Power Lunch - Dow Rises to Record High, but Nvidia Weighs Down S&P 500 8/29/24

Episode Date: August 29, 2024

A relief rally hits Wall Street. The Dow briefly hit a new all-time high of 41,577. While the S&P 500 and Nasdaq have more work to do to set new records, but are higher despite getting weighed down by Nvidia. We’ll tell you all you need to know. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody, and welcome to Power Lunch alongside Contessa Brewer. I'm Tyler Mathes. Glad you could join us at a relief rally on Wall Street. The Dow hitting a new all-time high today, 41,57. S&P 500 and NASDAQ still with a little bit more work to do to set new records, but both Contessa are higher today. And we're watching InVIDIA shares move throughout the day, slightly lower right now, down by about 3.85% after reporting results after the bell yesterday. though still bullish. Several on the street urging investors to buy on this weakness. And we're watching to see signs the AI super cycle is intact. The rest of the mega caps are higher today. Apple's Big Glow event a little more than a week away. Meta out this morning with new numbers on the popularity of its AI tool. And Julia Borson joins us with those details. Hi, Julia.

That's right, Contessa. Meta just announcing some milestones showing the accelerated adoption of its Lama open source AI model. Now its models, been downloaded nearly 350 million times. There's more than 10 times the downloads of its models this time last year. And they say monthly usage of Lama grew 10 times between January and July of this year. Now, its rival OpenAI doesn't reveal its downloads,

but it hit 200 million weekly active users. That's according to Axios and more than double the number of active users that OpenAI reported for ChatGPT at the start of this year. Meta also highlighting its partnerships with Amazon's, AWS, Databricks, and NVIDIA, along with some of the big-name companies that have been using its platform, including AT&T, DoorDash, Goldman Sachs, Shopify, and Spotify, noting that Accenture is using Lama 3.1 to build a custom large language model for ESG reporting, saying it aims to improve

productivity by 70% and quality by as much as 30%. Now, Meta, which is offering these open source tools for free says that it's also expanding its own smart assistant to be available across Instagram, WhatsApp, Messenger, Facebook, and the web. This is all part of meta's battle with OpenAI to gain market share both consumers and companies. Back over to you. Julia, do you have any sense of from the customer base that use Facebook, how accessible these tools already are? Well, look, this has been rolled out and downloaded, you know, 350 million times. What I'm hearing from a variety of sources is that they're incredibly accessible. And what we're seeing is we're seeing companies use these open source tools to save on sort of where their investment in AI.

So they're able to build, but they don't have to build the foundational model. They can build custom tools on top of meta's open source foundational model. And then at the same time, I'm also hearing that for startups, it's a different. incredibly efficient. You know, two years ago before these tools are widely available, a startup in the AI space had to raise hundreds of millions of dollars to build their own foundational model in order to compete. And now they can really do that on top of what MET is offering them open source. What kind of an advantage does Facebook have because it already has such a massive user base? You know, I was just talking about this with my colleagues, including Kate Rooney.

Facebook has a billion user advantage. It has billions. of users around the world. So if it wants to drive adoption of its assistance, as it calls them, its chatbots, it can easily put these chatbots in the hands of consumers. That's what it's doing. And what we're going to see here, and we don't have the apples to apples numbers, is that we're going to see how Facebook and meta are really trying to drive that interaction that its users have with the chatbots with its assistance, and then how it uses that data to maybe perhaps drive advertising, which is, of course, how META makes the vast majority of its revenue.

Julia, great to see you. It's so interesting. I had an expert this morning talking to me about AI and how it has really fueled the big stock rally more broadly, AI alone, more than anything else that we have seen this year. The NASDAQ composite has risen nearly 70% since the start of last year. And most of that, of course, is driven by the expectations that AI will revolutionized technology that it will create these vast new revenue streams for the small handful of mega-cap tech names. Of course, there are worries that the market in this market, and the big one is whether AI hype can turn into reality. Let's talk about this with Daniel Newman, the CEO of Futurum Group, and Kate Rooney and Steve Kovac. Kate, you cover Silicon

Valley side, in this case, Open AI. And Steve, you cover Apple. And I understand that you have a new report involving both of those companies. So why don't you kick us off, Kobach, and tell us the latest with Apple. I'll leave that to. I think Kate's got to. Okay, sorry, okay. Sure. No problem. Conteza. So we had some reporting yesterday that Open AI is in the midst of raising new funding, and that it's likely going to be a roughly $100 billion valuation, although I'm hearing from a source. It could top that number. It's still in flux. The round is still going on. The big news today is coming from the Wall Street Journal. They are reporting that Apple is a part of this massive funding round and that they are indeed looking to invest officially in open AI.

They've got this massive partnership with Apple intelligence using OpenAI on the back, on the back end. But this is really huge news in AI. Again, it's according to the journal here, citing sources. But they also reported yesterday that Microsoft is getting on this deal. So you might call it a party round. That's what they would call it in Silicon Valley. But you've got names like Microsoft. You've got Apple trying to back the hottest name in Silicon Valley that's now looking to be a more than $100 billion valuation. That is bigger than a lot of the public companies we cover. I was just talking to a venture capital investor who's trying to underwrite this deal.

And they told me that the way that they're thinking about it is basically a public company. At this point, $100 billion is well past the early stage startup mindset. They're saying this thing's got to basically triple in the next five years or so to make it worth it. It also kind of changes the dynamic if you have strategic investors like Apple and Microsoft on the cap table. Well, yeah, because we were just talking about meta and what the meta universe does to open AI, whether it is a threat. But then to come out and say, okay, but we're getting backing from Apple as well. Does that really give open AI, Kate, just more umphed?

It gives them more firepower in the sense of they've got cash, which is huge here. So the big thing that you hear in terms of what it takes to win in AI, talent is number one. and then computing power and data. And Apple has all of that. Google has all of that. Amazon has all of that. Open AI is really relying on partners here. So having one of those strategic partners

being an investor as well really signals to the market that, yes, they've got the firepower. They've got the backing. Obviously, big name brands. What Julia was talking about with meta and the billion dollar user advantage, Apple's got the distribution. You know, they really have an advantage there.

So I think Julia's spot on in terms of what meta's advantage is. But for Open AI, inking these massive partnerships is one thing. But it really is kind of putting your money where your mouth is when it comes to Apple and really being a financial backer and being strategically involved here. Daniel, we'll get to you in a moment. I promise, I promise, I promise. But, Steve, I'm going to start with you. 20 years ago, the idea of Apple and Microsoft investing in the same company

as effectively investment partners would have been nuts. They're more frenemies now. That is, that's its long, yeah. Yeah, long, long pass. Long past. But look, Kate just called this a party around. Apple rarely joins a party like this. They almost never make huge acquisitions or huge investments in companies.

Usually they snap up small startups for a couple hundred million here or tens of millions here. And there, it's been a while. They put a billion dollars back in, oh, geez, almost a decade ago maybe, into D.D., which is a ride-sharing startup, like the Uber of China. And then they put another billion in SoftBanks Vision Fund back in 2017. and then bought beats audio for $3 billion. But besides that, there's not much activity. This is a huge vote of confidence if Apple really is in this round.

Open AI, a private company, right? Private company and that weird nonprofit structure. Yeah, that weird nonprofit structure, too. You got to keep in mind, if they want to go public, they're going to have to reorganize and restructure the company before any of these investors can see some kind of massive return off of that. And this is telling that that's the direction they're going. By the way, Sam Altman has made several hints this year.

that that is what they want to do. Daniel, let me turn to you and ask about this sort of this AI super cycle that we seem to be a part of everybody gobbling it up, everybody with high ambitions and maybe even higher expectations for artificial intelligence. There's nothing that you've seen, not in Vindia's numbers, not in anybody's numbers that would lead you to believe that the AI hypothesis is in any kind of jeopardy or something. slowing down at all? Well, if I'm going to look for something that would indicate that there is any risk, it's more about the digestion period. The Cappex cycle is robust. We heard from Satya Nadella, Sunder Pachai, we heard from Mark Zuckerberg. All of them were pretty unapologetic about their capex intentions. They need to build out the future, you know, the roads, bridges, tunnels,

analogy in order to make sure that they're competitive. I say they don't want to be caught, you know, being the next blockbuster or the next Blackberry that didn't make the investment and weren't able to make the term. Having said that, the digestion and then the ultimate consumption, Tyler, that hasn't proven out as much. You know, we're seeing some of these use cases, companies like Walmart talking about how they're applying AI. But that's the bare thesis. Is sure, all the CAPEX spend, they're building it for the future, but what is it for, eight, 12 quarters? It's not just Walmart. I mean, you had Mark Benioff talking at length to Jim Kramer about the way that Salesforce customers, in spite of the skepticism from their biggest customers about do they need Salesforce,

he's saying, look, the agent force that we've deployed is going out everywhere. We had the Apple now being the top pick because of its potential future in AI phones. It just seems like the thematics of AI and the way that it is being adopted is fueling a lot of the excitement over growth. Yeah, no question, Contessa, there's enthusiasm. What I was responding to is Tyler saying, where is there a potential hole in the thesis? And the whole is that whether it's been service now, Salesforce, whether it's been Apple and the supercycle for phones, or it's been Dell and Lenovo and HP in the super cycle for these co-pilot and AI PCs, it hasn't shown up in the incremental revenue as much as some investors would have hoped. So, Nvidia is getting 80% of the bomb. You know, you saw some of this flow to Dell on the data center side and superiors.

micro and then we've seen a little bit of this trickle into software, but it is these layers of network effect that the people are saying, when does AI start making money, when do banks and hotels and restaurants, when does it start to find its way out to the edge and become a monetized asset for more than just a handful of players? Daniel, how do you think, you know, Apple investing in open AI, how does that drive Apple's bottom line? Well, Apple, so first of all, I call it the buy-build hypothesis. Right now, there's a couple of companies, Nvidia, Google, that have built the AI. And then there's been like Microsoft and now Apple kind of were identified as not having done as much in-house. Apple was called out as being

a bit late to the party. The stock is rallied with Apple intelligence. Look, right now we need to figure out, are people willing to pay for Apple intelligence? I do not think they're going to pay for these software as much as some may think, but I do think these new capabilities in your email, these new capabilities with a Siri that we actually like to use is going to drive that exciting buying cycle for the next-gen devices, then Apple can figure out how to monetize. And having open AI behind it is powerful given what it's been able to do with AI and Siri in the past. Let me turn to Kate for a thought, and then Steve, I'll let you button it up. Kate?

So, Charlie, one thing I would add was these models that we're talking about, the risk and going back to meta, is that they're doing this open source, they're making a lot of this free. I cannot tell you how much people are talking about what Mark Zuckerberg is doing in Silicon. Bacquemalley, whether it's startups who worry that Facebook is going to do what they have historically done, which has moved fast, and copy, is that they are going to figure out a way to do this cheaper, they're going to do it better, and they're going to do it open source. So I would say that's one of the biggest risks to that $100 billion number for OpenAI, is if Lama finds a way, which is their large language model, META is called Lama.

It can get confusing with all these names. But Facebook meta is able to do this better, cheaper, and they're really, I cannot tell you how much Mark Zuckerberg is coming up in conversations. As far as the risk and this being early, is it too late? I feel like that's the big question around AI, where are we in the cycle? I was just talking with the venture capital investor too, said the big takeaway from this $100 billion number is that investors do not think it's too late. They have the conviction here to be able to spend that amount, Apple and Microsoft included.

But they're saying that there are a couple pure play ways to really play this AI space. It's open AI, it's anthropic, and it's the big tech name. So these venture investors are willing to bet on the biggest, you know, horse in this race. I would actually hear this great analogy. I'll end on this. U.S. Open is kicking off. Somebody was talking about all the large language models being sort of the best men's tennis players. If you think about, you know, Djokovic, Federer, Nadal, maybe Alcaraz, any of those guys on a given day could beat the other one.

And so there's not really, they're all really, really strong, but there's not necessarily, oh, it's going to be Djokovic every time. So I think that's a good way to think about these large language models. I would argue. they maybe are the best women's players. That's true. We got Cocoa golf. We got exactly. You know your players.

Good job, Kate. Good job. Steve, final thought. I watched Coco last night. Just bouncing out. And in fact, Dan Newman and I, we've talked about this in private a bunch. It's none of this really matters unless they can put for Apple, unless they can push more phones. And we've got two indications today that that might actually happen.

The first one being Niki reporting that they, uh, that Apple has ordered 10% more phones than they did a, year ago. That is a sign Apple believes. And by the way, Tim Cook told me himself that this AI, this Apple intelligence is going to be a compelling reason for folks to run out there and upgrade perhaps earlier than they can. And by the way, we're getting ready for the iPhone 16. Let's talk about the iPhone 17 and 2025 for a second because Ming Ching Quo, what the most accurate Apple analysts out there, almost always correct, says next year's iPhone models, the Pro Max, is the biggest phone that they make, the most expensive phone with the best technology, it's going to have more power to run these AI tasks

and the rest of the lineup that's going to come out next year. That tells me Apple could be planning better features for that more expensive model pushing people towards the high end if they want to have the best AI stuff. So if you're looking out to Apple in 2025 and 2026, that's the kind of stuff you need to be watching. What are they putting in the phones on the hardware side that's going to push you towards those higher models?

You just gave me a reason maybe to wait until 2025. Well, you'll be able to eat. Right? So this time next year to buy. You know what? Wait for the 18 or the 19. Yeah. It's always going to be a better one.

It's going to be different by 2030. Exactly. Steve, thank you very much. Daniel and Kate Rooney. We appreciate it. As we had to break, a quick power check on the positive side of the S&P. You've got Best Buy. It is soaring.

Profit beat, guidance hike on the negative side, and a different end of the consumer. Dollar General sinking, bringing the other discounters down with it. That's your power check. We'll be right back. Welcome back to Power Lunch. Stocks are higher today. with the Dow setting another new record.

Now that Nvidia's results are in the rearview mirror, what lies ahead for the markets to worry about? Some key events happening next month that have the attention of Wall Street. It's September, folks, coming up this weekend. Broadcom earnings, the jobs report, and let's not forget, the Fed meeting, that's on Wednesday, the 18th.

We'll be there to cover it for you. Let's bring in Jeremy Bryan, a portfolio manager at Gradient Investments. Jeremy, welcome. Good to have you with us. Thank you. How important is the Fed meeting, actually, now that we really kind of know what the Fed is likely to do? The question, I suppose, is whether they cut a quarter point or a half. Yeah, I think that's the answer is, do we know?

Because I think the jobs report's going to tell us a lot. The PCE report comes out on Friday, and we'll see what that looks like. I think we're headed towards normalization. Unless something crazy happens there, that's probably still in this 25 basis point mode. The only question would be is if we have a severely different jobs report, where severely worse, I would say, than 50 is on the table. But from our side, we still see the most likely scenario as 25 basis points. But the jobs report is probably our biggest catalyst for changing that going forward. When you say normalization, you're talking about a normalized interest rate level, I suppose.

What is that? and what effect would a normalized interest rate have on stocks, bonds, and the economy? Yeah, it's a great question. When I talk about normalization, I'm talking about inflation. You know, we've largely been saying that the next six months, inflation is just going to be less of a story, right? And so economic growth is going to be a much bigger story going forward, is are we going to continue as inflation normalizes continuing to grow? So from the interest rate side, there's not a lot of incentive to keep things elevated. if we're worried about economic growth. So if this starts to come down, I think a normalized rate could be, you know, three cuts in the next three meetings, right? I mean, that's a standard

kind of rate cut cycle. And so what that does is, you know, obviously short-term rates will come down. Long-term rates are already kind of infusing that, right? Is there at 3.8% on the 10-year rate, that's not an aggressive rate over long periods of time. So we could be stable in longer-term rates and coming down in short-term rates, which, again, if economic growth is fine, I think the stock market would treat that just fine, and we could continue to go higher from here. We have seen a lot of coverage of Nvidia today as those shares remain suppressed following the earnings beat. Where else in tech are you really interested right now? I note that you own Salesforce personally. Yeah. Yeah, I think the biggest thing in tech, what I'm not hearing as much

about is I hear a lot of consumer-oriented AI. I'm actually a little bit more focused on enterprise-oriented AI, business to business AI, because I think that's where you could get lots of efficiencies, data analytics used to actually making business decisions that increase earnings. So from that side, I think who's going to help you out with that? And I lean on the software guys for that being Salesforce.com. I think we haven't seen it yet, but I think an inflection point could be coming in the next couple of years for them. And another one I look at as more of a value-ish type of play is Oracle. They could play in that same space and they're trading at a multiple that's like IBM, even though they're growing twice as fast. So from my side, that's the area where outside of the

horsepower of the invidias, where I think the next gen could be. Jeremy, thank you very much for joining us. We appreciate your time and your perspective. While stocks rally today, bond yields are also moving higher ahead of tomorrow's key inflation number. Rick Santelli, joins us now from Chicago with more. Hello, Rick. Yes, good morning, contest, or I should say good afternoon. You know, whether it's pricing pressures still remain, as we saw in today's GDP report, or that growth looks a little bit better, or initial claims are lower, where the feds basically said scouts on or we're going to ease 25 basis points at the set, meaning all of those are pushing yields up along with stocks, look at twos and tens.

Both sides of the yield curve with the 830 Eastern better growth data, you can see they both popped rather nicely. Now, if we stick with the notion of what's been going on with regard to the 2s 10 spread, look at the week to date. It really has come back from

minus 18 to where it's hovering right now around minus 3. It started the month around minus 23, so we're about 20 basis points, less inverted month to date. Why is that so important for a variety of reasons, whether it's for banks, whether it's for the notion that it's giving us a lot of information because the long end, as the previous guest just said,

seems to be pretty comfortable right at this level. Short rates are pressuring lower. Look at the year today of the KBW Banking Index versus the spread. You can see the correlation's getting much tighter as it moves higher and gets less inverted. Contessa, back to you. All right, Rick, thank you for that. Silicon, a cautious tone growing around Lulu Lemon. a look at the options market for Lulu in the market navigator. Don't want to miss this. It's next. Welcome back to Power Lunch, everybody. Lulu Lemon slated to report results after the bell this afternoon. I tried a lot of options interest already today, but one large trade stands out. Is it a warning or the makings of an off-sides opportunity? Joining us now as Mike Co. Chief

Strategist at Open Interest Pro and a CNBC contributor. What is unique, Mike, about this trade ahead of the close and today's results? Yeah, so right now the options market is implying a move of about 10% or so by tomorrow's close following earnings. And that by itself isn't all that surprising when you consider that the average move over the last eight reported quarters has been about 9.5%. Today, we've seen more than two times the average daily options volume. What's interesting to me is other than the fact that the top five most active contracts are all short-dated puts, is that the September 210 puts are the single most active contract.

Now, those are 20% out of the money to the downside expiring on September 20th. And we did see about 1,300 of those trade in the first hour and a half or so of trading for about $1.68 contracts. So buyers of those are obviously expecting a big downside move. And a 20 plus percent downside move a month out from earnings has only happened about four times in the last 44 reported quarters. So that would be a relatively rare event, I would have to say. So this trade is buying into the idea of a rare event. if you wanted to take the other side of it, how would you do it? Yeah, and it's interesting.

You mentioned that because I kind of do want to take the other side of it. I'm rather hoping this institutional trader who is buying those puts isn't right. I mean, look, this thing is trading around 19 times trailing earnings right now. This is about as cheap as we've ever seen this thing. And that's despite the fact that they are still growing, albeit a lot more slowly. I think one way to play to the upside potentially and basically looking for a reversal here would be to buy some longer dated call options and then sell some nearer dated calls against it of a slightly higher strike. We call that a diagonal call spread.

I think that's a way to take a cautiously optimistic view. Look, I mean, this thing's trading around the same turn right now as Nike is, but, you know, their basically returns have been on a fundamental level far, far better than Nike's have been. I mean, since the pre-pandemic numbers, they're up about 128% in terms of top line growth versus 20% for Nike of the two I'd rather own this one. Getting away from the technicals of the trade, I have to observe, I think, that Lulu's moment may have been passed because people are going back and wearing jeans again. Well, you know, it's interesting. I think it's not just a jeans thing, Viori, which is sort of an up market athletic apparel thing. So they have really caught a lot of people's eye. I think a lot of people sort of migrated to that. So Athleta has picked up some of Lulu's business on the downside.

Viori, I think, picked up some of it on the upside. But the thing is, Viori doesn't have quite the number of skews that Lulu does. So I think that still gives them support. And people who like their product and still use them, I mean, they're good for that. You can't wear jeans for your athletic activities, or at least you shouldn't. Mike Coe, thanks very much. Yeah, they won't let you into the golf course or we're in denim most of the time. Mike Coe, thanks very much.

Still to come, day four of our powerhouse road trip. We're going to head to a city that's been getting a lot of attention lately. thanks to the popularity of real housewives, the real housewives of Salt Lake City. Wow. Power wants to be right back. Welcome back, everybody, from the beaches of Miami to the Gateway Arch in St. Louis. We're hitting now our fourth stop on our powerhouse road trip today, and we're going to Salt Lake City. According to Zillow, Salt Lake sits at just about the midway point when it comes to market size.

The city's median sale price is the 16th highest in the country with the average house. costing about $530,000. For more here on more on what is going on in Salt Lake City's real estate scene. Let's bring in Jennifer Yo, CEO of Presidio real estate. Jennifer, welcome. Good to have you with us. Hi, thank you. How's the market?

How long are houses staying on the market once they're listed? And how much above or below the asking or list price are they selling for? So we have a pretty balanced market right now. there's about 11,000 homes active on the market, but we're about 30,000 homes short of where we want to be. So we're kind of headed towards the balanced market, even though just this week I had multiple offers on a couple of my listings. So it's about 49 days average on the market right now. What percentage of houses are selling above ask? It's only about 23%.

And so that would suggest that buyers are, is that down from where it was? And that would suggest that buyers have a little more edge today than they did? Correct. It's down a little bit from where it's been. And buyers have a little bit more ground right now. I notice here that the University of Utah has a Gardner Policy Institute, which says that about three quarters of the homeowners in Utah have an interest rate that is lower than 4%. Are you seeing a locked in effect? that is that homeowners don't feel like they can or should move because mortgage rates are so much higher than that.

Absolutely. That is definitely the perception that's happening here in Utah. And we have a lot of pent-up money, buyers that can't afford to buy a house right now. So it's slowing sellers down from selling anyway. So we're definitely seeing that being an effect to our market right now. Given that we are expecting the Fed to make a move on rates more generally, if that then leads mortgage rates to decline somewhat, do you think even a small decline in interest rates will prompt more action on the real estate market? I do believe that. In fact, we just saw a slight decrease in the interest rates here, and our buyer pool ticked up. So it's been a very interesting market. I believe that there's a few now that are thinking if we lock in now and we start looking at homes in September, maybe we'll be able to lock in to an even lower rate.

We have a house that we want to show. It has been on the market for a while. It is up at the upper end of the price range, well above the median price in St. Louis. Excuse me, in Salt Lake. We were in St. Louis yesterday. Two-story built-in 2003. Take us through it.

Yeah, this is a beautiful home. It's in a gated community in Sandy, Utah, which is about 25 minutes from downtown Salt Lake in our airport. and it's got two kitchens, which is huge in Utah, so that you have teenage kids that when they have parties over, you have the opportunity to have the teenage kids downstairs where the game room is, the TV room is, and all of that, and keep them out of the adult space upstairs.

It's just a stunning, beautiful, remodeled home with views for days. That sounds fantastic to me, and nice skiing nearby anywhere you look. Best skiing in the world. To me, it probably is. Jennifer, yo. Thank you. Appreciate it. Thank you.

You got it. Let's get back to Kate Rooney now for a CNBC news update. Hi, Kate. Hi, Contessa. Vice President presidential nominee. Rather, J.D. Vance is urging his former boss, tech billionaire Peter Thiel to, quote, get off the sidelines and help bankroll former President Trump's bid for the White House. He made the comments in an interview with the Financial Times,

and Teal has not specifically supported candidates this year after pouring millions into the 2020 campaign. Iran, meanwhile, is increasing its stockpile of enriched uranium that's at a level just shy of what's needed to make nuclear weapons. That's from the Associated Press today after reviewing a confidential report from the UN's nuclear watchdog agency today. The 2015 Iran nuclear deal aimed to curb that production in exchange for sanctions relief. The Trump administration pulled out of that deal back in 2018. And former New Jersey governor and presidential candidate, Chris Christie, is heading back to school. The Republican is going to teach a course at Yale this semester on running for office.

The course is called How to Run a Political Campaign and will be open to undergrad and graduate students at Yale's Jackson School of Global Affairs, guys. I would love to audit that class just to hear what the advice is. Like, what is it? Be nice, be civil. That sounds fascinating to me. Hey, Rooney. Thank you, ma'am. Good to see you.

Illegal battles brewing over some confiscated planes in Russia. and who is stuck with the bill for those? Bringing the details when Power Lunch returns. Welcome back. A big fight is brewing over stolen airplanes and who is getting stuck with the bill. When Russia invaded Ukraine in 2022, it confiscated hundreds of aircraft

from international leasing companies. 23 of those jets belong to Carlisle Aviation Partners. Now, Carlyle carries insurance policies that cover all risks and specifically war risks. But it says a slew of insurers, including Chubb and AIG, have failed to pay on those claims. So Carlisle suing, litigation that could spell real trouble for the aviation insurance industry. Attorney, Stephen Marks, represents Carlisle from the firm Podast Orsick. It's great to see you today,

Steve. Thank you for having me. All right. So where do things stand right now? One, does Russia still have those planes. And two, why haven't the claims been paid? Well, Russia does still have those claims. In fact, the government issued a series of orders of decrees that require the Russian operators to now operate them, and they have been doing that for most of these aircraft. While we have 23, there are hundreds of other claims pending because the Western aircraft were stolen, as you said. And it amounts to close to $20 billion. Our case, why they're not paying, my guess is that they have financial liquidity issues. There's no reason that they would refuse to honor a clear contract, which provides coverage. We have an all

risk coverage that covers every conceivable scenario, and yet they're not paying. And as you said, these are the world's largest insurers. It's Chubb, AIG, Tokyo Marine, and others. And so it seems to me that they just don't have the funds. They've raised premiums dramatically to try and increase their war chest. And eventually, they're either going to pay voluntarily or we're going to win in court in all certainty. And if we went in court, they have a bigger problem because we have four times damages when an insurance company refuses to reasonably pay a claim. So they've taken our exposure of $700 million and ballooned it to over $3 billion. This has been filed in Florida, your specific case, but I know that there are other similar cases pending in other states.

Is there anything that has happened in other courts that makes you think you have a good shot at winning this and getting back, not just the claims that you filed for, but damages? We're not going to get back the claims. That's not going to happen. That's not part of our lawsuit. Our lawsuit is to get insurance, our insurers to pay a real legitimate claim that is unquestionably due. And yes, there are other lawsuits around the country, and they have ruled in the insureds in favor, or they've ruled against the insurers. So we're confident that we will win. But the second part of the case deals with the bad faith. And that's what puzzles me. The insurance company has taken our claim of $700 million, and it's now well over $3 billion. And again, I think it has to do

with a liquidity problem. I should mention that I did reach out to AIG and Chubb and ask them to contribute to this segment. But normally what they say to me is they don't want to comment on ongoing litigation. That being said, the liquidity issue is curious to me because I covered their earnings. I know Chubb has a lot of money. Why do you think that there's a liquidity problem in the aviation insurance industry specifically? Well, I think there's several reasons. I think we had a perfect storm over the last several years. There was a Colombian crash involving the Brazilian soccer team on a Lumia crash that resulted in a billion dollar judgment. Then you had the two Boeing Max crashes where the initial evaluation was very low.

These involved foreign nationals, but the cases remained in the United States resulting in many, many billions of dollars in unexpected claims. And now you have the fourth event, which is bigger than all three prior events. And since the insurance companies are not reserving, which is the thing that bothers,

gives us the greatest concern. They haven't reserved. So the earnings that you are seeing is like a bank that, loses its capital and has earnings that look good, but in reality, their financial health is not as great. If they're not reserving, then they are not taking money off their books to pay for these $10 to $20 billion worth of claims. Your hypothesis is that the insurers are not paying because they don't have the liquidity to do so. Have the insurers, is that what the insurers, certainly not what the insurers are saying in public.

Have they said anything to you about why? Depositions? Why they're not paying? Do they dispute the idea that the claim is legitimate? They have come up with the most ridiculous defense is imaginable. For example, they contend that there's been no loss. Imagine your car sitting in your driveway. Somebody steals it and they're using it.

They're contending because the Russian carriers are still using these planes that we haven't suffered a loss. Our planes are stolen. There is clear, comprehensive all-risk coverage for this event. The insurance companies, even at the beginning of the case, said they don't even know who they insured, what the policy consists of. They have made up so many different ridiculous defenses in this case. That's why I believe they must have some financial reasons for not paying a claim and letting us get to a bad faith, which is four times our true damages. I don't know that. They certainly haven't admitted it.

They have testified under oath that most of these insurers have reserved zero. for these losses. And that comes right off the top. That is something that we will continue to follow. Of course, Steve, Marks, thank you for bringing us the details about your case. Thank you for having me. All righty, dollar general plunging after missing estimates, slashing full year guidance, blaming financially constrained customers. Blame it on the customers. We'll trade it in three-stock lunch. Next. Time for today's three-stock luncheon here with our trades is CNBC contributor Boris Schlossberg. He's the managing director of FX Strategy at BK Asset Management.

First up, Boris, Best Buy seeing its stock surge after reporting a profit beat and guidance hike. Shares are up about, ooh, almost 14 percent today. What's your trade on Best Buy? So, you know, Best Buy is a beneficiary of very soft expectations. The market really didn't think they were going to have any kind of margin improvements. They thought it was going to be relatively stationary. And they did beat on margin improvements. And it certainly, you know, a very good result for this quarter.

I do think, however, that the problem with Best Buy isn't necessarily their business, which I think is actually doing quite, they're executing quite well, and they're moving a lot of their business towards a more service-oriented revenue, which is where their margin improvements are coming in. I think the problem here is that the type of things that they sell could be very vulnerable to a consumer boycott effectively should the economy deteriorate. So to me, the issue with Best Buy right now is I wouldn't want to chase the stock if you don't think, as I do, that the macro situation is going to be very strong into $2.

2025. If we tilt any kind of recession, it's just going to be naturally a pushback from consumers to buy any kind of electronic goods, and that's going to impact their bottom line going forward. Well, maybe the same thesis in part would apply to our next stock, and that's dollar general. Sales there plummeting, retailer missing Wall Street expectations on the top and bottom lines. The company cut its outlook, blaming financially constrained customers. Shares are down 30%. What do you do with this one? So, you know, temptation is down 30%. temptation here at the bargain hunt, I think that's a big, big mistake. I think it's very much

like catching a falling knife. As you said, they said that the consumer base is constrained, and I don't see it getting any better going forward. In fact, at D.C. getting much worse, because if the labor situation begins to deteriorate, who's going to be suffering the first on the casualty line? That's going to be their consumer base. Now, in the midst of all this, they still continue to do a very massive capital spent. They're going to try to open up 700 new stores in what I think is pretty much an oversupplied market. So, Given what they're doing, it's no surprise that the investors are really dumping the stock at this point. And I think it's a hard pass at this level.

All right. Well, finally, we have firm holdings reporting better than expected results, beating on both the top and the bottom line. This is a buy now pay later company that has seen its stock soar more than 30 percent today, up 31.35 percent right now. Boris, what's your trade on a firm? So this is actually an interesting story because they are sort of unique. to carve out a very interesting space in FinTech with this buy now pay later situation, precisely because they're using a lot of high technology to create customized solution for the customer, and they're ever expanding their base of retailers. As a result, growth has been

tremendous, and it's really all about growth. This is not a stock you're going to invest into if you want to have any kind of quiet-quietude. It's very much a speculative trade. But if they execute as they have been doing in the past and they're projected to grow another 30% going forward, I think it really has some very serious potential. The actual market for buy now, pay later is estimated to be as large as half a trillion dollars by 2026. So if they carve out any kind of a leadership role within this segment, I think investors will be rewarded. For Schlosberg, it's always great to see you. Thank you. Thank you. All right. Still ahead. Pizza Hut wants to help furnish your new home.

Not quite. Not quite. We got the details on this saucy new promotion. And remember, you can always hear us on our podcast, follow and listen to Power Lunch wherever you go. We'll be right back and tell you how Pizza Hut can bring home decor to you. Welcome back. Quick check on the markets here. Stock's losing some ground this hour. The Dow now up about 230 points. We've seen it higher throughout the day. Shares of Nvidia now down 6%. Here's the NASDAQ composite first, down off two-tenths of a percent. And then here's Nvidia down more than 6 percent. We're really losing ground here.

certainly back towards the lows of the session that we've seen and under $3 trillion in market cap. All right. We've only got about a minute and a half left, but we've got several more stories we want to tell you about. Let's get to it. Shares of Gap were briefly halted this morning after its latest earnings were apparently released early. The retailer was expected to release results after the closing bell today. Once the cat was out of the bag, Gap released the results around 11 a.m. And they topped expectations. The stock is high. following those numbers. So good news for Gap. The number of 401k millionaires once again rose hitting a new record high. According to Fidelity, 497,000 accounts had balances of $1 million or more as of the second quarter, up 2.5% from Q1, which is great. But I'm looking into the details among

Gen Xers with 401ks, the median balance is a little less than $55,000. And that ain't going to get you very far. But they got time to play. Right. They got time. to play to play catch-up here. All right, Pizza Hut wants to make moving a little more appetizing for customers in select cities. The chain offering a special moving box that turns into a mini table. Look at that. Is that a ingenious or what?

I mean, that's home to war. It will arrive with every large pizza order in Dallas, Charlotte, and Orlando for a limited time. Selected those cities based on a Penske truck rental list. We got to leave it right there. Get your pizza. Get your box. Get your table. Thanks for watching.

Power Lunch.