Power Lunch - GOP Tax Plan, The Best Trades in Housing 11/21/24

Episode Date: November 21, 2024

CNBC’s Tyler Mathisen and Kelly Evans take you through the heart of the business day bringing you the latest developments and instant analysis on the stocks and stories driving the day’s agenda. ���Power Lunch” delves into the economy, markets, politics, real estate, media, technology and more. The show sits at the intersection of power and money. “Power Lunch” gives viewers a full plate of CNBC’s award-winning business news coverage, plus a healthy dose of personality from the show’s anchors and the network’s top-notch roster of reporters and digital journalists. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch, everybody. Alongside Kelly Evans, I'm Tyler Matheson. Welcome. Markets are moving higher this afternoon. The Dow up 500 points, thanks in large part to Salesforce and Goldman Sachs. And Invidia has now turned positive following its earnings out yesterday. But we're looking ahead at the next challenges the company faces as it tries to continue to clear ever higher expectations. A good report. We'll see what's next for this one. Even a 1% sell off. I mean, you've got to say they basically did it. Given how big this company is, you know, how high the expectations. expectations really are a lot riding on it. And you could say they delivered, but we'll get into that in a moment.

We're going to focus on Nvidia and the companies in its orbit. Everyone's also talking about Bitcoin 100K, which could happen at any moment now. Although we did have a little bit of a sell-the-news event. When we found out Tyler that Gary Gensler will for sure be stepping down on Jan 20th. So 98,000 and change. That was a sell-the-news, I guess. You know, you would say, oh, for sure, it's going to hit 100 on that. Well, I think a lot of that speculation had been built into its performance already. And maybe the ultimate sign of frothiness, a crypto entrepreneur, bought the banana duct tape to a wall for $6 million. They call this art. This is certainly the most expensively priced banana ever. You know, you can be provocative, you can be memorable, you can be, you can have a bragging point. You can be foolish.

You can be a lot of things with a banana and duct tape. Well, Robert Frank will break it all down. There you go. We also have some breaking news this afternoon. Matt Gates has officially. withdrawn from consideration for attorney general, saying he did not want to be a distraction. All right. Well, that distraction goes away after he toured, I guess, Capitol Hill yesterday and got some feedback from some of the senators. But out goes Mr. Gates for now.

And the reason why the market is paying so much attention to this is because for other more controversial nominees, like an RFK at HHS, who's been moving those stocks much more, trying to kind of game out the odds of those nominations passing or not. So him taking himself out of the running, you could say either makes it a little bit harder for some of those candidates to go through or easy. I don't know, but you did see the market rise a little bit in the kind of as that news was digesting. All right, let's turn back now to Invidia. The stock has turned higher, but still off the record high, just shy of $153 a share. It hit right after the opening bell. Christina Ports and Avalis joins us now for a look at the next big challenges Nvidia faces. Christina, welcome, welcome back.

Thank you. Very good. If you had to sum up the report yesterday and look ahead to the challenges that this company may face, what would you say they are? Successful, but that success is their own, I guess, not demise, but a hurdle for the near term. And I say that because investors just really need to get used to the idea that the plan release of new AI chips every single year, that's the annual cadence, could lead to inevitable bumpiness in its results. And it's not about finding the buyers, it's about ramping up production. So each Blackwell system, these are the latest GPUs, requires custom chips, making the

integration of all of those systems, quote, nothing short of a miracle, according to CEO Jensen Wong on the call yesterday and needing, quote, almost every company in the world for its supply chain. So there's so much focus on these black whale chips right now, too, that gaming chips have had to take a backseat creating a short supply. But CFO Colette Cress said yesterday on the call, we'll be back on track with more supplies. We turn the corner into the new calendar year. But let's talk about the earnings call. Both the CEO and CFO emphasize that the rollout and of these breakthrough Blackwell chips are on track that sales would be limited over the next few quarters because of these.

Supply. You can't keep up. But not them. Think of all the suppliers that they're using. The suppliers were feeding into the ecosystem. Even last quarter, TSM, these are very complex designs. And so they have a little snaguer with the yield. Things slowed down.

But they already went from zero to guiding over a few billion dollars for Blackwell next quarter. Gross margins. Also taking a hit. Why? Because it's so expensive to create said chips. and so that increases production costs, hurts the margins, but that should pick up after the April quarter. The growth narrative, though, the entire thing to start full circle,

remains intact, which is why you have so many bullish calls on this company. And Vindia's CEO, though, if you're wondering about any type of catalysts for the stock because it's been moving sideways for the last several months, and you're like, wow, should I even get in at this point? Well, you have December 2nd to 6th AWS event. I say that because there can be seen as a competitor with their own chips. Then you have CEO speaking at CES as well as UBS, and we should get some Blackwell commentary.

too at those events. You educated me a moment ago about a term of art called annual cadence, and that basically means that the company will be bringing out new chips on an annual basis. Chips or products that would go within the system, like the Blackwell family. What is the advantage and the disadvantage of that? What is the risk there? The advantage is you get them hooked, right, the ecosystem. The like, the greatest comparison is Apple phones, right? You get the Apple Mac when I was younger had everything Apple. But do you get people waiting to buy until the new one comes out? Yes, so then you have this transition period, which is kind of what we're going through right now.

from the Hopper family to the Blackwell family. So one set of products... The hoppers in the Blackwells. It's like a feud. An Italian feud or something. I don't know. But that transition will happen every single year. And so it's great because they're hooking everyone onto their products

and they provide not only the chips but the networking, all of the switches, the software. But at one point, there has to be a wall, right? How often are we going to continuously buy the next iteration? And then if I were Jensen Wong and we know his response would be, well, there's $2 trillion of old data centers that need to be renovated, or not renovated, but upgraded. So there's still such an opportunity for such a long amount of time that they could be first in the game for quite a while. All right. Let's have you stay with us and explore a little more about what's next for Nvidia. City out with a new note today initiating a positive catalyst watch.

Oh, I like that kind of language. On the stock leading up to the CES tech event in January, you mentioned a moment ago, where Wong Jensen, that would be, is set to deliver a keynote speech, potentially a time to reveal its next generation of chips for more on the next catalysts and challenges for NVIDIA. Joining us is Daniel Newman of Futurum Group. He's the CEO there. Daniel, what do you say? I'm sure, Christina, you have some reactions to what she said about what the next challenge may be for this very, very successful company.

Yeah, the only result, Tyler, that was going to be acceptable was beyond perfect. They beat on every number. they beat on the guide. Now, of course, those beats on the guide have gotten smaller, but you've got to look at the law of large numbers here. The execution has been fantastic. There was more smoke than fire when it came to the overheating. And the company is directionally in a very sound place. It was a tidy quarter. It was well executed. And, you know, we're really up against this next era of generational upgrades. So you heard Christina to talk about annual cadences. This isn't exactly like an iPhone moment because you're talking about

asking, you know, Microsoft, Google, Amazon to spend 50, 60 billion dollars continuously and continuously year over year to continue to upgrade. But there's an element of FOMO here. These companies have to stay up to date. They have to have the most advanced technology if they want to be competitive in these next eras of agenetic and generative AI capabilities. Daniel, can you just talk for a moment about the opportunities with the inferencing piece of this that Shreeny, our analyst last hour, said, listen, most people are still focused on data center and on the chips themselves. But what if, is it Hopper, is it called? What if this inferencing business becomes larger? Well, inferencing has been one of the things that many

people said, oh, invidia, that's not invidia, or that's the small part. They're the training company, but they're actually the largest provider of inference now. And inference is that workload that everyone talks about when you're doing these tokens, when you're using these generative tools. When you hear about these agentic workloads, that's the inference side. That's the ability for it to generate text or generate a video. And so all of these massive data centers that are being built out with Nvidia are powerful to not just train these future models, but to deliver inference. And these workloads are what's going to revolutionize things like enterprise apps. I mean, we are at the end of the era of SaaS as we know it. And some people see it and some people

don't. Well, we're all glancing at each other because even people, That's a controversial sort of thesis in the market. And we had the software stocks initially sell off hard, obviously. They may, you know, even look at Snowflake today. So some of them, they, I don't know if that's exactly, don't, all that you guys know this business better than me. Is there a future for a Salesforce, you know, for these highly competitive businesses? Or it sounds like you're saying not so much.

Well, Kelly, what you're seeing is there's an opportunity for a pivot. So these companies are making really big pivots. You've heard about agent force. I spent time this week with Satya Nadella. You look at how they're rethinking about the, UI. I mean, we are in an era where an application will be generated right before our eyes. You'll be able to point an application that all this data and all this powerful compute than Nvidia and that these other companies, AMD, you know, of course Microsoft and Amazon, they're building their own, but this

compute power will allow an application to be generated right before our eyes. It'll know what data to be looking at. It'll be able to create something very personalized. This is that 2.0 era of AI that Jensen Huang is talking about. So the app companies are going to have to evolve. We still need it. We still need this data fabric from companies like Snowflake. But the app ecosystem, nobody really loves using their business application. We use it because we have to. But the data there is really important. And having that data being accessible and then utilized in a way that's meaningful and they can generate actions through agents, that's the really exciting future. So these companies will either have to evolve or we will see new companies rise. Christina, let me get you.

to tie things off. If I heard Daniel correctly, and I'm famous for hearing people incorrect, he seemed to me to say, you know, the question is, can the big companies like the Microsofts and others continue to spend at the $50, $60 billion run rate that they're doing right now, or can they afford not to? They can eventually afford not to. They're going to realize and look at the ROI. At some point, they have to stop, right? So many of them have been increasing right now with this latest report, 50% of data center revenues came from cloud service providers. So that's great. It's driving so much demand for Nvidia, but at some point, these large, very wealthy companies are going to, you know, break off from Nvidia.

And so that is a concern in the long term, especially when they're spending so much now to be the first. And you had Jensen Wong talk about delivering these chips already, and these are, you know, beginning chips. It's, it's, there's a wall at one point when everybody wants to be that ecosystem within themselves and not have to rely. on the big player like NVIDIA, which is why NVIDIA is trying to diversify. It's important. We don't talk about it enough, but networking, the gaming, all of those other avenues, Kuda, software, are ways for NVIDIA to keep its stronghold on customers and keep that first mover advantage. Fantastic conversation.

Good to have you back, Christina, Harton-Evelace. And Daniel Newman, thank you, my friend. Good to have you here. Thank you. Still to come, that initial decline in NVIDIA gave investors a pause just for a moment, but only the briefest of moments. The Dow is now up 510 points as it marches higher by 1%. today, the NASDAV-Granted is barely positive. Has the tech trade grown stronger than

Nvidia alone? And where does the expanding crypto-crypto trade fit in? We'll discuss that next. Plus, as we had to break, here's a quick power check. On the plus side of the S&P today's Super Micro, here it is again, swinging back from yesterday's declines up 15%. On the negative side, it's alphabet. The DOJ says it's pushing for Google to break off its Chrome browser. Those shares are down 6% and we'll have much more in free stock lunch coming up. Welcome back to Power Lunch. Of course, we're watching Bitcoin to see if it'll cross $100,000. Right now, it's around 988 and continuing to generate a lot of interest on Wall Street. Invidia, as I should say, is there too much enthusiasm in just a small area of the market or not?

Our next guest says investors should expand their portfolios beyond big tech and speculative assets. He's talking energy, utilities, and financials. Sounds reasonable. Adil Zamand is partner at Wall Street Alliance Group. But it's kind of fun to be where the innovation is, too. People want to be where the big gains can be made, the transformational wealth-building gains and not just picking away at these energy stocks or whatever. Yeah, they sound boring, right?

So I think that really a lot of investors are not diversified because even if you're investing in the S&P 500, you're not diversified. You're more than 40% in tech. So I think we've started seeing this since July 10th, that the NASDAQ has been underperforming the broader markets and severely sectors like utilities, financials, and energy. So I think investors should really focus right now in this environment to broaden their exposure

into those sectors. If I am an indexer, and as you point out, if I do an S&P 500 fund, I'm 40% in technology, should I do an equal weighted index as opposed to a cap-weighted one? I think that would be a better approach, because if you're doing, if you're just putting all your money in the S&P 500, you're more than 40% in tech. And, you know, if the tech sector takes a pullback, you're very susceptible to major drawdowns. So really, it makes sense to cautiously to improve the breadth in the portfolio so that when the market does come down, you have protection. Should I, as sticking with that theme, should I eschew an S&P 500 fund entirely and go for something like a Schwab 1000 or a Wilshire 2000 or something that's even broader and has some small caps?

A lot of people are very critical of small caps. They don't think they're going to do anything. We keep hearing, oh, the year of small caps is coming. Well, it's been coming for 30 years. It hasn't been here. What do you say to that? Well, what I would say is that I think that you could, we feel that the error has come for more active management.

So you should look at some individual stocks to improve the risk-adjusted returns of your portfolio and look at other areas of the market that are relatively undervalued. So, for example, if you look at the banks, right, this sector is going to benefit from lower rates, more investment banking activity. And deregulation? Deregulation, steepening yield curve, so lending is going to be more profitable.

So if you look at a bank like Goldman Sachs, not only do the benefit from greater investment banking activities, but if you look at the asset and wealth management division, has over $3 trillion in assets, which is only going to grow as the market goes up. So adding some type of exposure there and these type of companies would make sense. Where else? Do you think we should be looking undervalued parts of the market? What else do you like? We do like utilities a lot.

We've spoken about it on the show before. But I think with this Trump administration coming, there's going to be more investment and artificial intelligence. I'm chuckling because it's up 20. If this were five years ago, we'd be saying, oh, yeah, boring old utilities or it's a rate play. Now it's practically part of the hottest trade on the right.

So you're like, don't go to Nvidia, but it is okay to go to the utilities. You know what was the worst performing sector last year? It was utilities. Utilities? Wow. That's surprising. because this technology has been on the scene. So people didn't realize that, right? And so we've been talking about it since the beginning of the year,

and that has played out well. I think with the new administration, with greater focus on artificial intelligence and crypto, that consumes a lot of electricity. Deregulation will also benefit that space. So we continue to like that. Where does crypto fit in an individual's portfolio? So we actually have indirect exposure.

We are not directly investing in crypto. We have indirect exposure. and we think utilities gives that exposure to our clients. We like other areas like energy, for example, which also benefit right now because of deregulation. I think sticking with that theme, more drilling projects or companies like ExxonMobil, companies like Conoco Phillips, which pay a great dividend also. That's what we like. All right.

Adil, thanks for your time and for joining us today. Thank you. Adel's demand. Up next, home sales surging in October just before mortgage rates jumped a bit. we will explore the housing space in our market navigator segment next. Hey, I'm McKenzie Segalis and welcome back to Power Lunch. Trump Media and Technology Group, which owns Donald Trump's social media platform, True Social, filed an application on Monday for a service dubbed TruthFide.

Now, the trademark application describes us as a cryptocurrency payment processing platform that would trade in digital assets. And guys, this comes just a few days after a report from the FT. They said that the company was also considering acquiring backed, which is a publicly traded crypto exchange that specializes in B-to-B payments. Kelly, back to you. Trying to capitalize on crypto, capitalize on their still high share price. McKenzie for now, thanks, McKenzie Segalos.

And welcome back to Power Lunch. Dow is holding on to a 500-point gain this afternoon. It's the strongest of the major averages. The NASDAQ barely positive, as NVIDIA is weighing somewhat. Meanwhile, home builders came out of the woodwork last month on a drop in mortgage rates. Sales of previously owned homes rose 3% from September. I'm up about 3% year over year. That was the first annual increase we've seen in more than three years, believe it or not.

Now that mortgage rates are back on the rise, though, my next guest thinks housing stocks will feel the pressure. Let's bring in Tony Zhang, chief strategist at Options Play. Tony, we've spoken to a number of home building analysts lately who are still pretty bullish, pretty constructive. Maybe you're feeling not so much the same way, and what trade in particular are you thinking about here? Yeah, so I certainly understand why analysts are bullish here. But as you can see, mortgage rates are back on the rise here. And you saw D.HR. Horton, the largest home builder, break below that major support level at 170. The next support level doesn't exist until around 140.

So I think that there is some significant downside from where we are here today. DR. Horton has broken below a range that you think is significant. So would you go so far as to short them? And are they the only one? No, I don't think that the only one. But yeah, I think that this is now a time where you can take a more neutral to Berishview. and that's something you can do utilizing options instead of just outright taking an outright bearish position here. So the trade structure that I want to use is to sell a call spread here. I'm going out to

the January 3rd weekly expiration, and I'm looking at selling the 165-175 call vertical here, collecting about $3.80. And this allows me to potentially profit, even if the stock just simply stays where it is below that major support level around 170, but it allows me to profit if it does decline from here as well. So in both of the scenarios of either staying put or moving lower, I'll be able to profit from this type of trade structure. Are you considering a similar trade structure with other homebuilding names or names in kind of the home building products or furniture areas? You certainly can. However, D.R. Horton is by far the largest by market cap. And home builders overall are not particularly large companies. So just from a liquidity perspective, my preference is to stay with the large cap names.

I think some of the smaller names, if you look at even Lenar and Pulte Group, you know, the liquidity on those options are not as great. So I prefer trading DR Horton whenever I'm using Home Builders. But you can use the Home Builders ETF as well to potentially play the same type of trade structure. And finally, Tony, as we showed earlier, if the stock does start to climb higher, shares of DR Horton, that is, you would start to lose money on this trade. So at what point do you pull the plug? At simply 170. This is actually the beauty of this particular trade. We're just below 170.

If it goes back above 170, from my perspective, I think the thesis is incorrect. Likely at that point, we've seen as interest rates decline, mortgage rates decline. And if that's the case, I think you have a good case for home builders and I would get out of this trade. All right. I'm now going to be watching. That's going on the dashboard. Tony, I'll be thinking of you in the weeks to come. Thanks for your time and for the trade idea today.

Tony Zhang. And that's it for Market Navigator. Tyler, over to you. All righty, beyond Nvidia, three other stock stories on our radar. Google's legal battle, one of them. Deer sales drop and Starbucks weakness in China continues a deluxe. Three-stock lunch is next. Welcome back to Power Lunch.

I'm Bertha Coombs with your CNBC News update. U.S. officials say Russia pre-notified the U.S. through nuclear risk reduction channels before it struck Ukraine overnight with an experimental intermediate range ballistic missile. Russian President Vladimir Putin said the launch was in response to Ukraine using U.S. long-range missiles in Russia earlier this week. Meanwhile, a new U.S. ballistic missile offense base opened in northern Poland. Russia warned today the new base will only raise the overall level of nuclear danger.

Military sources say the defense system can only be used against missiles fired from the Middle East. And the House passed a measure today that gives the Treasury Department authority to strip the tax-exempt status of non-prone. profits accused of supporting terrorism. Some nonprofits have expressed concerns that the bill would allow presidential administrations to target groups they disagree with, including news outlets and universities. The proposal's future is uncertain, however, in the currently Democratic-controlled Senate. Back over to you.

All right. Bertha, thank you very much. Time now for a deluxe, a deluxe three-stock lunch. We'll get stories on three stocks in the news from our reporter team, Steve Kovac on Google's legal battle, Simomodi, covering Deer's results, and Kate Rogers breaking down Starbucks's struggling China business. And then today's trader Quintetro will give his take on the stock. Let's start with you, Steve, on alphabet and what's going on there. Whatever it is, it's going to play out over a period it would seem maybe of years. Yeah, that's right, Taylor. We'll get into

the timeline in a second. But last night, we got that sweeping list, suggested remedies from the Department of Justice in that antitrust trial that Google lost. The big one here, forcing to divest the Chrome web browser. Chrome is, of course, a major key to Google's dominance in search and across the web, has the largest market share with Google Search and other services like Gmail, YouTube, and that Gemini AI chatbot all built in. Also on the table, though, divesting Android, the operating system for mobile devices, though the DOJ also admits that it'd be quite difficult to do.

Now, those have been getting the most attention this week as these reports started trickling out, but another important element I want to highlight that would impact other companies, especially Apple. Now, the DOJ recommends ending Google's practice of paying companies like Apple to be the default search engines on devices or other web browsers. That would be a huge hit to Apple's services business. This spring, filings from the case showed Google paid Apple a whopping $20 billion in 2022, but payments can vary based on how many people are using Google search on their iPhones. Still, that would be more than a fifth of Apple's total services revenue based on its rose recent report. Now, Kent Walker, that's Google's top lawyer. He responded last night to the DOJ's

recommendations. He pointed out it would hurt smaller companies like Mozilla. They, of course, make the Firefox web browser and rely on those Google payments to keep the lights on. Of course, there's also, Tyler, no immediate threats to those companies, like you just said, just recommendations right now from the Department of Justice. The judge will ultimately have to decide which remedies to apply here. And the appeals process from Google, that's expected to drag out for years. So no immediate impact to any of those names they just said. All right, Steve. Thanks very much. Quint, you own alphabet. Are you adding to your position given today's pullback? What do you make of these legal matters? Yeah, thanks for having me, Tyler,

on this deluxe edition today. We're not adding today, but I would not be opposed if it continues to be a buyer. I think if anybody has been sitting on the sidelines waiting for a pullback in a great, great business. Now is your opportunity. There was an interesting note out from Baird today. They talked about, you know, whether this was even going to be possible. I'm not an antitrust lawyer, so I can't really add any credence to that. But the reality is Alphabet's an unbelievable company. I mean, they have no debt, $45 billion in cash, trading at a very reasonable multiple 18 times forward, and they've grown that EPS 20% over the last five years. Everybody wants a pullback in a great stock and then when it comes, they're scared to pull the trigger. Well, we're getting that now.

So again, this would be a great opportunity. If we didn't own it, we'd be a buyer here. We're waiting to see how the dust settles probably in the next couple of days, and we will add more Google or alphabet on this pullback. I hope they come up with some good kind of counter recommendations, the company itself, because as a user, Chrome, I enjoy it quite a bit. Let's move along to Deere, whose shares are in an all-time high today after they topped fourth quarter estimates and some interesting details on how they'd be affected by tariffs. Sima Modi has those details. Cema. Kelly, that's right.

Expectations were low going into this report after Deer's competitors, Agco, and C&H industrial slash their respective outlooks. John Deere, though, acknowledging today that the agriculture market, yes, remains challenged, but pledged that they will make next year a year of discipline as farmers pull back on purchases. And yes, when Deere's CEO, John May, was asked about the prospect of tariffs and a potential change to immigration policy, he made the point that deer is more insulated with 75% of all products that sells in the U.S. are assembled domestically by 30,000 employees across multiple states. And remember, President Trump has threatened to slap deer with terrorists if more production is moved to Mexico.

But overall, it seems like investors like what they heard on the call today with the stock at a new high on track for its best day since August of 2023. And keep in mind, the average price target on deer stock is $425, which is in fact lower than where it's trading at right now at $441. Kelly? Wow, Seema, thank you very much. Seema Modi. Quinn, you've also got a position in this name. So you must be feeling pretty good. You're going to add more?

Yeah, sort of like alphabet a little bit, Kelly. We'll wait. We won't chase the move today, but we'll wait for a little bit of a pullback. But this is a great example of a report that was not priced in. We're seeing a lot of reports that are priced in. They're beating, Nvidia, obviously, and it's pulling back. People are scratching their head. This was not priced in, and Seema did an exceptional job.

I mean, they reported 455. The Whisper was 419. They reported 11 billion, which was declined quarter over quarter revenue, but it was well above the $9 billion expectation. When that is not priced in, you get what you're seeing today, which is an 8% move higher, an absolute dominant move. Now, this has been capped because as Seema reported, there's been some speculation. You know, what about that 100% tariff if they moved to Mexico?

I don't think that's going to happen. The CEO made it very clear. They're very proud of what's made in the United States. So we think this is an opportunity. This stock can go much, much higher from here. They have a tremendous amount of debt. That's been a concern of mine in the past, but they've managed through it very well. Any pullback here, I think we'd be a buyer adding to our position for sure. And finally, we got Starbucks shares are moving higher today after reports suggested the company could sell a stake in the China business to a local partner turning around the China business. This has been a top priority for the new CEO, Brian Nicol. Let's get over to Kate Rogers for more. Hey, Kate. Hey, Tyler. So in response to that story from Bloomberg's, Starbucks telling C&BC in a statement, quote, we are working to find the best path to growth, which includes exploring strategic partnerships. Now, for context, Brian Nicol has yet to visit the market as CEO and needs to still.

meet with the team and get an understanding of the business and market dynamics, as instead, he's been very focused, as we all know, on the U.S. business. I asked him last month about options in China after earnings. He told me there is, quote, a lot of growth in the Starbucks China business and how we capture that growth in the partnership that we potentially take on while we do that is still to be determined. Reminder, same store sales in China fell by 14% last quarter in that market. Now, I spoke with analyst Andrew Charles of TD Cowen this morning who said there are really two potential scenarios here for investors. If you're bullish on China, you'd want Starbucks to maintain at stake. So a joint venture would make more sense. Waiting it out without selling off

means you'd reap the benefits of improvements in that market. Now, if you're a little more cautious on China, does Starbucks sell it now, de-risk the business, and have Nichols focus really be even more so on turning the U.S. business around? And it remains to be seen what the company decides to do. But as you said, shares up just under 2 percent, Tyler. Back back over you. Kate, thank you so much. Let's go to Quint now. How are you trading Starbucks, sir? I'm not. I wouldn't touch it. I mean, you're in an environment of bull market where there's so many stocks working. I just don't know why I would put capital behind a turnaround play. Nichols got his work cut out for him, a terrible balance sheet, negative book value, earnings are declining,

multiples are too high. You know, personally, they should sell the China interest and use that capital to shore up their balance sheet. I just don't see any rush here or any desire to venture into this until there's a real meaningful, fundamental turnaround in the story, then you can go in. I love the coffee. I don't love the stock. Wow. That is really one of the great stock stories of the last generation. And what you say there is certainly not an endorsement of it. I'm just surprised he loves the coffee. He likes the coffee though. Quint, I love the coffee. I'll buy a latte. All right. Thanks a lot, man. I'll buy a Joe coffee. I'll buy anything. I don't know. That's just me. things. As we go to break, let's take a quick check of the energy space. Nat gas is actually seeing

some prices climb into year end at about 3.3 million BTUs. A bit of a fill up there for the Nat gas plays, which have been under some pressure. Although the commodity, I should say, is up 33% year-to-date. Power Lunch, we'll be right back. Welcome back to Power Lunch. And check out stock today's quite a mixed bag. We're higher on the session across the board, but the Dow is up 500 points while the NASDAQ is up barely a fifth of 1%. That, of course, as NVIDIA is weighing slightly. In the bond market, we have also seen Chicago Fed President Austin Gouldsby talking about rates being lower next year than they are now, giving a bit of a lift to stocks this afternoon. Let's talk to Rick Santelli about the significance. We've heard this from Gouldsby before, Rick.

Yeah, I wonder why Austin thinks rates are going to be lower next year. You know, there was a question on Philly Fed today. The information was out this morning. And the question, question was what do you think inflation will be for the next several quarters for your products and for the consumer? And their answer was 3%. Their answer in August was two and three quarters. But we'll get to that in a minute. Our special guest, Jerome Snyder from Pimco, Jerome, we're going to be showing charts of the Dow, the S&P, and NASDAQ post-election, all higher. We're so charts of European and Chinese stock markets post-election, they're all lower. Interest rates here fit right in. We haven't really been outliers with any other.

countries, what do you think about the markets post-election? When we're thinking about the markets post-election, clearly the investor is focused on the near-term, whereas growth, the exact of growth outlooks, and the exact of looking where policy implications are going to be over the near term. But it's really difficult to handicap. Instead, we should say, take a step back, look at the second derivative effects. They're going to take a little bit longer to materialize. Inflation is obviously going to be a key component to that because it can influence how

companies allocate capital, what their profitability is on a monetary policy basis. we're going to see a federal reserve which is going to be more focused on inflation than they have in the recent past. And that might ultimately mean that rates stay in this region for a little bit longer. And maybe that destination, instead of being 3% or 3.5% or is closer to 3.5% or maybe 4% or so. You know, in the old days, we used to say that the magic bullet, Greenspan, you say this was productivity. And there's still some magic to it. But I think the new magic word is growth. What do you think about that?

Without growth, you absolutely need to. think and be focused in the longer term about nominal growth because growth effectively effectuates and helps to offset some of the deficit financing that is coming into play not only this year and next year and for the 2006 but as we think in longer term circumstances. So as the United States looks to finance its deficit, we want to think about the relative value opportunities across the entire yield curve. And that's more susceptible for maturities further out the curve because they have to take into account inflation premiums, credit premiums and things like that. Ultimately, growth helps to offset that and sort of acquiesce, reduce the fears that the U.S. won't be able to pay back

those debts longer term. In the near term, we're just staying at the front end of the yield curve because of the fair evaluations that we see on the income basis. It's not as steep as I thought it would be because two-year note yields have almost kept up with the rise in longer rates. Now, let's go to another topic, okay? When I consider what's going on in the world with regard to the new changes that are happening once the new president gets sworn in, we know that it's probably going to be less regulation. But, the other issue I think we need to concentrate on here is what's going to happen ultimately with the consumer. You know, when the government says you have to buy this car, you can't have this appliance,

I think when we bring more consumer choice in, that consumer choice is going to be deflationary. Your thoughts? We're going to get some data in the real term. We're going to see CPI numbers. We're going to see Michigan indicators. And clearly, inflation is going to be top of focus. But I think what we have to focus on is longer term. those inflation metrics might not necessarily be 2% like the federal Fed expects.

It might be 2.5%. And although that might seem modest, we have to calculate that into how corporations take into account pricing power for their inputs, as well as investors, have to think about where does that come in to produce real after inflation returns. And that's where ultimately the income part of fixed income is particularly attracted today. So at PIMCO, when we're thinking about that inflation metric, yes, some partspects might be deflationary. But in the totality of the picture, we're going to find a much more balanced view that may not necessarily land us at a destination of 2%. And all this negative talk about tariffs, I understand it. But we have no idea what the reality of a tariff landscape is down the road.

And your final surprise, we want to give viewers. We all know where Fed funds are right now. What's your surprise for our viewers? So for the first time since 2002, the aggregate yield on the aggregate index or bonds is higher than the Fed Funds Index. Simply suggesting that investors need to think more about getting out of cash. cash and getting in more to fix the income at this point in time. Excellent advice. Jerome, it's always a pleasure. Tyler and the gang, back to you.

Rick, Jerome, thank you very much. We appreciate it after the break. Trump's tax cuts coming with too steep a price. A divide is already forming among Republicans over how to approach the estimated $5 trillion cost for extending those 2017 tax cuts. That story is now. Welcome back to part of lunch, everybody. Extending the 2017 tax cuts expected to cost. something on the order of $5 trillion.

Now a split is growing among Republicans on how to pay for those tax cuts or even whether to pay for them. Emily Wilkins is looking at this upcoming deficit battle. Emily. Hey, Tyler. Well, yeah, Republicans, they're aiming to get this major tax package done in the first 100 days that would extend that 2017 tax law set, of course, to expire at the end of 2025. One of the first things they're going to need to figure out is how to pay for this package. Now, a full extension of the tax cuts and credits, you mentioned it would add $5 trillion to the deficit over 10 years. That's according, of course, to the nonpartisan Congressional Budget Office.

But some lawmakers, including Senator Mike Crapo, who will oversee the bill in the Senate as chair of the Finance Committee, are disputing that taxes even need to be offset, given that most of it is a continuation of current policy. But slim margins in the House and Senate mean that deficit hawks could exert influence over ensuring that the tax cuts are deficits. neutral. I caught up with a couple of congressmen, Chip Roy and Ralph Norman, who don't want any tax bill to add to the national debt that is at 36 trillion and growing. We need to make sure that we are not having, that it not only is a deficit neutral, but that more importantly that it's actually reducing the deficit. So I'm going to be a voice for saying that those need to be factored in. We cannot keep increasing the deficit. 37 and counting,

not counting interest, we can't keep that going. Either we face it now. or we face the consequences of the American people. Lawmakers are considering a number of ways to raise the revenue. That includes cutting tax credits for electric vehicles, using funds raised by tariffs to offset tax cuts, and even looking at entitlement programs like Medicare and Medicaid. Now, lawmakers say at the moment, everything is on the table, but this is set to become one of the first major debates over the 2025 tax battle.

Guys? Yeah. All right, Emily, thank you very much. Emily Wilkins reporting. Maybe the central debate. Yeah. Now, this is bananas. B-A-N-A-N-A-S. The art market might be going a little crazy

because the duct tape banana just sold for $6.2 million after being sold for just $120,000 five years ago. What does it tell us as a sign of the time? Do you have to replace the banana regularly there? Robert, Robert Frank, is going to explain. Welcome back. Yes, Bitcoin is nearing $100,000. That gives people the sense that maybe there's some

funny money to play with. Well, one of those crypto insiders just paid $6 million and he didn't even get the banana. What do we mean? Robert Frank is here with this outrageous story. It is crazy, Kelly. Sotheby is calling it the most expensive banana ever sold. That's for sure. With six bidders battling last night for the famous duct taped banana. Its formal name is comedian. It's by the Italian artist Mauricio Catalan. It went viral. You might remember back in 2019 when it first appeared at Art Basel, Miami, attractive massive crowds and social media. there were three editions sold back then for $120,000. The buyer for the $6 million banana was Justin's son.

He's the Chinese-born crypto investor. Son has purchased ARP4, including a $20 million Picasso a few years ago, and he's been a big player in NFTs. So what do you get for your $6 million? Well, he will get a roll of duct tape, instructions on installing the banana, and a certificate of authenticity. The banana, as you just mentioned,

will have to be continually replaced and provided by the owner. Now, in a statement, Sun saying the piece, quote, bridges the world of art memes and the cryptocurrency community, he said he would eat the banana in the coming days

as part of his unique artistic experience. Now, this week, more than a billion dollars worth of art being auctioned in New York prices. Happened strong, including $121 million for this Magritte at Christie's

and Sotheby selling a Monet water lily for $65 million. For more on the art market and where the wealthy are investing, you can check out my inside wealth newsletter out today. CnBC.com slash inside wealth also does not come with a banana.

This banana supplied separately. This is a sign of the coming of the apotheosis. End of civilization. This morning, remember when David led me to this top ten, I would say this is like among the top ten signs that the world has gone crazy. Could you do this with a pear

or a tomato and command the same price? Well, what you're buying here is tape. Is tape. Is tape. and the installation instructions, but what you're really buying is... Who needs instructions? The installation.

I have this close to using some language. The tape has to be, but what you're buying, Tyler, is the idea from this famous artist. Morizo Catalan is a famous prankster cultural icon. And so you're buying a certificate. There are only three of these that say that your banana on the wall,

your banana on the wall with your duct tape is, in fact, not just any banana and duct tape, but it is the Mauricio Catalan duct tape banana. Make art great again. Is that so much to ask? I was actually feeling pretty bullish about, you know, things in general. Well, again, that's why I wanted to show the Monet, Water, Lily, and the Magritte. Because that is art, and those things are selling at much higher prices, as they should.

I would, however, say that the person who bought this for $120,000 in 2019, everyone said, that guy's an idiot. They were crazy, right? They said, that guy's an idiot. His return is five times what the S&P has done over the same period and twice as good. Sorry, 25 times and twice as good as NVIDIA stock over the same period. So look, we could say it's crazy, but maybe in five years it'll resell for 30. Who knows?

It's because of this guy, Maurizio, what's the name? Catalan, Mauritio, Italian artist. That makes it, if I did it, wouldn't be worth that. Well, I would consider it very valuable, Tyler, if you did it. But maybe you could try it with a tomato or an apple or a mango. Do people in the art world think this is kind of a sign of froth, you know, the Bitcoin money. Because you mentioned the NFC. So in my newsletter that crypto corrupts, absolute crypto corrupts.

So look, I am, my parents are artists. I grew up in the art world. I find this absurd and outrageous. I interviewed for my newsletter today, which people can get three art experts on what they think of the banana. And they all think it's genius. Well, because it's iconic. I'm so sick of iconic. How about beautiful?

How about something transcendent? Right. And that's that the definition of art for some people is an idea that goes viral globally. And this idea, like it or not, went viral and proved the artist's point. He was trying to make fun of the art market, which he did in a way that even he didn't intend. Turn it into banana bread. Get on with it. Robert Frank.

Thank you. Thank you. Thank you for watching. You know,