Power Lunch - Dow drops 200 points after hotter-than-expected CPI report 02/12/25

Episode Date: February 12, 2025

Stocks tumbled and interest rates spiked after consumer prices rose more than expected in January, raising concern that inflation may reignite. We’ll cover all of the angles for you. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

And welcome to Power Lunch, everybody, alongside Kelly Evans. I'm Brian Sullivan, the big money story for you, inflation. We're telling you stuff you already know, but it's costing you more at the grocery store. And today, it might hurt some of your investments, although the NASDAQ is higher. Now, Elon Musk, you might have heard about him. He's got a new role in government. Tesla shares. They're down since Trump took office. But we're going to speak with somebody who says that could be a warning sign for the rest of the market. Interesting. And as Brian mentioned, stocks were lower across the board, but well off the worst levels of the day. The NASDAQ, depending on when you look, is either up or down a couple of points. The president saying he spoke with Vladimir Putin in what he described as the start of a negotiation to end the war in Ukraine. That news and some of the speculation leading up to it quickly turned us from much bigger losses in the markets this morning to the picture that you're seeing today. A little different story with treasury yields, though, which have been stubbornly high and hanging on to their post-CPI gains. the tenure right around 463. Yep. All right.

So we're going to get to all that, the markets, your money, everything in just a minute. But we begin with some breaking news out of Chevron. About an hour and a half ago, Chevron coming out and saying it will lay off 15 to 20 percent of its global workforce. That's about 6 to 8,000 people just sort of based on math. Chevron's got about 40,000 employees globally with about half of the United States. Now, Chevron had previously announced two to three billion in cost cuts. it's sold assets in Alaska, Canada, and Africa. Now, I'm going to give you some other color based on texts and conversations that I've been having

today. Chevron recently moving from California to Houston. So some of these cuts could be, not saying they are, but people I've talked to suggest they could be people who don't want to leave California to go to Texas. Chevron recently sold its California headquarters and moved across the street. Also, your old shop, the Wall Street Journal, bit of article this weekend about Chevron's divorce. That's their term. I'm doing air quotes if you're on the radio with California. It's not pretty. Chevron also growing around the world, opening up a new venture in Kazakhstan and a new venture

in India, which is hiring for some jobs, also their deal to buy Hes Oil and gain those Guyana assets are in legal limbo. And then there is this, which may be more of interest to you, the CNBC audience. because Chevron has underperformed ExxonMobil the last couple of years, it has been suggested to me that some of these moves could be, may not be the case, but could be to get ahead of any big hedge fund who may try to come in. Remember, Kelly, Elliott Management just reported big stakes in BP and Phillips 66. I'm not reporting.

They're taking a stake in Chevron, but I'm just saying these are big moves. And I should note ExxonMobil has also. announced cost cuts going to whack $18 billion over the next, call it six plus years. Do you think this is just about Chevron? No. So because how do they, Exxon, for instance, that's another one to watch. They've announced 18 billion cuts through 2030.

We're seeing the industry know how to drill, find oil, get oil out of the ground for a lot cheaper. But because Chevron's in a move from California to Texas, there are some other aspects that are going on here. Yeah, well, it's interesting to see the shares down one and a half percent. We sometimes see a lift when you start to announce big reductions in expense structure, right? It makes it a little bit easier to achieve those earnings unless you're concerned that there's a demand problem at the company, a larger issue, as you're alluding to, that would kind of be more of a

hangover for. And I want to be very clear that we have seen layoff announcements across a lot of companies and a lot of industries. And I know it's very tough. I don't want to see anybody lose their job because when you lose your job, particularly if you're of a specific age, the older you are, the harder it can be. I know it's tough for a lot of people. Chevron, big layoffs coming over the next call it year and a half through the end of 2026.

These are major cuts. Meanwhile, the Fed has been saying it's made great progress on inflation. Had Jerome Powell reiterated that in the House today, it comes, though, as the January CPI print was much worse than expected, up half percent month on month, pushing the annual rate to 3 percent, dimming hopes for a rate cut this year. But our next guest says, not so fast. A lot can happen between now and even the Fed's next meeting in March. And they'll use every minute to decide on that next move.

Could these layoffs even factor in? Let's ask Robert Kaplan, Vice Chair of Goldman Sachs and former Dallas Fed president. It's good to see you again. And we have seen a steady drumbeat of layoff announcements. And that has some people kind of going too far down the hawkish road or the hawkish camp here. Listen, inflation progress is. been stalled going sideways, that alone would cause the Fed to want to pause. And then you've got four or five big structural changes going on in the economy and the government level on fiscal

spending, tariffs, labor force approach, regulation. The energy ecosystem is also going to be re-looked at. And then you've got AI, which is creating a lot of capital. investment uncertainty, need for more efficiency. So if you're at the Fed, it's unclear how all these structural changes are going to unfold. And I think the wisest thing to do will be to take it one meet at a time. But they're extremely unlikely to act in March. And I think it will be some extended period of time until things clarify, if you're a CEO of a company, this is also depending on what industry you're in. This is a challenging time. because you're also trying to gauge how these different structural decisions are going to unfold,

and it's not clear yet. Right. Not least because of the tariff news. How should they be gearing for that? I mean, it seems like a lot of talk and then not much action, but then at the same time, there's a steady drumbeat of tariffs that are actually going into effect. Yeah. I mean, listen, most CEOs, they start with, by and large, in every industry, they're excited and

optimistic about regulatory relief and maybe more of a cost-benefit analysis on regulation. So that's a sign of encouragement. And there's a hope that we will have a more organically driven private sector-led economy. On the other hand, it's unclear how the Doge project will unfold and how much cuts are we going to be able to do at the federal government level. It's unclear how far we're going to go with the deportations and whether we're going to have significant meaningful workforce growth or might we inadvertently shrink the workforce. And a lot of companies I talk to are very concerned about being able to find workers. And the tariff issue is about supply chains and logistics.

And in particular, in particular relating to Mexico and Canada. Right. If you're going to have trade dispute with China, you want to have ideally the ability to reshore and use Mexico and Canada to some extent for logistics supply chain arrangements. But those aren't completely clear either. So people are going a little more slowly, putting one foot in front of the other. But the impact of going more slowly and more deliberately is maybe you're not going to be as aggressive here for a while as you might have I just wonder, Robert, it's Brian, what the Fed can do about things like home insurance rates or auto insurance.

You know, we saw owners equivalent rent go up. And I'm thinking, well, if you make it harder to buy a home, people have to live somewhere. They're going to rent because they can't afford to buy. So rents might actually go up. I just wonder what the Federal Reserve can do when it comes to some of these insidious forms of inflation that are not just necessarily tied to a slowing economy. So we're in one of these rare periods, if you look versus the last five or six years. I would argue the Fed is shifting for a while here offstage. We're moving to a more whole of government approach to economic policy and fighting inflation.

So some of the issues you talked about, the Fed can't do a lot. Also, I think, and I think Scott Bessett may have said this, I think the administration's more focused on the 10-year treasury than the Fed funds rate and moves they can make that might keep this term premium on the back end from inching up, which is affecting the cost of a lot of the financial services that you just talked about. It's affecting rents. It's affecting mortgage rates. And so I think for the time being, I think you'll see the Fed kind of move a little bit quietly off to the side, be more muted, try not to be in the middle of headlines. And fiscal policy and other executive actions, the federal government, are more center stage. And I think you're going to see, again, a more whole of government approach to dealing with these issues. And we're in the middle of that, but we're in the early stages of the middle of that.

Robert Robert Kaplan, Goldman Sachs, always appreciate your valuable insight. Weird time, like you said, unique time, but that's what makes it interesting. Robert, thank you. You'll just talk to you. All right. Meantime, the monthly report on how the Treasury Department spends your tax dollars just came out. Extra relevant in light of Doge and all the cost-cutting efforts this year. Megan Kasella with the details.

Megan? Kelly, that's right. One big number for you guys today. The U.S. spent $84 billion on interest costs alone on the public debt last month. That's a more than 20% increase from the same month a year ago. And it was one of the biggest drivers of higher government spending. So for the fiscal year to date, so far, we now have data for the first four months. Total government spending, revenues, and the size of the federal deficit, they're all at record highs.

So in other words, we're taking in more money, but we're also spending it faster than ever. So the deficit just continues to grow. Now, besides the interest payments, a few other categories here of higher spending. Spending at the Department of Homeland Security, that was up about 43%. year to date, mostly due to more disaster aid being spent by FEMA in the wake of wildfires and hurricanes. Defense and military spending also up slightly about 9% so far this year compared to last. And three of the biggest line items in the government's budget, Medicare, Medicaid, and Social Security, those are all still edging higher. Those programs simply have more recipients

than ever, but also inflation and cost of living adjustments have led to larger payments for them. So how much of this, Megan, I don't want to put you on the spot. I'm sorry, how much do we think has to do with higher interest rates, meaning just higher payments. In other words, just like a credit card, the federal government, if you spend more on interest, you're going to have debts and deficits go up. That's a huge part of it. You can see that threaded throughout this report, both in how much they're paying on interest, which continues to be one of the biggest line items every single month and for the year as well. And you're also seeing it in those cost of living adjustments. Everything gets a little bit more expensive. So it's all related. It's all throughout.

And I will say, guys, too, that Treasury officials were asked about Doge and about whether anything that we see in this budget might be impacted by Doge. They really didn't want to get into it, but it is something to watch. This is where we're going to start to see things documented. Are we going to see payments start to slow a little bit later this year? We have to wait and see. It's interesting that we're up that much year on year. I mean, we're up, you know, the fiscal year-to-date deficit is $840 billion versus $531 billion a year ago.

Started to get into real money, Kelly. It was $128 billion for the month versus the expectations of less than $100. So, Megan, that, you know, a dollar here, a dollar there. And actually, we were already running some of the biggest non-emergency deficits we've literally ever had. And these numbers tell you we're off to a very, very bad start. Well, Megan, I mean, and here's the issue, right? And please, you're the D.C. person. Correct me if I'm wrong.

Just like I was saying, Kelly, just like a credit card. When your monthly payments go off as a family, you spend more on interest. The money doesn't go to you. It just goes to whoever is charged. you interest, we are paying more in interest, are we not as a federal government, because rates keep rising. And I wonder if, and you can opine if you'd like, Megan, but I wonder if this is, does the Federal Reserve in their quiet moments talk about this? Because if rates keep going up, I don't know how much more the taxpayer can withstand. This is all related. And I'm

glad you brought up the Fed, because Powell spoke about this. And I thought it was a pretty thoughtful answer in his hearing today. He was speaking about the debt. And obviously, as rates go up, you're just caught in a hole with the size of the debt. You have to keep paying that interest. Last year, we spent a trillion dollars in interest alone. We're likely to pass that threshold and spend even more this year as well. And what Powell was saying was that this isn't something to be solved overnight. He says it's still sustainable the amount of debt we have now, but that the path is unsustainable. And two things he said this requires is some time and some bipartisanship. So this sort of move fast and break things, he was implying that's not the right approach, that you have

to sort of address things thoughtfully and slowly and use bipartisanship to address the programs that are really going to need some changes if we're going to change things. Things like Medicare, Social Security and Defense, that's most of the budget right there. Both parties say they don't want to touch them. And so his point was sort of that you have to address things head on and be thoughtful and careful and deliberate about it if you're ever going to really make a difference here. It's a double barrel of bad news. It's the hot CPI report. Spending is way high and all of that is going to kind of keep one will drive the other in this kind of heat to call it a doom loop. We'll see if they can get us out of it. Megan, appreciate it very much today. Megan Cassella.

Well, on that note, with inflation still red hot, could the Fed actually have to raise? Oh, boy. I know. Raise interest rates. Poor old Dan Greenhouse is going to have to deal with this next. He's up. All right. Well, today the stock market's confirming what you already knew. Prices for many things, not just not going down, that's a double negative, but maybe going up. The consumer price index showing higher prices for things like food, rent, insurance, energy. But, hey, if you don't eat or need a place to live or drive, everything's great. But will this hot inflation number mean the Fed is to really?

raise interest rates to slow the economy down here on set is our friend, the handsome, Dan Greenhouse, director, very handsome, managing director and chief strategist at Solis Alternative Asset Management. You're going to tell me that I've been chewing gummies or something if I say the Fed has to raise rates. Yeah. We just talked about what higher rates are doing to the federal deficit. Yeah, well, the deficit's a whole other conversation. But with respect to raising rates, I still don't think that should be your. base case expectation. Before coming here, I perused a couple of the south side notes. I think only one mentioned the increased odds of a rate height this year. I think Bamel said it was

not inconceivable. That's who we talked to. Yeah. That was the best. But not inconceivable is the new possibility. Right. Like it's not inconceivable. This could happen. They also said the rate cutting cycle is over. There's a famous, I think it's a Chinese proverb. We'll just say it is. Every rainstorm begins with but a single raindrop. And if that note, is the first raindrop, then sure. Or the guy from the Princess Bride inconceivable, and the other people said, I don't think you're using that word correctly.

I prefer the Princess Bride. What I would say is, I think for viewers out there, again, I still don't think that a rate hike this year should be your base case scenario. Clearly inflation, the disinflation process, as you discussed with Tim Seymour in the previous hour, the disinflation process has ceased. The last couple of months,

you've had above target inflation. Three-tenths of a month is called three and a half to four percent annual inflation, that's completely unacceptable. From an investor standpoint, which is the world in which I and Solis lives, what we're really wrestling with is the odds of those increased hikes, the odds of an increased hike. And again, right now, I think your base case should be that they're certainly done for the first half. That's a given at this point.

Probably not going to hike this year, although anything can happen. But those probabilities of a hike are what you want to be paying attention to. The low probability now is what you want to be paying attention. And I agree. So tactically, what are some ways to think about this? For instance, do you say, well, you go back to the MAG 7 because they're the only ones who can handle high inflation, high interest rates? Or are there multiple other ways to think about this? I mean, what does it mean? Do investors have to be obsessed with how bad this is? Or can they kind of take it in stride and say, well, at least the economy is holding up. I'm just curious. Well, don't take my word for it. Look at the market in terms of taking it in stride. The 10 years, we know, is up 100 basis points or so off the low. The stock market is basically at a high. Yeah. It's weighted to the mega caps. So let's look at the equal weighted index. Also pretty close to a high.

Midcaps doing pretty well. So I think the market has taken this backup in rates, as you said, in stride. It's fair to say that the mega caps are largely divorced from the rate conversation because there's a secular investment theme going on here to which they benefit. And that's true for Vertev and a number of other companies. Do you like VIRDA? You saw the 1 o'clock show? I watch TV.

I want to make sure. Getting ready for this. I mean, I know you guys aren't stock pickers. But, like, that's a kind of movement. Well, we are, but. Well, is Verve in the portfolio? Vertive is not the type of company that we look at. Okay.

But that said, there's a secular theme here that's likely to benefit those big AI names, independent of rates. That said, I think it's also important to observe that a quarter of the index is basically down over the last, call it two years, even as the market's making high. So there's clearly other things going on there. Is it Wednesday? I think so. I think so. It's Wednesday. Okay.

We're going to be happy because you're hair, you're handsome, everything's great. So let's focus on the upside to higher rates. That money is being paid out by the federal government to somebody. Now, let's strip out. That has been a big source of spending. Let's strip out foreign countries. And let's just focus on U.S. borrowers and savers. There is an upside to these higher rates, which is that mostly I would say, well, your parents,

people older than us, but not quite. Like, we're getting that interest if we own American debt. Or you have high-yield checking accounts that, I mean, there's a lot of ways there is a positive to the higher, right? Is there not? Brian and I are old enough to remember, not Kelly, because she's 25 years younger down with that. But Brian and I are old enough to remember in 2008 around that time frame when we were talking

about punishing savers by having interest rates so low. We are obviously living through the inverse of that situation now. The idea, of course, is that interest rates are hard. you have high interest rates to depress consumption and increased the likelihood of savings. But I would also add, this is a larger conversation that we had that I sent to Stephanie before. Two years ago, a number of us were on air speculating that the Fed's going to have to go to six or six and a half percent to really get the type of economic slowdown, excuse me, economic slowdown to really bring inflation back to target within range. The Fed said, no, we're not going to do that.

they obviously subsequently did not do that. And I think we're dealing with the fallout of it now. I think that was a mistake. They should have gone higher. Yeah, I think at the time there was not a majority view, but a strong minority view that the Fed's probably going to have to go to five and a half to six percent. They obviously stopped at the bottom end of that. But I think the bigger, more recent issue is whether they should have cut 50 basis points

at the end of last year. I think increasingly, and dare I say definitively at this point, that looks like a mistake. The market told us that right away. It's not inconceivable. That was a terrible move, maybe. The Fed has made several not-perfect moves in the last couple of years. That very well may be one of them. But again, I think that all said the question is, what do we as investors do with this information right now?

And again, to the extent that the odds of a rate hike are not yet going up, which they don't appear to be, then I think it's part of the reason why the market is flat today, at least the NASDAQ is dipping its toes in green. And I think you're in an environment here where the economy is so strong, earning season, as we've all discussed, all day long, is going pretty well. And I think that is still your backdrop for picking stocks in this environment. earnings up 12% last quarter. That is a nice number. That'll help. And luckily, all the baby boomers who've been struggling in the last 30 or 40 years are going to get even richer.

Don't play into the country. We're not. We're Gen X. Are you begrudging people getting rich, Brian? No. I support every. But there is a frustration among younger people that the older people have, and we're in the middle. you and I are in the middle.

I'm on the younger side. I'm moisturized. Anyone can go have a high-hield checking account. How old are you? 23. Young people hating old people is not a new. Nobody's saying young people are hating old people. Nobody's saying that.

The polling is a... Listen, if you're an investor and you're of a certain age, you wrote a 40-year, 30-year bull market. Yep. Okay? And then you put all your money in bonds because you're older and you don't want to risk it in stocks. And now you're getting five and six and seven and eight. 9% relatively risk-free. That's a pretty good economic bargain, is it not?

It is. Okay, we're like the same age. No, I'm 23. The problem for younger people is not what you're saying. The problem for younger people is they can't afford home. They are really nervous about the future of the country. They think climate change is going to kill us all any moment, let alone five years ago. Those are the issues that are weighing on younger people.

Not my relative youth compared to you. I don't know how old you. We're going to figure this out. We're going to, that's for another. Internet. Tune in, viewers. Or tune out. Or tune out.

Greenhouse. They're not tuned in. Very young and handsome. Thank you. Thank you both. Always a pleasure. Could the sky high cost, we were just talking about housing, what about the high cost of autos?

Could high-priced trucks and SUVs lead drivers to trade down to sedans again? Oh, yes. We'll discuss that and some other hot water cooler topics. And power lunch break next. What's the old proverb? They say you can't make an, it's not a, proverb. You can't make an omelet without breaking a few eggs. But Kelly, who can afford eggs? If you can even get them. Yeah. The government reporting today that eggs cost 53% more than they did

last year. They're now up 14% in a month. Eggs, not the only thing that are rising in price. Housing, we just talked about it, up in many areas. And that CPI data today reporting that car insurance continues to soar up nearly 12% in just a year. I don't know what the Fed can do about that. So this is the problem. Some of this is still from the effects of inflation a few years ago, right? When we had the price spike in June of 2020, 22 of 9%. Who would have known that you fast forward a few years and it's high auto insurance prices you're still paying? It's high health insurance prices you're still paying because of labor issues. Like, so much of this goes back to that inflation. And now these recurring problems with all these different areas, it's eggs one day and then it's coffee the next and then it's chocolate another day. And it, that's why some people think, look, we're not saying we're back to the 1970. and inflation is going back to 10%, but it's getting really hard to get it back down to two. Well, eggs, bird flu, right? You've got coffee, drought in Brazil, okay?

Coco, all the problems that they're having with drought and in Africa. Housing costs, there's not, that's one thing that politicians might be able to solve, but the rest of it, respectfully to the current president, the former president, the next president, I don't know what they can do to fix those types of things. A few other things.

we saw transportation was up, one or two percent last month. There's all these different categories where those price pressure. You know, the only one that ever goes down is apparel. So the only thing that ever seems to get less expensive is clothing. And when you're already buying it from Sheehan for $5, I mean, that's just so not important versus these essentials that we're talking about. What are you going to do when shelter prices just won't come down meaningfully? You know, it's a problem for investors. It's a problem for Americans.

It's a political problem, too. And it's not just car insurance. Preach. What? Preach. Preach, the cars themselves are getting more expensive. As we know, the average prices for trucks and SUVs is already around 50 grand, and they still dominate the market. Nearly 80% of total auto sales, but at some point, do people trade down?

Could these high prices lead to a comeback for the good old-fashioned sedan? Philabelle thinks so. Phil, we have a sedan. Sedans are awesome. You have, no, go up, Phil. I don't know if I'm not advocating for the return of the sedan. Look, I don't have a fancy coat rack like you guys do in the Power Lunch Lounge, but I do have a couple of charts here that show you just how many Americans have said, you know what? I don't want a sedan or I don't want a sedan. What I want is an SUV or a crossover.

This is from 12 years ago to today. The SUV and the crossover is now dominating this market. And if you lump in pickup trucks, are we at peak truck demand in the United States? they're at over 80% of the market, even though when you look at their prices, look at how they've changed compared to nine years ago. Now, they're all up anywhere between 40 and 50% or 35 and 47% depending on the type of vehicle. But when you look at pickup trucks, the average now, the average transaction price, according to JD Power, is over 54,000. The average SUV and crossover is almost 44,000. And the sedan or the car, whatever you want to call it,

38,000, roughly speaking, just under 38,000 is what you're looking at. Bottom line is this, guys, we see more crossovers and utility vehicles sold because that's what we want as Americans. That has been established time and again. They are, Americans are willing to pay up for sitting a little bit higher, having a little more space, having more utility. And the market was essentially abandoned when it comes to cars by the big three. They did that in 2017 to 2020. They're not going back there. Aside from the few niche models that they offer, they've largely said to the Asian and European automakers have at it. We're really not going to play in that market in terms of mass sedans. But as these prices go higher, you have to wonder how many more people are willing to pay up for

an SUV or a pickup truck. Yeah, ours is the Subaru. I guess that's the only people who are making And by the way, it's got a weird noise in the right rear quarter panel. You need to have that checked out. Did you hear that? Yes. Wait, how did you hear that? Because you drove by me. And it was making I've raced cars for 30 years, Phil. We've been trying to figure out this noise. What is that? It'll help you after the show. It's like a nine-year-old car.

Bill, we hang on to it. You try to get a new car these days, and you're paying, as you just saw with those prices, Phil, to 40%. Yeah, and I know I'm an old man yelling at the clouds, Phil, I get it. But, you know, you showed that average transaction price, and I'm looking at SUVs that are, I'm not looking at them. They exist $100,000 for a Jeep Grand Wagonnier or an Infinity QX80. Who's paying that?

Correct. Correct. A lot of people. The market for vehicles over 80,000 has had strong growth over the last four years. There's plenty of demand out there for that. And look, the reason that the automakers are emphasizing SUVs and crossovers isn't because you can charge on average $6,000 more than a sedan. Your profit margins are better. That's why the big three said, what are we doing selling a Ford Tourists when we could be selling a Bronco?

It's just, it's, if you are in the C-suite in Detroit, you're doing it because it's more profitable and the demand is there. My grandfather loved his SUV. It was much easier for him to get in and out. If he had a bright orange for expedition or escape or something, so I do think you're right, Phil. That's part of it. Your grandfather drove an orange car. He did. Orange. It was like burnt orange.

Yep, he rocked it. Sedan LeBoe, appreciate it. As always, Phil, thank you. Phil LeBoe advocating for the return of the sedan. I'm kidding. deck are shoppers in China dumping American brands? They may be. And it might have an impact on your money. We'll connect the dots. Next. Welcome back to Power Lunch. I'm Contessa Brewer with your CNBC News Update. 13 Canadian premieres are in Washington today to meet with U.S. senators and

members of Congress to discuss President Trump's plan to impose a 25 percent tariff on all imported Canadian goods. Last week, the president agreed to delay the implementation by one month to allow negotiations on a border deal to take place. A federal appeals court upheld R. Kelly's racketeering and sex trafficking convictions today, along with his 30-year prison sentence. The Grammy-winning singer was convicted in 2021 on multiple charges for using his fame to sexually abuse girls and young women. Our Kelly's legal team says it will push for Supreme Court to hear the appeal. And Google says it will use machine learning to estimate the age of its users. The tech giant says it will apply protections and adjust settings for users it detects are younger than 18 to try to provide

more age-appropriate experiences. Users who are incorrectly labeled as minors will be able to verify their age with a selfie, a credit card, or government ID. So I guess that rules out on my part, you know, Googling Skibbitty Toilet or Sigma anything. A what toilet? Uh-huh. Like, you're not listening enough to your kid, Brian. That's what this means. If you don't know what Skibbitty toilet is, you just don't know. You're not in the know. Don't worry, Google's not going to flag you as being underage. Skibbidi? I have no idea.

Contessa's going to have to enlighten all of us. What's a Skibbitty toilet? I mean, we could go there, but it would then take the rest of the show. Okay. Maybe tomorrow. Contessa then? Kelly's got a car problem, your toilet skibbitty? What the hell's going on?

We're learning a lot this hour. And while trade tensions heat up between the U.S. and China, the Chinese consumers are also under a lot of pressure. And U.S. companies trying to do business there, like Elf Beauty and Estee Lauder, are feeling to hit, down double digits over the past month. It's not just beauty companies, many other companies with a big presence in China, like Nike, Apple and Tesla, seeing some weakness in their stocks lately. Here to tell us what's really going on is Sean Ryan. He's founder and managing director of China Market Research Group, and he is based in Shanghai.

It's good to see you, Sean. And for years now, we've heard sometimes this backlash where the Chinese are trying themselves or trying because they're told to to buy more domestic goods. Is that what you see here? Well, happy Chinese New Year, Kelly. It's great to see you. I'm wearing red to get rid of the evil spirits in a traditional Chinese custom. And there have been a lot of tough times for China economically.

You saw during the Chinese New Year period, which just ends today, New Year's bonuses were quite low. A lot of companies that we interviewed were only giving one month as an annual bonus versus two and a half months last year. So the economy and consumer confidence is continuing to decline. And what does that mean? The D word, deflation. So while you and Brian were talking about rising housing prices, rising insurance prices and eggs in the United States, here we're facing deflation. So Chinese consumers are cutting back. They are buying Chinese brands right now, not because they're being told to by the government, but because they're patriotic, just like the Canadians are buying Canadian to offset the Trump tariffs, and also because Chinese brands

are cheaper and just better right now. a Xiaomi phone because it's about 30% cheaper than Apple. I think it's almost as good. Maybe it's as good as an Apple. So investors need to be buying brands that are Chinese to rise the patriotism trend and also because they're just good value. Think luck and coffee rather than Starbucks. This is cool. Okay. Sean, Sean, first off, this is why we have you on. This is exactly what we want to talk about. And it's, I know it's like three in the morning there. So thank you very much for either waking up or staying up. What you just said is critical, and we kind of touched on it yesterday. How, and this is not about beauty or cosmetics, it's about cars, about General Motors,

Apple, Boeing, Ford, whatever it may be. How much pressure, even sort of subconscious pressure is there when we see sort of this trade war fight between China and the U.S. go on to say, to your point, we're going to buy China-made products. How much do you think Chinese consumers feel that indirect pressure? That's a great question, Brian. It's huge pressure because we've been dealing with the trade war for seven full years. So the sort of Damocles has been hanging over the Chinese economy. That's why real estate prices have dropped about 30%.

Unemployment for Chinese youth is around 16%. The number of marriages in 2024 dropped about 20%. Nobody wants to have babies. Everybody's scared of the U.S.-China geopolitics. Now, with Biden, it was constant tariffs, constant sanctions, constant export controls. There is actually a feeling of green shoots in the last two weeks, Brian, because the Chinese tend to prefer Trump over Biden and prefer him over Harris. They feel that Trump is transactional in nature, and they might be able to make a deal.

Let's go to the last segment you and Kelly just had. Auto prices are 43,000 for SUVs in the United States, 38,000 for sedans. You know what? BYD, a Chinese N-EV maker, just announced yesterday a new car at $9,000 U.S. dollars that has autonomous driving as good as Tesla. How amazing if these Chinese N-EVs could come into the United States. That would solve the American inflation problem. Well, yeah, but they have 100% tariffs, and it would decimate an industry that

basically declared as too much of natural importance. Sean, quickly, we had Larry Lindsay on the other day, and we were talking a little bit about this. He gave us the following quote as it relates to Apple and Starbucks. He said, if you're a company in China, you're a hostage to kind of the geopolitical situation that you're talking about. What do you advise these American multinationals, the beauty, whoever it is, what do you advise them to do? You are hostage in many ways, and that's why I wrote the book, The Split, because there's still great opportunities for American brands. Companies like Hoka, companies like Lulu Lemon, are booming in China. We're expecting a 25, 30% increase year over year in 2025 for Hoka Shoes.

You need to keep investing in marketing. You need to open up more sales outlets and you need to go premium. So the reason why some of these brands like SD Lauder has gotten hit hard is because they didn't keep investing in sales points in the China market because they were held hostage. They're worried about the jail political tension. A lot of American companies are getting shot in the foot by the Trump regime because they're not willing to expand in China because they're scared. If you keep investing here, you'll do well. All right. Sean, appreciate it.

We'll leave it there for now. Sean Ryan with China Market Research Group. All right. Meantime, yep, borrowing costs on the rise again, the 10-year yield back above 4.6. We're going to head out to Rick Santelli in Chicago to figure what the heck is going on. Welcome back to Paraly. Rick Santelli here live at CMEHQ on a wild day. You know, CPI on every category was hotter than expectations,

hotter than the rearview mirror. That chart right up there is a two-year chart of the month-over-month core CPI came out at four-tenths. And prior to all these benchmark revisions that we had today, that would have been the highest because we looked for 0.5, would have been April of 23. but benchmark revisions push that 0.5 back to Feb of 23. Now, the next charts, 2s, tens, and 30s on one chart.

Each maturity jumped about 10 basis points when 8.30 hit, and we saw that hotter than expected data. Now, if we consider that the long-dated, the year-over-year definitely seems to be holding at 3% plus, that's an issue. And even though it may be surprised to some, and even some on the Fed, it certainly seems though traders have been pointing towards the stagnation and progress come down a lot, but we're not making progress recently, and many suspect that'll

stick, which leads to the next argument that we might not get any more cuts in 2025. You know, Trump, Putin, phone call occurred right around noon eastern, and as you look at that chart, two-thirds to the right side, you see that drop were traded quickly below yesterday an early session. That was all that phone call. And finally, the week today, the euro versus the dollar, the euro is the beneficiary of that dollar weakness. And remember, stay tuned because power lunch to return after a short break. Welcome back. California insurers and maybe their customers is going to be hit with a big bill relating to the L.A. area wildfires. Contessa Brewer, on the story from the beginning. What's new?

Okay, so California's Fair Plan has now been given the go-ahead to charge private insurers a billion dollars to help cover the shortfalls and the premiums that it collected. The state insurer of last resort works on a cash-in, cash-out basis, and it's just exhausted its reserves. The number of properties the fair plan covers in California has just soared as private insurers work to lower their exposure in the state, in large part because you had the state insurance department that would not permit the carriers. to charge enough to cover the risk. And so now you have state farm, farmers, all state, travelers, Chubb, and lots of other companies that were working actively to lower their risk, to lower their exposure in California, and they're going to end up paying for the losses anyway when they weren't even collecting the premiums. But that is permitted by state law, and then they can turn around and pass on half of that to consumers.

Insurers have been declaring their early estimates on wildfire losses, but they're using an asterisk. excluding what they're going to have to pay for in terms of the fare plan. That assessment gets divvied up, according to market share, and with reliable estimates of insured losses coming in anywhere from $40 billion to $50 billion, which, by the way, would make it like the second worst natural catastrophe in history in the first quarter. I think this really could be just the beginning of the assessments on insurers from the fair plan. But think about it, the smaller insurers that said, We can't face the risk that we're going to have $300 millions of dollars to pay for the fair plan.

So we're going to be out. If you were operating in California in the last two years, you're on the hook for paying this, even if you left. Really? You drew down your, yeah, it goes to what your market share. So if you weren't there, when this happened, you could still get. Absolutely. Interesting. 2019 rule change.

We did a little mini documentary. And what's more is that CEO Evan Greenberg from Chubb. got on the earnings call and he said, look, when you have an insurer of last resort that keeps these prices on insurance artificially low, it's not the market price. It doesn't accurately reflect the risk. What it does is it encourages state and local governments not to do mitigation the way they should. They don't enforce the building standards or the defensible space. And it encourages risky behavior from property owners who are getting into riskier areas than they can afford. I think that's a long way to go in this. story. There's so much. We'll stay on it. All right. Well, we're going to wrap it up with this. Let's talk Tesla. Stock may be higher today, but it's had a rough few months now about 30% down from its recent high. And maybe you don't care about Tesla or the stock, but your next guest says Tesla, the stock could have an impact on the broader markets. Let's find out why Matt Maley is saying that. Chief Market Strategy, Mr. Miller-Taback, founder of the Maylee report. I read the

report this morning, and I've said Tesla is one of, if not the most important stocks in the world because of this, how does Tesla potentially impact the macro market? Well, Brian, I mean, the whole thing is that, you know, we've had this situation where we have this, you know, the, well, Musk Mystique or Musk premium that we've had for in Tesla for a long time. But of course, it went to astronomical levels, you know, right after the election because of his relationship with President Trump and the stock doubled. The problem is it got ridiculously overbought. And really, the fundamentals aren't getting a whole lot better. I mean, Robotaxi, I mean, that was delayed coming out. And that was when he was,

you know, really focusing on Tesla. Now with them not focusing on Tesla, are these lower-priced vehicles going to come out as quickly? Optimus Robot, is that going to do as well? And so the stock is start to come down in a fairly significant way. And I worry that the same thing is going to happen with the AI situation. I mean, we've been waiting for two years for this earnings to broaden out from the AI phenomenon. And now with Deep Seek and others, we're having, you know, like you guys had the Dean evaluation on recently from NYU saying that, you know,

AI is the profitability of the AI market is not going to be as strong as it was. But here's why so go. The market's going to have to come down in response to that. But I want to get out of that and talk just about the stock itself. I'll tell you why, Matt, because, and I've mentioned this on the air. Tesla, you can go out and buy the stock, sell the stock. it, but there's a lot of stuff that goes on that our retail viewers do not understand.

Delta 1 strategy, synthetic ETF, synthetic options. From what I understand, Tesla is so much a part of the guts of the stock market because there's so many shares out. There's billions and billions of Tesla stock shares outstanding. And it's such a part of all these things that we don't talk about because they don't impact our retail viewer. That also may be why Tesla matters more than just the price. No or yes?

Oh, absolutely, because we get these zero-dated expiration for these options, and they call positive gamma. Well, the gamma, you know, whenever the market gets knocked down, they talk about algos and hedge funds and short sellers and stuff. Well, you know something? They help the market go up, just like they help Tesla go up. And so when the stock went down, it got, the whole thing got exacerbated on the way down, and the exact same thing can happen in the overall.

all stock market. What's better for Tesla investors, Matt, for Musk to stay kind of in his current position at the White House or no? No, I mean, for Tesla investors, no. I mean, is that going to be better for the country? That can certainly be argued. And it's a full-time job. We know he's been able to do four or five jobs at a time. When we start doing what he's doing right now with Doche, that takes an incredibly huge amount of time. He's living there for crying out loud. I think that makes it tough for a Tesla shareholders, at least on an intermediate term basis. As we mentioned, the shares are down since Trump took office. They're still up from his election.

But I think Plenty would say, look, it can't hurt to be that close to the seat of power. The earlier concern was that he was going to have too much influence over competitors. Yeah, but the fundamental outlet backdrop is still what it is. EB demand is down. And it's not just down in China. It's down all over the world. And their margins are getting hit. They're cutting prices.

I mean, I hate to say it, but in the last three or four months, even as a stock was doubling in price, the fundamental backdrop for Tesla was kept getting worse. And so it's kind of euphoria was a little bit. I don't know who could have seen the EV struggles happening, and I'm being sarcastic. Matt Maley, Mark Militabak, thank you very much. Thank you. And folks, thank you for watching or listening to Powerlund.