Power Lunch - Dow’s Record Rally, Rates & Real Estate 12/14/23

Episode Date: December 14, 2023

The Dow is notching another record high today, as the Post-Fed market rally rolls on. Can stocks keep this momentum going into the new year? We’ll discuss.Plus, we’ll look at the impact of interest rates on the real estate market. If we’ve hit a peak, could the market start to unfreeze? We’ll ask Don Peebles. 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, everybody, alongside Steve Leasman. I'm Kelly Evans. The Dow making another record high today as the rally rolls on following the Fed decision. Markets seem to be acting as if the Fed has threaded the needle, Steve, you'd know better than anyone. Controlling inflation, engineering is softer landing, so can stocks rally on into next year? Plus, we're going to look at the impact on rates on real estate. And if we've hit peak rates, could the market unfreeze Don Peebles? Joins us. First, let's get a check on the markets, though.

This is an interesting one today. The Dow just dipped negative, but has gone back positive by 30 points or so. While the S&P is slightly to the red, the NASDAQ down a third of 1% after those monster moves yesterday. Let's look at the 10-year now. We are down below 4% still. Yes, we are 393. We had a little bump this morning, but it back up towards 4 with the better retail sales. And we'll talk about that in a minute.

And, of course, their shares of Intel are higher as the company stakes its ground. and the chips for AI battles. We start with the record market rally, though, following the Fed decision, the major averages on pace for a sixth positive day in a row. And I guess we have to wonder, is the optimism going to continue into the new year and what it could mean for the Fed going forward?

Jason Price, Chief Investment Officer of Private Clients at Glenn Mead and Bill Lee is the chief economist at the Milken Institute. Let me start off with Bill. Bill, thanks for joining us this morning. What do you think about the Fed? Was it the pivot that we all think it, was and was it too soon and too much? Well, Steve, as you know, this is quite a pivot and surprised a lot of us who were thinking that the Fed was going to be focusing still on inflation. And I think

the message from Chair Powell is that he's pretty convinced that inflation is on a downward path. It's not quite there yet, but there's enough there that they can now shift from an inflation bias to a more balanced dual objective of bias than worry about the real economy. And I think one reason for that is because the Fed is always laser focused on what's happening to the the real interest rate. A real interest rates have really gotten quite high. If you look at the five-year maturity, which is where most loans and business borrowing is occurring, it's well over 2%. And as you know, in normal times, that real interest rate for that maturity is somewhere between three quarters and maybe 1% and 1.5%. So I think we're well above that. And the Fed, I think,

is very concerned that they may be maintaining too long, too tight, and that may actually put it downward spin on the economy. And Chair Powell said as much. He said, we're now putting rate cuts on the table and by announcing it, look, what's happened to the 10-year rate. It's dropped dramatically, and that's exactly what he's hoping to do. Let the market do the work of lowering that real rate back to more normalized levels, and then he can wait for when he can actually move the policy rate. Jason, what's the probability or the concern that you may have that the market's gone too far with this? Powell did not promise a Rose Garden or a rate cut in March, but the market seems to be acting that way. If you look at the probabilities, it's up darn near 80,

percent or 90 percent for a rate cut in March, but he didn't say March. Look, I have to admit, I feel a little bit like the Grinch sitting outside of Whoville right now. I tend to agree with what Bill said in that, you know, the Fed knows they've taken rates really high to a point where it's damaging to the economy and they need to pull it back in, but there's just such a distance to come in at this point in time. And I suspect they're going to be looking over their shoulders all along the way saying, ah, wait a second, you know, if If we take it too far here in terms of cuts, do we make another Arthur Burns-like moments? So that's going to be sitting in the back of their head.

And our suspicion is there's just a lot of pressure on the economy from higher rates and from tighter monetary policy conditions that still have yet to find their way all the way in. And they just can't unwind it fast enough, truthfully, in order to get to where they want to get. They're trying to throw in a needle here. And this is difficult. And the markets are basically saying, you know, it's done. We're good.

We're going to move on from here. That doesn't seem about right. And Jason, there's something in what you're saying that I've been pondering. I feel like this is a very Steve Leasman kind of thing to ponder. But we've seen rates fall substantially. Yes, that's supporting equities. All of this kind of hopium into next year. But to have a 10-year still call it 4%.

You call it 3.5 if you want. Is that still a cost of capital that you think companies will be comfortable with or choke on? They're going to feel a lot more comfortable about 4 than they are about 5. But by our estimation, you know, look, we started basically near zero. At one point in time, we're at half percent on the 10 year. We're now adjusting to an environment of three and a half percent plus. We think kind of fair value on short term is somewhere in the three, three and a half range. Fair value on longer term, like 10 years is somewhere around four.

This is a big difference in economies haven't really, the economy hasn't really made a way to filter it through. We're still sitting on a lot of debt at lower rates that's going to be rolling off over the next couple of years and need to be refinanced. I worry a little bit, Kelly, that the market. it's acting like money's free again. It's not free again, and it's not going to be free again. But, Bill, I guess there was a lot of pent-up demand or that the idea that the Fed could hike again, which now looks to be off the table, was something that held back investment in the equity market. There were a lot of people, Bill, who were pretty happy for a few minutes there that were clipping treasury coupons and collecting 4 or 5 percent in money market funds. Maybe they're not so happy today.

What do you think they ought to be doing? They're still investing in treasuries? I mean, I guess as a risk asset, if you were trying to make quick money, it was a good thing. But maybe for the long term, it's a different story. Well, as you see what's happening in the market today, there's a lot of portfolio readjustment, right? And people are saying, well, I've got to do something with my money rather than sitting back and clipping coupons. And I think that was fed a lot of that market rally. But now you see the market itself is rotating.

It's rotating from one sector to another. Or that magnificent seven surge that we had has now been. brought into other cyclical companies. And I think that is something the Fed really is less concerned with. As you know, the Fed is really concerned with what's happening to the big picture. And the big picture right now is that the companies that we were just talking about who are worried about financing, are they going to choke on this high cost of capital? Well, if the expecting inflation rate is still slightly above 2%, and the pricing in the bond

market shows that it's around 2 and 2.5% and 2.5% and 2% and a quarter percent, then at 3.5% to 4% long-term interest rates, that's a good number for them to do financing with. One of the things that, the place that we will choke on these high rates would be the government, because the government has to pay a very high interest tab. And that is where the burden's going to be in and crowding out is going to occur. Government's going to suck in money that really should be going to the private sector. Jason, I think most days are not days to make any changes in your portfolio. I think very few news things come along that really matter that much. I think yesterday might have been one of those days. And I'm just wondering how you're thinking about portfolios differently today.

My take was that Powell did what I thought he was going to do in January. He did it yesterday. So I thought there was time. That time has gone away. And I'm wondering if you think there are things and adjustments people ought to be making because of those events yesterday. Look, I intend to agree with you. We quite often try to keep our bet on the shoulder in terms of portfolios quite often that it doesn't make sense to make big shifts, but then sometimes the markets present you with opportunities to do a little bit more. And this is one of those where it just feels like the market's gotten a little bit ahead of itself. And even if you're looking at your portfolio back in time here, if you're positioned well about, say, three months ago and you looked at your

portfolio today, the likelihood is it is not positioned the way you wanted to be today because of the magnitude of movement. So that provides opportunity to bring it back in line. And that, from our perspective is getting a little bit more conservative than portfolios in recognition that the market seems to be just a hair ahead of itself at the minimum. Quick question. I don't know, do strategy, Jason, involve bonds, but what do you do after this move? Look, bonds, five percent, I think bonds were a fairly good deal at that point in time. We're actually saying that unlike the equity market that was overvalued, bonds were actually undervalued. At 4 percent, we think they're actually reasonably fairly valued. We've been pushing out a little bit on the yield curve. We've kind

pause that a little bit and are sitting with a pretty neutral duration exposure right now because we think bonds properly reflect the expectations for interest rates that are sitting out there. Now, when those expectations change, that math will change. But for right now, they're basically in line with fair value. Bill, real quick, we have to go. When does the Fed cut and by how much next year? If the market continues the lower long-term rates, the Fed can delay, and I'm guessing they delay until somewhere around mid-year when they can actually do a large cut and be done with it before the elections. And how much next year?

I'm guessing they have to lower rates by about a percentage point. Wow. Thanks, guys. Jason, pride, and Billy. That's how you get. Thank you, thank you, Kelly. We've had the last couple of days. The 10-year yield below 4%, below 390 earlier for the first time since August. Rick Santelli in Chicago with more.

Tell us what's the buzz, Rick? What does everyone make of this? You know, I think the buzz is that the Fed being done is where the party began and then the Fed pushing yesterday the notion that maybe they're not done, but by the end of the press conference, it certainly seemed as though all of my sources had a major change of heart and we're definitely in that FOMO camp. It's all about FOMO. So if you look at a two-day chart of twos and tens, you can see that right as the meeting was being announced, the statement was being announced that to Eastern, what we saw was a drop of significantly

larger proportions on the short maturity to two year versus the 10 year. So you dropped about 30 basis points on a 2, you dropped about 23 basis points on a 10. Why is that important? Because if the short maturities are leading the way the last guest said he believes that the 10 year yields would be closer to 4 or 4 and a quarter percent, that would make sense if you, in total, you in terms, where the two years going to go with a Fed that's going to ease nearly 100 basis points if that actually happens. You look at twos and tens on an annualized basis. I always use the 30th of December. Right now, twos are under that 443 close. Ten years are just a bit over it. They closed at 388. And the dollar index, it closed at 103.552 on the 30th of December, which means on the year it's down a smidge less

than 2%. But get this, on the wheat thus far, it's down over 2%. So what's going on? There's a lot of FOMO and a lot of things have to work out. Picture perfect with regard to the Fed. But Doves rule, so maybe the FOMO is on the right course. Steve? Rick, I want to follow up on this because you and I talk to different people. I talk more to the managers and you talk to the traders and we can debate and duke it out who's smarter. I have a lot of respect, obviously, for the guys you talk to. Everybody I talked to over the course of this year has been short duration relative to the index. And that's part of the whole FOMO thing. And I think even today, there's short duration relative to the index, which if you want to translate that into English, it means they didn't own

enough 10 year, 20 year, and 30 year paper. Is that still the case, Rick? And does it create potentially more gains to come on the long end of the curve? You know, I think a really, You're right on it. I think an easier way to look at it is the yield curve twos to 10. Right. And many, of course, we're looking at selling the twos and buying the tens. That trade is reversing. And I think a good chunk of the phenomenally quick drop from a one touch of 5% to under 4%

was driven by the liquidation that you're alluding to. But I think it's almost done. As a matter of fact, I think many traders are starting to go the other way. The fear of missing out on the Santa Claus equity side is almost wagging the dog on the treasury side. We got to come back to this, Rick, because the steepener trade is the equivalent of Rocky Road ice cream being the flavor of the month. Everybody is in it. It's not quite paid off yet, but people are still in it as a trade. We'll come back.

Let's do a second on the steepener. One more thing, real quick. One more thing, Steve. The other thing people are talking about on the floor is the most recent group of governors that are put on the FOMC committee are, doves. And the Elizabeth Warren's side of the equation, yes, that basically, Powell is going to continue to get outvoted and that politics is going to win. Maybe not politics directly tied to the Fed, but it is an election year, and there's many in Congress who do not want to see rates up at current Fed levels. That's another discussion, the board for next year, and whether or not

Powell was leading or led by the committee. I'm hearing a little bit of both on both sides. Thanks very much, Rick. One more piece of economic news out this morning. Retail sales, beating expectations today coming in at 0.3. We're looking for a negative number, but looking just at retail X auto and gas, it was even stronger. 0.5, 6 percent, death of the consumer greatly exaggerated once again. But I want to point out that's very close to the CNBC NRF Retail Monitor, powered by credit card data we get from Affinity Solutions. We launched it last month. I remember.

We aired that data on Monday, October. It came in at 0.08. was also within two-tenths of the government's number, which were revised down closer to our number. And you can see there, the government's 0.77. We were 0.77. The government came in at 0.56. We're not always going to be that close. The gaps some months could be wider than others, especially, because our data should end up closer to the revised census data, because it's all, it's not estimated data. But it's a good start for retail data that we're really proud to be offered. Not least, because I don't know if you caught Dave Rosenberg last hour when he was talking about some of his steadfast bearishness.

said he doesn't even believe the government data half the time. So here's another data point that can at least tell us what's going on with the economy. And it's going to flatter the fourth quarter GDP reports. Important to note. And by the way, tomorrow morning, Squatbox 830 a.m. You and John Williams, New York Fed President. Now, just to be clear, this was planned six months in advance. They are not rolling out.

John Williams is some kind of emergency redirect on yesterday. And they're crazy. We plan these things. We have done it for many years. John sits down with us at the end of the year. It's been a tradition. he wants to seize the opportunity to redirect or otherwise give us more information. You are correct. Looking forward to that. Coming up, Wall Street's alt-rate alternative. Nikki Haley earning support as a

pro-business alternative to Trump. What is her economic policy? Plus, a real estate power player will speak to Don Peebles about the state of commercial and residential real estate power lunches back in two. Dow's up 59. Welcome back. Wall Street always wants what's best for Wall Street. It goes for everything, especially the presidential election. Some would say, you know, gridlock is good. Others say, could Nikki Haley be what's best for investors? Amon Javers is here to explore that option. Amen? Hey there, Kelly. Well, Wall Street is in the middle of a major swoon now for Nikki Haley, and it's really easy to understand why that is. As a GOP presidential candidate, the former South Carolina governor offers a mix of traditional Republican tax and spending policies

that Wall Street traditionally loves. Hallie rolled out her economic plan, back in September pledging to eliminate the federal gas tax and to offer permanent small business tax relief. She would eliminate the state and local tax deduction, which could cause some angst, though, to her supporters in the Northeast, where taxpayers benefit the most from that provision. She also says she would cut income tax rates. Nikki Haley criticizes both Joe Biden and Donald Trump for running up the federal deficit and says she would link federal spending to a percentage of the overall U.S. economy. She would also eliminate Biden's green energy subsidies and says she would withhold Congress's

pay if it fails to pass the budget, although it's a little hard to see how she would get Congress itself to go along with that one. Haley also says she would cut regulations by requiring congressional approval for any federal rule with an economic impact of $100 million or more. Now, Haley's critics say that although she denounces corporate welfare now on the campaign trail, as governor, she lavished subsidies and tax cuts on companies such as Boeing, Volvo, and BMW in an effort to bring them to South Carolina. And they say that simply offering more goodies to lure jobs away from, say, Georgia does nothing to move the needle on jobs nationwide and could cause workers pay cuts while placing a burden on taxpayers. Back over to you guys.

Amen, tell us how Nikki Halley is stacking up against the polls, say, in head on races with the people. former President Trump and even against President Biden. Well, look, what's interesting is she's actually polling better against Joe Biden than Donald Trump is, but everybody in this field is getting absolutely creamed on the Republican side by Donald Trump. Donald Trump is running away with this in these very early polls, and we should say these polls are very early. We are a while now before any meaningful contests actually happen. But all of these candidates, including Nikki Haley, have a lot of people. digging to do to get themselves out of the hole that they're in. But Republicans who are looking

for electability in a candidate might look at Nikki Haley because up head to head against Joe Biden, she polls better in most of the polls that I've seen than Donald Trump does, Steve. We're not that far out. We're a month from Iowa. Amon sounds like he has what I have, by the way. I think we have the same cold. I had it too. Yeah. Yeah, it's going around. Somehow it got down to the D.C. Bureau. Go ahead, Steve. Amon, I was at a dinner with a bunch of executives and they were all really, like, excited about Nikki Haley. I just wonder to the extent to which this is a sort of either elite Wall Street, maybe elite Washington phenomenon that is not, does not have a presence or staying power at the grassroots

level among the Republicans. Yeah, look, I mean, if you look at the people on our air who are endorsing Nikki Haley, right, you see people like Jamie Diamond, who's a Democrat saying that Democrats on Wall Street should send her money. You know, you've seen other billionaires out there endorsing Nikki Haley. The question is whether that can translate into real support among people who actually vote in the caucuses and in the primaries that are coming up in 24. So far, we haven't seen any evidence of that in the polls. And one of the big questions here is are all of these candidates who are running against Donald Trump right now on the Republican side, sort of therefore the, in case of emergency, break glass moment where if Donald Trump's legal troubles get the better of him and he's.

has to drop out of the race for one reason or another, they then become viable candidates. Because looking at the polling now, you know, they're really not viable now. Right. This is a situation that we just haven't seen before with a candidate running at the top of the field facing the scale of indictments and the scale of legal jeopardy that Donald Trump does. All right. Do me a favor. Amy, we got to go.

But send me an email about how she pays for Roads by getting rid of the gas tax. We'll get to that one next. Okay. Even thanks very much. After the break, a post-COVID moderna. Moderna? Madonna? What is the future of the drugmaker beyond coronavirus vaccines? We're going to talk about that next to get the pronunciation right. Shares of Moderna sharply higher today following data for a skin cancer drug.

It's developing with Merck. Angelica Peoples joins us now with more on this interesting development. Yes, Steve. Moderna and Merck are saying that their experimental cancer vaccine plus Merck's Ketruda cut the risk of recurrence or death from melanoma by 49% after three years. Now, this vaccine is tailor-made for each person to help their immune system recognize and attack their cancer. The idea here is that by combining the vaccine with Merck's powerful cancer drug, Ketruda, that it'll keep the cancer from coming back after it's been surgically removed. These results are the latest update from a phase two study, and they're even better than what's been previously shared. Now, Moderna thinks that regulators might be open to quickly approving the combination based on this data, but analysts aren't convinced that's possible. And I reached out to Merck.

They're sounding much more conservative, telling me they're focused on the phase three trials that recently got underway. So we'll have to see exactly how possible that is. It's weird, a little bit of a company split there. Maybe Moderna just has more to lose, or obviously less robust of a pipeline. The shares are up almost 8% on the news today. Yeah, and it's interesting because like we saw yesterday with Pfizer, investors are so focused on what's next for these COVID heroes. They saw such highs over the past year. And especially for a company like Moderna,

any piece of move, any piece of news, excuse me, can really move this stock. So an 8% move today is really not all that uncommon for Moderna these days. How quickly, in a normal track, would this thing be able to come to market if the phase three trials are come out well? So the Moderna CEO, Stefan Bonsel, was on Squawk Box this morning.

And he said that a normal timeline if they waited for the phase three trial would be about 2028. But they're thinking that if they can get this to market sooner, they're looking at more like 2025. So that's a pretty big difference, three years. That's a huge improvement on outcomes for a disease that... I know I've lost some people to that disease,

and it would be really quite remarkable if it was available. Definitely. Thanks, Angelica. Angelica Peebles. Let's get to Contessa Brewer now for the CNBC News Update. Contessa. administration is urging Israel to scale back its war with Hamas. National security advisor Jake Sullivan met with top Israeli officials today.

According to the White House, he discussed transitioning from the large-scale ground invasion to a more targeted operation in the near future. International pressure is, of course, mounting right now for Israel to do more to protect civilians in Gaza. The jury in Rudy Giuliani's civil defamation trial is deliberated. right now, they will decide how much the former New York City Mayor and Donald Trump ally will have to pay in damages to two Georgia election workers. The mother and daughter at the center of the case are seeking at least $24 million each. They say they suffered reputational damage when Giuliani falsely claimed they committed fraud in the 2020 election. And a spokesperson

for the late Emmy Award winning actor Andre Brower confirmed today he died of lung cancer, Just a few months after being diagnosed, Arro was best known for his roles on NBC's homicide, life on the street, and Brooklyn 9-9. He died Monday. He was 61 years old. Speaking of the deadliness of these diseases, Contessa, thank you very much, Contessa Brewer. As we had to break, let's get a quick power check with solar edge up 15% today on a boost, most likely from the Fed moving forward in a lower-rate environment.

On the negative side, Arthur J. Gallagher, down 7%. to the insurance broker having its worst drop since April of 2022. Power Lunch will be right back. Welcome back to Power Lunch. 2020 has been a tough year for commercial real estate office in particular. As high interest rates and tightening credit hit sectors, office seeing the biggest pain with Castle data showing half of workers are still being remote. And my next guest expects this trend to continue next year,

causing lenders to sell properties at steep discounts. Joining us for more in an exclusive interview is Don Peebles' billionaire real estate developer, CEO and chair of the People's Corp. Don, it's great to have you here, not least, because your tone goes a bit against the tone of markets ever since the Fed meeting yesterday. Yeah, I mean, look, I'm optimistic on the long run, but I think right now what's happened is and interest rates aren't affecting this. It's how people work. People have changed how they work. They're working remotely. If you look at the best day in New York City is a 60% occupancy rate in office space, and that's on a Tuesday.

That's the best yet. But overall, on average, just hovering around 50%. I find Wednesday, personally, is the hardest to navigate it out there on the roads. Are you, are things so bad that you're a buyer yet? Not as bad yet. What's happened right now is that equity and MES debt has been wiped out. And now the properties are on their way back to the lenders. And the lenders, the senior lenders, are going to be in pretty decent shape because they never levered up.

They did loans a 60%, 65% loaned to value. And so therefore, I think they'll be okay. And so they'll rush to sell these assets out. I think what's going to happen now, and we're seeing this more and more, Clarion just walked from a property in San Francisco the other day, gave it back to a lender. So you're going to see much more of that. And the lenders are going to begin to sell those assets. And that's going to happen in 2024.

And throughout 2024, that'll be the commercial real estate story, as more and more assets. are giving back to the lenders. Don, how's your stuff? Well, look, we are a development firm, so normally we develop and we sell, rarely hold. And so we're doing well. We see opportunities. We're now in the buying zone. I mean, we are an opportunistic company, and so we look for opportunities when the market's

not functioning well. And so we're actually raising capital now for a new investment vehicle, which will be to buy commercial office buildings in the hardest hit cities that also are under supply in housing. And if you look at New York City, you look at San Francisco, you look at Los Angeles, they are all severely underserved in terms of housing. And so there's some conversion opportunities that we see as well. And I think also there's going to be a change in how people go to work. And it'll be more of a dispersed workforce. And so you'll have dispersed, you know, office and employment centers that will be where people want to live. So you stayed away from this stuff

in the crazy low cap years. That makes you smarter than most people out there on the street because people were going crazy for this stuff, bidding down these gap rates to places where if there was a 1% interest rate, they didn't work, let alone 5%. So here's my question. What discount is enough for you?

I remember when my mother was shopping in Mexico and the guy said $100 for the ring, she said $1.00. What are you saying? I'm saying, look, I think, first of all, I don't think I'm smarter. I was probably greedier. I just couldn't see how we could make a lot of money buying at 3%, 4% cap rates in a zero rate environment. So I think when we see office buildings drop 40%, 50% of what they sold for, what their values were, say, in 2019, 2018. That's where we're looking.

And we're looking for, but some buildings are permanently destroyed. that you need to be demops. And so we'll look at some of those. But our focus is going to be at those 50% discount areas. Land's going to go down significantly as well because they're not going to be as many alternative uses. And so we're beginning to buy land as well. But is this conversion story a bit of, I don't know what you call it,

a Bubba Meister, so to speak. Everybody's talking about conversion. I got to think it's hugely capital intensive, hugely debt intensive. And the payoff may or may not be there. Yeah, you know, it's almost like fool's gold. Right. You know, there's some buildings, and I would say if I were to, I mean, we're trying to figure this out in our company now,

but I think we feel that about 20% of the commercial office inventory as a whole has potential to make a good conversion. And then a little less than that in terms of a very efficient and cost-effective conversion. And so it'll be a solution for some of these. buildings, but many of these buildings we need to be demolished and rebuilt. And so I don't think that is a panacea to solve the commercial real estate crisis that we're going to see next year. I'm just trying to make sense. The white books behind you.

You're always on the forefront of trends done. Now I've got to think about this one. They're like ghost books there. So let me just say you, Steve mentioned this a while ago, but the Fed's latest beige book survey was somewhat downbeat about how a lot of the regional economies are doing lately. And you are also in a lot of different cities and ones you've been quite positive about that are outside traditional New York, Washington, D.C. Do you see any slowdown or change in that taking place? I mean, how would you describe some of these markets, everything from Charlotte to some of the other place we've talked about?

Florida, obviously, you've been very bearish, Raleigh, Richmond, Nashville. Yeah, good question, by the way. First of all, I'm not a trendsetter with the wallpaper. I give that to my wife. Oh, it's wallpaper. Oh, it's design. design. It's not even books. It's wallpaper, but 3D wallpaper. So she thinks ahead and has some great trends. Let's get her on sometime. She's great. Yeah, she's a very talented designer. And of course, a wonderful wife. But on the trend side, I think that, you know, all cities are not the same. New York City is going to have difficult years ahead. It is an employment center for the financial services.

industry and other major industries. Those industries are being dispersed now. So what we're going to see now is cities like Miami. I mean, we want to build several office buildings in Miami because Miami is severely underserved when it comes to office space. In fact, one of the things that will slow Miami's growth down is the lack of office space to place employees who want to move to Miami when companies want to move here. You look at West Palm Beach. I think Steve Ross is doing a great job. making West Palm Beach America's, you know, hottest small town. Jeff Green is doing a massive mixed-use development there as well. So there's going to be a lot of new development in West Palm for commercial office space and apartments,

which will attract companies and workers. Goldman Sachs is already moving three to 400 employees there as well in one of our latest buildings. You're going to see Charlotte, North Carolina, continue to have wind in its sales because affordability of living. It's becoming an emerging life science environment. and you got it as a second largest banking center. So I think they're going to do well. Raleigh Dorm will do well. I mean, Texas, Dallas, Fort Worth, Austin's still going to be very strong, and Houston's

going to continue to pick up some steam. The places where people want to live and where they're business friendly, that's where you're going to see the growth. I mean, there are too many options now for companies and too many options for developers to go to places where they make it incredibly difficult. I mean, Los Angeles, California is an absurdly difficult place to do business and to build buildings. That is why they have a shortage of housing and one of the highest run-ups ever of any city in the country. Don, I got to ask you a personal question because my life gets difficult when there's systemic risk.

And I need to ask you what my year is going to be like next year. We don't have a lot of time, but I have to ask you, is there going to be a meltdown? Is this systemic risk in the system from these buildings? incapable of refinancing and walking away on the pressure on the banking system, or do you think the market finds its way through it? I think the market finds its way through it. I think that those that are interest rate are driven, the problems that they are having right now, like apartment buildings that are fundamentally sound, private credit will step in and help solve that problem. The market's going to be very efficient. Private credit is going to be a big deal in 2024.

I think the office building crises is not as much driven by interest rates as fundamentals. COVID changed the fundamentals of these cities. I mean, there's no reason to be in New York City, pay absurd amounts of property taxes, have to pay your employees certain amounts of money and they can barely make a living when they're alternatives. And so New York is going to have to reinvent itself, which it can and will and has done in the past. But I don't see the risk as being a systemic risk.

I think the market will work its way through this, and the banks are not over-leverage. And I think that's a very important thing. These loans are 50 to 10%. All right, Don, I'm not going to cancel any vacations for next year just yet. Thanks for joining us. Don Peebles. Appreciate it. Thank you. Private credit and 3D wallpages.

Coming up, a software slide, shares of Adobe falling on weaker than expected guidance for 2024. We'll get the key details ahead in Tech Check when power launch returns. NVIDIA is the clear leader in chips for AI, AMD, making its cases, Well, today we're learning about Intel's hopes in the space. Christina, Parcelo-Lavis, talking to Intel's CEO at Gelsinger. Christina. Thanks, Steve. Well, it's about being first to market with AI PCs.

And those are the ones that you're seeing right behind. And Intel promises to sell about 100 million units by 2025. I caught up with CEO Pat Gelsinger for one-on-one this morning, and he's adamant that the AIPC chip would revitalize the PC market, especially as companies start to refresh their cycle. next year. So for those who don't know, an AI PC runs AI applications like, let's say, for example, Microsoft co-pilot locally on the laptop without necessarily the use of the cloud, so it helps with the battery life, et cetera. But Galsinger did admit to me it will, quote,

take a couple of years to drive that shift. So does the market really care about AI PCs right now? Well, let's take a look at Intel stock. We did see it initially jump when the embargo was lifting around 10 a.m. Eastern this morning reviewing Intel was already shipping an AI, or AI PC chips, secondly launching a next generation CPU, central processing unit, a product they hope will help them stop losing market share to AMD. And then lastly, a tease, let's say, to their hotly anticipated Gowdy 3 chip you're seeing on your screen right now, which is an AI chip, a custom AI chip, I should say, used for training large language models, which competes with AMD and Nvidia. But on stage, Gelsinger only showed the AI chip. Didn't actually have any

financial updates or any further news on it, so investors took that as a maybe lack of news around that AI chip and sold the stock off, which is only up 1.5%. Earlier today was up 5%. So the takeaway, though, from my conversation with Gelsinger, is that this is a volume game. Get their product, whether it be the PC AI chip or the new central processing unit, out to market as quickly as possible so they can capitalize on their ubiquitous branding and get there before the competition.

Christine, thanks. Thanks very much, Christina. Complicated story well told. She explained all of her phrases in there. Indeed. Exactly. Absolutely. Indeed, Christina Parts in Nevelis. Meantime, shares of Adobe are sinking after issuing disappointing guidance.

Let's get Deerjbosa on more on what this tells us about tech in 2024 for today's tech check. Dearie, Kelly, so not everything is risk on. That's what it tells us. And there also may be some signs of stress building in certain areas of tech. Adobe and Oracle, two late reporters in the earnings season. They're important because they have more information for their outlooks than earlier on in the earning season. and in both cases, they disappointed. Let me run through Adobe first.

All the stuff that investors could worry about was wrapped up in this one report. Disappointing outlook, slower than expected, AI ramp, regulatory scrutiny. It's Figma acquisition. And now it's more than a year ago that is still making its way through the DOJ. And now there is a separate investigation from the FTC. And this is really part of a broader story that we've been telling over the last few months, that of a more aggressive, more nimble group of regulators that are only ramping up scrutiny of tech.

Then there's Oracle, shares down more than 10% this week. Its earnings pointed to slowing sequential growth in its cloud business, and that raises some questions about a software comeback that some analysts and VCs have really started to talk about. It was also a reality check coming after a beat and raises from other smaller names and a reminder that the cloud story, it is not in the clear yet. Remember back to Google, that was a few months ago now, which missed estimates on its cloud business and Amazon,

which provided some hope of a bottoming of AWS growth, but it couldn't explicitly say that it was the bottom. So if cloud growth is weak, guys, that could signal weaker enterprise spending and economic uncertainty. That said, these moves, they are contained. They're not really impacting the broader software in cloud universe, yet at least.

The story for now, of course, for tech is that rates and lower yield, that's helping the rotation into high growth speculative names. We talked about that yesterday. Mega caps are taking a bit of a breather. So I'm just saying, guys, that Adobe and Oracle, that could be something to keep an eye on, not to spoil the party, but just to say that we're not all in the clear, perhaps.

Well, no, we're not. Deirdre, thank you, dear Jorbosa. We appreciate it. And again, Adobe was an interesting contrast with all the positivity yesterday. Still ahead, Goldilocks meets the Federal Reserve and three-stock lunch. We'll trade a name to like if it starts cutting rates,

one if it leaves rates the same, and a name that's just right, no matter how 2024 plays out. Power lunch is back in two. Welcome back. It's time for three-stock lunch. Today's edition is Fed-themed, and one stock is the one you want to own if they start cutting next year. One is if they leave rates here for a while, hey, it could happen, and one to own no

matter what the Fed does. Here with our trades is Quint Taitro, founder and president of Jewel Financial. Oh, no Santa. I see a stocking there, though. But let's get to it, Quentin, starting with Cleveland Cliffs, the Flat Road Steel producer. It's up about 4% today, actually, about 20% on the stock. the year. This is the one you want to own if they do start cutting early next year. Is that right? That's right, Kelly. You've got to come into the economic classroom for this. If they're

cutting, that means they're increasing the money supply, devaluing the dollar. You want to look to the materials. That's why those areas are just gangbusters today. Cleveland Cliffs is our name here. We have forward estimates at $1.64 for next year, which is 12 times forward earnings. That growth would be 40%, so it's super cheap. They did 650 million in free cash flow, have a decent balance sheet. Stocks going higher from here. All right. The next one up, Quinn, is Crowdstrike, which is up nearly 140% this year. You say this is one you should own if the Fed leaves rates here for a while. You got to make a good case to make me buy a stock that's up 140%. So go ahead. I think it's going higher, but no, you're right. This is hard because it's hard to find an

area of the market that's not correlated to interest rates or inflation. So we're going to go into the cybersecurity area. And our favorite here is CrowdStrike. It's not only up 140 on the year. It's up 170 off the lows. I don't think you chase it. But I think the game plan is we're going to see a pullback in the things that have been super hot as we see rotation into the names like Cleveland Cliffs. This is a company. Yes, it's obviously turning profitable selling at a very high multiple, but we do not believe the forward growth is factored in. This has got a strong balance sheet, $3 billion in cash. Give it a pullback. You're right to about the 230, 235 range. And then this is a stock you can add if, or regardless, in my opinion, what the Fed does, but especially if they just

stay put. Well, speaking of, you know, being able to ignore them entirely, you think AMD is the stock to own kind of to be able to just ignore them. You shrug your shoulders, go about your business. It's already more than doubled this year. You think it keeps going? I do. And I think today, again, is a little bit more of that rotation that we're seeing knee-jerk reaction, trying to get into some names that have been beaten up. But this is a name that we feel is not pricing in or fundamentals, not pricing in yet, the new AI chip that you guys were just talking about.

40 times forward, it's rich. But those earnings estimates are projected to be growing at about 40%. And if you do factor in the AI chip growth, this stock, all of a sudden becomes pretty cheap. No debt. Six billion dollars in cash, still 20% off highs and we think it's going there early in the year. Wow. Out of the gate. Off to the races. Quinn, thanks so much. We appreciate it. Quinn Tatro. Thank you. It's probably true that, you know, going to have spyware and software and adware and all that other security stuff, whatever the Fed does with interest rates. More power loans coming back after a quick break here.

Welcome back, a minute 45 left in the show. Several more headlines. to get to, and we're going to squeeze it in. Starting with the drama at Disney, Tryan announcing its nominating its own CEO Nelson Peltz and former Disney CFO, Jay Rosullo, to Disney's board. The latest salvo in its proxified against the company. Tryon had sought up to three or four board seats, and the statement Disney defended its current board,

saying it's experienced, diverse, and highly qualified. The company went on to say its governance and nominating committee will review the nominations and provide their own recommendations to the board. Okay, a new study from the Pew Research Center, I found a third of U.S. teenagers say they almost constantly use at least one of the top five social media sites, including YouTube, TikTok, and Instagram. I think you could probably go up the age scale on that. Yeah.

Something like Twitter and Facebook and people are doing that too. I think this whole decade is going to be about pushback among kids' usage of social media. Maybe it's just because I'm entering that life. Are you pushing back? What's the rule? They're still too young, but we're already stopping with a stop touching mommy's foot. I can't even check my email after. We had a rule in our neighborhood, no cell phones for the kids until they were 11.

Yeah, I think at this point, if you make it to eight, it's like people pat you on the back. Just how old I am. This year's corporate holiday parties are more likely to be in a break room than a ballroom. Did someone here pick this because of our party? As companies battle inflation rates and the state of events, they're responding by taking a more low-key approach to holiday and other celebrations at the office, and some people have party fatigue. 55% say they'll skip their company holiday party. So what's the difference? Did you go to the one movie?

Was there a party? Yeah, it's right. I never get invited. It's here. It's now. It's happening. All right. Steve, thanks for joining us today.

It's been fun. Thanks for watching, Powerlid Jerm. We'll see you and you tomorrow. Closing bell starts right now.