Power Lunch - Higher For Longer?, C-Suite & Sour 11/21/23

Episode Date: November 21, 2023

At their most recent meeting, Federal Reserve officials expressed little appetite for cutting interest rates anytime soon – especially as inflation remains well above their goal, according to minutes released Tuesday. We’ll discuss what that means for the markets.Plus, we’ve been seeing a lot of trouble for tech CEOs as of late -- whether it’s Sam Altman’s departure from OpenAI, Elon Musk’s ad backlash, or other executives receiving flak for giving China’s Xi a standing ovation. We’ll dig into the c-suite drama. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

And welcome everybody to Power Lunch alongside Kelly Evans. I'm Tyler Matheson, and we're about to get the Fed Minutes from the latest meeting. Before we do that, market check. The Dow is down 68 points. And meantime, let's go, and there you see the S&P 500 off just a little bit. Let's go to Steve Leasman now, the Fed News. Minutes to the Federal Reserve's last meeting show that the committee believed that further tightening would be appropriate if progress towards inflation was insufficient. It's a bit of a more doveish take on the reasons why the Fed might hike again. All judged it critical for policy to be kept, quote, sufficiently restrictive and remain restrictive for some time. The committee was seen in a position to proceed carefully, so no big hurry on the part of the committee to do anything, because policy was seen as restrictive already and was seen putting downward pressure on the economy and downward pressure on inflation. financial conditions, they said, had tightened significantly.

And in the meeting, the officials debated the reasons for the rise in yields, the persistence of how long it would stick around, and the potential impact on monetary policy. You've heard that debate about higher yields doing the work for the Fed. This was part of the debate they had at the Federal Reserve meeting. Further evidence was required, however, that inflation was on a path to a 2% target. And there was only limited progress, they said, in bringing down core services. inflation, though they registered, they thought they had seen much better inflation results in the good sector. The risk to the outlook, they said, were more two-sided, including

demand and supply remaining out of balance, persisting geopolitical risk, as well as oil markets being among the risks they discussed. Supply and demand, however, we're seen coming into better balance. Inflation, they said, had moderated, but remained unacceptably high, was the word they used. The labor market remained tight, but they saw wages moderating, and there was concern They remain too high at the moment for the Fed to be on targeted as 2% target. Several said there was more upside to the consumer. Maybe they had more resources they originally thought. I'll leave it there, guys, except for that.

One phrase at the beginning that I mentioned, further tightening would be appropriate if progress towards inflation is insufficient. Seems to put the onus on the need to hike again, needing more data to hike again, rather than the bias to hike again and being proved why they shouldn't do that. Indeed. All right, thank you very much. Steve Leesman and stay with us there as we get a little bit more reaction to the minutes. Let's bring in another Steven, Stephen Stanley, Chief U.S. economist with Santander.

Stephen, welcome back. Good to have you with us. Thanks, my pleasure. What do you pluck out of this? Well, it just seems like this is a big turkey. This is a case where three weeks is a long time, right? Because the Fed was having this extensive discussion about tightening financial conditions. And now guess what?

We're right back where we were before the September meeting. So tightening financial conditions not really much of a consideration anymore. I think from the market's perspective, the market just wants to be done with the Fed hiking. And the Fed keeps saying not so fast, we might go again, but the markets are not buying that. They seem to be sort of playing out the clock here a little bit. You know, just talking as though, not suggesting that they're going to raise rates, but leaving that option open. Exactly. And I think the problem for the Fed is they don't want the markets to conclude as they have over the last few weeks. We said they're definitely done because you see what happens.

The stock market goes wild and Bonnials go down because everybody's then the minute we stop talking about Fed hiking, markets want to go to the next thing, which is when are they going to begin to eat? Let's talk a little bit about housing, which certainly has been affected by tightening financial conditions. It is in a slowdown. And housing is so central to the American economy. If housing slows, is it really realistic to not expect some sort of.

of recession or stall in economic growth? Yeah, well, this is a great example where tightening monetary policy hits different parts of the economy at different points in time, and the bulk of the drop in housing activity happened last year, right? So the consumer was powering the economy through last year and through much of this year. All the while, housing has had most of its correction already. I mean, we saw a huge decline in housing activity in the second half of last year, and then so far this year it's been closer to flat.

So, you know, I think it's going to be tough for housing to rise much from here as long as mortgage rates are where they are. But it feels like we've kind of, we're kind of going along the bottom at this point. It doesn't look like markets are too skittish about what the Fed's minutes show. You know, the Dow's kind of still where we were before we got this release. So maybe to put it differently, it doesn't so much matter what they're telling us as it does what the data continue to show. What do you think of the most important data points the next couple months? Well, I think it's, as usual, it's going to be consumer spending and then, in turn, the labor market, because that's what's driving consumer spending. So as long as a consumer is strong, the economy should be in pretty good shape.

What's the message from retail sales, Ben? Not the earnings we've gotten, which are kind of ugly, a little here and there. There's some bright spots. But what do you think the message is from the monthly retail sales data, if that's even a broad enough gauge of spending? Yeah, no, I think consumer spending has been quite good. I mean, October was a little softer, but that was after two or three months in a row. of pretty good numbers. So I think everyone's holding their breath for the holiday season. And it does feel like the consumer should be beginning to slow down a little bit after an

extraordinary run. But so far, I'd say the consumer still seems to be in good shape. Do you put a lot of stock in what we heard from Walmart when they talk about, you know, okay, at the end of October thing, just in the pantheon of high frequency data, does that count as an important data point? No, I think, I mean, they're so big, you have to pay attention. So, but the thing is sometimes you get these high frequency moves that don't necessarily tell you anything about the trend. So if it's a couple of weeks that they're seeing weakness, that's one thing. If it lasts for a few months, that's something different. Steve Leasman, your reactions, thoughts? Well, there's a common curious line in here that maybe the

consumer has more resources than they originally thought. There's another line in here that says a couple Fed officials think that they may have more resources and there may be more upside consumer. And that if these upsides keep continuing, maybe there's momentum to it and it can keep going. The question is whether or not that's ultimately inflationary if the consumer keeps spending. I don't know. I see these minutes maybe a touch more doveish than Stephen does. Not the first time we've disagreed. I guess we agree more often than not. But I think the question to me, and this is the question I asked Powell, is at the press conferences, you know, where's the bias? Is the bias to hike again? Or is the bias not to hike? And these minutes, at least at that time,

and Stephen's right that it's three weeks old. But I still think, think you've had financial conditions ultimately tighter than they had been, say, during the summer. So these minutes, to me, sound and seem a little bit more like the Fed has a bias not to hike here. Stephen? I think they want to be done. I think that's, you know, and as Steve read from the minutes, the question is, does inflation allow that to happen? So as long as the inflation data are coming in okay, I think they're probably going to remain on hold. But again, they probably want to retain that optionality of being able to get.

go just to keep the markets. That's embraced in those words. Further tightening is appropriate if progress against inflation is insufficient. And I mean, they're saying if it, if the medicine isn't working, we're going to give more medicine. Right. And the job one is still to get inflation back down. I mean, that, the Powell's been very clear about that. All right. Well, Stephen, thank you very much. Steve Leesman, thank you as well. And for more on the market's reaction to the minutes here. Our next guest is expecting global growth to slow and central banks to start their rate cutting cycles around mid-year next year. Let's bring in Jason Drejo. He's UBS's head of asset allocation for the Americas. And Michael Farr of High Tower Advisors is also a CNBC contributor.

Welcome to both of you. Jason, I'll start with you. It sounds like your outlooks a little bit more bearish, a little more muted, a little more downbeat maybe. What's driving it? Well, I wouldn't say it's bearish. I think what we see is across the board, whether it's growth, inflation or rates. We think they're all going to go lower from what has been elevated levels this year. So it's more of a moderation and perhaps more of a subdued macro environment versus this year where it's been growth has exceeded expectations. Inflation is trended lower, but it's still above the Fed expectations. And as a result, we've seen rates go higher. I think all those things go in the other direction next year.

But I wouldn't say it's bearish. It's more of almost like a normalization, getting closer to trend or slightly below trend. What should be on my buy list for the remainder of this year? And what should be on my sell list? Well, in the buy list, whether it's fixed income or equities, the key message we have is, you know, to buy quality. You know, buy quality fixed income. You know, we think rates have probably peaked.

This is a good time to be buying high quality bonds, whether it's corporates, IG, munis, things of that sort, extend duration. You know, so a lot of people have been sitting in cash. Now is the time to kind of extend that duration out. The same thing on equities, you know, you know, it's an environment where the market's probably going to trade for a while is it's late cycle until the Fed actually starts cutting rates. So look at sort of things that will perform better later cycle. That's kind of higher quality companies, you know, the tech sector is something that we

recently upgraded. In terms of things to sell, you know, the offset of that is, you know, we don't think you want to take a lot of credit risk at this point in time in fixed income. And equity is sort of a similar story, kind of buying lower quality, you know, more speculative parts of the market. We think that's just not an area you want to be, at least for the time being. So you would find, in the equity markets, you would find the kind of quality that you're describing where? I think you mentioned technology. In technology, there's certainly kind of biases towards the tech sector, but in all sectors will have companies that we deem sort of as quality. You know, companies that have, you know, high earnings growth, consistent cash flows,

high return on capital. With every sector, you can find companies of those attributes. So tilt in within and across sectors to those kind of companies, things that in an environment where the macro could end up having sort of a slowdown next year can still have solid earnings growth. So where do yields go from here, Jason? Well, I think our bias is that they go lower over the next, you know, certainly six months next year. Given how significant the move has been recently, we're down over 50 basis points across, at least of the tenure and much of the curve. It wouldn't surprise me to see them back up a little bit. But direction we think over the next six months by the middle of next year,

we're going to probably have a sub four handle or three handle on the tenure just as growth slows. In part because as it slows, I think there will be investors who aren't sure, is this a soft landing or is we passing through the soft lining towards a hard landing? I think that leads to kind of a rally and kind of high quality fixing them, therefore yields go lower. Yeah, 444. benchmark for the 10-year today. Sub-4, like you say, maybe that's around the corner. Jason, thanks so much. We appreciate it. You're welcome.

Jason Dreho with UBS. All right, coming up, some key moves in the apparel space, giving us insight into the complicated situation for Mall's American Eagle, having its worst day since 2020, with names like Abercrombie and Fitch following its decline. That is next. Plus, further ahead, a key name in the AI area, which has been undergoing some significant C-suite drama, as of late. And speaking of, we've been seeing a lot of trouble for tech CEOs lately. Whether Altman's open AI departure, Musk's ad backlash or multiple CEOs catching flack for giving China's Xi a standing ovation.

We'll discuss all this and more when Power Lunch returns. Welcome back to Power Lunch. Lots of retail names on the move today after their results. Lo's lower after missing on revenue due to weaker DIY spending, which includes a lot of delays on big ticket items. Best Buy also down after missing on sales and lowering guidance, blaming a lack of demand on a number of issues, including inflation and a shift in consumer spending to experiences and services. And the mall-based apparel retailers are getting hit the hardest today with American Eagle, which beat on earnings and revenue,

but its forecast was below consensus on higher costs. Those shares are down 15% in what had been one of the stronger mall performers. Abercrombie and Fitch, meanwhile, turned in better than expected numbers. The stock kind of mixed well-off session lows, and it has already tripled so far this year. So with retailers under a little bit of pressure and a lot of concerns about a slowing consumer, let's bring in someone who has a great pulse on the industry.

With us on set for a change. Connor Flynn, CEO of Kim Co Realty, one of the largest, if not the largest owner of outdoor shopping centers in North America. Their top tenants include TJX, Home Depot, Ross, stores, Kroger, and Walmart. You've heard of that one, to name a few. I mean, business seems to be very, very strong.

People are still going to stores. Your occupancy rate is super high. It's very true. It's an amazing time to be in the brick-and-mortar shopping center business. Kimco, I think one of the most surprising stats of all-time is vacancy rates since they've been tracking it for shopping centers is at an all-time low today. An all-time low. So 20 plus years. What is it?

I mean, it's like 95.5% occupied for the sector. Kimco has hit all-time high on small shop leasing. Yeah. I mean, how could you? I mean, you were just a normal, normal churn. would say you'd have 5% or more. Yeah, the supply side is actually what's been very muted. So virtually no new supply, no new construction.

0.5% of new shopping centers are under construction, which is virtually zero. And then the demand side, store openings to closings, outnumber 2 to 1. So you've got a really strong demand factor, diversity of demand, virtually no new supply, which leads to pricing power, which you're seeing on our leasing spreads. Yeah, so you've got people who are going to the stores to shop. You've got people who are going to the stores to pick things up, right? You've got people who are going to the shores stores to window shop, I guess, is what you'd say, right? Absolutely.

Traffic is up year over year. You're seeing more retailers use their stores that's closest to the consumer for distribution and fulfillment. So I'll hold Delhays, as you probably know, from stop and shop and some of their grocery stores, just divested a fresh direct saying that they're going to use their store base to deliver groceries to the home. Similar to Walgreens, Walgreens announced today. They're shifting their strategy, focusing on the store to ship to their consumers. Again, closer to the consumer, and then if you can convince the consumer to drive, it's their own time, it's their own gas, and all of a sudden the profitability is restored. Yeah, it feels like the grocery store is not going anywhere, but I do wonder about disinflation over the next couple of years, because how does your business work is sort of like a toll collection? Or, in other words, let's say if their revenues go down because nominal GDP is slowing and going from 8% to 1.

What does that mean for your business? So the way the shopping center leases work is it's typically a fixed, like rent, and then you have annual income. escalators above that. So it really doesn't fluctuate with the sales unless you have a percentage of sales clause, which is more of a mall-based type of function. So we're more of a steady eddy. And if you look back to all the years we've been talking through the pandemic, through retail apocalypse, through, you know, even e-commerce, the onset of e-commerce. Shopping centers have been sort of steady eddy defensive plays. And it's primarily because we're everyday goods and services. Good days, bad days. People don't necessarily change their habits

for groceries. You know, people don't necessarily change their habits for services. In the pandemic they did, but that's what snapped back to all-time highs now is hair salons, nail salons, health and wellness, beauty, all the uses that are really flooding to the convenience shopping center because it's really what people are looking for. And medical. I'm at these, you know, there's an IV rehab that I'm at, you know, four times a week with some member of the family, and that always drives a shopping experience. Let's talk a little bit about bed, bedbath, and beyond. What was your exposure to that company? Is that now erased, cleaned out. And what has happened to those properties to the extent that they were a renter from you?

Sure. So they were one of our lowest exposures in terms of an anchor tenant. There were a little bit of like 1% of our rents. And what we found was because of that supply and demand imbalance that we're experiencing right now, we're able to raise those rents versus what Bed Bath and Beyond was paying. And who's coming in? So that was the nice part of battle. The 17 leases we've signed, 14 different uses have gone into those 17. So you see the diversity of demand. So obviously, the off-price retailers are very, very strong right now. So T.J. Max, Marshalls, home goods, Ross, Burlington.

You've got a lot of grocery, specialty grocers, Whole Foods, Sprouts, Trader Joe's. We've got sporting goods with Dix doing quite well with their public lands, new concept, as well as their Golf Galaxy concept. So you can see, like, the wealth of different retailers that are looking to do gyms go in there? Absolutely.

Like LA Fitness or... LA Fitness and Planet Fitness. All of those are definitely expanding and looking for more space. Who else is emerging? you know, kind of around the edges at a time when, you know, as we heard earlier, the only thing that could kind of help some of these retailers struggling now like Nordstrom is if people suddenly go back to shopping brick and mortar and so forth.

But what you're saying is they are still showing up. What are some of the next generation of businesses that you think could do quite well? So if you look at what's happened, I mean, Ulta Cosmetics has been a dominant player in our shopping center for a long time. Now all of a sudden, Sephora is leaning into gross-ranked shopping centers. Because if you think about it, the whole food's shop, is a Sephora shopper, and similar to Trader Joe's or who the traditional grocer is in that trade area. Macy's has now announced shopping center stores.

And so originally they were calling it Market by Macy's. They've scrapped that and are just calling it Macy's. Interesting. Nordstrom, Nordstrom, Rack. I think you're starting to see really the consumer gravitate towards what's convenient and where is their value. And that's what you're starting to see really resonate. And, you know, if you think about a shopping center and the uses that can go into it, you almost have to ask yourself, what can't work in a shopping center? It's small businesses.

You know, the occupancy costs are very efficient for those operators. And there's a lot of quick service restaurants, a lot of franchise-driven concepts. And that's what's really emerging as the new mom-and-pop small business operator are these, you know, plug-in-play franchise-driven concepts. We just talked a little bit about the overall economy and concerns that it might be slowing. Are you seeing any of that? You know, we're looking for cracks. I think everybody is, you know, traffic being up is obviously a good indicator that those habits aren't changing. Small business incubation.

continues at a record pace. That's those small shop leasing activity that we're at record highs at. Pricing power is obviously in our favor. We haven't seen any dislocation yet. And I think what you'll start to see is usually when there's some level of pause in an economy, that's when, you know, people change their habits. And if the employment market stays strong, if they feel like there's confidence in that paycheck coming in, I don't think the habits are going to change to the grocery store. It really has to take, I think, a monumental shift to change that habit. It does cost a lot more at the grocery store today. That's true.

It is, I don't know what Thanksgiving meal is going to cost. I hear turkey prices are down. But at any rate, it is a lot more to go to the grocery store today. Yeah, what you're seeing is a lot of consumers shift to private labels as those offer a little bit more value-conscious shoppers. And actually, those are higher margin for the grocery store. Yeah, sure. So it is a little bit like a win-win. Or you wonder about the Aldies and Little's and growth there where I've seen those popping up more and more as well.

They are expanding quite frequently and definitely are very aggressive on expansion plans. Had to get a couple advent calendars at Oldie the other day when the kids saw. Couldn't get out of there. $25 a bit. I think I bought the highest margin item in Oldie. Probably did. It was right at the cash wrap when you're checking out. It's their purpose.

Connor, good to see you. Thanks for coming out. Thanks for having me. Thank you. Kimco. Further ahead, a surprising result for Argentina's presidential election could send ripples through emerging markets, the first candidate to win after running on a platform of cutting spending and it comes after the EEM

ETF is having its best month since the start of the year. We'll be right back with more on the implication. Welcome back everybody. Let's get the bond market reaction to those Fed minutes we got top of the hour. Rick Santelli joining us from Chicago, Rick. Well, we did have a little bit of volatility, but all in all,

not a huge move. Maybe the most important aspect today. Well, a 13-year low in existing home sales. Housing's been the talk on everybody's tongues today. Just a whisker under 3.8 million, very weak number there. And if you look at a one-week chart of tens, Kelly, what you'll notice is connect all those tops that you see on a descending line. That comes in right around 444.

That's basically where the minutes popped us, and we held virtually. And if you recall, Friday's low is right around that 337 mark. Today's low is 3.38%. So we're holding Friday's lows. thin trading, kind of coiling, and just to put a face, conventional wisdom thinks yields are going to go much lower. And to that end, let's look at where European boons settled today. They settled as you look at this chart starting in early September at nearly a three-month low. And if you look at the UK, the 10-year guilt, while this chart starts all the way back in May,

they're at almost exactly to the day six-month low yields. The patterns are very similar. The economies are closed, but Europe and the UK in particular are coming from maybe loftier inflation levels that have come down. At the end of the day, the U.S. has come down as well, but there are still sticky aspects to it. And then you want to pair that with some of the weakening data we've seen. No surprise on the housing side. But this is, of course, going to be a perfect storm as we go into a holiday weekend. Tyler, back to you.

All right, Rick, thank you very much. ahead on Power Lunch, the C-suite facing a wave of criticism as of late, especially in the tech sector. We'll discuss all the latest with Yale's Jeffrey Sondonfeld next. Welcome back to Power Lunch. I'm Leslie Picker with your CNBC News update. The warning still stands. Icelandic officials say there is a high likelihood of a volcanic eruption near the country's southwest coast in the coming days.

Crews have started to construct walls around a geothermal power plant to protect it from the potential lava flow. 1,500 to 1,800 earthquakes have been recorded each day in the region, which scientists say can be linked to the movement of magma underground. Rescuers are expecting a breakthrough within the next couple of days for the 41 workers trapped in an underground tunnel north of Delhi, India. Crews are trying to drill in a pipe that is large enough for them to climb out. They've been stuck since the tunnel caved in nearly 10 days ago, but they have access to light, oxygen, food, and water. New Jersey Governor Phil Murphy introduced a new rule today to require all new car sales to be electric by 2035. More than a dozen other states have announced similar electric car mandates. Tyler, I'll send it back to you.

All right, Leslie, thank you very much. Appreciate that. All right, some huge lessons in management unfolding over the past few days or maybe mismanagement. We saw Sam Altman's surprise ousting as CEO of OpenAI, spark chaos between his former employer and seemingly his new one, Microsoft, while ex-CEO Linda Yakorino resists pressure to resign as Brands pull spending on the platform over concerns about Elon Musk's and anti-Semitic content and anti-Semitic content. This comes after a key group of American CEOs

were criticized for cheering Chinese President Xi Jinping at a gala dinner in San Francisco last week. For more, let's bring in Jeffrey Sondonfeld, senior associate dean for leadership studies at Yale's School of Management. also a CNBC contributor. Jeff, it is always good to see you. Why don't we start so much, so much to talk about here. Why don't we start with the OpenAI situation? This looks like a colossal screw-up of, really of board and governance. It really is, Tyler, and that is a pretty

daunting list of issues that we have till dinner time, don't we? Because I think, all I think to add to your list is bringing peace to the Middle East, I think, and curing cancer. But You're so right, is that you and I on air discussed when Steve Jobs were old enough for that when he left. We didn't have this mass exodus. Mark Hurd and Oracle. I had done some work with the board at HP around that time. Of course, you and I talked about Travis Caledick when he left Uber. We didn't see anything like this.

This kind of affection for a tech leader leaving is remarkable. And, of course, who could be more popular than Steve Jobs? But Sam Altman's affection is amazing for this board to be so unprepared. so poor at articulating what the reason was that even the replacement interim, interim, is now questioning why should he stay if he doesn't even know what the reason was for the exit? We're seeing that there's a good deal of confusion and good for Sotcheon. Yeah, is the winner Sotianadella and Microsoft or in the short term, if they end up owning effectively open AI and they have a 49% stake in,

it right now. Is it a short-term winner or loss? Because they're spending money faster than they're taking in money. Now, a clear winner is definitely Microsoft on this. The $13 billion or so that they put in, they could write off. This company, you know, he's reached an all-time highs in the value of Microsoft stock. Last year at our CEO summit, you may recall, in a Fortune magazine, also in a piece I wrote, we made him the CEO of the year, because his stock was up in part because his stock was up 1,000 percent since he became CEO in 2014. It's doubled since then. He's now up 2,000 percent. An incredibly successful series of acquisitions, focusing on innovation, focusing on trust. So he has a very attractive culture to bring these 700-plus

employees on board if that's the way to go from Open AI. If not, he has a great relationship with Open AI. But he was so nimble. I think Mark Benioff was impressive that he tried to to get them over to Salesforce. Right. But wow, Siltianna developed. He didn't care, you know, how this is going to work out. He's got a home for them and provided a safety net, a huge amount of credibility for Microsoft. I think a lot of people are very impressed at how he's handled this, Jeff.

But I still would question just how well those employees or Sam himself would do inside Microsoft. You know, if he stays, do they have to build almost like a separate structure to kind of keep that initiative going the way that it was before this all blew up, something so that they don't just get subsumed into the corporate morass and kind of, you know, to change an entity that dramatically is to change it fundamentally. And this was a fundamentally successful product no matter what was happening on the governance side. You know, Microsoft has a history of some acquisitions, Kelly, that completely support your point, where they destroyed what they bought, sadly. This has happened with a lot of large tech companies that have done this. In this case, with the 50 acquisitions last

year that he brought on board. And we have seen, and of course, recently in the gaming business, that's pretty exciting. But just last year, a nuance, he's been able to bring in significant sized companies and $20 billion-sized deals and hold on to the people, hold on to the innovation. It's a very good question. But they were outsourcing, or at least partnering, a lot of that AI development with Open AI as it was. So it isn't that you're going to have people that feel that they've been preempted. They already had that relationship going. So I don't think it should be a problem. It's a very good question.

I don't think it'll be a problem. Let's switch and talk a little bit about Elon Musk. And I guess I don't know how to phrase the question. How much damage has been done to the brands that Elon Musk oversees? And I'm thinking not so much X because X is its own, I don't know how you could damage it more. I mean, it is what it is. And everybody knows what it is, Jeff. But I'm thinking of Tesla.

I'm thinking of SpaceX. I'm thinking of contracts that he has with the government. How damaging has this episode been? If you look at that portfolio is anytime we talk about Elon Musk, we're going to get a lot of blowback after the show. People saying, oh, you don't believe in freedom of expression. Well, he doesn't apparently believe in it either. He censors things that are critical on X that he doesn't like,

and he goes over to sue them if he doesn't like it. And furthermore, as a private citizen, sure, he's allowed to say what there he wants. And if he's foolish enough to do it as the CEO of a private company with public company advertisers, as you put up there, all this list of great advertisers that have pulled out, including happily, Comcast, NBC being one of them as well as Apple and Microsoft, rather at IBM and Oracle and things, that's very damaging as a private company. But as a public company, because he also has quite a, you know, with Tesla among his seven other CEO positions, it's crazy to be damaging the brand, damaging the credibility. Certainly, we've seen that there's a whole

generation of people buying Mercedes and BMWs that had some trouble after World War II. You can't go around looking like you're on the wrong side of Charlottesville. Some of the things he was saying about, you know, replacement of white people and attacking Jews for it and things like that is, how could you be that crazy? That really puts you absolutely on the wrong side of history and promoting this kind of bigotry in a media outlet, of course, is crazy. But imagine being Linda Yaccarino, your former colleague, of course, in the world of Comcast, if even Comcast is now pulled out from advertising with her, how difficult that was that rumors were that reports were that she didn't even know about the rebranding of Twitter to X

until almost the rest of us did. Jeff, just in the remaining time that we have quickly on the question of China, has it gone from a liability for corporate America earlier this year? back now to being an investment opportunity after the summit? Well, you know, at that summit, you can understand there are a lot of companies in transition. Believe it or not, if you look at the Fortune 500 firms, only 10% of them derive as much as 10% of their revenues from China. In fact, only three companies in the Fortune 500 derive as much as 50%, Kwokom being top of the list. But even Apple, it's not even 20% of their revenues from China.

There's a lot of sourcing from China, which is a different issue. Pharmaceuticals 97% dependent. you see some of those people standing and of course some of the chip makers, electronics, but they're all working on plans to somehow de-risk and pull out of there. And they didn't need to jump to their feet with obviously China is a, I don't know if we call them an adversary. There's certainly a rival and they have been backing our adversaries. So this is a challenge, whether or not it's their purchasing of Russian and Iranian oil

or problems in the South China Sea, the Korean Peninsula, environmental issues, health, promotion of public health and trying to prevent pandemics, is China has been a difficult partner to work with. And there have been a lot of questions about the disappearance of some former top leaders from China. You know, if people sense that the profit opportunity might be back and that relations are thawing, you know, maybe we'll look back at now as an important juncture in that. Well, we almost carried it to dinner time, Jeff.

We almost got to dinner. Maybe the economy is really falling there, though. So this is, you know, the U.S. is a much stronger position relative to China that it's been in some time. And every one of their markets is down 30 percent. The GDP there has shrunk its growth by two-thirds from where it was, say, a decade ago. And we were so intimidated by them. It's the first year where we've had actually capital outflows. There are no inflows.

Nobody's the foreign direct investment in China is really plummeting, which is one of the reasons that she is here. And, of course, they collapsed 30 percent of the real estate market. Got to leave it there. Jeff Son and Phil, thank you very much. Appreciate it. Thank you. Happy holiday. You too. Coming up, big tech, on deck, Nvidia shares are pulling back from record highs ahead of their results after the bell today. Investors are eager for another glimpse into the chip-end AI hype cycle, especially with the Open AI drama, will get you prepared for their report when Power Lunch returns as it goes back to the $500 mark.

Welcome back to Power Lunch. Pressure is on for Nvidia. The company is set to report after the bell and the stock hit an old-time high yesterday, continuing its massive run this year up more than 240%. At the heart of this year's AI boom, investors will be watching closely for any indication of demand strength into 2024. For more on that, let's bring in Matt Bryson, senior vice president of research covering the hardware, covering hardware at Wed Bush Securities. Matt, it's good to see you. And listen, nothing will ever top in VINTIA's last quarter where they went from, what was it,

$7 or $8 billion prior to $11 billion, basically at the drop of a hat. I do wonder about a couple of things, though. we're getting more clarity on just how much of that might have been pre-ordering around concerns about China's crackdown. Could that be a hangover? We're starting to see more competition in the space because people obviously don't want to have to pay Nvidia up to the gills for its technology. So at what point do those concerns start to become more evident in the results, do you think? I doubt it's probably tonight. That's exactly it. It's not tonight. So I just came back from a supercomputing conference. There, people are still talking. about 200-plus-day lead times to source Nvidia GPUs. So even with changes in China, and I think at this point it's still a little bit unclear

whether Nvidia will be able to revise its chips to ship into China or not. I think it's unlikely that Nvidia is able to meet demand through Q2 of next year. And so the question rather becomes simply how many parts? can they build? And that's going to define what their results are. I guess one question, as I read your note, I found myself thinking that even bad news for Nvidia is good. In other words, that if they can't meet demand,

really what you're saying is that eventually meet that demand. It just won't come as quickly as people had hoped. That's exactly right, Tiles. So when you think about what they're going to guide to, and I think that's the important number, my estimates just below $17 billion. Of that, like 13 and a half is data center GPUs. I think really the expectations or revenues are more, $18 to $19 billion. The difference there is all in that data center GPU line.

you know, 14 and a half, 15 and a half billion. The reality, though, is if they come up light with their guide this quarter, that revenue just pushes. And the reason I say that is, I think Kelly brought up competition earlier. When you look at their competitors, so you've got Intel talking about shipping more than a billion dollars worth of AI silicon next year. You've got AMD talking about more than $2 billion. I think people believe it could be as much as $4 billion.

But again, just in terms of magnitude, when you're talking about NVIDIA doing $15 billion, $16 billion, you know, if they can't meet demand this quarter, it just means there's our next quarter. It just means there's more demand further out that they can ship into. What else would you be watching, Matt? Maybe it's more granular. Maybe it's not. What's the most important data point?

I think it's really understanding how these models are creating revenue. A lot of what we're seeing right now is training the models. What we need to see moving forward is applications that drive revenue. And so it's invidia execs, Jensen, Collette, talking to us about places they're seeing their end customers come up with new applications that drive revenue and create more demand for further AI so it can move forward. Yeah, no, I think that's a great point. We'll see with the 500 looks like in the cards at the close today,

where we are a couple of hours. Matt, thanks so much for joining us. We appreciate it. Thanks. Matt Bryson. All right, he's still ahead, a new era for Argentina. It's newly elected president, making bold promises to battle triple-digit inflation and rising population. We'll discuss what it means for the country's economic future and geopolitics around the globe when Power Lunch returns. Welcome back to Power Lunch. Argentina, electing a far-right outsider in its presidential elections as the country grapples with one of the world's highest inflation rates and rising poverty. Poverty, I'm sorry. Javier Milley, a former TV pundit, ran on a platform of cutting government spending,

which our next guest says is something the country hasn't seen. Is it probably 70 years now? Joining us to discuss what this election means for Argentina, the rest of the world, and the dollar is my big question. Michelle Carusa Cabrera is with us, the NBC contributor, of course. It's good to see you. Good to see you. Thanks for you. Very dramatic turn of events here. What's extraordinary about Javier Miele's win is that in the last 70 years, there hasn't been a single presidential candidate in Argentina that has ever run on cutting spending. Not a leftist, of course, because they would run on spending more, but not a conservative candidate either. I mean, he ran on cutting spending, cutting subsidy.

cutting welfare, reducing the number of ministries, getting rid of the central bank, getting rid of the central bank, privatizing state-owned assets, and he won handily by 11 points, which in this day and age is basically a mandate, considering how divided the world is. So can he do what he says he's going to do,

or will quote, the deep state derail him? So the previous right-wing president, two presidents ago, three presidents ago, has brought all of his staff to back him up. So he does have the know-how and the capacity, the likely head of the central bank is someone who's very familiar with the process of dollarization,

which is what he wants to do. In other words, they're not going to have an Argentine currency anymore if he gets his way. They're going to use the dollar. The public office before. No, he hasn't. It's becoming increasingly common in the world, isn't it? Yes. He's an outsider. He ran as an outsider. Like Trump, he ran against the swamp.

In Argentina, you would call it La Casta, the caste, C-A-S-T-E. These are rich politicians. So he's got a lot of stylistic comparisons to Trump, but not economic comparisons. Substantively, he points out that La Costa is the only one who's benefited from whatever system has existed for the past several decades where the poverty rates weigh up. And they were one of the highest GDP per capita countries in the world several decades ago. And now they're like the 170 poorest country. They have thousands and thousands of welfare programs and yet 40% of the population at least live in poverty. So the fascinating thing to me about this, his platform, his criticisms, the fact, the fact,

fact that he won all points in a very positive direction for Argentina, but dollarization would be a catastrophe for the economy, at least in the very, very near term. So the question is, how does he really try and could he succeed in implementing something like this? And it's been not a great policy, is my understanding, for any country that's really tried to dollarize. So the concept of dollarization is really to take away the power of printing money to lead to inflation, right? It's the same concept behind the euro, right, which is to take away the power of printing from individual governments so that they wouldn't have these constant cycles of high inflation, etc., that they had seen in Europe.

So it's the same, it's a way to break that linkage. Dollarization, they have no dollars. To dollarize, you need dollars. So, yes, he is going to struggle dramatically. I would say two things. There was going to be incredible inflation no matter what, because in the previous three months, the current government had cut taxes and increased spending dramatically. So there was a debt bomb coming anyways.

This is, they had already gotten the percentage of government spending as a percentage of GDP to 40%. That's what we did during World War II, and we got to 37% during the pandemic in the United States. So that's the level of spending that they were doing. It's going to be very hard. Probably the first thing he needs to do is he needs to give confidence to exporters. How do you get dollars? You sell wheat overseas. You sell oil overseas.

That will bring you hard currency. You need to start building up currency, so that way you can. start to dollarize if you'd like to do it. But there was going to be massive inflation, no matter who won. But this almost feels like it would be massively deflationary, right? Because the economy would contract so severely, or especially if they were out. So I'm just curious, maybe there's other kind of half measures they could take steps in that direction. But it would be fascinating if he actually tries to do this.

It's going to be painful. I think he won because when you have such a huge percentage of the population suffering under the old way, they'll take a new way. you know who got him into office? Young people and the poor overwhelmingly supported him. They had had enough of what has been standard operating procedure

in Argentina for decades now. So it's going to be dramatically different. I can't tell you how intensely focused he is on trying to make the Argentine economy more competitive. Like I said, he gets lots of comparisons to Trump. But Trump, for example, is campaigning on imposing tariffs

on nearly everything that comes into the United States. Milay wants to eliminate all tariffs and export tariffs. He wants to do all these things that would make Argentina more competitive. At first, it's going to be very painful. All right. Michelle, we will follow it with great interest. Thank you. You too. It's a good holiday. Michelle Cruz. All right. We'll be right back with more stories you need to know. Is this me? Welcome back. We've got less than two minutes off to the show. Now we have even less. What are we going to do with it? Let's tell you about a couple more headlines today. starting with Jeff Bezos selling shares of Amazon.

According to an SEC filing, he sold 240 million worth last week. Our sources telling our own David Faber that Bezos will be selling even more shares, but he still holds only slightly less than a billion shares of Amazon, which is about 10% of the company. Well, good for him. I hear he's maybe moving to Florida. And on that very note, I think that... And is he getting remarried?

He's got a wedding to pay for it. I've heard about that as well. Yes. Yeah. All right. Speaking of Florida, the Miami Dolphins may soon be adding a... big fish to their ownership group. Citadel's Ken Griffin, reportedly in talks to buy a minority stake in the team from owner Stephen Ross. This is according to Sportico. Griffin, I think, is also

building a big house down there in Florida, and he's got $35 or $6 billion, plenty to spare. If it falls through, maybe Bezos can take a crack at it. Yeah, maybe. The newest billionaire in that area. And they're called soft skills, but they can be hard to learn. So colleges are now teaching students how to talk to each other. While your education and resume may help you land an interview, often people's skills help you land the job. No, I think that's, it's very interesting. I watch my son and his comrades, and they're usually just texting one another. They can be in the same room. They can be having a conversation, but they're not talking. My son, my oldest is five, and I'm already at war over. Yes. Hold it all. Hold it all.

No phones, no social media. Thanks for watching Power Lunch, everybody. Closing bell starts right now.