Power Lunch - Flights & Flooding, and Retail Robbery 1/11/23

Episode Date: January 11, 2023

2 big messes are making headlines today: the entire U.S. air traffic system shut down due to a technology outage, while an ‘atmospheric river’ is causing widespread storms & flooding in California. We’ve got the latest details on both. Plus, thieves have been brazenly robbing retail stores, while employees apparently do nothing to stop them. And we’re seeing more and more companies addressing it in their earnings reports now. We’ll discuss this growing crisis with our retail insiders. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch. I'm Tyler Matheson, alongside Kelly Evans. Welcome to all of you. Coming up, two big messes to tell you about. Flights and flooding, the entire U.S. airport system shut down this morning because of a technology outage. And in California, a reprieve of sorts for now, but more storms, Kelly, are headed that way. Yes, Tyler. Plus, you've seen the viral videos. Thieves brazenly robbing stores while employees do nothing to stop them. Retailers are increasingly talking about this in their earnings reports. Much more on that with a couple of Retail Insiders. But first, a check on the markets with stocks in the green right now, the NASDAQ, once again leading the way up for a fourth straight day. And for more on what's moving the NASDAQ, let's bring in Christina, parts of nevelas. Christina.

Well, what's happening right now is risk on mode is back in favor as investors pile into meme stocks. Bed bath and beyond, surging. Look at that. Over 40%. Triggered by news, it would lay off more employees in an attempt to reduce costs and stay in business. GameStop, also climbing higher. the original meme star as well as AMC soaring above 15%. Other Tesla, well, other I should say NASDAQ movers, you got Tesla that said it would expand. It's EV factory in Texas,

which is a good sign for the entire industry, which is helping Lucid Motors climb higher, one of the biggest winners on the NASDAQ today. Other major NASDAQ winners, you got Atlassian, Airbnb, Amazon. Health names, though, the biggest laggard. It's intuitive surgical, guided lower, and so that stock is trending down.

And there was also some profit-taking in, like Moderna, AstraZeneca, after the recent JPMorgan Healthcare Conference. And there you go, guys. Yeah, that was certainly a talker. Christina, thank you so much. Let's get to the big story of the day now. A complete shutdown of the air travel system in America this morning. Flights are back in the air now after all domestic flight departures were halted.

Thousands of flights canceled or delayed, still trying to figure out what happened. Joining us now from Atlanta, Hartsfield-Jackson Airport is NBC News, Blaine Alexander. Blaine? Well, absolutely, you know, this is the world's busiest airport for a reason. And so when you do see some sort of disruption or interruption like we saw this morning, even though it's been hours now since flights have been back in the air, you're going to see the ripple effects here. And that's what we're seeing right now. About 760 flights or so are delayed out of Atlanta's Hartfield, Jackson International Airport. About 60 cancellations or so, we're talking about 36% of the total number of flights right now that are delayed. So this is something that when we've talked to passengers say, yes, there is of disruption. Some people were planning to get on flights this morning. They've now been rerouted to later this evening. But when you compare it to what we've seen, for instance, with Southwest during the travel season, certainly less disruptive than what we saw a couple of weeks ago. A couple of things that are important to point out is that the airport says you've just got to check with your individual airline. And that's one thing that the air carriers, that airports

around the country are really trying to stress to passengers. Go online to your air carriers app. Make sure that you know when your flight is leaving, your connection, make sure all of that's locked up. right now because we are seeing ripple effect, it's probably difficult to get through to your airlines by phone. So make sure that you actually check your departure times before you head to the airport guys. You mean more difficult than ever to get through to your airline by phone. It is never easy, Blaine, as we all well know. Blaine, Alexander, thank you very much. All right, for more now on the travel mess in the FAA meltdown. Let's bring in our panel. Leslie Joseph's covers airlines for

CNBC.com. Lee Care is a principal and head of security risk and resilience at the Chertoff group. also former chief of operations at the TSA. Leslie, let me start with you. What happened and why? Well, we don't know exactly what caused this outage. The Notams, those are messages that go to pilots. They're crucial.

They give you every kind of safety information from an icy runway to a crane that's up because a hotel is being constructed. And those go out to pilots before their flight. There could be dozens of them at a time. And that system failed. And because of that outage, the FAA ordered a halt of all departing flights, holding them at their origin. They lifted it fairly quickly around 9 o'clock in the morning. And because, you know, there are just a cascade of delays following that, it's not a very easy thing for

airlines to just kind of pick up where they left off. They don't want to overload airports. And now we're seeing about 7,000 delays throughout the U.S. Lee, are there underlying reasons why this could have happened? In other words, is the infrastructure that fragile? We've laid to rest, apparently for now, the possibility of some kind of cyber hack. So what is it that underpins this kind of system failure? Well, I can't really speak to the FAA system, but what I can say is that it really highlights the need for cybersecurity and redundancy in all of these systems throughout the aviation ecosystem.

They're all very integrated. Some of them are very old and antiquated, particularly some of the airline systems, like what we saw with Southwest Airlines. And so all those integrations between all of those systems make it really difficult to do a lot modernization that needs to happen. And you can see this happened on the slow day of the week, on a relatively slow week of the year, if this would have happened, you know, during the Wednesday before Thanksgiving or something like that, this could have had days of impact because of the, you know, just the magnitude of the impact when something like this happens.

Leslie, how long was the outage, roughly? A little under two hours. Wow. Yeah. That's a significant period of time for the earliest part of the day. It is. It's, you know, when airlines are starting to get going and we're seeing delays throughout the day, Southwest told us that they are proactively canceling some flights. They don't want what happened over the holidays to happen again. Yeah, they've gotten used to that. Yeah, sometimes it's a little bit easier to just kind of cancel the flights, get people in planes where they need to go and then kind of start over from there. But it is very minor, about under 10 percent. Yeah, I mentioned as well these possible reports on the wire that Canada system could be experiencing the same thing.

It's going to be hard to know in these early hours, but if there was something like a direct attack, an effort to, you know, identify this system. Again, I'm so unfamiliar with how this technology operates is to know whether this itself is more vulnerable than other parts of the FAA's operations. Well, it is a little hard to say because we don't know exactly what caused it. But think of like your own phone when your email fails and then you have to repopulate all of. of your emails. So even that on such a small scale, which is an individual person, takes a while. Imagine that in the busiest airspace in the world, essentially. You know, we have more than 5,000. Lee, are there other countries or parts of the world that do these kinds of integrations or have the kinds of technology that we really need, basically that do it better or have more up-to-date

technology than we do? I think we're on the same boat here where, you know, around the world, We have airlines, airports that all have varying systems, and they all have to be integrated with Customs and Border Protection and TSA and the FAA and other parties to handle baggage handling. So all those integrated systems, you know, give you a very large attack surface for something like a cybersecurity attack. And so, you know, you're only as good as your weakest link in any of those systems. And something like a ground stop here in the U.S. is going to have major impacts.

for example, for inbound aircraft coming into the United States, going into a Customs and Border Protection Facility. So it's all so connected, and that's why it's a difficult problem. Well, this was one of the interesting questions I was going to ask. Either of you jump at this, Leslie, why don't you go first? This only affected departing flights, as I understand it. So in other words, if I was in the air coming inbound to the United States from, say, Europe, I would have experienced nothing different. No, a ground stop really halts planes at their departure point. So that means that they can't take off.

They weren't doing like a 9-11 where they were essentially ordering planes out of the sky and having them land at the closest airport or land at their destination. So this was, the ground stop is solely departing flights. But there is kind of like a hangover effect to it because the airlines won't have places for those planes to park. So there were delays we saw in Atlanta, Boston, New York, pretty much all over. Dallas, Fort Worth, big American Airlines hub. Can't get to your gate. You sit on the tarmac for hours potentially.

Right, exactly. But it has seemed to starting to normalize a little bit. You know, we have delays hovering around 7,000 for the day. Yeah, still considerable. Lee, did you have preexisting concerns about the efficacy of this technology at the FAA? No, I actually don't have much information about the FAA. I think, you know, really it's about the integration of all the different systems there between the airline systems, the airport systems, cargo systems. You know, a lot of those particularly private systems operated by the airlines and airports, a lot of them have antiquated technology.

And they all have to be integrated together in order to work properly and to transfer people and baggage and cargo effectively and also send that information to the government, which needs it. So, you know, really, it's a, this was a wake-up call on a relatively slow day, so minimal impacts. But it's a wake-up call for what could happen for a cybersecurity attack on one of those systems. and the ripple that it could have throughout all the systems. Absolutely. Absolutely. Like you said, it could have been much worse depending on the timing of it as well. Leadcare are Leslie Josephs.

Thank you so much. Thank you. All righty, coming up, we have been debating all week the health of the consumer. Is the consumer strong enough to weather whatever economic storm may be on the horizon or is the consumer already feeling the pinch of higher prices and uncertainty?

We will ask a couple of retail veterans. Plus, we've seen a growing number of viral videos showing shoplifters taking the five-finger discount. Companies such as Target, Walgreens, even discussing the issue in earnings. Conference calls some big chains closing stores. How big an issue is theft for retailers? Power Lunch will be right back. Welcome back to Power Lunch, everybody.

Let's get to the other big disaster of the day. That would be flooding in California. We've got NBC News as Marissa Para joining us from Sonoma County. Marissa, what is the situation right now where you are? Well, as you can see, the rain coming down hard here. And we have been in the thick of it for the past few days across California. It's just been battered. You've seen it yourself the last 10 days.

It's been relentless. And so right now the focus in terms of the rainfall is further north in California, as opposed to maybe where we were around the Santa Cruz area. Now we're in Sonoma County. And what we're seeing, this is the Russian River behind me. And people who live around here, there are no strangers to seeing this river flood. But you can see just how high the water level is, that sign you can normally walk right up to it. This is normally a beach that people go to.

Obviously, the water is quite high. And what I can say is that there were concerns that this would flood to a level that would put people at risk to the degree that they had people evacuate from here. We actually just spoke with someone who lives in a trailer right next to us. And in fact, she and others that live around her had to evacuate their trailers because they were worried that this area would get flooded out. Now a big concern around here, the mudslides and the landslides, because you have to remember the wildfires that hit Sonoma County over the past few years have really left the land in a vulnerable spot. So when we talk about the cost of these storms, it's the rain and the wind, which causes the flooding, which causes trees that are waterlogged to fall onto houses and cars. But it's also the impact of the landslides, of the mudslides. I mean, this is really on every level.

When you just see the rainfall, you may not realize how catastrophic it can be for an area like this. It's really not equipped to handle it, especially after California has been through everything it's been through. Marissa, what does the forecast look like over, let's say, the next five days and is the most intense rain likely to be north of you as you move up toward Eureka, the Oregon border? So there's some good news and bad news here. Obviously, rain is still coming down. When we have been checking in with our meteorologists trying to keep up to date on the latest information, they do believe that the very worst in terms of rainfall is behind us, just in the sense that we're not expected to see the catastrophic level of rainfall that we have been seeing.

But that doesn't mean that that's not going to still put people around here in a place where we might still see landslides. We might still see mudslides. It's very much a real concern around here. So I guess there's some good and bad. Like we said, the Russian River isn't expected to get to the level that they were fearing it would get to, but that doesn't mean that we may not still see damage. And just real quick, we just learned within the hour, Sonoma County Sheriff's Office just released within the last hour that they found a body inside of a submerged car

about 10 minutes from where we're standing here. So we don't really know the full circumstances of how that happened. But clearly, the death toll, which we know was at least 17. as of yesterday continues to rise. And there's still that missing five-year-old boy from Paso Robles, which is further down south. They have not found him. He's been missing for several days.

They're still searching for him. The only thing they found is his shoe. Oh, my goodness. And I heard that he was actually in his mother's arms on his way to his first day of kindergarten after the holidays. Marissa, thank you very much. We appreciate your reporting.

To which topics now. Take a look at this video that's gone viral on Instagram and Apple store being robbed late last year, thieves grabbing display devices, while employees make no attempt to stop them, even chewing customers away. This problem isn't unique to Apple. Here's what Target CEO Brian Cornell said about theft during the company's earnings call in November. We've seen a significant increase in theft and organized retail crime across our business. As a result, we're making significant investments in training and technology that can deter theft and keep our guests and store team members safe.

But last week, Walgreens CFO saying, quote, we've put in incremental security. We probably put in too much and we might step back. He also said maybe we cried too much, though acknowledging theft or shrink in retail parlance is around 2 to 2.2 and a half percent of sales compared with 3.5 percent last year. Walgreens was at the center of the latest flare-up and concern about shoplifting. A 2021 New York Times article said Walgreens to close five stores in San Francisco citing organized shoplifting. Has shoplifting always been the case in retail? just the cost of doing business, or is it getting worse and more organized and cutting into retailer profits? Let's bring in Sandra Campos, former DVF CEO and a CNBC contributor, along with

Jerry Storch, the former CEO of Toys R Us and the CEO of Storch advisors. Welcome to you. Both, Sandra, I'll start with you. Is it worse now? It absolutely is worse. It's getting worse since the pandemic. We've seen shrink increase more than 50% since the beginning of the pandemic, and retailers are seeing more than 26% increase in organized crime. So it is definitely getting worse. You know, ultimately that is about a billion dollars of lost profits due to shrink. So, yes, the factors are pretty broad. That said, Jerry Walgreens is representing that perhaps the cost of trying to prevent the theft was worse than the theft itself.

They've put a lot of merchandise in certain areas behind big plastic locked up cases or glass cases and what have you. It's actually led to people buying fewer products. So how do they figure out how to strike the right back? balance. Well, that's tough. You know, it's been a problem for a long time because if you lock the products up too much, consumers can't even get them. And so after a while, it's basically like you put them behind bars and so you can't sell them. But ultimately, the solution has to be to do something about the online marketplaces, because that's what's really driving this, is the ability for organized crime to easily fence the goods through these rapidly growing

e-commerce marketplaces. That's what's changed in the world. That's the difference. from what was like 10 years ago. That's what I was going to ask you, Sandra. How much of this is driven by electronic, sort of the Internet? In other words, the thieves come in. They take dozens of iPhones off the shelves, and then they are able to put them up on some marketplace and sell them for cash, which is what they really want.

Is that what driving this? Yes, and theft has become a business. You know, I call them theftpreneurs, because ultimately we've had supply chain shortages. Those have enabled a lot of the shoplifters to sell those stolen goods on third party marketplace. So whether it's eBay, Amazon, and others, they're making a premium.

So absolutely, that's a huge part of it, I think, is about 37% of this external theft came from organized shoplifting heists. Sandra, what would you do now, so kind of facing this new normal if that's what it is? And maybe it's not a new normal. Listen, these problems emerged over the last couple of years if we see leadership changes in cities like San Francisco,

perhaps we can come to grips with them. If not, what is your advice to retailers? What should they do here? Should they just take the losses, try to combat them, organize their stores differently, emphasize e-commerce? What do you think they should do? Well, there's not one magic solution. So it's going to have to be a combination.

In my mind, it's going to have to be a combination of efforts. And, you know, we also can't talk about shrink without seeing the correlation between the growth of e-commerce, labor shortages at retail, which has absolutely impacted this, and the inflationary impact on the economy overall. So a combination of all the different efforts, you know, you're seeing, as you talked about before, doubling up on security efforts, product behind plastic so that you can't get to it and being locked up, a variety of different things. There's a lot of technology that's coming into play that is definitely being used from a return standpoint. You know, returns have gotten higher because we've had an increase in e-commerce business.

So as we continue to get bigger returns and those returns go back into stores as well, there's got to be some efforts that are made where hopefully some of those technology that's being implemented now is going to help that and help offset that. The second part of it, I would say just in terms of reserves, retailers are definitely going to be implementing new and additional reserves because, as you mentioned before, two and a half to three percent shrink is a new norm. And it's not one and one and a half percent any longer. Jerry, the urban myth, I suppose, is that law enforcement and prosecutors have taken a very different approach to what we call shoplifting. And in some cases, aren't going to try and apprehend the perpetrators or to prosecute them unless, say, more than $1,000 worth of goods is involved. How much is lax law enforcement contributing to an environment where brazen thieves feel, I'm going to get away with this. The cops don't care. The prosecutors aren't coming after me.

That's certainly part of it. But ultimately, if you don't cut it off, you know, at the payout, you're not going to solve it. And so the real solution will only happen again when there's something done about the marketplaces. Some people want to make the marketplaces liable. You know, people say, look, Amazon, you've got to control these things. Go on Amazon, go on eBay, go in any of the marketplaces. You see vast assortments of the private labels of retailers. And I can promise you they're not selling that to them. So it's very clear these are stolen products. In the old days, this existed, but it was at flea markets.

You have to go to the physical flea market to buy. You can't sell nearly as many goods at a physical flea market as you can at the e-commerce flea market. So if you don't cut it off there, it's never going to go away and it's going to keep going to keep growing. And ultimately, we all pay the price, higher prices. And unfortunately, stores in a lot of these high shrink areas are closing and more will close, creating kind of retail deserts, which are undesirable for everyone.

Jerry, you also raise at a time when the president is writing about the need to go after big tech for being dangerous to society, you raise one from the brick and mortar point of view. Is Amazon enabling a lot of the shoplifting? Or is that narrative compelling enough that it at least will require some kind of response? And I don't know what that response might look like, but is that something that you think perhaps Amazon investors would want to think about here? it. Well, I don't know about the investors, but I'll tell you, I know that the industry is thinking about it. And it's, you know, there's an allied area, which is, you know, fakes, counterfeits that are sold in these marketplaces as well. And so the real general thing, if you take this up a level,

is are these marketplaces responsible business places, or can they just say, it's not our problem? Anyone comes to sell something? We're open for business. We don't care where it came from. We don't care if it's real or not. You know, that doesn't seem. like that's going to be sustainable going forward. Right. All right, folks, thank you very much. Sandra Campos, Jerry Storch. We appreciate your time today.

Thank you for enlightening us. All right. Still to come. 2022 was a record year for dividend payouts. And despite all the anxiety and uncertainty spiraling around the market today, many investors are expecting another record year. We will discuss dividends and more when power lunch return.

Welcome back. I'm Christina Pardsnevless. And here's your CBC News Update at this hour. Ukrainian forces says they're holding out against Russian attacks in one of the fiercest ground battles of the war. Newly released video shows Ukrainian troops firing upon Russian soldiers. The fighting is happening in the eastern town of Soledare. A Russian victory there would mark the first capture of a key Ukrainian town or city in months. Electric vehicles have won two out of the three categories for best autos of the year

in this year's North American car and truck and utility awards. The Ford F-150 Lightning was chosen as best truck, while Kia's EV6 was named Top SUV. The lone gas-powered winner was the Accura Integra that also won Car of the Year. And this is a good story, guys. No, the Mega Millions Jackpot is not $13.5 billion. A billboard mistaken Philadelphia shifted the decimal point, so the sign showed a grand price 10 times bigger than it actually was, or is, I should say, the real $1.35 billion jackpot is still big enough to be the fourth largest in U.S. lottery history.

I'll take any of that. Yeah, it's getting confusing. I don't blame them. They're so big these days. You lose all sense of proportion. Christina, thank you very much, Christina Parts in EPLUS. An update on today's air traffic troubles. Now Canada's air traffic controller says their no-tam system has been restored.

We reported earlier last hour that there was first reporting about the same kind of outage experienced here in the U.S. They're now saying it's been restored. All righty ahead on power lunch, the long and short of it. Our next guest says being only long in this market is a huge mistake. That guest will share some long and some short picks next. And as we head to break, check out DoorDash. The stock's surging more than 7%.

We'll trade that name in today's three stock lunch and we'll bring food as well. Welcome back, everybody. Just 90 minutes left in this trading day. Let's get caught up across the market. markets on stocks, bonds, commodities, and what the Fed needs to do so that these markets can sustainably rally. Let's start with where stocks are at the moment. Dow's pretty much at session highs up 184, green across the board, half a percent for the Dow percent for the S&P percent and a quarter for the NASDAQ. Once again, the best performer, Amazon, Google and Apple among the names

seeing nice gains again today. Amazon spiking nearly 5 percent, up 10 percent this week. Consumer discretionary also heading higher, Victoria's Secret rising on its fourth quarter guidance. continuing its strong recent rally, Pool Corp, upgraded by Deutsche Bank, pool shares of 12% this week. And the bond market, Rick Santelli, tracking the action there. Strong 10-year auction speaks to the demand for this yield wreck. Yeah, you know, you're showing a bunch of strong stocks. We see strong pricing, pushing yields down, and all pretty much for the same reason, that we're all expecting tomorrow's CPI to continue to confirm what we all have witnessed along the way,

and that is prices are moving lower. Here's a complete year-to-date chart of two-year note yields. And you can see, we haven't even jumped back into the range that we vacated on the employment report. And if you look at the high water mark, well, it was early November, just shy of four and three quarters, which means we're 50 basis points down from the high water mark, the high yield close on two-year.

And if you look to 10-year, which had its high water mark, its highest yield, October 24th, just shy of four and a quarter, It's 70 basis points below that. The market is speaking, and the more the Fed protests, the more we see the curve invert. There it is. Now, if you look at the last six sessions of three months to tenure, six sessions, we've more than doubled the inversion. It went from a high of minus 46 to its current level at minus 112, a historic move by any measure. And tomorrow, what we want to pay closest attention to in my book will be the year-over-year core.

And if it doesn't have a six handle, if it has a five-handle, as we talked about last hour, Kelly, I think it just puts the rubber stamp of approval on all the markets we're discussing. Back to you. I get a pit in my stomach looking at that chart. I can't believe that move in just a few days' time, Rick, thank you. Let's move to oil now with a gain of nearly 3% on the day. Pippa Stevens has the latest. Pippa?

Hey, Kelly. Oil is jumping today alongside Pee. basically everything else. This is despite inventory rising by 19 million barrels last week. The street had expected an increase thanks to refinery shutdowns on the Gulf Coast during bad weather, but the build was larger than forecast. Turning to Nat Gas, Henry Hubb prices sinking to the lowest level since June 2021 before going positive just now. But we do continue to see elevated prices in certain areas, including California. In SoCal, spot prices are off their highs, but still around 20 bucks per MMBTU. According to S&P global market intelligence,

that's nearly six times greater than the national average. Meantime, two notable movers on the clean energy side today. German solar inverter maker SMA jumping after Jeffreys upgraded the stock to buy based on strong order momentum. Lithium company liven also higher following a double upgrade from underperform to buy at Bank of America. Kelly. That's an attention grabber.

Pippa thanks. stocks hired this week, even as Fed officials continue to talk tough on inflation. Can stocks rally while the Fed is still raising rates? Let's ask Peter Anderson, the chief investment officer at Anderson Capital Management. Peter, welcome. And when do you become – maybe you are bullish on stocks here or when do you become more so? Well, I think the plan for 2023 is the Fed will start easing – I mean, well, not he's a raise, but lowering the heights of which he's –

raises rates, so maybe 25 basis points and then the next 25 basis points. After that, Kelly, I don't expect the Fed to make any material statement that they're going to cut, but if they just pause, that will be a tremendous catalyst, especially for tech companies this year to rally. And so that's what I'm looking forward to. I think by six months into this year, we will start to see that. Are you not troubled by increasing recession talk that we're hearing from CEOs and economists, particularly for the second half of the year? I'm not, Tyler, because I don't think there is going to be recession.

And even if there is one, I think it will be very, very thin and very short lasting. And I think we have to look beyond that. And the most difficult thing, I think, for all investors right now, is we're recovering from last year, which we all got our pants kicked. And now we have to figure out where it's headed this year. And I do think the Fed has done a very, very good job. It has been less than a year that they've been raising rates. And so by a year, I would say March of this year, we will start to really see the successful impacts of their campaign.

Hasn't the market really been rallying since October? Well, not in my book. I mean, I've had a tough year last year. You know, I run a concentrated portfolio, only 14 stocks long. I have introduced the concept of shorting stocks, which has helped things. But in my eyes, I would say we have been really, really held back, especially on the growth stocks. But we do see little hints, you know, such as today or the past couple of days when people are starting to actually adapt to the narrative that the Fed might actually slow down on these hikes. Peter, not a side note, I don't know, but Zillow is one of the stocks that you're short,

which is having this big ripping week on it. It got to double upgrade the other day we spoke with that analyst, but you think it's fundamentally flawed. I do, Kelly. And let me tell you, you know, there's all kinds of explanations about their so-called zestimate, which is their algorithmic approximation of how houses are worked. And hats off to them, you know, it's actually a verb now. You can say I zillowed my neighbor's house to get a sense of what the market valuation is.

And they brag about all kinds of neural networks and artificial intelligence analysis for this. And I have to tell you, I did something extremely simple to test this. I went on the site, on the web. I googled my own house. And do you know you can log in to your own house and change those parameters to be anything you want? For instance, if you have a three-bedroom house, maybe you want to enlarge it to 15-bedrooms. So you can actually put false data into that database, and that goes into their Zestimate. You're going to break my wife's heart when you say this because one of her favorite pastimes is to drive around Kelly's neighborhood, say, and do the Zestimate on all the houses.

We're each tracking each other. I'm very curious because I do remember that you run a concentrated portfolio. You say 14 stocks. What is your single largest holding? How long have you held it? And why is it in that favored position? Well, you know, I never trim either. So I put in a position, Tyler, and then I let it run its course.

Unless, of course, there are new pieces of information, new facts that come out that would cause me to change my opinion on that stock. So my largest holding right now is United Rental Equipment. I mean, I've talked about this before on this show, and I've been a long-term holder for that stock. I don't expect to trade it to sell it because it has been so successful, and the data coming along with United Rentals is very, very positive. Even in the spite of all this stuff we've gone through, the past two years of COVID, et cetera, they have an excellent track record of rolling up. How big a percentage of your portfolio is it quickly? It's over six. It's six to seven percent right now. So you can imagine, you know, any one of these stocks is usually three to five, six percent. So they have a tremendous impact on the performance. But that's when the high conviction comes in, right? Yep. Love it. Peter Anderson. As always, great to see you, sir. You're welcome.

2022 may have been a bad year for stocks, a bad year for bonds, but it was a good year for dividends besides energy utilities led the way with serious payouts, but with treasuries now paying out some. Higher yields are utilities last year's cupcakes. Welcome back to Power Lunch. When times get tough, the tough go shopping for dividends. The safety strategy would have worked pretty well in 2022, but what about now? Bob Bassani checks out the landscape for us. Bob, what do you see? We're going into earnings season and everybody wants to know a little story on the side. Our dividends going to hit another record. 2022 was an all-time record.

We had almost $600 billion in dividends paid out in the S&P. was up 10% from 2021. Why is that happening? We had very strong cash flows. That's the key to dividends, and the margins are still high. So is it going to continue in 2023? Well, the dividend yield is 1.8% roughly on the S&P 500. Has been going up recently.

Investors have been throwing money into these dividend-paying ETFs. Here's one of them, NOBL. This is the aristocrats. It has a history of buying companies that increase their dividends every year, not high yield, but increasing the dividend. And they're not utilities. companies like Procter & Gamble, Afflack, even Caterpillar are in this. That's the orange line there.

Dramatically outperform the S&P 500 last year by about 10 percentage points. Now, I know what you're saying. Oh, it's boring. Dividend investing is boring. It's actually a very important component of the overall investing profile. So look here, going back almost 100 years, the average yearly return of the S&P is 10.2%. Total return. The dividend, as a percentage of that 10.2%, it's 39%.

Why is that happening? Why is it so high? Because most people reinvest the dividends, even at two or three percent a year. That compounds. The magic of compounding returns increases it. And Kelly, and Tyler, there's nothing like compounded interest. As you know, the question, of course, for 2022 is that cash flow and whether that's going to remain strong. So far, the indication is that it will. Tyler, back to you. All right, Bob, thank you very much. One sector featured heavily in that dividend conversation utilities. They are up four percent over the past. year joining you energy, excuse me, as the only positive sector in that time frame. But as interest rates rise are the high dividend-paying company still an attractive buy. Let's hear from Sophie Carp, utilities analysts at Keybank. Sophie, last year was kind of a tale of two markets, a good first start to the year, but then things the punch ball got pulled away there sort of at the end of the third quarter into the fourth. Was that the beginning of the end of the rally for utilities? And are we in a different phase now?

Hi, thanks for having me. And yes, I think that it is the beginning of the end. And I think that utilities are expensive, right, at this juncture. The sector has performed exactly as you would expect a defensive sector to perform in the market like what we had last year. On average, the youths are expensive. The index is straightened at 2.8 times premium to the S&P 500, which is very high by historical standards.

And we think the reversion to the mean is inevitable here, particularly with the rates rising and the sector also being expensive compared to, you know, treasury yields and other interest rates metrics. Are there still some selective buys in the sector that you would point us to? Absolutely. I think what you're going to focus on in the sector right now is the unloved, underowned names that maybe have dealt already with a bunch of overhangs and have positive near-term catalysts. For example, I think first energy deserves a close look here.

This is in a high utility. It's a company that first made significant progress, resolving regulatory issues in Ohio, in getting their house in order in recent years. Secondly, we expect the new CEO announcement and the sale of a minority stake in one of the assets announced in Q1 of this year, so it's pretty imminent. We expect this to be a positive catalyst for them. And lastly, it fits the bill as an unlawed on their own value name. It trades at a discount to peers and has above average dividend payout here, and dividend yield.

So I think that's an example of a name. that you want to focus on going into this type of market. But to be clear, Sophie, someone who's sitting at home and saying, you know, I'm a little concerned about the market this year, let me buy a utilities ETF just to be safe. You think that would be mistaken? I think so. I think that that trade has run its course. What we see in the market, Kelly, is that the utilities do well when the anticipation of a recession

environment begin to build. We are over the hump here. The utilities have already done well. And so what we will anticipate is that the same. sector will revert to the mean and will trade more closely to its historical metric, which is in line with SNP 500, right? It's opposed to almost returns premium. In fact, we have not seen such premium of utilities to SNP 550 since 2004.

Wow. So I think if you want to buy something that's safe, and you think that's utilities, you're probably too late to this. You missed the vote on that. Sophie, thank you. She makes a great argument, Ty. And I love people who don't come on and just always talk, up the thing that they know best.

Their own bet. Totally. I love it. Sophie, great information. Thank you so much. Sophie Car. Coming up, more data. Denim and delivery. We'll trade some of the biggest movers and calls of the day. Three Stock Lunch is next. Welcome back. It's time for three stock lunch. Today we're sipping on some of the big movers today

like Salesforce lower after a downgrade to underperform on Bernstein, citing, citing growth concerns. Levi, the denim maker, falling at City. They downgrade its shares to neutral on denim issues and shares of beaten down DoorDash, which are rising along with some other growth-oriented names today. In fact, on page for their best day since November. Here to help us trade them all as Scott Nations. He's founder and CEO of Nations indexes. Scott, welcome. Let's start with Salesforce. Strange one lately, volatile.

Yeah, but it's a buy. Downgrade from Bernstein because they expect that recently announced layoffs are going to pressure revenue, but they also admit that it's going to do wonderful things for margins. I consider that a lot. I think what they produce, their business is going to be absolutely critical while the labor market is still tight. And we may be interesting entering a golden age for customer service. And analysts expect revenues to increase by 10% over each of the next three years. They expect EPS to increase by well more than 10% in 24 and 25. Forward P.E. of 26.3 means it's not cheap, but you're getting the growth that you're paying.

for. So it's a buy. Let's move on to number two, which is Levi Strauss, Scott. Tyler, this is a buy as well. It's down about 2%, actually 2 and a half percent today on the city. Downgrade, they're worried about the whole denim space. I would agree if we were headed into the office for four or five days a week, but that's not going to happen anytime soon. Levi's is the Coca-Cola of the apparel space, and people have been forecasting the demise of sugary. soft drinks and denim clothes for years and years and years hasn't happened yet. Three percent dividend yield, which is really nice, very little debt, just more than $2 billion in debt forward PE of 12 and a half. So this is a wonderful value point.

All right. Then that brings us to DoorDash. Again, kind of a countertrend revival story today. Would you buy it? No, this is a sell. Even though it's up a bunch today, we'll call it a dead cap bounce. I hate these businesses that get between consumers and the ultimate provider. Growth is slowing. And in fact, last week they got a downgrade because of recession fears. Insane PE of 279, which makes no sense in a business that's showing slowing growth. Revenue, even in 2024, is expected to still be less than $10 billion. EPS is growing a bunch, but it's growing from zero, so that doesn't mean very much. Everybody's talking about gig workers.

Well, that's wonderful. That means you have a bunch of employees for Uber Eats and DoorDash, but it doesn't mean you have a whole bunch of customers. Long as the, you don't break our hearts. Scott, what are we going to do in the Burbs? Wait, wonder those vans are going away. DoorDash, what are we going to be left with? Well, you know, it's a really old-fashioned business.

Pizzerias have been doing this for decades delivering food. I don't know why we consider this. We want more than pizza. To be a tech name. How am I going to get sushi? Well, I'm sorry. I don't think sushi is the sort of thing you should be ordering out eating at home. The answer is you'll just have to pay more, Kelly, if you really want it.

Go get it on your own. Go pick it up yourself. I don't even use it that much. That's why I joke, Ty. It takes forever. It's expensive. It makes a modestly priced meal, a not modestly priced meal. I'll have to say that.

Scott, thank you very much. Scott Nations, slamming on DoorDash. Slamming the DoorDash. We're going to take a look at a key component of the CPI. We're going to put that one under the microscope in just a moment. All right, tomorrow's CPI report is the big number to watch on Wall Street this week. Dom Chu putting one component of it under the microscope, sir. One that you both have spent a good amount of time on over the last couple of years,

and that's used car prices because of what we've seen. the supply chain and everything else. So earlier this week, the Mannheim used car vehicle index, which is what a lot of folks use to gauge the health or this kind of the indexing ability for prices and used cars, came out. And what you're seeing on the screen right there is a massive move higher over the last several years, right? We know this. Use car prices have surge. They are way higher than they were before the pandemic started. But if you key on that right hand side, you see that kind of drop that you're seeing on the right hand, that tail, that represents between December of last year and December.

of this year, this past year, a nearly 15% drop in the price of used cars. Now, in the, I'm showing you the long term because I want you to put it in context. I don't think people realize just how much we went up. Fifteen percent is a lot, all right? And what it does represent is the biggest annual decrease ever in used car prices, according to the Mannheim used vehicle index. The reason why I want to highlight it is because it is one component of the CPI. And as of December 2021, new and used vehicle prices, which includes new purchases, used purchase, and leased cars, represents a little over 9% of the consumer price index. Use cars make up about half of that amount.

It's a little over 4% there. So if you factor in new car prices, which are still holding up relatively, used car prices, which are plunging, and then leased car prices, which are also part of it as well, you have a picture of one component of that CPI that could be in play for tomorrow. Now, the reason why we also bring it up is because I want to show you what's been driving some of the downside pressure in used vehicle prices. If you look at some of the things like crossover and SUVs, mid-sized cars, luxury cars, they're down anywhere from around 15 to 17% in terms of year-over-year declines. The ones that have seen the least declines are in vans and pickup trucks, correct, which are down about 12% during that span. So it's not any shock to people who've owned trucks over the years in vans.

tend to hold up relatively well in terms of value compared to other parts. When you look back at the fall of 2021, there was such a dearth of inventory of new cars. Everybody was pushed into used cars, pushed the prices up. Tom, thank you very much. And thank you very much for watching Power Lunch.