Ukraine.

Moscow reportedly showed video of fighting in the Belogarad region and claimed it was an incursion by Ukrainian forces. Ukraine blamed Russian citizens. NBC News has not been able to verify the situation in those border towns. Authorities are investigating an apparent gunfight at an off-road vehicle rally in Mexico's Baja California state that left 10 dead and others wounded. Officials say gunmen in one vehicle opened fire on the rally Saturday afternoon. They believe it was a confrontation between members of organized crime groups.

According to local reports, the suspects have not been found. At a group of states in the Southwest made a deal with the Biden administration to protect the drought-stricken Colorado River. California, Arizona, and Nevada will voluntarily reduce their water usage until 2026, in exchange for $1.2 billion in federal funding. Colorado River supplies water to more than 40 million people and roughly 5.5 million acres of farmland. I guess I should actually say Nevada, right, Tyler, that's how they pronounce it.

I think that's right. Bertha. Thank you very much, Bertha Coombs. Ahead on Power Launch, Foot Locker, extending losses today after a huge earnings missed last week. Wall Street not showing any mercy. Multiple firms slashing targets on that one. We'll trade that name and other key movers in three-stock lunch after this. It is time for today's three-stock lunch. We take a closer look at Chevron that's doubling down on shale,

announcing its buying rival PDC energy in a $6.3 billion all-stock deal. It values PDC at $72 a share, premium of 10% to Friday's closing price. It's going to boost Chevron's output by 240,000 barrels a day and its footprint in U.S. oil and gas. run down slightly on the news. Here to help us trade that stock, Eva Ados, chief operations officer at ER shares. Eva, spill the details on Chevron. Do you like it? Do you sell it?

Do you hold it? Do you hold it? And I have mixed feelings for this one because on the one hand, I do not like the category anymore. I think we are seeing a rotation out of oil and energy into tech and growth as long-term interest rates are coming down, long-duration assets benefit. and I think this rotation will continue. But now for the investor who wants to have an exposure into oil, Chevron is not a bad company to own.

In fact, it has the best net income margin in its category. When you look at its margins, they're above average. And I think they're cutting down costs. And I'm really surprised with the reaction today, even though they're paying 11% premium. I think Chevron has demonstrated over the years that they have been efficient with acquisition, they are able to incorporate them, and they're cutting down costs.

So I think it's mixed feelings for this one. That's why it's a hold. Hold for Chevron. What about Nike? Biggest loser in the doubt today, down about 3% after city analysts put it on negative catalyst watch and that on the heels of those disappointing results from Foot Locker on Friday. Ava, do you think Foot Locker is going to be a read-through to Nike or no?

I think Nike is a cell. It's relative valuation. It's two to three times it's pretty. If you look at its price to earnings ratio, that's 30 compared to 13 for the average of the category. And now they're also, their fundamentals do not look that good. And most importantly, over the years or the last few years, we have not seen any new exciting growth initiatives. And even though they're piling in on cash, they've actually $10 to $11 billion in cash right now.

And that might mean that down the road we might see a new exciting growth opportunity. there's a lot of competition out there. You have smaller companies now entering the market, and so it's a sell. Let's move on to another one that has been doing pretty well. Draft Kings. Yes, Draft Kings is a buy. In fact, we've had an overweight on this one in 2023. It's actually helped us a lot with our appreciation of 27% for our large-cap fund,

and we will remain, will continue to have an overweight on this one, because it's a revenue growth story. They have 85% revenue growth compared to 10% for the rest of the category. That's eight times bigger than the average of their category. And they're entering new markets faster than ever. They're adding new customers faster than ever once they enter a new market. I think that's a disruptive technology. They're able to increase their – they've been able to increase the pie of sports betting in general.

And I think that growth story will continue. So it's a long-term buy for us. You know, the markets have been performing pretty well, Eva, even in the face of the debt ceiling issue that is looming and either may or may not get. Are you surprised that the market is as resilient as it has been? No, I'm actually bullish. I think as we are seeing long-term interest rates coming down, CPI came at 0.4%. Housing, which is the biggest component of the CPI, 30 to 4% of the CPI is housed. is going to drop significantly.

That's what the K-Shiller Index shows, and there's been a lag of six to 12 months between the K-Shiller Index and the CPI. And so once housing is reflected into the CPI, we'll see inflation drop precipitously. That's really good news for the markets, especially when it comes to long-duration assets that get their profits down the road in the future.

All right, Eva, thank you very much for your time today. We appreciate it, and the stock picks on those three and three stock loans. We appreciate it. I've got to ponder that negativity on Nike. Dow component. As we head to break, CNBC is celebrating Asian American and Pacific Islander heritage throughout May, sharing stories of business leaders in their community. Here is Sarah Wynn, Win Coffee Supplies founder.

At Nguyen Cost Supply, our mission is to celebrate diversity and culture in the coffee industry. As a first-generation Vietnamese American and knowing that Vietnam is the second largest coffee producer in the world is my passion to preserve my heritage while also sharing culture with the world. So as you're consuming Asian stories, cuisine, and beverages, remember that behind these products are everyday people in communities with rich stories and histories. Welcome back to Power Lunch, everybody.

4202 on the S&P. So we are above the 4200 level as this year's rally continues. It's a quarter percent gain. The NASDAQ up two-thirds of a percent. The Dow is still down 73 points. Check on shares of plug power, which are jumping after the company has landed contracts for three different hydrogen projects in Europe.

Plug shares up on. about 12% today. We're also watching MSGE, Madison Square Garden Entertainment. Look at its run continuing up 11% after reporting results last week. It's up 28% in a week. It reports it's close to selling property around the garden in New York City as part of its plan or the plan to rebuild Penn Station could obviously be a lucrative deal here. This stock is now up nearly 30% after all of these events in a very short period of time. And we also want to check on the bond market where yields have been jumping. I saw the 10-year 372 earlier today. Yeah, we're pretty much back to those levels. Interestingly enough, as the market tone this afternoon improves. Again, 372 on the 10-year,

4-32 on the 2-year, we're almost back to where we were Friday, the 30-year just under a forehandle. Debt ceiling negotiations. We've got the Fed. Minneapolis Fed President, Neil Cash-Cari, saying it's a close call on whether to raise rates in June. And this has mortgage rates, Tyler, back up near 7%. All right, thanks, Kelly. Coming up, the economic challenge. And no, We're not talking about whether or not the Fed should raise rates or solve the debt ceiling issue. We're talking about the National Economics Challenge. 13,000 students competing to be champion, but only one team will take home the prize and we'll speak to the winners next. Welcome back to Power Lunch, everybody.

Time now to talk to a group of people whose appreciation for dead economists is on par with Kelly's, maybe, the winners of the National Economics Challenge. Let's get back to Steve Leesman, across the river. Hi, Steve. Hey, Tyler, thanks very much. I am here with the winners of the Advanced Division, the Adam Smith Division of the National Economics Challenge, put on by the Council for Economic Education. These kids beat 6,500 students around the country

to rise to the very top. They are from Carmel, Indiana, from Carmel High School, a suburb of Indianapolis. Richard, what attracts you to economics? I really like understanding how the word works and the different models. It's all very interesting to me. Okay, and William, what should the Fed do in June?

I'm not laughing. I really need to know. I think the people at the Fed are probably have more expertise in a high school student, but... Maybe not. I'll leave it up to them. Okay, leave it up to them. Jordan, you talked about a book that you read that the Fed was too easy for too long by my friend Richard Honig. Give me the idea. Does that cause inflation? I think it's definitely complicated.

looking at like the asset market, like real estate, there can be asset price inflation, in addition to like, you know, normal prices of goods in the economy. Amoga, tell me why do kids need to know economics? I think economics is more than just a science. I think it really does explain how the world works. You can relate it to any subject, and that's really just a magnificent aspect of economics. Okay, William, be careful because there's a pop question coming right at you, your favorite economist right now.

Two, three, four. John Mender Keynes. Why? He's been really influential in economics. His fiscal policies, spending, and taxes are really important. And before him, there was a lot of just letting recessions happen. But now we can help people during recessions. Richard, do you know more about economics than your parents?

Probably. So do you tell them stuff they ought to be doing that they shouldn't be doing and stuff? Do you give them instructions? You just keep it to yourself. I don't think that would be appropriate, no. No, but you think like mom, dad, you shouldn't be doing that, right? Of course. Okay, very good.

And Jordan, let me ask you this question. In June, what should the Fed do, hike, hold, or cut? Well, the economy is kind of all over the place now. June, we might see the debt ceiling. Oh, you're worried about the debt ceiling? Yeah, if they don't figure something out and we go into recession, then they'll definitely want to stop and kind of ease their policy. But they definitely want to look at the numbers and make a rational decision here.

Data dependent. Yes. Amoga, tell me something now. When it comes to inflation, what do you see is the primary causes of inflation? No, I think it really is, it has to do like the labor market. I think the supply side really adds to the problem. And once you get that figured out, maybe then inflation would. Do you have a forecast for inflation?

I mean looking at the current situation. What do you think? 4.7, according to 4.7? Okay, Tyler, you got a question. Go ahead. I wanted to have. If you'd relay it. I'm curious as to what they had to do or learn or know in order to win this competition. What kinds of tests, questions, problems, what have you? Did they have to solve? Okay. So the question is, I'll ask you, William. What did you have to learn? do no study to get here to learn the things that you've learned? Well, at our high school, we have amazing economic teachers that have prepared us really well

and just taught us a lot about it. But for this competition, we've had to review all the concepts of AP microeconomics and macroeconomics. And also, we tried to learn a lot of obscure facts to help us in quizzes and tests in the National Economics Challenge. Okay. Mogul, you want to thank somebody? Yes, I want to thank Mrs. Hargrove, because she was the one that really recommended Did I join the program?

Jordan. Our sponsor, Ms. Fouts, she's incredible. She helped us get to this point. Very good. Tyler, Kelly, back to you from the National Economics Challenge. And I guess we'll see you next year with, I don't know, these kids, I think they're smarter than the chatbots, if you ask me. They're smarter than me.

The question that you showed, I totally got wrong. Their intelligence is not artificial. No. Okay. Ms. Hargroves and Ms. Fouts, thank you. I just read 44 questions. and I think I may have gotten three or four right, maybe. Three or four.

You? Oh, my goodness. Congratulations to the Carville students. Maybe we'll pepper those questions throughout the next couple of days. Steve, thank you for bringing that to us. Steve Lee's been doing a great job as MC there. Coming up, we'll take a look at some of the other key stories making headlines. A lot to get through. Don't go anywhere on Paraly.

Welcome back, everybody. Less than three minutes to go and a lot more headlines to hit. So let's get right to it. The clock is ticking. Let's start with what's going on with meta over. in the European Union. Huge story here. EU finding them $1.3 billion for sending EU user information

back to the U.S. It's a record penalty for the EU. It's raising pressure on the U.S. to complete a deal that would allow meta and other multinationals to keep sending such user info stateside. Meta shares have more than doubled this year. TIE. A lot of people unhappy about this feel like the EU jumped the gun. They were working on something that

was more collaborative. Is it just a shakedown? The EU is very, very aggressive, aren't they, about these kinds of things, about privacy issues? And they're farther ahead, some would say, than the United States is. But this is an aggressive move. Yeah, well, you know, there's a few months, I think, to try to really pull something larger together. You know, a year or so ago, there was, there were no cars on dealership lots, but now their availability of new cars and trucks on dealer lots bouncing back. And for some brands,

stronger than expected, the replenished inventory also shaping up to be an important test for car companies, many of which have said in recent years they would keep availability permanently constrained, that permanent constraint keeps the price up as well, because if you don't have inventory there, you can juice the price. Unlike in the housing market where it really is harder to add new supply, it's really not in the car market. You see this with Tesla, the deflationary pressures. But we are getting some IPOs. Kava, anyone here been to Kava? I've been the lamb meatballs. They've never been. They're a Mediterranean fast casual chain. They are filing to go public as part of the filing. They reported a 13% jump in revenue last year to about half a billion dollars,

263 locations, a lot of which they picked up through Zoe's Kitchen, actually, that really fueled the recent round. Another one I don't know, but may their future be just like Chipotle. Right. Exactly. That's the hope. Well, one could wish if you're an investor. All right, on a potentially related note, olive oil prices are soaring to record highs after a drought in Europe leads to a poor harvest. And now a shortage, according to the IMF, olive is at the wholesale level of oil, about $6 a liter. But of course, shipping, marketing, other costs mean it will be even higher for the consumer. It really is a function of a severe drought in Spain and to a lesser degree in Italy last year. These kinds of things will keep headline pressure and a bad way on inflation expectations, even though it's actually coming down. And we have to mention what happened with the PGA yesterday. Not Brooks Kepta, congrats to him.

He's the champion. But Michael Block, he is a 46-year-old tour pro who qualified for the tournament made a hole in one on his way to. Where did he finish second? He finished in 15th, but he was like, I think, won over on the tournament. Got it, got it, got it. Yes, 15th place finish. $300,000 he earned, which is about what you'd have to do, $2,300 golf less.

And he dumped that hole in one. I mean, it didn't bounce and roll in. It was like, bang. And partners with Roy McHorty. He just had, and he said, I'm just, you know, just enjoyed the hell out of it, basically. Thanks for watching, Paul Lunch.