Power Lunch - Debt Limit Deadline, and Payment Problems 5/9/23

Episode Date: May 9, 2023

As the U.S. gets closer to the debt ceiling deadline and a potential default, President Biden is set to meet with Congressional leaders to discuss options. We’ll look at the potential economic damage and market impact.Plus, PayPal is plunging after earnings, issuing weak guidance. Rival Affirm also reports today. We’ll dig into the potential problems at hand for the payments space. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch. I'm Dominic Chu alongside Kelly Evans. Now, the big story today as the U.S. gets closer to that debt ceiling deadline and potential default, President Biden is meeting with congressional leaders this afternoon. We'll look at the potential economic damage and the market impact. Plus, PayPal plunges after its earnings report amid weaker guidance. Affirm reports later on today. We're going to dig into the potential payments problems, Kelly, with that BNPL trade. That with the tongue twister, Dom Banks. Hi, everybody. Dow just went positive. Here's a look at markets up 15 points. We were also briefly positive a little bit earlier. Today. We'll see if we can hang on to the gains this time. SMPs down 8 at 4130. Nasdaq's down about 4 tenths of a percent. Boeing shares are higher. That's adding a few points to the Dow. The company booked an order of 300 737 max jets from Ryanair. It's worth about $40 billion for discounting. That seems to be overshadowing the somewhat weak delivery numbers for April. BA shares up 1.5 percent. Palantir soaring. After reporting better than expected results, investors seem to be hanging on this comment from CEO Alex Karp, who says demand for the company's new AI platform is, quote, without precedent. There you can she now, a 23 and a half percent move, and Shopify is lower today.

Atlantic equities downgrading them to neutral. Valuation being the main concern. Remember, the stock has had an 80 percent run so far this year and is only down 2 percent today, Dom. All right, so, Kelly, the debt ceiling debate continues, and it rages in Washington, D.C. President Biden is meeting with congressional leaders on that issue later on this afternoon. However, with neither side expecting a quick resolution, worst-case scenarios are becoming more prominent in that narrative. According to the bipartisan policy center,

it says the U.S. government will be defaulting on its payment obligations between early June and early August. Now, given this is an unprecedented event, it's hard to say exactly what could happen. but here are what some experts say. Under the contingency plan, placed back in 2011, there would be no default on Treasury securities and the payments would continue as they are due. Frozen federal benefits delaying payments to agencies and programs like Social Security and Medicaid,

and federal employees would continue to work unless we have a government shutdown. So here now to discuss the potential economic impact of this debt crisis is Dalip Singh, the chief global economist at PGM. He's also a former Deputy National Security Advisor for International Economics under the Biden administration. So DeLeep, as we talk about just how worried everyone should be about the debt ceiling crisis, this is something many large-scale investors have shrugged off. How big of a deal is this? Well, Dom, Kelly, when you talk about default,

it's a dark and needless journey into the unknown. No one has any basis to make confident predictions because it's never happened before, but it's safe to assume the uncertainty alone would crush equities and crush credit markets. Unless the Fed steps in to quarantine the market from defaulted securities, there could be major disruptions to the plumbing of the global financial system that liquefies the global economy. But even if the Fed intervenes, this could be seen as subverting the will of Congress and putting at risk the independence that it considers to be sacrosanct. So look, what happens to our borrowing costs and the dollar on that scenario when seven of our $31 trillion of debt is held abroad? That's anybody's guess, but this is a

reckless, unforced error that we should never make. Now, Deleap, if you take a look at the way things are shaping up right now, the reason why many large investors are not as scared, simply because we've never done it before and every time we've come close with the brinksmanship game, we've found a solution. What exactly then do clients have to worry about, from your side of things with regard to what would eventually happen. Is there a bad case scenario that you're trying to kind of plan around contingency-wise? Yeah, I mean, you have to think about worst-case scenarios all the time if you're managing risk. And look, it seems as though the best we can hope for in the very short-term is a signal that we're headed for a short-term punt. But that's not a

given, even a short-term deal has a price and it sets a precedent. In this case, what would be the price of gaining a few extra months to negotiate? Maybe it's rescinding the unspent COVID funds, but it's also the harmful precedent of horse trading U.S. default risk when it really should be non-negotiable and totally off the table. And what's the return, Dom? Does anything really change even if we get a short-term deal? The budget choices and the constraints, they're the same. For a months from now will just be closer to another general election that makes it even harder to come together. Major investors to leap have been in that one month Treasury bill, Berkshire, I think Bill Gross, others saying, I'll take 5% for a month or whatever that is divided by 12. Anyway, it's a lot if

you've got several billion. And again, the opportunity wouldn't be there if we weren't talking about a possible default. What do you think about the rest of the curve at this point? You know, anybody, even if you're in a one month bill, okay, so you get your money back at a month, you've got to do something with it. You're in three months. You're in six. six month, you like that 5%, but you can't get it if you go further out on the curve. What should you do then if you're looking for a return where you want to have your money locked up or safe for maybe a couple of years' time? Look, in my view, conditions in the market have to get worse before they can get better.

So if you're thinking about risk, risky assets, equities, and credit markets, I can see a lot of downside from here. When it comes to short-term bills and risk-free assets out the curve, you know, there's going to be a sizable economic effect if we go anywhere near the ex-state and beyond. And so normally you would expect those yields to fall and you can get some return, especially when the risk premium being built in is as high as you're describing. But again, this is a venture into the unknown. We simply don't know, especially in the geopolitical context in which we're having this discussion, we simply don't know what the knock-on effects of a hit-to-confidence of this size could do

to assets that we normally think, is risk-free. And DeLeep, you mentioned before in one of your responses, the elevated or rising costs of borrowing for the U.S., that carries through into corporate credit as well, especially for investment grade and to a certain extent, of course, high yield. Can you take us through what exactly corporate treasurers should be thinking about right now as well as investors in corporate debt, whether it's high yield or investment grade? Well, every asset in the world is priced off of the risk free benchmark. And so when that risk-free benchmark becomes less risk-free, there is a knock-on effect to any cash flow that you're discounting. And look, it really depends on the scenarios that

unfold from here until the X-state and beyond. If we don't get a deal before the X-state, then we're either looking at a period of prioritization or unilateral options that the executive branch really doesn't want to use and that are far from costless, or we get default. None of those scenarios are good for assets that are priced off of treasuries. The only question is, what is the size of the repricing and for how long? And that is, again, that is a journey into the unknown. No one can make confident predictions about where equilibrium will be found. All right. Let's see if our next guest is any more positive. Deli, thank you very much. We really appreciate it, Leap Singh, laying out the contours. As we've been discussing, trying to figure out what

will happen to the markets in the event of a debt default is difficult because there's not a lot of historical precedent. Obviously, we had 2011 when similar brinkmanship led to the federal government getting its credit ratings downgraded by S&P. There was a huge sell-off in the stocks at that point throughout the summer. But over the past three months, the debt ceiling hasn't done much at all to impact the market. The S&P is slightly positive, in fact. Let's bring in Ryan Bellinger, managing principal and founder of Clero Advisors. It's good to see you, Ryan, and maybe it's because there's still a decent amount of time to go, or maybe because a ton of people want to buy this event, and therefore it's somehow not going to happen.

Yeah, I don't think it's going to happen. I mean, the United States has raised the debt ceiling almost 90 times since the 20th century began in 16 in the last 20. In my view, this is political posturing. It's gamesmanship. It's something that must be done once in a while. It's no different than parents telling their kids that Santa Claus won't come if they don't behave a little bit better. In my opinion, I think the debt ceiling will get raised. And it's just a matter of if, not when. The outcome is obviously very severe and something that's just hard to plan for, but there's no way they're not going to raise this debt ceiling. And right now, both political parties are acting in their own self-interest. And my hope is that at some point they come together and put the country's best interest first. Yeah. I'm trying to think through the Santa analogy, because I can control what Santa brings, right? And who's San – well, I guess the point is this. If there really does need to be some negotiation between Republicans and Democrats over spending for, let's say, the next year.

year or the next couple of years, what are going to be the other opportunities to do that? There's the debt ceiling. There, I guess, at some point, is this all going to get rolled up into a discussion about government spending, broadly speaking? Could the risk of a shutdown as well be looming again as we move throughout the calendar year? You're probably right, Kelly. I mean, look, the debt selling was put in place for a reason. It was put in place, you know, back in the early 1900s, you know, you got to have a spending

limits. So there's a reason it exists, and it's just kind of perpetually gets kicked down the can gets kicked down the road until some modifications are met. And I think that's what's going to happen this time. There'll be some concessions on both sides. Ultimately, they'll put the strength of the U.S. dollar and the reserve currency of the world ahead of the political persuasions that are negotiating these things. And that'll be a good thing for investors. Right now, They're just concerned. You know, what does this mean? And to us, it doesn't mean that you change any of your investment allocations.

You know, I think you've got plenty more to worry about in this economy. So, Ryan, it's Dom. Speaking of those things to worry about that, even if you don't make wholesale portfolio changes because of debt ceilings or government shutdowns, there is still a general risk sentiment that you have to position for. What exactly is your portfolio tilted towards right now? And what exactly are you overweight or buying more of? Well, we're probably more overweight in bonds than we have been in a long time.

I mean, the bond math is great. Getting yields of close to 5% or more. You just haven't had that opportunity in a long time. Savers finally can earn something in a money market. Hopefully they're in a money market. I mean, a lot of people are still sitting somehow in cash in a bank. That's just the easiest thing to do is to get your money into a money market, ladder, some treasuries, you know, get some.

yield, but you can't give up on your stocks. I mean, stocks over the long term are the best long-term creation of wealth that we have. And so, in my opinion, you keep your stock allocation. You probably want to reduce it just because there are a lot of headwinds that we see. So you're probably on the lower end of your equity range, and you're liking the income you're getting from your bonds. So, Ryan, on the question about bonds, I mean, is this going to be a one-time sale, so to speak, that, you know, again, if you look at some of the yields that you can get, they're really good for one month. They're pretty good for six months. They're a little less interesting for a year.

They're a lot less interesting for two, three years. I just wonder, are people going to have as good options in maybe three, six, nine months time when they reinvestment time? Well, it's a great observation, Kelly, but in my opinion, that the 75% probability that we get a rate cut by September is ludicrous. I can't believe that's what the curve is suggesting. So, in my opinion, investors are going to continue to get opportunities to roll their credit at four or five percent come fall on winter. And that'll be good for a lot of investors. I think that the yield curve is just pricing in something that that is unattainable at the moment. And that's a rate cut. I just don't see that happening. All right. T. Bill and Chill has some legs to it. Ryan, thanks so much. It's good to see you

today, Ryan Bellinger. Coming up, if the debt hits the fan in Washington, which stocks should people absolutely avoid. City Group is out with their guide to trading the debt ceiling drama we'll discuss in today's three stock lunch. Plus affirm earnings are after the bell today. After a rough 2022, the stock is higher, believe it or not this year. But what impact will the continued banking crunch have on that buy now, pay later, BNPL trade? Which stocks rely a bit more on looser lending, Kelly? Well, speaking of payments, let's get a quick check on our way to break. On the negative side of the S&P PayPal beating on earnings, but the company's margins disappointing investors. on the positive side, DeVita, the kidney care name, beating on earnings, forecasting and

improving macro environment. DeVita up 14% today. PayPal down 12% more on that in a bit. Stay with us. Welcome back to Power Lunch, everybody. Check out shares of a firm. They're up of 4% today, as they're about to report third quarter earnings after the bell. The stock was down 90% last year, but has rebounded about 29% so far since Jan 1. Despite those gains, it's important to note some major headwinds facing the company. Most obviously the bank crisis. Fact of the matter is the free money market is gone. Companies like Affirm, Klarna, Sizzle, all reportedly tightening their credit standards. Got to try to make a profit.

And some customers are suddenly finding themselves facing denials or lower limits. A firm could face the same issues as PayPal today as well. That stock hit new heights during the pandemic. The price being squeezed recently, though, by a slowdown in e-commerce spending and growing competition from the likes of Apple. It reported an earnings beat yesterday, but issuing what many analysts felt was an overwhelming commentary about profit margins down 12% today. For more here, let's bring in Andrew Jeffrey. He's managing director of fintech software and info services at Truest. Andrew, it's good to see you. So is PayPal kind of a problem for the broader, what do we call it, payment space?

Well, I think PayPal is a pretty specific case. When we look at the bifurcation in the market between the legacy payment providers, and I consider PayPal legacy provider and some of the next gen. Digital competitors like God, yen, I think PayPal is struggling to maintain the power of its brand and relying more on unbranded or enterprise-type processing solutions. And that's blending down the take rate. It's blending down the margin. And more than I would have expected. And I was disappointed to see that it's going to take longer than I would have thought for the strategy to play out. You know, the Wall Street Journal's reporting on this. A lot of people are talking about buy now, pay later, really having to face characteristics where the base, if they're not making

payments, they're cut off from access to some of these products, they have to shop around. You know, they're going through their first down cycle. How do you think they're going to come out of it? Well, I think when you look at PayPal, BNPL is a nice add-on. I don't think it's the key driver. It's much more important, obviously, for a pure play like a firm. The big picture to me is whether or not BNPL is a legitimate tender type and whether it's here to stay. I believe it is. And I think the scarcity value that a firm offers is really interesting, even more so than PayPal, which has got its own set of issues. You mentioned, some of them competition from Apple, competition from Shopify, other buy buttons of the major issues there. Andrew, it's Tom. Is there a case to be made that the

stocks so far this year have reflected a fundamental case for a tailwind? In other words, The banking crisis, the kind of more conservative nature of traditional banking has now made alternative or shadow banking a little bit more available and a little bit more kind of attractive. And is that the reason why? Because banks aren't doing as much of that business. So BNPL is feeling some of that void? Yeah, I think BNPL specifically, but I think more broadly. And we haven't necessarily seen this play out in the stocks yet.

But I think over the next couple years, what we're going to see is that, The inability of traditional banks to serve, especially younger consumers in a digital way, is really going to accelerate the growth for alternative banking providers. Block, I think, is a wonderful example. You can see the strength in their cash app performance. I think BNPL is another product that will serve as an alternative to traditional credit cards. This isn't going to happen overnight. There are cyclical issues.

There are going to be some growth hiccups, which we've seen. But I think, yes, this banking crisis holds in stark relief the opportunity for alternative products like BNPL, like cash app, like other solutions in the market. You know, a firm being one of your favorites, you say it's the category leader. Is it going to be a takeout target? How much of that do you think the stock has priced in right now? Yeah, look, I think the industry is going to consolidate. I think broadly some of these underperforming digital native names will see consolidation. Capital markets have been an impediment so far this year.

there's real scarcity value in BNPL. There are really only two independent players left. It's Klarna and it's a firm. I think a firm is far in a way. The technology leader, it's got the best customers with Amazon and Shopify. So I think over time, as the industry consolidates, having that kind of technology as part of a bigger entity, perhaps, could be really attractive.

It's certainly one of the reasons we've stayed bullish on a firm despite the disappointing financial performance. Okay, Andrew, can we kind of take it up to a slightly bigger picture? We're talking about payments companies in FinTech. Square slash block is, you know, 30, 40, some billion in market cap. You've got PayPal, which is around maybe 80 or so, call it in terms of market cap. There was a time when PayPal was bigger than most of the biggest banks in America in terms of market value. What exactly does it take for FinTech to get back those glorious?

days compared to traditional banks? Yeah, I don't think those glory days are coming back. What I do think is that you're going to see a slow and steady shift in consumer behavior and monetization of products like cash app, which provide some of the functionality that banks do, at least in terms of debit spending and perhaps savings and maybe even other short-term lending products. I think you're going to see a convergence. I think you're going to see some of these The next-gen banking solutions steadily chip away at bank share. I think you're going to see the stocks be relative outperformers.

And I think you're going to see banks continue to struggle to grow. And I think over time, these two industries are going to meet somewhere in the middle. There's certainly a role for traditional banks. But I think their centrality in the financial system is slowly being chipped away. I don't see these stocks going back to pandemic highs. Those were really transitory. All right. Truist Andrew Jeffrey covering FinTech.

Thank you very much, sir. see you soon. Thanks for having me. Appreciate it. All right. Well, further ahead on the show, Nextera's Next Era, one of the most valuable U.S. power companies is making a huge bet on hydrogen. Banking on lucrative tax credits. That Nextera story is up when we come back after this break. Welcome back to Power Lunch. Markets right now just about flat. If you look at the Dow, it's only down about nine points. It's kind of tilting towards the higher end of the session. The SMP's down 11 points, the NASDA composite down about one-half of 1% or 55 points at this point. Now, we've talked a lot about what's going on and what's going to happen in the economy in the second half of the year,

but one good indication possibly is forward guidance from actual companies themselves. So let's get out to Bob Bassani at the New York Stock Exchange with a look at what we've heard so far this earnings season. And the important thing is there may be concerns about a recession, Dom, But there is not evidence that it's showing up in the earnings guidance, at least not yet. Let me show you where we are right now, at least for the first quarter. The numbers are coming in better than expected. 77% of the companies, and we're almost done the first quarter, beating. That's above the average.

It's usually in the mid-60s. And they're beating by about 7%. That's also above average. They usually beat by 4 to 6%. So overall, the fears that we were going to have some kind of big miss isn't happening. As for the second quarter, well, it's all about who's guiding up and who's guiding down. as Dom mentioned, we have 35 companies with negative pre-announcements, 27 positive, means raising it. So the negative deposit ratio is 1.3. Believe it or not, that's really good. It's typically

twice as bad. Many more companies generally warn than say we're going to do a lot better. So actually, so far, the body language of companies is better than it typically is looking forward to the quarter that we're in right now. So where does that leave us? Well, take a look here. The estimates for the numbers here aren't that bad. Q1, the numbers have been going up better. We're slightly lower for the second quarter compared to, say, six, seven weeks ago, slightly lower for the third quarter, but it's almost statistically irrelevant. And the fourth quarter is steady. So you put this all together, and it's just about a wash for 2023. The estimates, the total estimates for 2023, his earnings will be up about 1%, maybe 1.5%.

In a typical recession, your earnings will drop. 10 to 20 percent. They dropped 50 percent during the great financial recession back in 2008 and 2009. So the bottom line here, Dom, is we've got a flattish earning situation. We've got valuations that are very, very high above normal, about 18 times forward earnings. None of this is signaling a recession. The market is positioned for a soft landing. That may or may not happen, but that's the way the market is positioned right now. Don, back to you. A base case for sure. Bob is son. at the Stock Exchange. Thank you very much. Now, as we've talked about, a lot of focus on this afternoon's meeting in Washington, D.C., regarding the debt limit, but a big report due out

tomorrow as well on, of course, inflation. Let's get out to Rick Santelli live in Chicago at the CBOE, the CBOE, the CBO. Rick, which are traders more focused on? Debt ceiling or elsewhere? You know what? You know what, Dom? In one second, I'm going to let you know exactly what those traders think. But before we get to that, you know, we had a three-year note auction today. 40 billion of those guys left the Treasury coffers around one Eastern. And look at the intraday chart. You see the way yields dropped at one Eastern? It was an amazingly strong auction. So why are investors stepping up in front of CPI in front of debt ceiling to buy a short maturity? And if you look at a longer term chart, twos and threes are the only

maturities that took out in March their high yields from the fall. And finally the VIX, traded right here at the CBO. It's hovering right near a one and a half year low. Pay attention to that. And let's do this right. All right, gang, what are we more worried about in the morning? CPI? Raise your hand. Or the debt ceiling? Well, I think that the answer is quite clear. And to that end, let's go to Michael. Mike? Thanks for joining me today. So, what do you think? What's the issue to pay most attention to debt ceiling or CPI? I think you've got to say CPI. CPI has been moving markets of late.

It means a lot to the Fed. It means a lot to the interest rates. Naturally, it means a lot to the amount of appetite. People are going to have with their risk portfolio, you know, their equity risk portfolio. So I think right now we've been seeing these moves in the S&P area in the SP in the morning. When the CPI happens, these outsized moves in the morning. I don't expect anything different tomorrow. I got to.

Now, when it comes to the VIX, we have the small VIX, the big VIX. If we look at the big VIX, it's hovering near the lowest level. since last fall. Do you have any thoughts on that? No, we had a big rally last week. And in addition to that, we've actually had really modest moves in the SB 500 since then. We're down 10 points today. We haven't had big moves overnight. There are some big things on the horizon, but I think you have to say the realized volatility in the market is pretty low right now, and the VIX is reflecting that. We'll see what happens over the next month, of course. But as it stands right now, I don't see any reason

for the VIX to be trading much higher than it is now. All right, so we have year over year is the biggies. We have headline in CORE last month. Core was the one. that was out of line that didn't move down every month the way headline year over year. Which one do you think is going to be the biggie tomorrow? I mean, right now, the consensus right now is about 5%. I think if we come out of line of that. If we pop higher, what we, of course, if you said, haven't seen, I think that could be detrimental to the market.

That said, we could be right in line. And this could be actually a non-event if we stick in line and this trend continues. But we'll see tomorrow morning at 7.30, you know, Chicago Times is when it's all going to happen. Oh, yes. Anne, I'm teasing 24 hours ahead of time. You viewers out there, I have a big surprise guest from this floor tomorrow. Make sure you don't miss it. Kelly, back to you. And Dom, I hope I answered your question, buddy. Who's the guest? I don't even know. I'm going to watch those squat box tomorrow morning. I loved the poll with the sign. Rick, thank you. We appreciate it. We'll let you guys go. Let's get to Bertha Kuhmes now for the CNBC News Update. Bertha? Hi, Kelly. Here's your CNBC News update for this hour. Ukrainian president, Volatimir Salin, said Russia has intensified its attack across the country, out of frustration that several

Ukrainian sittings, including Bakhmut, have not fallen to Russian troops. Amid these renewed Russian airstrikes and attacks, the UN has confirmed nearly 8,800 civilian deaths since the war began. A caution, the true figure could be much higher. The White House issuing its first statement since the death of Jordan Neely on a New York subway last week. A spokesperson called Neely's death while in the chokehold of another passenger, quote, tragic and deeply disturbing.

The White House also called for a thorough investigation. President Biden will be in New York City tomorrow for a pair of fundraisers his first since launching his reelection campaign. And the dispute between China and Canada continues to escalate after Canada accused a Chinese official of targeting a lawmaker in his family. The two countries have now expelled diplomats and tit-for-tat moves after Beijing denied the allegation and responded with what it called reciprocal countermeasures. Some tensions to watch there, Kelly. Bingo. Berta, thank you very much, Bertha Coombs. Still ahead on Power Lunch, CNBC is out with the 11th annual Disruptor 50 list, where we highlight private companies chasing some of the market's biggest opportunities, making a big impact on the list this year, not just AI. Also, green tech will hear from a company whose clients include Constellation brands, among others.

We're back on Power Lunch in just a moment. CNBC is out with our 11th annual Disruptor 50 list where we highlight private companies, which are chasing some of the market's biggest opportunities. Artificial intelligence and automation made a big splash on this year's list with nearly half the featured companies focused on those technologies. And with ChatGPT becoming a household name, it's no surprise. that the number one slot went to OpenAI, the company behind ChatGBTGPT. But as more public companies go green, it's no wonder environmental technology was also prominent on the list this year. Take MonarchTractor, valued at more than $270 million.

Monarch makes the world's first ever, first ever, fully electric driver-optional smart tractor. So here with more is Monarch Tractor CEO, Praveen, Penmetza, along with our very own Julia Borsden, who spearheads all of our disruptor coverage. Julia, I'll send it over to you. Thanks so much, Dom and Praveen. Thanks so much for being with us here today. We have your autonomous or driver optional electric tractor behind us. We're about a mile from your offices.

And we're here on a vineyard where your tractors are working. Explain to us both the environmental and the business advantages of these new vehicles. So, Julia, farmers around the world are struggling with high labor costs. They're also having to meet the new sustainability metrics that are coming down. So what our all-electric driver-optional smart tractor does for farmers is to not only save on diesel fuel, also be more efficient on the labor side, but decreases the emissions that come from farm equipment. And we are also able to power not only the tractor, but also all the other equipment on the farm.

And more importantly, on the sustainability side, we are looking at a reduction in chemicals, thanks to using all of our technology on the tractor, including a lot of AI and machine learning technologies. So talk to us about the AI. Obviously, artificial intelligence, huge trend on this year's Disruptor 50 list. How are you deploying AI? Is that how the tractor moves around this vineyard

and knows where to go? Absolutely. When we started this company, our goal was to build a tractor that every farmer in the world can eventually afford to use and have a difference made on the farm. So we use cameras. on the tractor and using AI, our cameras recognize what is happening not only on the tractor and with the implement or attachment behind it, but also what's happening on the farm.

And all of this AI allows us to train the tractor very quickly. So we can go into new farms and new crops and within days help the farmers start to automate their operations and give them alerts and insights to make them more efficient and more sustainable. Dom, you want to jump in here? Absolutely. Praveen, thank you so much. I'm watching intently because I have a special emotional tie to where you guys are sitting right now. I was born and raised in the East Bay in San Ramon, not far from where we are sitting right now.

When I was growing up, Livermore was just cows and a little bit of agriculture. How important is it for your company to be doing this kind of technology and looking at California as a way to kind of show what exactly autonomous farming can be like? Don, that's a great question. and we at Monarch are turning Livermore into the center of AgTech for the world over. Like you mentioned, farms and farmland is close by, but we're also very close to Silicon Valley where AI technologies are developed, autonomy was developed here, electric equipment, and electric cars were developed here. So that makes this the logical location for us to develop these technologies and deploy them. But also we are at a vineyard here in Livermore making a difference on the farm,

both on giving them more efficiency and savings, but also making the farms more sustainable. So we are very thrilled to be at the forefront of this agriculture and food ecosystem revolution here. Now, we mentioned that you have some partnerships, such as with Constellation brands, and these vehicles are clearly expensive. What's the plan to make them widely accessible?

What's your plan to get these into more farms, more vineyards? So, Julia, our tractor, while it's a little bit more expensive than a normal diesel tractor, actually pays itself off much, much faster than a diesel tractor. So we are seeing payback for California farmers in under two years, just using all the AI and the smart technologies that are on the tractor, even including the higher price that comes along with being an electric tractor. So on that side, also brands like Constellation Now have to meet and report on ESG goals

as a part of their metrics. And the fact that they can use this equipment on their farm to see the cost savings, meet their ESG goals is a win-win for not only constellation, but for all of us consumers as well. Yeah, and so interesting seeing how these tractors, and being EV and autonomous, they're collecting so much data that the farms or the vineyards end up being these connected vineyards in a whole new way.

Well, we're going to have to leave it here, but thank you so much for joining us and telling us about monarch tractor and everything that's ahead. Thanks so much for talking to us today, and I'll send it back over to you guys. All right, Julia Borson, thank you very much, of course to Praveen Penmeza at Monarch Tractor as well. And make sure to stay tuned for our next Disruptor 50 Spotlight.

It's 5 p.m. Eastern time today. We'll sit down with Adrian Gomez, the co-founder and CEO of Google-linked chat-GBT rival Cohere. And on power lunch tomorrow, we'll talk to number 25 on the list. It's Keller Winoldo, Clifton, the co-founder and CEO of Zipline. Another interview you won't want to miss. got disruptors up the wazoo. Zipline. That's interesting. I was hoping Julie would get on the tractor.

That was cool. That's cool. 45 minutes outside of San Francisco. Farmer driver optional. I like that. Yeah, that's right. She doesn't have to get on the tractor. It drives itself.

Coming up, WTI crude lowered today and pacing for its worst months since November. We'll bring you the latest on this energy trade, including a key player that's doubling down on renewables. As we had to break, CNBC is celebrating Asian American and Pacific Islander heritage throughout May, sharing stories of business leaders in the community. Here is Farnoosh Tarabi. most of the So Money podcast. What I would love for people to learn and take away from my own journey as an Iranian-American is that when you stay financially curious, that's when you can actually start to build

wealth. It is the ultimate foundation for getting answers and leading you down the paths that are well aligned with your goals. Welcome back to Power Lunch. Oil is trading just closed for that day. And let's get out to Pippa Stevens for the numbers here. Overall, I got to say it's been one of those. weird last few days for oil price action. And the weirdness continued today because heading into

the close, oil reversed a 2% loss from earlier today and turned positive. And there doesn't really seem to be a catalyst for why I've been talking to people. There is some chatter about the DOE and unfilling the SPR. But there's not really a whole lot new there. Secretary Granholm has said before that they will look to refill the SPR once the maintenance is over and once it makes sense from a price perspective, and that could happen as soon as later this year. But they did not say that will happen. And so it seems like a lot of people are pinning their hopes on that at this point, because it was kind of thought that that wouldn't happen for a few years,

but it doesn't really seem like there's been definitive language from the SPR. So kind of a lot of a start from the DOE, so kind of different forces going on here and just speaking to the wacky trading we've been seeing recently. Not to take this totally off course, but can we talk next era for a minute? Yes. It's another kind of power and energy. I mean, it is, but this is such a fast. The market cap is astonishing.

The performance has been spectacular. Are they getting totally out of fossil fuels? Or what's happening with this renewable push here? Yeah. So basically Next Era, they outlined a new strategy whereby they will be a pure play renewable energy company. And it's a strategic shift because it plans to become 100% renewables. And NEP, which is majority owned by utility Next Era energy, will sell its gas and pipeline assets, making it more relevant for climate-focused investors.

But this is also about simplifying its financials. There were worries the company might have to issue stock, but now it can use the proceeds from the pipeline sales to cover expenses, with parent company NextDara also suspending the incentive distribution rights fees that are typical in a master-limited partnership. Now, shares are up 16% in the last two sessions. Keybank saying the move restores investor confidence while J.P. Morgan upgraded the stock to overweight.

So clearly that shift to renewables is beneficial, but also it is about the financials as well. Impressive, quite a run. I mean, I know this year's been a little more challenging. Yeah, yeah. Pippa, thank you. We appreciate it, Pippa Stevens. We'll take a quick break. When we come back on Power Lunch, as the fight over the debt ceiling and federal spending ramps up, City says beware of stocks with high revenue coming from the government. We'll trade those names that made its list in three-stock lunch next. Welcome back. Time for today's three-stock lunch. As congressional leaders prepare to meet with President Biden today over the impending debt limit fight.

Cities out with a stock screener of names highly exposed to government spending and contracts. The list has a lot of health care and defense names. We're going to trade three of them today. Joining us to do that? Let's start with Northrop Grumman. The stock down 19% this year. But City says the defense, the defense sector

tends to recover the most when a spending resolution is reached. As I mentioned here with our trades, is David Wagner. He's aptest capital advisor's portfolio manager. David, it's good to see you. Let's start with Northrup. What would you do with the stock here? Yeah, great seeing you too, Kelly. I think one of the greatest things about NACIS, well, outside of what Kathy Warden has been doing over there, is their portfolio. If you actually dive into where they have a lot of their concentrations, such as classified space, nuclear deterrence, hypersonic defense, they are fully aligned with the long-term priorities of the defense budget really moving forward. Because, you know, if you look at some peers, I don't want to call anyone out, but cough, cough, you know, Lockheed Martin, you know, they have a dependence on the F-35. And this is a prime example of an area of spending that's probably

lower on the list of importance. So if you want to heed to, you know, a quote from animal farm, all animals are created equal, yet, you know, some are created more equal. You actually may find out that in this space, some aerospace companies are definitely positioned a lot more fabably than others. And that would definitely be not. So that's why I think, you know, it wouldn't surprise me if you look three, four years down the road from now that we're probably still going to be talking about the top line growth at knock. And I'm just not sure that could be said about a lot of their peers. All right. So let's move on to General Electric, which is up 55. And I again say 55% this year, as Citi puts it in its top basket of stocks with the most direct exposure to government spending. And David, you think the valuation up here is getting a little hard. And by the way, this company is breaking up fully over the next couple of years. Oh, 100% is. It's a best name in the industrial space right now. And, you know, Dom, I do think in my commentary here, I'm going to come out sounding a little bit bullish. I love the transformative cleaner story. I don't. I also love the actions taken by CEO Larry Kulp.

I mean, how can you dislike a strategy where the CEO comes out saying their favorite metric is free cash flow and that earnings is just a byproduct? But given the recent run that you just mentioned there, I'm definitely on the sidelines due to valuation. It trades at a 35% premium to the S&P 500, where it's historically traded, say, like, a 10% premium. So I do think that a lot of this transformative story is definitely being priced in right now. It's like since January, it was the official start date that, you know, GE got out of that,

you know, deal purgatory because that health care spin out was definitely executed quite well. And they're in the home stretch for Venova, but can't get past valuation. Just a word on Boeing real quick. David shares up on that huge Ryanair order. Yeah, you know, I think if you did a flashback to say, you know, three, four years ago, I don't think I'd ever say that I was bullish on Boeing. But, you know, the dynamic has definitely changed. So I may not be fully bullish right now. I'm definitely getting a little bit more optimistic here. All right. David Wagner, a pleasure, sir. Thanks for your time today. And for more on the Stock City thinks our most exposed to the debt ceiling fight for better or worse, head to CNBC.com slash pro.

All right, Kelly, we still have a lot of stories we want to get to. We'll see how many we can fit in the time that we have left. That rapid fire is coming up after the break. Welcome back to Power Lunch, everybody. Three and a half minutes left in the show, and there are so many stories that we want to get to. Let's not waste any time. Dom, the clock is ticking. So with so much volatility in the banking space, let's start here.

You'd expect bonus season to be basically non-existent, and that's true to a point. The regional banks, which bore the brunt of the recent blow, are likely to see bonus declines as much as 20%. But we're also learning their counterparts, Dom, with the bigger banks, could see incentive pay rise by as much as 20%. This is from Johnson Associates data. So a split reemerging. Well, what's going to be curious is what the aftermath is going to look like, right? What this does to talent and management in the coming year if people know that they can only count on a certain amount of money to make over the course of the next year. Exactly. Right. Well, now let's talk a little bit about Bank of America. They say the number of customers contributing to 529 college savings plans has jumped 30% since 2019.

And that's thanks in part to COVID-era stimulus cash on hand. The biggest jump came from lower-income households at nearly 50%, though higher-income households still make up the majority of the participants. There is a gap, but direct government payments allowed certain people to contribute more to college savings plans. I won't get snarky about, okay, so the government's giving people money to pay. pay for a tuition that's high because the government subsidized it through. We'll just say, you know what, at least they're saving for Congress. So you're saying tuition inflation because of direct government payments? Well, it seems to just keep all going round and round. Here we go. Music service, Spotify, is reportedly pulling tens of thousands of tracks from generative AI company

Boomy from their platform. There were signs of suspicious streaming activity, bots being used to boost listener figures, also to get ill-gotten revenue for some of these uploaders. The platform has been battling a wave of AI-generated songs. That viral Drake weekend one. We've got to figure out this is the future, as long as people can get compensated for it. I just don't know. To me, I'm a little bit more scared of the fact that I could not tell the difference between an AI-generated song versus what a legitimate one would.

Would it matter as long as Drake got paid either way? Or the producers are part of the ecosystem. I wouldn't care as long as I was entertained. But as a content creator, I guess I'd have to think about it. Ruthless consumer. All right, well, Disney World is unwinding some pandemic era change. First, it's removing the reservation requirement for certain parts of dining and parks. Now users can just buy a ticket for a specific date.

It's also bringing back the dining plan. Disney says the changes were made in response to guest feedback. And by the way, for those people have gone, I've gone this year with my friends and family. That Jeannie Plus fast pass slash lightning lane thing is crazy with regard to you need a full-time job just to understand how to navigate the rides and the lines. I don't think we're ever going. And I'm okay with that. Most people are happy to leave a tip in recognition of excellent service, but what if there's no service at all? We've seen this. I've experienced this tip screens appearing in self-checkout areas where you don't even interact with anybody.

Of course, some customers are feeling anxious because of this, and there was a term for it. I'm not sure what it was, but here's what I will tell you. The guidance I was given, because I'm normally a very generous tipper, the guidance I was given by a financial expert was, unless it is a tipped position like a server, then you've done. shouldn't feel compelled about having to leave. But am I supposed to ask somebody, excuse me, are you a tipped position? Should I pay you? I don't think somebody at works at cashier's desk is a tipped position. That's fair. Then I'm not going to worry about it.

It'll just hit no tip. Just give me that receipt. And then walk away in shame. Don, thank you so much. All right, thanks for watching, Power Lunch, guys.