Power Lunch - Happy Traders, and FTX & SBF 11/11/22

Episode Date: November 11, 2022

Stocks are having a hard time figuring out what to do after yesterday’s huge rally. Is the Fed really going to start tapping the brakes? We’ll explore the scenarios at play. Plus, the other shoe has fallen for FTX. The company is entering bankruptcy, as CEO Sam Bankman-Fried resigns. Does this saga give crypto a permanent black eye? We’ll debate. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

I'm Tyler Matheson, along with Morgan Brennan. Here's what's ahead on Power Lunch for a Friday. Stocks having a hard time figuring out what to do after yesterday's huge rally. Is the Fed really going to start to tap the brakes, take their foot off the brakes? Our valuations finally cheap enough, cheap enough, especially in big tech. And the other shoe falls for that company called FTX. You're probably not going to see that on umpires shirts next year in Major League Baseball. San Bankman Freed, he's out as CEO.

EO, resigning the process now to figure out what went wrong still in the early stages, but does it give crypto Morgan a permanent black eye? That is one of the many questions being asked right now, Tyler. Thank you. I am Morgan Brennan. Stocks are mixed right now after yesterday's huge rally. The Dow is down fractionally, really moving back towards the flat line, I should say, down about 31 points.

The NASDAQ is higher by 1.9 percent being powered higher by tech yet again. The NASDAQ and the S&P both on pace for their best week in five months. I should also note that the S&P is up 9 tenths of 1% right now. Moving ever so closer to that 4,000 mark. Again, Amazon and Alphabet higher today, up 10% on the week. Check out meta. That's up more than 25% so far this week, 26% right now. So what is dragging on the Dow?

Well, United Health is down 5%, but that's $30 a share, meaning it's taking nearly 200 points off the Dow on it. its own, Cigna, Humana, also down big. That has investors rotating out of those health-related stocks right now and other defensive sectors, as well, I might add. Pretty much anything with health in the name, though, that's getting hit hard today. Tyler? All righty, Morgan, our next guest says he thinks the rally may be overdone. And while the latest read on inflation was encouraging, the Fed is going to need more convincing before it stops raising interest rates. Mark Lushini as Chief Investment Strategist at Janney Montgomery, Scott. Mark, welcome. Good to have you with us.

So, do you think the bottom is in or not? Well, Tyler, that's going to be determined by whether we can avert a recession or not, because in a typical recession, you're likely to see earnings decline by 15 to 20 percent. And in that environment, typically the stock market declines about 34%. So while we've plunged a considerable amount already, 27% so far at its nadir, it does suggest that there could potentially be more downside. However, if by chance we do see a continuation of these softer inflation readings that could encourage a reaction function by the Federal Reserve to ease off of the pace of its tightening and allow the economy to continue to muster some impulse that is positive in nature, then likely, I think we have seen the bottom. And in fact, perhaps while

this rally may have pulled forward a lot of gains coming out of this kind of relief, ricochet bounce that we've had. Nonetheless, we could continue to grind higher here for some time. Yeah, there's either a light at the end of the tunnel or a tunnel at the end of the light. I'm not sure which right now, and I don't think anybody really, really is. Where would you be putting money now if you had discretionary dollars to put to work? Well, of course, Morgan had mentioned the fact that technology continues to rip, but actually among the stack of sectors that are positive so far today, energy is once again

regaining leadership. So that would be a space as well as health care, even though they're taking quite a hit today for reasons of being good defensive growth sectors and actually within the market sector you could point to as being reasonably valued. Having said that, I think one can also start to take a look at some of these tech companies, some of these iconic brands like an alphabet for a. instance, these have been marked down some 35% on the year-to-day basis. Valuations have come in quite a bit in the case of, once again, Alphabet, 18 times earnings, even though obviously they may be

challenged on a near-term basis because of ad spending, drying up. Nonetheless, they have wide most of their business. Another is Raytheon, or companies in the defense sector, which we think will stand a benefit from budgetary expansions, not only here in the United States, but around the world to bulk up military fighting forces in an effort to, again, combat threats among adversaries around the world. Yeah. Of course, we see some of those defense names under pressure today, given the headlines coming out of Ukraine, with the Ukrainians reclaiming Curzon, the strategic city of Curzon as the Russians retreat. But still, to your point, names to consider when you think about those growing backlogs. Mark, the bond mark is closed today because of

Veterans Day, but dramatic moves in the bond market yesterday. I mean, you had the 10-year yields drop 33 basis points, almost a third of a percent that's almost unheard of. What do you make of those moves? How much are stocks from here going to continue to take their cue from the bond market? Well, Morgan, you're right. I mean, the drama in the bond market really was matched by the drama in the stock market. It's exceedingly rare to see the kind of moves we saw on both equities and on bond yields plummeting the way that they had. I think if by chance the disinflation your impulse that may be forthcoming by way of supply chains being rectified helps to keep yields low or go lower, that will certainly help the support not only the stock market overall,

but long duration assets, namely technology. And therefore, that could be the leadership, given as dominance in the naive benchmarks that continues to drive equity prices higher. On the other hand, if it's disinflation caused by drying up demand as consumers are retrenching, given evidence by the University of Michigan sentiment survey today, that would be more worrisome. So further declines in yields from here could be more indicative of the recession that appears to be looming in the not too distant future. Mark Lachini, thanks for joining us today. Thank you, Morgan. We just talked a little bit about tech.

We're going to keep with that. Tech is one of the key trouble spots in the market, at least until the last couple of days, even with the recent big, big rally for names like Meta, Netflix, Alphabet, which are all still, I should note, down big for the year. The economic slowdown and recessionary fear is becoming a reality check for investors in this sector, with most no longer willing to give a pass on profits. Our next guest says, Meta can no longer spend billions on speculative technology that firms like Netflix needs to refocus on business growth and that tech in general needs.

to cut costs. Let's bring in Oswath Demoderon, Professor of Finance at the NYU Stern School of Business. Professor, great to have you on, especially on a day like today, especially after the moves we've seen in some of these names. Let's start with Meadow, which continued or I guess finally started to tighten its belt a little bit this week with some of the layoffs we've seen. I mean, I think the layoffs are a very small part of the story. If you look at the last earnings report, and in fact, if you look at what's happened to Mehta, over the last year, year and a half, I'm from their trillion dollar market cap in July of 2021, the biggest change has been the dive they've made into the metaverse. I mean, they've invested

$10 billion in the metaverse and planned to invest another $90 billion. I don't know. The fact that they're investing in the metaverse, what bothers me is not that it's uncertain and speculative, but I haven't heard a story from the company as to how they plan to make money on the metaverse. What is the business model they plan to use? And I think that's, that's, that's, that's, That's the lacking that I find surprising. If you're going to spend a hundred billion, you have the obligation to at least lay the groundwork for, here's what we plan to do in the metaverse, here's what we want to make. And we haven't heard that from Meda and that's really surprising when you're making

that big a bet. So what do you think of the fact that we've seen that stock move 26% this week? I mean, mind you, I realize it's incredibly beaten down in general this year. And the beaten down is clear. Right now, if you look at Facebook at its absolute bold. bottom. Here's what investors seem to be expecting, building in. They're building in the expectation that Facebook's going to spend $100 billion. How can you stop the company? Have absolutely no corporate governance, no control over the company. And they were actually building in the expectation that they

will get nothing back. It's almost like they've built in the expectation that the company is going to open a hole in the ground, thrown a hundred and a hundred billion, nothing's going to come out of it. That's a little extreme. This is a company that has a history, I mean, of making a whole, money on its businesses. I don't think it changes overnight to a company that just throws money down a hole, but that's what investors were pricing in. What I think you're getting is an adjustment back to some kind of reality saying, hey, we might not make that much money on the Metaverse, but we're going to make some money. And let's see how that adjusts. I think of Facebook can craft a story that people can buy into. They can see a much bigger

jump in the stock price because people will give them the benefit of the doubt. If I read between the lines, Oswath, it seems that you're saying that companies like Facebook, but maybe other companies too in the tech area, have had both the benefit and the curse of having too much money sloshing around, and now they really have to focus on what their business is and start to run their businesses with more standard sort of, in more standard kinds of ways, thinking about profits, thinking about ROI and so forth. So Netflix would be an example. They threw money at content.

Maybe they can't do that as much anymore. Now, you've got to separate the big tech. That's true for Netflix, and it's true for Amazon outside of its cloud business. It's definitely not been true for Google and Facebook. I mean, these companies have been money machines. margins of 45, 50%. The problem, though, is in the good times, the weaknesses in your business models can get hidden by the fact the market is growing, investors like you. Now, the old Warren Buffett saying, it's only when the tide goes out that you discover who's not wearing their bathing trunks.

And in a sense, what you're getting is as the economy slows down, online advertising starts mature, subscriptions start to slow at Netflix, the weaknesses in their business models that have always been there. This is not something that showed up last month or six months ago coming to the surface. And investors are saying, oh, my God, I didn't realize Netflix spent this much money on content and it's not getting that much additional subscriptions as a consequence. So I think what you're getting is, and it's a collective recognition by the companies and investors that there's not as much buffer left in the system where you can hire another 10,000 people and get away with it. You said it a hell of a lot better than I stumbled from.

I mean, that's exactly the idea there, is that things are changing a little bit and that you can't just hire 10,000 people and say, here we go, because we've got the money to do it, because we've been a money machine and we've got the capital and so forth, right? During COVID, they said, stay at home, work, don't work, it's not a big deal. When you're making 50% margins, you can afford to do that. But when you start to see growth level off, all of a sudden you're going to ask people to come back to work and work eight hours a day, 10 hours a day, 12 hours of level. like the rest of us do.

And I think in a sense, it's reality biting at these companies, and it can be painful for the people laid off, obviously. But I think you're getting some of the excesses of the last decade, kind of getting washed away. So in light of that, just to expand this conversation out a little bit, what do you think of the market more broadly? The S&P, for example, which is inching back towards 4,000 right now, as we do have these debates about earnings recession,

possible economic recession, maybe the possibility that inflation's peaked and the Fed could maybe, maybe, maybe engineer a soft landing. There's so many question marks going into 2023. What do you think of valuations here? I agree with every part of what you said there except the Fed. I think we've kind of given the Fed the central role it really shouldn't have. We need to worry about a recession. We need to worry about the effect on earnings. We need to build that into valuations. But I think the Fed is a side player in the game. I know that I'm probably the minority here. But it's not as if the Fed can bring rates back to 1.5% even if it wanted to. Unless inflation drops, rates are not going

back to 1.5 to 2%, no matter what the Fed does. So I think inflation still remains the central figure in this conversation. And that's why yesterday was no surprise. If inflation is the center of the conversation, everything in the market is going to be driven by good news or bad news on inflation. And in my view, this talk of a Fed pivot is the most dangerous and unhealthy conversation that you can have because I came into the market in the 70s and I saw what Fed pivot after Fed pivot did to inflation in the 70s. So if you think a pivot is good news, you've got to be careful because the Fed pivot and inflation comes back. Guess what? The second time around is even more painful. So sometimes it's better to take your medicine, not beg for a pivot and let inflation

come down rather than jump on the Fed too soon saying, hey, why not stop now? It looks like it's down. Some wise words there. Professor Oswath Demodran. Thanks for being with us today. All right, coming up, FTX declares bankruptcy. SBF goes from the face of crypto to the disgrace of crypto. But what happens, needs to happen to prevent more crypto crashes like this one. Plus, Elon Musk tries to fix Twitter, throwing everything but the kitchen sink at the problem. There's the kitchen sink. But not all of it seems to be working. We will have the latest on that after this quick break.

Welcome back to Power Lunch, a wild week for crypto. Bitcoin and Ether both down 20%, the FTX token losing nearly 90% of its value. A number of big names on CNBC this week commenting on the events as they have unfolded in real time and weighing in on the broader asset class. Take a listen. I'm not surprised that this happened. There really is no, as far as I'm concerned, no rules, no laws in it. It's like the Wild West.

Does it feel illegal? We'll see. It certainly feels immoral. Not all companies in crypto are like this. And just like the traditional financial system occasionally has a company that goes bad, it is not representative of the whole. If you're going to have a crypto asset, it needs to be nobody else's liability. You need to have full transparency to it.

And that's what Bitcoin is, and that's what FTT was not. When you give somebody your token and they go down, you're going to just stand in line at a bankruptcy court. The original idea was this is a rescue finance situation. And could we somehow help, which would obviously help the entire industry. And then when I got to the Bahamas, it became clear, at least from some of the people that worked on the legal team and the compliance team, that perhaps there was more going on than it being a rescue situation. Well, of course, it all culminated this morning with FTX declaring bankruptcy and Sam Bankman Fried resigning as CEO.

Kate Rooney joins us now with the latest on this developing story. Hi, Kate. Hi, Morgan. That's right. A rapid fall for what was a $32 billion company earlier this week. CEO, San Bankrupted officially stepping down, but the 30-year-old CEO says he will stay on through this Chapter 11 transition. This filing includes Bankman Freed's

Quant trading firm Alameda Research and 134 affiliated companies all over the world in Uganda, in Europe, Hong Kong, Switzerland. The list goes on and the estimated liabilities stand at between $10 and $50 billion. So a wide range there. I'm also told that could change in the coming weeks, and there are more than 100,000

creditors. Also told that number could change. We'll see as we get more bankruptcy documents, Sam Bankman Fried and FTCS. had been bailing out others in the industry this year and had raised money from some of the premier investors in Silicon Valley and in the world. SoftBank was a big investor, a source familiar with its investment details tells CNBC that that investment dollar amount was under $100 million and it will be marked down in the next quarter. Sequoia, meanwhile, had about $150 million in there. It is now marking that investment down to zero. Ontario's, Ontario Teachers Pension Fund had invested

about 75 million. Sam Bankman-Fried tweeting this morning, he says, I'm really sorry again that we ended up here. He said he was shocked to see things unravel the way they did earlier this week. Sources now tell me the Department of Justice is looking into FTCS and Sam Bankerfreed, and all of this is shaking investor confidence. You can see Bitcoin down today. Fundstraat among those who's telling clients to pretty much stand the sidelines. And a note, they say it is appropriate to wait for lower lows and there will be other casualty. which could lose to some more force selling and headline risk. So definitely affecting prices and sentiment here.

Tyler, back to you. All right, Kate, thank you very much. What a story this one is. Kate Rooney, we appreciate it. So what lessons can be learned from the crash of FTX? In a new op-ed, our next guest writes, the manic speculation behind the fall of FTX is as old as the markets themselves. So if we don't learn from all those other crashes,

well, we learn this time. Ron Insana is a senior CNBC analyst and commentator. senior advisor to Schroeder's North America. Ron, always good to see you. Same tell. What would have been the telltales here with FTX and Bankman Fried that would have told people that this was one that was on thin ice? I think all of it. I mean, there's nothing about the crypto market, as I wrote yesterday, that didn't in many ways reek of a very famous line from Grutertstein. There is no there there. This is one of the largest speculative bubbles I've seen in my career or have studied over the course of the last

38 years. And look, there are a lot of apologists for crypto out there right now saying that this is a cleansing process and that we're going to, you know, we're going to defy is going to overtake C-Fi and that there's an error in centralized finance and this was just a one-off. The whole thing is nonsense. There is no there there. These are fake tokens. This is fake currency. This is not real money. It's not backed by anything. And from what we're reading, if you read between the lines, there may in this case have been, at least allegedly, misappropriation of funds, rather sizable amounts of money, in fact, that just makes this another scandal, another scam in a long series of them that we've seen on Wall Street, and even going back

throughout market history. I'm a little slow on this kind of stuff, Ron. What makes the U.S. dollar, basically a fiat currency, different in quality from a, from a Bitcoin. In other words, well, I think there are a lot of things. You have a $20 trillion economy behind the dollar. You have interest-bearing securities in which you can put your dollars and park them with a relative degree of safety. The U.S. is still a very highly rated credit, even despite our debt to GDP levels and other issues that we have. The full faith in credit is behind the dollar. The Federal Reserve stands behind the dollar. And I know there

are people who believe that that's part of the problem in the DeFi world. But look, it's a real The dollar comprises about 65, maybe more, 65% or more of global trade. It's used in 95% of foreign exchange transactions around the world. It is a reserve currency. Bitcoin is not. Bitcoin doesn't exist in any way, shape, or form outside, I think, at least in my humble but seasoned opinion, in the minds of those who created it. I'm going to push back on this a little bit, Ron.

In the sense that you do have things like the USD, which is a stable coin. It is tied to the dollar. It is part of the centralized finance discussion that you're touching on. We have had a number of people come on our air this week. Michael Saylor, we just showed that string of sound as a good example at Microstrategor, talking about this difference between centralized and decentralized and decentralized. And basically says, you know, Bitcoin, you know, they were in a dysfunctional relationship with a broader, for Bitcoin enthusiasts, a dysfunctional relationship with a broader cryptocurrency community. So there definitely seems to be this major coming-to-roost moment, if you will, for the broader space. But as long as you do have the Michael Saylor's and the Mike Novagrats is and the squares and all of these other companies of the world that do believe in something like Bitcoin, there's going to be a market for it. And there's a limited supply, which I think also adds to that. So this idea that the entire thing is a Ponzi scheme or a house of cards or the biggest bubble you've ever seen,

I'm going to push back on that a little bit. I think there's a bubble here, but I think it's not all equal, potentially. Well, listen, first of all, I mean, a lot of the people who support Bitcoin have failed miserably in other endeavors, either blown up their hedge funds or in the case of Michael Saylor, Morgan, I would recommend you go back and look at his company, micro strategy in the 1990s and see what the history of that is. And he's put Bitcoin on the balance sheet of a company and effectively counted it as cash when it's not cash. And so, like, I mean, I would discount his perspective in particular entirely. And look, I think there is no use case for these currencies. I have yet to see Bitcoin or any other.

But there is a use case for some of the underlying technology, right, Ron? Like blockchain. Blockchain technology? Absolutely. For payment systems that are becoming less expensive, friction-free, more transparent and more safe, absolutely. But the cryptocurrency parts, the overlay. The underlying blockchain technology is the part that's important. So where I see a lot of these people coming out of the woodwork, I never saw this coming, or, you know, Bitcoin is different than FTX or what resides on FTX. I just think that's nonsense. I mean, we've done this a million times in the past, whether it's tulip bulbs, whether it's railroad bonds, whether it's electronics companies or whether it's bad internet companies that, you know, the underlying internet, of course,

was important, but a lot of the players like CMGI and others simply disappear because they had no functional use case. I think that's the same story here. I'll never forget that I realized that the dot-com bubble was going to burst. I was in a Chinese restaurant in Ashboro, North Carolina, population 1,100 or whatever it was, and the waiter asked me, what do I think of CMGI? I realized at that moment, it was all over. So, Tyler, you know, there's a story included in a prior book. Peter Henderson, who used to be a specialist on the Florida New York Stock Exchange, I believe it was December 23rd of 1999 was on street signs with me. And he stopped me in the middle of my questioning when he was on the floor of the New York Stock Exchange. And again, this is not to condescend to anybody, but a

homeless individual asked him if he worked at the exchange and if he had a particular idea or notion about a specific internet stock. At that point, we knew the last marginal buyer was in and that the game was over. And as one Wall Street veteran who was on the floor since 1929, the late Mike Matronko once told me, the game never changes, only the faces do. We'll leave it on that note. Yeah. Of course, I think it speaks to the regulation, the rush of regulation that is going to come to the sector. The guy from Coinbase yesterday, if I read between the lines there, I mean, he was saying, we want regulation because regulation legitimizes and creates the rules of the road.

And that's what I heard. It creates a kind of certainty and legitimacy, I suppose. Yeah. And transparency, I think, being part of that too. These are what we've been hearing from all the crypto-enthusias. All right, we're ahead on the show coming up. A growing short supply, short interest climbing across the market. In some cases, controversial stocks are seeing 40% of shares held by those betting against them.

We're going to trade those leaders today in the free stock lunch. Plus, the fight for vets, the veteran workforce running strong with jobless rates below the national average. But even as the job market slows down, tech firms are still competing for that talent. Power lunch, we'll be right back. Welcome back to Power Lunch. The drama at Twitter continues. The company appears to have paused its $8 a month blue subscription service after users were abusing it to impersonate brands and famous people. The service which allowed people to pay for a verification checkmark was launched earlier this week on the iPhone app. Musk said that he is pushing the company to roll things out quickly and that there will inevitably be problems, tweeting just earlier this week, quote, please note that Twitter will do lots of dumb things in the coming months. We will keep what works and we will change what doesn't. All righty. Let's get to Brian Sullivan now for a CNBC News update.

Brian. All right, Tyler, thank you very much. Here is your CNBC News update at this hour. The Biden administration announcing plans the tighten regulations on methane emissions from oil and gas drilling. The wolves will require fossil fuel companies to monitor for leaks of the harmful greenhouse gas and drill sites. The EPA expected to roll out the new measure sometime in the next year. The Biden administration also announcing today that it is stopped taking applications for student loan forgiveness. All that comes as a federal judge in Texas struck down the debt relief plan in a ruling yesterday.

Biden's plan to cancel up to 20,000 worth of student debt was unveiled in August and has faced multiple court challenges. The administration said the DOJ has already appealed his latest decision. And one of the nation's busiest airports disrupted by a fuel pump fire flights at DFW, Fort Worth were halted Friday morning due to small fire. Officials there were able to extinguish the blaze, but the safety inspection is ongoing and fuel supplies are limited for departing flights. Tyler Morgan, back to you. All right, Brian, thank you very much. A head on power lunch. King Dollar, no more. The greenback on pace for its worst week in years as inflation fears begin to cool. Interest rates slide back just a bit. Who could benefit if the decline continues? We've got some names to buy.

Well, speaking of buying, it turns out investors often pile into the home builder stocks this time of year in the hopes that the spring selling season will pay off. Most years, the trade has actually worked. So will this year be the same? We're back in two. We've got 90 minutes left in the trading day, and let's get you caught up on the markets and commodities bond market. Closed today in observance of Veterans Day. Right now, all the major averages are actually in the green, as you see right there. The industrials up 41 points.

They've tilted back into positive territory. even if ever so slightly. The S&P 500 up about 1%. And the NASDAQ composite piling on after yesterday's fantastic day for stocks on the NASDAQ, up another 2% today. Health-related names United Health and Amgen really dragging on the Dow right now. United Health off 5.5% and Amgen about 2 and 2 thirds percent. Software and cloud names among the biggest gainers in the S&P 500 at this.

hour, docket sign, Datadog, Octa, and CrowdStrike, among them. Crude closing for the day and the week, higher today, but still down nearly 4% for the week. You see it down there for a week to date, down 3.9%. Well, now to the declining dollar. Today, the greenback hit the lowest level since the middle of August, and it's coming off the worst day since at least 2015. All of this adding up to the dollar's worst week since March of 2020, so the midst of the pandemic.

Has the dollar peaked? And if so, which stocks do you buy and which do you sell on that weakness? Boris Schlossberg is managing director of FX Strategy at BK Asset Management and joins us now. Boris, great to speak with you. And I do just want to start with this dramatic move we've seen. That's been coming for a number of days and really weeks now in the dollar. Have we seen the dollar, the strength in the dollar peak? And if so, is this what was driving it in the first place, the fact that we did see the Fed this aggressive tightening cycle? Yeah, I think yesterday's CPI number was definitely a game changer.

As I wrote last week, it's been evident that price pressures have been going down to everyone but the Fed for a little bit of for a while yesterday. And yesterday's kind of really confirmed it as far as rates go. The drop in rates caused enormous amount of decline in the dollar. I think that was the big driver. As a matter of fact, dollar yen is down 11 big figures since in less than two weeks. that's a very, very big move. So I think at very minimum, we have paused. And I would be very, very surprised if we see any more 75 basis point hikes in this tightening cycle. I think we're

done with 75 basis points. And I think the market sees that. That's the reason what a dollar rally is pausing, yields are going down, and it's going to be positive for companies that are earning their revenues in FX other than the dollar at this point. So then what are some of the names that you think could stand to benefit here. And I ask that as we're coming off the heft of earning season, where we did see so many multinational companies talk about FX as a headwind. So one name is probably very controversial because it's just been beaten to a pulp. And that's Alibaba. Now, that stock has been destroyed on political rather than economic considerations. However, we're coming off after the CCP Congress, where Z has really consolidated his power.

And there is a really reasonable chance here that there's going to be some thought in Chinese regulatory policy. In the meantime, you still have tremendous amount of demand on the digital economy in China. As a matter of fact, they just had their singles day. It's expected to do one trillion yuan as far as gross sales, which is tremendous. And I think at this point, Baba trading at 10 times earnings is going to get some tremendous benefit just from simply modest growth going forward and easing of Chinese regulatory. regulations. All of that drives it as far as earnings go because I think the yuan has really bottomed against the dollar for the near term. If I'm right about the fact the dollar has basically stabilized, it's probably going to decline against the yuan. You get this tailwind of yuan appreciation as well as possibly great growth at Obama. So to me, that's an interesting sort of out-of-the-box pickup. Another story, it's also a little bit Chinese-related, is actually Starbucks. Starbucks is making a massive bet on mainland China. As a matter of fact, they're going

to put up one new Starbucks every 15 hours for the next five years in China. That is a huge, huge bet on the fact that their next marginal growth is going to come from the middle class of China. And if they're going to earn more and more of their revenue in the yuan, and if the yuan just basically stabilizes, but perhaps even strengthened against a dollar, that should be providing a very positive tailwind for their earnings as they go forward. Remind me, a weaker dollar would help Starbucks. How? Because if they're earning more or more of their money in the yuan and the yuan strengthens and when they repatriate, that's going to look much better on their... They're going to get more dollars back when they repatriate.

That's the mechanism by which that happens, and it happens whether it's the euro or the yuan or the pound. Or the pound or the yen, correct. But they're really making a massive bet of mainland China. And if that bet pays off and their growth continues, then they're, you know, and their growth continues, then the currency does well, they should all do very well. I've been very bullish Starbucks, and it's really not disappointed has been done very well over the last couple of months. Yeah, that's a lot of caffeine in China. Thank you, Boris. We appreciate it. Boris Schlossberg. All right, despite huge gains yesterday, Homebuilders still down big for the year. Our hopes of lower

mortgage rates next year, enough to lift the group. We will discuss that one when we return after this. Welcome back to Power Lunch, everybody. Homebuilders were among the best performers in yesterday's rally. The Homebuilder ETF, XHB, outperforming the broader market up a whopping 12%, 13% week to date right now and better than 2% today. Big reason for that rally, a move lower in mortgage rates and a speculation that the Fed may be getting closer to a, quote, pivot in its rate hike path. But the next guest on CNBC says mortgage rates may fall below 5% by the end of 2020, and there's a lot of hope for home builders in the coming months. Joining us now is John LaVallo, senior research analyst at UBS.

John, do you really believe that rates could fall below, back below 5% by this time next year? Hey, Tyler, thanks for having me. So really, let me give a little context around this call. What we're saying is that the 30-year spread versus the 10-year Treasury has blown out, 324 basis points. That's the widest it's been since 1986. Now, if you look back historically, the average has been about 172, basis points. Now, all of this spread has been driven by the extreme volatility in the bond market

at this point. What we're suggesting is if you take the UBS House forecast for the 10-year bond, and that's 2.65%, and you layer on the average spread, assuming a normalization of 172 basis points, that gets you to 4.4%. So is it possible? Sure. Are there a lot of headwings there in the way? Absolutely. And this would, if this happens, obviously, there'd be more people who could afford houses, and this would be a good thing for home builders who would benefit first and most it's good question i think that the home builders across the board would benefit however i think the entry level first time focused home builders are best position because think about it this buyer is very need-based they're willing to pull some levers to get by a home whether that's moving away from the city center whether that's

you know borrowing money from mom and dad or moving into a smaller footprint um and you know conversely if If you look at someone who owns a home already and has a three handle on their mortgage, maybe a little bit more reluctant to move. So that first-time buyer is where we think the action is going to be. D.R. Horton is the biggest builder by volume, by a large margin of about 30 percent, focused on the entry level, one of the best executors in the group. So we favor that. So how much would home prices actually need to fall in some of these major markets,

if they, in fact, do for that first-time home buyer to be unlocked and to feel like they could come into this market? when we talked about the mortgage piece of it, but how about the home price piece of it? And then, of course, factoring in the cost to actually build that home as well. Sure. Hi, Morgan. So it's a good question, right? And that's the big debate in the market right now. Our home price is going to create it. Our view personally is no, they're not. I think there's not enough supply in the market. Existing home supply, which is 90% of the market, there's only about 3.2 months versus a historical average of closer to six, about 10 months during the global financial crisis. So we don't think that's a lot of the market.

So we don't think that will happen. Now, what we do think will happen is that you'll see folks migrate to other areas. So in migration is a very big trend and make the math work. So I think that, you know, could home prices fall to some extent absolutely? And some markets still fall dramatically. And some of the hotter markets where prices have soared, Austin, Phoenix, Vegas. But overall, nationally, we're hard-pressed to believe that you're going to see a sharp decline in home prices. All right, John.

Thank you very much. John LaVallo. We appreciate your time today. John Laval of UBS. Thanks for having me. You bet. We might be getting colder outside, but it's still shorts. Weather on Wall Street. Oh, boy.

The number of names with short interest higher than 25%. That's on the rise. Are any worth buying despite the bets against them? We're going to dig into that. We'll be right back. Welcome back. It's time for today's three-stock lunch. Today we're looking at some of the most heavily shorted stocks in the market.

grill retailer Weber. It has a 39% short interest. Beyond Meat, which just reported a dismal corridor, has a 40% short interest, and Chewy, 27% short interest. Let's bring in Jeff Kilberg, Sanctuary Wealth Chief Investment Officer and a CNBC contributor. Jeff, great to have you on. Let's start with Weber. Your thoughts. Well, Morgan, I want to be a buyer of Weber.

And this is a small cap company. Think about less than a billion dollars in market capitalization, but the nostalgia of it. Think of all the times I went to Bears. I use that little smoky Joe Weber grill and burnt burgers, or be in the backyard with my dad who I do want to say thank you to. Drill Sergeant Kilberg of the U.S. Army, I want to thank all the others who have served on this Veterans Day. But when you think about what transpired in October, Morgan, you saw a 40% move higher when BDT, a Chicago-based firm, came in looking to take Weber private. They valued and wanted to commit $6.25. That was over a dollar ago,

so it seems the short interest, the meme traders, have BDT capital, possibly on the run to pay a lot more for this company, which will see continued loss of sales after the pandemic, but nonetheless, Weber Grill. This is an American classic. Let's move on to something you could put on your Weber Grill, and that would be Beyond Meat. Well, Tyler, I don't know if I didn't necessarily put that on my grill, but nonetheless, beyond meat, which is the plant-based alternative, has seen a dramatic move lower. So when you talk about this Beyond Meat, it really has seen just absolute crushing. We've seen a Q3 earnings. We saw significant drop domestically, but overseas internationally, year over year, 52% lower. On top of that, they've released about 20% of their

global workforce. So this is a name that if you do see or own this company right now, about near 10% pop today, I think you close this position because I think this goes lower as they continue to get their arms around, their trajectory, their forward guidance. But I'm a seller here, and I really do get concerned as investors have really soured in the wake of their Q3 earnings report. Yeah, grocery shoppers really pushing back on some of these higher priced goods like Beyond Meat in this inflationary environment. Final name, Chewy. It's seen a big comeback recently. It's up 28% in the quarter. Your thoughts? It has. A nice pop and chewy for all of us pet parents out there. This is a name I want to be a buyer of. I had my French bulldog on last time

talking about Chewy being a buyer. That's worked out, but I think you hold on to this position or add to it. And if you think about Chewy, the partnership is just created with lemonade. People are very confused with lemonade. It's just an insurance technology company. So they already had health care offerings on Chewy. But now with this partnership in Lemonade, which will launch this spring, they really have the ability to customize these health care solutions. If you think about Chewy's customer base, there's 20 million subscribers. Less than 3% of U.S. owners of dogs have pet insurance.

So I think that's an untapped vertical for Chewy. So the bigger question, though, I guess, to really get your arms. on Morgan is when will they start making money. Yes, we like to invest in companies that make money. But I think if you look two years out, that's the forecast. Two years from now, they will break even and make money. If that gets accelerated by any possible way, you will see more investors flock to chew because the leadership in the CEO, Mr. Singh, he was at Amazon. He was at Dell. You have real people in the room here. This is not an FTX company. Okay, bonus round, Jeff. Given the big rally we saw on the markets yesterday, bare market bounce or

the beginning of a bull of a bull market here. I want to see 4,100 in the S&P 500 get tested. If we have the ability to close above that, Morgan, I think all the shorts, we've been talking this whole thing about shorts being on the run. You will see global investors get caught short and the markets will move higher. I'm really encouraged to see the way the bond market reacted yesterday, the 10-year note, the two-year note, moving lower the dollar index. So I have been cautiously optimistic. I think there's follow-through here. I don't think this is a bare market. I think pessimism. We were at max pessimism.

We were at max interest rates over the summer. We saw max inflation. So there's a lot of things lining up. We have the midterms behind us. So I think 4,100 gets tested. And I think we have a Santa Claus reality that no one's expecting. Nice win by the Irish last week over Clemson. Big W, Ty.

Big W. We all needed that one. Big win. Thanks, Jeff. Thank you. All right. Coming up, recruiting, oh, over here now, recruiting vets for Big Tech.

We'll be right back. All right, welcome back everybody to Power Launch, America honoring its veterans today, and many tech companies have been trying to fill their labor gap with those who've served in the military. Christina Ports in Avelace joins us now with more. Christina. Despite the weakening labor market right now across the United States, companies remain committed to hiring veterans, a group known for their higher rates of engagement, retention, and diversity.

So there's over 200,000 men and women that transition out of the military every year, and 80% of them without a job. But luckily, that doesn't last too long. given the quality of the candidate pool. Only 23% of American youth can even qualify to enlist in our armed forces. And that's without a waiver. So all studies indicate that hiring veterans is a good business decision. And they stay.

The jobless rate for vets continues to be below the national average over the last few years. You can see it's the blue line under the orange over there. And Amazon Disney Comcast are some of the top names fighting to woo this group of workers, especially within tech. and this is according to Vetsintech. For Boeing, Global Foundries, Dominion Energy, veterans are at least 10% or more of the total workforce. You can see I'm just blocking a few of those right here.

But the competition to hire veterans is so intense that many firms are actually partnering with the government as well as colleges as a way to recruit them early. Some of them even getting job offers while they're still active, much like MBA students in year one. That's the way the comparison that I had for them. What do the employers, apart from the intrinsic qualities that a veteran brings to the table, what are the specific skills that these companies are looking, are finding in vets?

Is it technology? Is it what? And we were talking about this off-air, but a lot of it has to revolve around technology, and many of them are receiving the certificates while they are in active duty, certificates in engineering, certificates in cybersecurity. So that makes them way more marketable. And then the second thing is, if they don't have those certificates, It's the Department of Defense has an apprenticeship program called SkillBridge that works with Boeing, Amazon, to provide those skill sets and certification so that they are marketable immediately within the next year or so after discharge. And these are men and women who have actually done things.

They haven't just studied it. They've done it. They've really done it. That's the other, I think, standout factor. Christina, thank you. Have a good weekend. Have a good weekend, Morgan. You too. All right.

Thank you to our veterans. Thank you to our veterans and thank you for watching Power Lunch.