Power Lunch - Earnings & The Fed, and Crypto Comeback 1/31/23

Episode Date: January 31, 2023

The market is watching 2 big items today: earnings and the Fed. We’ll get you set for tomorrow’s big FOMC decision on interest rates, and break down all the angles of earnings you need to know. Plus, Bitcoin is up nearly 40% so far this year. So has it survived the so-called “crypto winter?” We’ll ask Strike Founder & CEO Jack Mallers about that and much, much more. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everyone, and welcome to Power Lunch, along with Kelly Evans. I'm Tyler Matheson. Coming up this hour, the two big things the markets are watching, earnings and the Fed, and we will get you set. For tomorrow's big decision on interest rates and break down all the angles of the earnings from the big names that are reporting, Kelly, today. Plus a crypto comeback. Bitcoin is up nearly 40% so far this year, has it survived crypto winter. We'll talk to the always outspoken, always entertaining Jack Mallors. strike launching in a new country today. But first to check on these markets as we're near session highs right now, a day to go until that Fed decision, NASDAQ up 1.2 percent today. Small-cap Russell's leading the way. Let's get over to Dominic Chu right now for more on what is moving

the markets. And I see Caterpillar over there. It is. Yes, that's right. Mr. Matheson, a Dow component in Caterpillar down on the day. But as you can see, well off the session lows right now. After the heavy machinery and construction equipment giant reported better than expected profits and revenues helped along by strong end user demand in pretty much all of its business segments. Those results, though, were hurt by the effects of core foreign currency headwinds. And by the way, if Caterpillar were just flat on the session, the Dow right now would be up roughly 275 points as opposed to the 225 you're seeing on your screen. Next up you got UPS, the package delivery and transportation logistics company, global economic bellwether, had mixed results,

better than expected profits on sales that missed the mark. UPS saw lower holiday season shipping volumes, at higher per unit revenues. UPS also boosted its quarterly dividend payment and started a new $5 billion stock buyback program. And then we're going to end, by the way, on housing. Pulte grew up big on better than expected earnings and revenues. Gross profit margins also grew over the same time last year. And Pulte did note that demand dynamics for housing improved over the course of the last quarter into the beginning of this year. Pulte shares up 9% so far, Kelly, in trading today. Back over the new. Wow, just a huge move, Dom Banks.

And we have a ton of earnings out today this morning after the bell. We started with GM, the stock jumping. Tons of news in this report. Tons of the superlatives with this one as well, by the way. Let's get to Phil the Bo to kick things off here. Phil. And Kelly, let's look just at the numbers. We're not going to talk about the EV prospects for the future, but just the numbers.

And these are the kind of numbers that GM investors love. Fourth quarter, way above expectations. beat the street on the top of the bottom line. Then they set guidance for 2023 that was above the analyst estimates. And they gave a strong pricing outlook. They're not seeing a huge amount of pressure that is forcing them to cut prices on new vehicles. They are, however, going to be cutting their costs by $2 billion this year and next year combined with about 30 to 40% being cut out this year. How are they going to do it?

Larges be through attrition, trying to be a little bit smarter about using their resources. but CEO Mary Barra says we are not planning to lay anybody off. So take a look at shares of GM and Ford, and we're showing you one year for both of these guys. They generally trade in tandem. For General Motors, one important note from the show today or from the call today regarding EBs, they are not cutting their prices. They do not believe that they need to do that. That's a big difference from Ford yesterday.

And speaking of Ford, we will get the Q4 results and 2023 guidance, likely get that 2023 guidance when the company report. its earnings tomorrow afternoon. Is the fact that they're not cutting prices, the big news with respect to their EV competition with Tesla? I don't think so, Tyler. And here's why. They really don't have a direct competitor to the Model Y.

You have the Bolt EUV, but that's a much lower price point. And the person who's shopping the Bolt likely isn't shopping the Tesla Model Y, as opposed to the Mustang Mock-E, which is more of a direct competitor to the Model Y. That's the pressure that Ford was feeling why it had to cut those prices. Okay, Phil, thanks very much. Phil LeBow reporting on GM. Let's talk to about another household name. That would be McDonald's.

That stocked down despite what seemed like strong results. And Pippa Stevens joins us now with more. Pippa. Well, the company did beat results on both the top and bottom line, driven by both higher prices as well as positive traffic. The company earned $259 per share, which was $0.159. ahead of expectations. Revenue came in at $5.93 billion. That topped forecasts, but was down 1% year over year due to FX impacts. Global same store sales blew past expectations rising

12.6% while analysts were calling for 8.2%. In the U.S., sales were up 10.3% during the last three months of 2022. But the company did warn that macroeconomic uncertainties will persist and that stubbornly high inflation, including around commodity, labor, and energy prices continue to weigh on margins. Looking forward, CEO Chris Kempchinsky said developing new units remains a priority for the company. That stock guys down about 2%. Wow. So like you said, you would have looked at these or glanced at them, Pippa, and thought, okay, you know, strong report, still the stock's struggling. And what are we gleaning from the consumer as a result?

Well, a couple of things. First of all, they said that they think inflation in the U.S. has actually peaked, but that doesn't mean we're not still facing all these headwinds, whether it be around commodity, labor, or energy prices. And the base case is still that we'll see a mile to moderate recession in the U.S. with a more deeper and steeper one in Europe. But, you know, ultimately, consumers seem to not be caring that much, and they're still spending. And CEO Chris Kempinski said that the consumer looks a lot better than he thought even six months or a year ago. And whether that consumer be in the U.S. or Europe, people are still spending. Wow, it's quite a divergence there. Deep recessions with strong consumer.

We'll see how long it can last. Pippa, thanks. Next up on our earnings rundown, it's got to be Pfizer. Underwhelming investors as we move into the post-COVID landscape, we hope. Meg Terrell has that for us. Meg? Well, Kelly, if you look at Pfizer's forecast for this year, it does look like a post-COVID landscape. They are saying 2023 is going to be a trough year, the lowest year in terms of revenue for their vaccine and their COVID antiviral.

30 billion dollars less in revenue is the projection for 2023 than the 100 billion record revenue that they posted for 2022. Fourth quarter was essentially in line, but you saw the stock week this morning because of that 2023 forecast. They're expecting about $21 billion in combined sales for the vaccine and the COVID antiviral drug. That was about $9 billion short of what the street was looking for. But you have seen that stock come back today, perhaps because Pfizer really laid out in granular terms, how they're putting that expectation together. And they do expect that after this year, we will start to see COVID revenues start to increase again, guys. So, Meg, what does Pfizer have in the pipeline to get the company past COVID? Yeah, that's another huge question.

They are really doubling down on vaccines. We've seen a lot of activity in RSV. Pfizer is one of the key players there. They've got other vaccines they're working on as well. And they've been doing a ton of business development, buying up biotex, and they're expected to continue to do that. So some of the products that they've recently acquired are in migraine, sickle cell disease. So we'll continue to watch them do. that as well. All right. Thank you very much, Meg Terrell. And the big report out after the bell is

AMD, Christina Parts of Nevelace, who's really got more energy going today than anybody else. Because they're not seeing what's happening behind the screen. They're not seeing it. I know. Give us the word on AMD. Let's talk about AMD shares that are outperforming the SB 500, but competitor Intel's brutal quarter means AMD's earnings are facing even more scrutiny after the bell today. Intel, if you don't recall what happened. And just by the way, when we show the two charts, you can actually see on AMD's chart that it dropped the moment Intel's numbers came out.

Their data center market, they're predicting it'll contract. Intel also said that they posted higher CPU inventory due to PC demand weakness, and lower PC sales affect data center sales, which make up over a quarter. Orange one over there, a quarter of AMD's revenue, and that's why Morgan Stanley, Bank of Montreal, credit suite analysts, just to name if you expect near-term weakness in data centers to weigh on AMD's Q1 Outlook.

But the Outlook is expected to improve for the year. You've got AMD's PC inventory. Analysts seem to expect it's going to normalize in the second half of this year. Consensus is pretty flattish for gaming, where GPUs play a big role. But remember, Nvidia is the dominant player in this category. And then you've got growth in servers that should be a bright spot, but there's still a lot of confusion about data center demand, whether those numbers are going to continue to grow for AMD if it's possible.

It could continue to steal market share away from Intel. The competition is very fierce between the two. What does Intel's report from last week auger for AMD, or does it suggest could AMD, is it suggests that AMD is eating Intel's lunch? What? Well, it depends on how you look at it. You had Intel that warned about weak PC sales.

We've talked about this quite a bit. And in Q4, the thought process on the street is that it was a bottom. And going into the new year with AMD, they may not have to worry so much about that, but it's data centers where there's a big question. And you're already seeing a price war go on between both companies. Bernstein, which downgraded AMD, said that they saw client parts, which make up about 20% of AMD's revenue,

actually cut the price, the average retail price, just within two months of launching. So that's a big move for AMD to do just in such a short amount of time in order to compete with Intel when demand is lower across the board, right? Because it eats into margins. I thought it was noteworthy, like you said, as well, with NXP this morning. Auto was still a point of relative strength, and the stock's up nearly 3% right now. Yet that's not a major driver for AMD in this case.

So that's why there's a lot riding on AMD's report and then Qualcomm on Thursday. True, true. Christina, thank you for now. We appreciate it, Christina Parts and Nvelas. Still ahead, everybody. We'll talk to someone who sees 13% upside from here for the S&P 500 this year. Sam Stoval will explain how he came up with his bullish target, which is one of the highest on the street. For more on the day's big earnings, tune into Mad Money tonight. The CEOs of General Motors and Pfizer will join Jim. And tomorrow on Squawk on the street, AMD's CEO, Lisa Sue, will be on to discuss their results. Looking forward to all of that.

Power Lunch, back right after this. Welcome back to Power Lunch. Stocks are trading higher to end the month with the S&P on track for its best January since 2019. Our next guest expects that to continue this year. CFRA's chief investment strategist Sam Stilvall setting his year-end price target for the S&P at 4575. and he joins us now to explain his strategy. Sam, welcome. Hey, Kelly, good to talk to you. You too. People, most of all, I mean, in a year in which a lot of the analysts are pretty

bearish, people's main question is, how do you get there? Well, first off, I think you really should understand that a target price is more of a weather vein than a laser beam. It is a 12-month outlook, and we put it together so that it gives guidance to our analysts so that when they compute the intrinsic veincent vein, value of underlying stocks, they know whether to make it a buy, hold, or sell based on the forecast for the overall market. What goes into that decision is a combination of fundamentals, which is the cap-weighted target price for the companies in the S&P 500 put together by CFRA equity analysts, which is a year-ah

outlook. From a technical perspective, I look at point-and-figure targets for the companies in the benchmark. And then I also take a look at the historical precedent because a lot of people like to forecast recency and are thinking that 2022 is going to be exactly like 2022. So the thought is, no, that's usually not the case. The market tends to rise by more than 14% following a down year versus a more normal 9% advance.

And as Bob Pisani just posted recently, the January. barometer is another indicator developed by the stock trader's almanac that points to a favorable position ahead. Yeah, it's fascinating, Sam, because people would go, well, wait a minute, if you base this price target off the equity analysts, aren't they wrong and aren't they too optimistic and so on and so forth? But if you say, well, you know, just thinking back through history here and what we're likely to see, it's probably not going to be as bad as last year. Okay, what if we're going into recession? And I think your data points as well on what happens between the last rate hike and the first rate cut are quite provocative. It's typically a period

in which stocks do quite well, and that can be the kind of period we're in right now. Absolutely. We've had nine bare markets since World War II that have been accompanied by recession, and traditionally about four of those nine have been declines that are similar to what we already experienced. Also, what we find is that prices lead fundamentals. And so last year, the market was down. This year, earnings are down. And historically, whenever earnings have been down, the market has been up in anticipation of the earnings recovery in the year after. And we're forecasting about an 11.6% rise in S&P 500 earnings in 2024. So let's talk a little bit about interest rates and what you're anticipating there. I assume you think that we're closer to the end of this rate

tightening cycle than we are. to the beginning. How would you handicap the possibility that tomorrow may be the last turn of the screw before a period of pause and then maybe a loosening cycle? Hey, Tyler, good to talk to you again. Yes, we do think that the Fed will likely raise rates by 25 basis points tomorrow. It probably could be their last rate hike for this tightening cycle, although they're not going to admit that. I think they're going to continue to to talk tough because they want to affirm that they are data dependent and they will make that decision based on future data.

But let's face it, the Fed is aiming at a target that's below the horizon. They don't want to overshoot the target. And also history tells us that the Fed starts to cut interest rates fewer than nine months after the last rate hike. So I think that there is a possibility. History points to a more than 13 percent advance in that nine-month period. period going back to 1990 with all styles, all sectors, and all sizes within the S&P 1500 posting advances.

All right. So all styles, all sectors potentially posting advances. But I suspect within those all styles and all sectors, you have some that you think will outperform the median and underperform the median. Point to them. Good point. Yes. Actually, what we're looking for right now is

going from first to worst, meaning the first, the best performing sectors last year were the defensive consumer staples, healthcare utilities, also energy, and historically investors rotate away from the defensive side of the ledger following a market decline and into those groups that were the worst performers, those that got beaten up the most. So include in that consumer discretionary and technology. We're sticking. with our energy overweight because we still believe that there is upside potential for energy prices. Also, the energy sector is trading at about a 45% discount to its average PE over the last 23 years. So looking at companies in consumer discretionary like active and tapestry or in energy

like EOG Resources and Schlumberger and then lastly, KLA 10Corp and Microsoft in technology in the year ahead, we think that they could be outperformers. And finally, Sam, if people want to start thinking through what happens if we're going into recession, would that change everything that we've talked about here if kind of the picture in 2024 looks like a harder landing than what we can currently see? Well, right now, I think the market is already anticipating a recession. The market has had a bear market and a recession. Every time we've seen CPI above the 6% level, whenever we've had LEI on a year-over-year basis be negative whenever we have had an earnings recession and whenever we have had such a steeply inverted yield curve. But I think that a lot of that has been factored into the

market. What has not been factored in is a depression, in my opinion. And usually when the NBER National Bureau of Economic Research tells us we're finally in recession is usually close to the bottom. So that's typically a buying point, not a selling point. Great point. Sam, thank you. We appreciate it today. Sam, Stombeckley. Bye, Tyler. Yeah, thank you. All right, still to come, folks, a conflict of human interest. Google's former CEO, Eric Schmidt, being tapped for a federal biotech commission that allows members to maintain their biotech investments.

We'll talk about that curious conundrum next. Welcome back, everybody new this morning, former Google CEO, Eric Schmidt, making a change to the way he approaches Washington. Amen Javers here now with the exclusive. details. Hi, Eamon. Hey there, Tyler. Well, at the end of December, Congress announced that Eric Schmidt, the former CEO of Google, and 11 other people would run a new biotech commission out of Washington. The goal here is to get industry and outsider advice on the future of the biotechnology industry broadly to guide Congress's decision, particularly on spending on biotech. But when we looked at Eric Schmidt's

investment, it turns out that in his personal investments through a venture capital fund called First Spark Ventures. Schmidt has an interest in at least three biotech investments. We contacted Schmidt's team about that. And after some back and forth, a person familiar with Eric Schmidt's thinking tells me that Schmidt will now donate the profits from those investments to charity. Not clear which charity he's going to choose when those profits do materialize, but the profits that Schmidt makes from First Spark Ventures,

he says he is now going to donate to charity. All of that, the person says, is designed to. demonstrate that when Schmidt joins these boards and these commissions in Washington, D.C., he's doing it for all the right reasons. Now, this isn't the first time, Tyler, that Schmidt has taken on a role like this. He's done a number of these, and we reported back in October that when he joined and shared the Federal Commission on Artificial Intelligence, he actually made as many as 50 investments in artificial intelligence companies during the time he was chairman of that commission through

personal money or through entities, venture capital investments, and the like that he controls. So this is a new approach now for Schmidt. He's through a person familiar with his thinking telling us that he's now going to donate these profits to charity, Tyler. Does he, let me ask a couple of questions here, one after another. One, does he maintain that he does not control the investment decisions in these funds, number one, and number two, what about other members of this particular biotechnology commission? Do we know anything about whether they have investments in biotech companies as well? Sure. Well, the chairman who's going to be the person who's going to be the chairman of this commission is the CEO currently of a biotech company in Boston. That company tells me that he will remain as the CEO of the biotech company while he's advising the federal government on biotech policy and that he's simply doing the commission role in his personal capacity. But his involvement with his company is not expected to change. As far as Schmidt goes, yeah, there is this issue of investing through a venture

capital firm, a person familiar with Schmidt's thinking, told us that he does not direct those investments. He didn't decide which particular biotechnology companies that venture capital firm would invest in. That said, he has a personal financial benefit from those biotechnology investments. And when you talk to ethics experts in Washington, they say the conflict of interest issue there is real because you worry about somebody making decisions to feather their own nest in a position of power like that, rather than for the good of the country. And so when you talk about conflicts of interest, ethics experts would like to see, and some of the ones that we quoted in our story on CNBC.com would like to see further divestment, further disclosure and all that related to these kinds of outside commissions. But, Aeman, if that's the case, why would they let the CEO of a biotech company keep his job while serving on this? Chair. Chair it while serving in this committee. What is the purpose of this committee? Is the committee to say we want the best and brightest biotech minds, for instance, to tackle something like, I don't know. Or is the purpose of.

of the committee to set rules that might favor one part of the biotechnology landscape over another? It's odd that they would let a sitting CEO be the chair of this committee. The purpose is to gather the best outside minds on biotechnology to guide the federal government, particularly in this case it was created by the Congressional Armed Services Committees, so particularly in this case through a defense prism on how to approach biotech, but it'll include things like guiding, you know, spending advice, where investments should be made in order to further America. because biotechnology dominance in the world.

And so the tension is you want to get access to those best and brightest minds in the private sector, but you don't want to create a conflict of interest. So how do you do that? The ethics expert, Walter Schaub, who we talked to for this story, which is online now, said that they've just simply missed the bar here in terms of the ethics standards of conflict of interest here. You know, there is a way for the best and brightest to be involved in congressional decision-making, and that's through congressional hearings and testifying on Capitol Hill and giving their advice in a way where everyone knows sort of who they are, what their acts is, that they're

grinding in particular, you know, whether they're talking their own book or not, all that on the public record. This is a little bit more obscure, a little bit more hidden. And some folks in the ethics community think that these commissions need to be scrutinized a lot more because it allows enormous influence from people in the industry who tend to benefit from some of those decisions. It seems very bizarre. It's great reporting. Amen, thanks for bringing it to us. We appreciate it. You bet. Amen Javers. Let's get to Bertha Coombs now for the CNBC News of Dave Bertha. Hi, Kelly. Here's what's happening at this hour. The FBI searched the Penn Biden Center offices in mid-November,

about two weeks after President Biden's lawyers found classified documents there from his time as vice president. It's unclear whether the previously undisclosed search turned up more classified records or anything else of importance. Video has been released of former President Trump's deposition this summer. It was part of a probe by New York prosecutors into business practices at the Trump Organization. Over four hours of questioning, Trump invoked the Fifth Amendment more than 400 times. And a new study has found black Americans are between three and five times more likely to be audited by the IRS than non-black taxpayers. Researchers do not blame the disparity on intentional choices by our IRS staff. Study found algorithms used by the IRS drove the higher audit rate.

Its authors are urging the IRS to modify its selection process and that algorithm. Back over to you. All right, Bertha, thank you. Ahead on Power Lunch, it's a crypto comeback after months of declines or being stuck in the mud, thanks to controversy after controversy. Bitcoin bouncing back 40% this year. We'll talk more about that on the other side of this quick break. Welcome back to Power Lunch.

were 90 minutes from the closing bell and 23 and a half hours from the Fed's decision on rates. Let's see what they're saying in Wall Street and in the bond pits in Chicago. We start with Bon Pisani over at the New York Stock Exchange. Bob? Well, look, it's risk on. Again, take a look at the sectors today here. We got ARC, we got bank stocks, got tech stocks up, and defensive stuff like utilities down. Why are we risk on? Maybe it's because they like the employment cost index numbers this morning. Maybe because of low expectations in the earnings world. Most of the big earnings movers were up today despite things that people didn't like about it.

But we've also got the Fed drift, which is the tendency for the market to drift upward in the two days before the Fed meeting. We'll see if that actually happens. Earnings are still going on. The only one that matters in the next 24 hours is AMD. Remember what happened. This is after the bell for the Intel disappointment. Why would AMD have better guidance than Intel? Well, they're taking some business away from Intel.

They've been doing that for a long time. But there's a lot of Intel chips out there. Maybe there's competition. Nobody's expecting a lot. It's been acting a little bit better. But remember, we bought them back in October. So both Intel and AMD is acting a little better. We'll get those numbers right after the bell. The bottom line is low expectations on earnings and hope for a soft landing is moving us and keeping us close to that 4100 level on the S&P 500. As long as we stay around that, the 40-50 to 4,100 level, we're breaking that downtrend that we talked about that existed for the last year. And Kelly, that's what's important. The market is acting. like the Fed is topping out in terms of their rate increases and that we're going to get some kind of soft landing. All of that could be wrong, but that's certainly the bet in the way market's acting right now.

Kelly? All right, I'll pick it up from there. Bob, thanks very much. Bob Pisani to Rick Santelli now on the trading floor of the CBOE. CBO, Rick. Yes, the CBO. You know, if we consider the fact that in the December 14th meeting

where we did 50 basis points, Let's do a chart. What's fascinating is to close that day was 348. Basically, several basis points away from what we're trading right now. And if you go back two meetings to the November meeting, you can see right after that meeting, we made the 4.22% yield close in a 10 year. Why is that important? Let's go back a little farther towards October. 4.5, 424, to be precise, was the high yield close post-COVID. So the cycle high yield closed.

Everything is a lining up. Take it one step farther again. Fed Fund Futures for June. That's where the contracts stop going down and start going up. It's the fulcrum. And if you look at June, hovering right around 9509, well, on the early part of November, right after that meeting, it made its low pricing, 9486.5.

That means the probability of a terminal rate at that point was 9509. now moved to 491. It's rallied a bit. That's important, especially considering that the Fed, most likely, according to these guys, may be done with tightening cycle tomorrow. And to that end, we're going to find our buddy Jim. Hi, Jim. Hey, Rick. How you doing? Very well. All right. What do you think is going to happen tomorrow? The big day, is there anything in the marketplace that gives you a clue as to what traders are looking at? Yeah, the event vol, which is the pricing of the one-day, two-day, three-day options, it's significantly higher than everything else behind it right now. That event VAL, because generally that's puts owned by customers and dealers, market makers, short put,

short stock, likely to see a buyback as VAL compresses regardless of the outcome. And I think particularly given that yesterday, Nick Tim Rose, the Fed whisperer came out and kind of floated this call selling right by the Fed, this idea that they're probably not, you know, the staff is talking to the committee about being a little bit more hawkish. And the market responded relatively well at those levels, right? You're seeing VAL come back down. I think that's kind of likely what you're going to see regardless of what the Fed does want. And that was a bit of reversal from some of the other Fed speak that was moving markets.

That's right. Rayner just about a week ago, really kind of said that word transitory again, right? Really got people thinking, okay, they're going to be dovish again. And that's part of what supported the VAL, you know, brought the VAL down a little bit in the last couple days, and really got put a floor into this market. Now, there seems to be this dynamic that the markets and equities always seem to come back, and the dynamic convicts is that it always seems to go back. Right.

No, I think the two are intrinsically connected. I think that's what a lot of people don't understand. It's not just, oh, VAL comes down because there's less fear if the market goes up. VAL actually structurally affects how markets move. Puts are the way people hedge in the market. Dealers, as I mentioned, are short the puts. If you have an event vol or a VAL that comes down, those VANA and charm effects, right? That VAL coming down really will naturally lead to a buyback and stuff.

Excellent. Jim, thank you for your opinion. Can't wait to see what the markets do. after the meeting tomorrow 2.15-ish or so. And Kelly, it's all you are, is back to you. Rick and Jim, thank you both. Now, oil is trading, and we have gains again, about 1%. But the big news today, Exxon's results,

and CEO Darren Woods comments about dividends and buybacks. Pippa Stevens here with more. Yes, so they beat on both the top and bottom line for the fourth quarter, and it was similar to Chevron's report in that the results weren't as good as Q2 and Q3. But if we look longer term, they really blew it out of the point. So for the entire year, their earnings were nearly $56 billion to put that in perspective. That is more than $10 billion above the prior record from 2008. Wow.

So it was a very good year for Exxon. Now, of course, the White House came out against Chevron last week. Today, a spokesperson told CNBC that Exxon's profits were outrageous. So very much the industry is caught in the crosshairs of Washington. And here's what CEO, Darren Woods, told Becky Quick earlier today about that fraught situation. I think, you know, my first comment would be the White House needs to get its facts straight. If you look at what we've been doing, we've invested more than any of our other peers. We had spent that money, taking criticism at the time, and grew our production and are basically providing more products today because of those investments.

And so I think we're doing what the White House, in essence, is asking us to do. So essentially, he's saying that they invested even when other companies weren't. And so they believe that they have been doing all that they can to bring prices. down for consumers. And the market controls a lot of their profit, right? I mean, they can't control the market, what the market does. Yeah, and shareholders, they want returns. They want dividends.

They want buybacks. They want these companies to stop producing. It's also, you know, a lot of, you know, banks maybe won't lend to big oil companies now. So there are a lot of factors that they say are very much outside of their control. And once you start paying shareholders more, you can't really pull that back. You know, once people start expecting a certain level, that's what they want to. keep seeing. That's right. And they are the owners of the company after all. All right, PIPPA, thank you. Pippa Stevens. All right, good news is hard to find in the crypto space, or at least it has been

lately, especially when you see multiple companies facing controversies, bankruptcy, collapse. But good news from crypto tech firm strike and crypto overall. It's up so far this year. Crypto, this company strikes setting sale for the Philippines. CEO Jack Mallors will join us next. So PayPal now, the latest company to announce. some job cuts. Kate Rooney has this breaking news. Kate. Hi, Tyler. So PayPal is laying off about 2,000 full-time employees.

That amounts to about 7% of its total workforce. Stan Schulman, the CEO, talking about this in a blog post. Just now, he really boiled it down to cost cutting. He talked about the macro environment as well. He says here, while we have made substantial progress in right-sizing our cost

structure and focused on our resources and our core strategic priorities, he says, we still have more work to do. He says we must continue to change as our world, our customers, and in our competitive landscape changes as well and evolves. He did say that some parts of PayPal will be impacted more than others. He said we'll find out more about which business units this is going to look at. But it all comes down to cost cutting. As he mentioned, Dan Schulman, the CEO, they talked about back in August targeting at least $1.3 billion in cost savings, this likely a part of

that and it joins a host of other technology, e-commerce companies that have announced pretty similar layoffs in the recent months. We had Amazon, Shopify, Stripe, all in that arena, but the latest sign of really belt tightening that we're seeing in Silicon Valley and some of the fintech names. And Kate, I'm always curious with some of these layoffs, which are the ones that are undoing hiring of the past couple of years and in which cases are we more kind of cutting back on even the normal size of the company. Do we know were they big, did they add a lot to head count recently during the expansion, during the sort of stimulus boom? So we don't have a percentage in terms of

what they did on the hiring front, but it's been interesting to see some of the tech companies that doubled, for example, I don't think PayPal is in that arena where they hired to that extent. But there was this pull forward effect with e-commerce in general, where companies really grew at all cost and felt like they needed to hire it to keep up. there. We don't have the numbers right in front of us. He doesn't mention it here, but in some cases, it is absolutely a matter of right sizing and getting back to pre-pandemic levels. And I think in the case of PayPal, they also have an activist in their stock at this point. Elliot took about a $2 billion stake, so they're adding some pressure for the cost cutting that really boils down to them,

just getting back to better margins and really belt tightening at the end of the day. Great point. And PayPal shares we should add up about 2%. There's been mixed reactions. Sometimes we see rallies, sometimes declines, investors more worried about the fundamentals. But here, at least for today, this one greeted as somewhat of a positive. Thank you, Kate. Coming up, Bitcoin continues to rally. It's back above 23K now. We'll speak with Strike, founder, and CEO, Jack Mallors, about crypto's fortunes.

Next on Power Lunch. Welcome back to Power Lunch, everybody. Bitcoin quietly rallying 40%. So far this year, as traders try to move past the FTX contagion that rattled the markets late last year. And one crypto company continued to expand Strike launching its send globally feature in the Philippines today, one of the world's largest remittance markets, allowing customers to send and receive cross-border payments instantly. So this is this area, an area of the crypto market that is showing some signs of real life. Let's bring in our friend

Jack Mallors, founder and CEO of Strike. Jack, it is always good to see you. How are you? Tyler Kelly, happy new year. Happy New Year. Great to be with you. We always have some good banter on this show. It's good to see you. It's good to see you. I want to understand something about this payment or remittance system.

If I am, let's say, a nurse in Denver and I want to send money back to my sibling in Manila, and I use your platform strike, do I even know that my money is being transformed into Bitcoin? for purposes of the transaction, or do I not? Is it so seamless to me that I don't even know? It's an unbelievable question, Tyler. You don't know. You don't know. In fact, we're very confident that Bitcoin in a payment setting,

no one wants to spend Bitcoin. If you spend it in the United States, you're spending property. You've got to tell the IRS about it. There's a lot of volatility incurred. We use Bitcoin similar to how consumers use Visa. When you go buy your latte at Starbucks, did you know exactly that it was routed through certain visa rails connecting to banks. No, you have dollars on your card and you spent them. And so no,

if you're, I don't know what you just said, if you're in Denver and you want to send money across the border, you got dollars, you enter the bank account, you click send. And we just use technology that gets it there much cheaper and much faster. It happens to use Bitcoin, but that's not, we don't think that that's an important detail for people to know. So you mentioned the next sort of phrase that pays here and that is cheaper. Transferring money across border can be a friction-filled process, to put it mildly, and one where there's a lot of margin. So the question for you is, how do you guys make money on these transactions as you take friction out of the system and as you take margin out of the system? What's your mechanism

for profit? Yeah, so we actually replicate a lot of the same business models, Tyler. Whenever a consumer makes a payment to the Philippines from the United States, we make money. My margins, guys, are so much higher. Think about what Swift does, what Visa does. I downloaded it from the internet for free. It's free open source software, the ability to physically settle value across the world, which traditionally implies counterparty risk, capital, float, intermediaries. There's up to seven intermediaries in Swift.

I get all that stuff. It's the equivalent of how the Netflix blockbuster story. is Netflix's only fixed cost, hilariously, was electricity. All they had to do was run their servers. They didn't need physical brick and mortar distribution, any float, any employee count. I got my fixed cost to run the free open source software that does all the lot of the hard work for me. So the real disruption in here is the Lightning Network and is the Bitcoin technology under the hood. We think it's important to obfuscate that away from a mainstream consumer that's just trying to get money home as fast and as cheap as possible.

But my margins are so much higher. So I can actually be more profitable as a business by charging far cheaper. Does that make sense? Well, and my understanding too, Jack, is there's sort of financial intermediaries who are making those conversions, maybe trying to bid to bring those spreads down. But we don't have a lot of times. So I want to ask you about this as well. Philippines, a couple countries in Africa, one of the big questions people have is why isn't

strike expanding globally more quickly? And after the collapse in crypto over the past year, are you running into headwinds regulatory here in the U.S., where you don't feel comfortable being able to offer this product widely yet? Yeah, so we are. The first part is we're making a really aggressive push this year to get out as fast as we can. So for context, we launched in a lot of Western African countries in December, and now we're here in January, Philippines. We're going to keep going.

So we're getting better. But also, yeah, of course. I mean, it's a friction-filled industry. It's a lot of volatility, a lot of capabilities, a lot of kids. chaos. And so we've had, let me put you this way, Kelly. If I could be in every country in the world tomorrow, I would. I'd click the button. Right. I can't. And so that's known. But we feel super, super, super, super confidentistic. I mean, of all the contagion and all the suffering, we're healthy as ever and we feel good. So we'll find out of the U.S. do you think?

Say again? What are your prospects here in the U.S.? Do you think? As far as states to launch, markets to launch, products to launch? Yeah. All the above? All of the above. Oh, we want to just continue to grow. You know, one of the things that differentiate strike, I said on the show last time there's Bitcoin and there's everything else. I've never touched an FTX collateral. I don't touch tokens that people print out of their basement and try and sell on foreign exchanges. We focus on Bitcoin. We focus on payments technology. We're extremely focused, extremely mission-based company. And it's benefited us. I mean, the rest of the industry has got loans outstanding, bankruptcy see filings, the SEC's going leaking over their shoulder, wondering if they broke every

which law. No one's bad. I mean, we've done everything the right way. And it's turned out a lot of the things I was saying four, five, six, ten years ago was right. So we feel good. And we're just going to continue to grow and swallow up all this opportunity. I think Bitcoin's probably the biggest invention that will happen during my lifetime, Kelly.

And we're a market leader there. And so we're going to keep going, keep our head down. I think, well, no strikes really arrived when he's in a, what, maybe a. be a, would he go as far as a business suit tie? He would at least, there'd be no closet. No, I don't see you wearing a tie, Jack. Hey, I'd do it for you guys. That's how much I love you. I do it for you. Jack, thank you, Jack Mallor's a strike. Up next, just a little over an hour left. And the final trading day of January, what a month it's been.

We'll take a look at some of the biggest winners and losers so far this year in today's three stock lunch. Welcome back, time for three stock lunch. It's the last trading day in January. So we've got some leaders in the laggard Peloton. Or I should say Peloton soaring more than 62% in January. Warner Brothers Discovery up 55% both on pace for the best months ever. And Northrop Grumman on pace for its worst months since February 2009. Quinn Tatro is here, founder and president of Jewel Financial. Quinn, it's great to see you.

Let's start with Peloton. What do you do with the stock here? Yeah, you sell it if you're long and you certainly don't buy any. I mean, a very strong bounce off the lows. But the reality is this company has a capital issue. Their debt to equity is six to one, and estimates are for a dollar loss this year. So they have a capital structure issue. You stay far away from this one. All right. Let's go to Warner Brothers Disco. What do you think? This is interesting. I originally marked it as a sell, and then I started doing some due diligence.

The tangible book value is 20 on this stock. So it's trading below that, which is attractive, despite its bounce. A lot of debt, but $2 billion in cash. So I think if you're looking for some place to start a new name, this is respectable area. I would nibble some shares here and then continue to see the turnaround story. They're going for profitability. And if they do, I think this stock goes higher. Wow. So more positive on Warner Brothers than on Peloton. What about a Northrop Grumman? It's surprising how poorly the stock has done this month. It is, Kelly. And I think this is the strong buy, down 20% year to date. This is what we call a monster compounder. Over the last 10 years, they've been able to compound their book value by 20% per year. They are trading at a modest valuation,

14 times EPS, a ton of cash and a healthy balance sheet. And this company has raised its dividend every year for the last 18 years. This is a great opportunity on this draw to pick up Northrop Grumman. Quick final thought on Peloton. They have a six to one debt to equity ratio. What were they borrowing all that money for? To do what? Yeah, probably those fancy ads that we saw during COVID, you know, stocking up inventory probably and then it just didn't sell. You know, it's a good question. But that's something that they're going to have to deal with here going forward. It's just too, too much debt. Yeah, too much debt. And then they went into brick and mortar stores as well, which I think they probably did not need to do some expensive real estate there.

All right, Quinn, thank you very much. Are you still using yours, by the way? I do. Four or five times a week. People absolutely do. They're loyal. All right, thanks for watching, Power Lunch, everybody.