Power Lunch - Higher Wage Contagion, Debt Weight? 10/5/23

Episode Date: October 5, 2023

If and when the labor strikes across America are solved, one thing is for sure: thousands of workers will have higher wages.But will all of those new salaries lead to more inflation across the economy? We’ll discuss what’s at stake.Plus, the higher interest rate environment could pose a risk to overleveraged stocks. We’ll trade some key names that could be impacted.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome everyone to Power Lunch alongside Kelly Evans. I'm Tyler Matheson. Glad you could join us. Coming up, higher wage contagion. Now, if and when the various labor strikes are resolved, one thing is pretty certain. Thousands of workers will have higher pay? But all those new salaries lead potentially to higher inflation. We'll look at that. Plus carrying debt weight. This higher interest rate environment could pose a risk to over-leverage stocks. And we're going to take you through some of the names, Kelly, that could be impacted. Indeed, we will. Let's get a check on the markets, which are looking a little better than they did earlier. We've narrowed the gap, trying to turn green again like we briefly were top of the session.

The Dow's down only 15 points. The S&P's down 7, 4256, the 200 days around 4205, and the NASDAQ down 22. Shares of GM moving lower this afternoon on reports from the Wall Street Journal. It's not about the strike. It's that at least 20 million vehicles potentially have dangerous air. bag parts. Those shares off the lows down two and a half percent. On to another automaker in the red, how about Rivian down nearly 20 percent now after announcing a billion and a half dollar convertible bond sale and issuing disappointing guidance. Those shares have been steadily moving

lower. They're under $20 today. And Clorox also lower after weak guidance will have much more on this company's woes ahead. 6 percent drop. This one, Tyler, moving a little bit off the session lows. Oh, finally, a new study revealing weight loss drugs like Weigovianos. that they may be linked to stomach paralysis and some other rare issues. Beyond the risks to your health, the drugs also pose a risk to the profits of food retailers, but they could benefit the airlines. You can see the trading action here, not major moves one way or the other, but a lot at stake for these weight loss drugs.

Tyler, we'll talk more about that later on. Stomach paralysis does not sound good. All right, let's move on here. Two key strikes continuing in the auto and health care areas. On the automobile front, negotiators between U.A. and Ford are seemingly narrowing their differences in some areas. GM making its sixth offer to the labor organization with progress in, quote, key areas. Meantime, 75,000 Kaiser Permanente employees continuing their strike today,

threatening a longer strike in November if demands are not met. But even if resolved, these strikes could have lasting consequences in the long term, possibly for inflation. Just last week, the billionaire investor, Barry Sternlich, weighed, in with his thoughts. The UAW is on strike. You're asking for 40% of wage increases. The unions, it's funny because the Democrats, what's wrong with the Biden administration. Why is he so impovered? It's inflation. That's what people say. It's the economy dummy. It's the economy. People have less in their pocket. But now he's backing the unions who are forcing wages up, which is creating the

inflation he has to kill. Well, let's bring in Jim Pethakouca's, AEI Economic Policy Analyst, and author of The Conservative Futurist, How to Create the Sucurist, How to Create the Sucer. sci-fi world, we were promised. Along with this is Bill Sokol. He is a labor lawyer representing unions in their labor relations with employers and members. Bill, Jim, welcome. Good to have both of you here. Bill, let me start with you.

Are strikes inflationary in and of themselves, number one, and number two, are the strikes that are going on right now in any sense, big enough to be in any way inflationary to add a tick or a point or a percentage? percentage point or half of one to inflation? No, I think that's smoke and mirrors. It's no mistake that you have a CEO who has millions of dollars telling you, oh, inflation because workers are going to make a decent living. For every economist who will tell you, oh, higher wages will lead to inflation, you have another economist saying that's not happening in the present economy. In the present economy, wages are not the reason for inflation.

So pick your economist, you know, buy the guy you want to buy, and Hilliott tell you the tale you want to hear. But from my point of view, it's not about workers' wages. It's about billionaires. They own 40% of our assets, as much as 90% of Americans own 40%. So they're the folks who are causing inflation from my point of view. Jim Pethakoukis, why don't you respond there and specifically to the idea that it is not rising wages that is behind the current bout of inflation, which albeit is declining, but, for the

such as supply chain issues and other issues? Yeah, well, first, you know, as far as what the economists are saying, Goldman Sachs is out with a report today thinking that these wage increases could add, you know, you know, two, you know, two tenths of a percent, three-tenths of a percent to inflation. And if you're trying to get down inflation, all those tenths of a percent matter. Listen, looking backwards, wages have not been the cause of inflation, but they will be the cause of inflation going forward if we have wage increases which are not matched by productivity gains. That's what drives wages over the long run so they're not inflationary. And just looking at the UAW, do we see an

auto industry, an American auto industry where there's very few cars like in the top 10 for most reliable? Very few of their brands are in like the best cars. Does it look like that is an industry where high productivity will be rewarded by high wages? If you have a mismatch, you will have wage inflation, and that's bad for the economy. Bill, you're free to respond there to Jim, but I want to ask you a question that I'd love to get an answer to. Is the current strike at the UAW mostly about pay, or is it more about job guarantees in the face of electronic vehicles, electric vehicles, that will require many fewer parts and therefore many fewer jobs? Is it really about job security as opposed to wage increases?

I would say it's about both, but I agree with those who say, look, they can always make an economic deal. UPS showed folks how to do that. Good management, good union, they'll find a way to come together on the numbers. The truth is, from what we know, they're getting pretty close on the numbers. But there is a major issue about what to do about the advent of electric vehicles. There's no question that the workers who have built, you know, the internal combustion engine, they don't want to be thrown on the slag heap of history. You know, thanks for your surfaces, go home and be unemployed, be part of the Rust Basin.

So there has to be something done for them. And then when you talk about new battery plants, new electric vehicle plants, I agree. Those workers, part of what's happening here is they want to be part of that new kind of car that's being built. And that will happen. It's just a matter of how long the automakers are going to run this strike against us because the union will agree on things tomorrow, right? Unionists don't want to be out on strike. Management has to decide now that the cost is north of $4 billion for this strike, that it makes more sense to include these workers in building electric vehicles as opposed to keeping them out on the streets. Jimmy, the health care strike is interesting. Go ahead. I was just going to say, I don't want it to become too much about the audit industry. Yeah.

Yeah, that answer, I think, suggests the political risk for President Biden. It is the push to, as a. ASAP created all electric vehicle America, that is a Biden initiative. And that is creating tension. It is creating conflict. Whether or not you think it's a good idea for the long run, I would have to think. If I were an auto worker, I'd be thinking, this is a problem that doesn't need to be there that is being foisted upon us. Maybe you think that'll be great for your kids in the environment. But right now, I think the risk is palpable to the Biden administration, even if the president shows up on the picket line every now and then. And what specifically is that risk?

The risk is that he... That risk is they blame the president for the... We were talking about the risk to jobs, the uncertainty. It is the administration injecting the uncertainty into the automakers by pushing electric cars. And in some states, you know, were local governments mandating electric cars by a certain year. Yeah. Well, that was what I was driving at when I was driving at. I asked Bill that question about is this mostly about wages or is it about the drive which is being

pushed by states, as you point out, by governments, not just in the United States, but around the world, to transform from the old model, which is internal combustion engines into this new paradigm, which is electric engines, and that that is a job killer writ large. If you want an answer to that, I mean, what I'll tell you is, no, it's not a job killer. There will be new jobs created by new technology. It's as though you're talking. When I hear Jimmy talk, it sounds like the Teamsters at the beginning of the 20th century. We got to stay with horses and wagons.

We don't need those trucks. I don't think that. I don't think that, but that's the risk. We stick with the horse and buggy because it works so much better. Sorry, there's going to be electric vehicles. You can't have one article saying that our summers have become terribly because of fires and heat. We've got to do something about the internal combustion engine. But hey, let's do it later.

That's not what's happening. Biden has already put $12 billion towards the automakers so that they can make this transition successfully. We're either going to make it or we're going to be left behind. The most profitable car company in the world is BMW. And they're managing to do it, paying workers good wages. They have a 55 retirement. They work 35 hours a week. And they're making big profits.

And what I'm just right. national adjata. It's a great discussion here. I'm going to give one or both of you the opportunity to answer this question. I have no doubt that electric vehicles will create new jobs, but on net, will they create more new jobs than will be lost potentially in the transition from IC engines? What do you say, Bill? Fabulous question. No one knows the answer. Anyone who says they know the answer is just dreaming. Okay. I don't dispute that. I have no idea what the answer is. Go ahead, Jim.

Listen, I think in the long run, I think innovation is great, but I'm talking about a political point right now where you're asking auto workers to accept two in the bush as you take away the job in the hand, potentially. So that's a risk. Listen, long-term, great. As Kane said, and the long-term, we're all dead. All right, gentlemen, thanks very much, Bill Sokol, Jim Pethikuz. We'll have you back. This is a lively conversation. We appreciate it.

Very good. Politics and inflation are one key overhang for the markets, but rising rates also. also remain another for a lot of investors. The 10-year yield hitting a session high of 4.77 earlier today off that level right now. The two years still above 5%, the 30 up at 488. Kevin Nicholson is a portfolio manager at Riverfront Investment Group. Kevin, how focused are you on what's been happening in rates? I'm very focused on what is happening in rates because I think that rates drive the world right now. And earlier this week, we saw the 10-year Treasury crossover for And I think that that's an important gauge because ultimately, I think that the long end of the

curve is going to anchor itself right around 5 percent, as many investors start to try to lock in these higher rates that we are experiencing, because when you think about most of folks that are thinking about taking out withdrawals every year, they're thinking about, you know, 4% is what, you know, most financial planners have put in place. And now you're talking about getting risk-free rate that's, you know, closer to 5%. No, we were kind of joking about this before. Like, can ever, why do you need a 401k if you can just buy a 30-year treasury at 5%? But the problem is that that doesn't keep up with inflation, right?

That, that 5% is, you know, that's nominal dollars and it's not going to grow with the stock market or anything like that. So, but yes, it's totally crowding out people from other. investments. And this is the kind of liquidity whole argument that Bridgewater and others have made, that until there's some other major buyer of treasuries or the yield stop rising, it's hard not to draw capital out of other assets. You're absolutely right. And, you know, one of the things that I think that is going to be the big paradigm switch here with interest rates rising higher is that I think that you're going to see fewer people allocating to equities. Because when you're

you think about where the equity market is right now, you know, the S&P 500, the dividend yield on the S&P is right at 1.62%. And the equity risk premium, when you think about where it was a year ago, it was 212 basis points. Today that sits at about 35 basis points. So it's making it more and more difficult to allocate to equities when yields are getting this high. And so that's why I think that it's important to start considering fixed income and thinking about that investment going forward. So you say we believe the Fed will raise once more and then leave rates unchanged through the third quarter through the third quarter of 2024. So that tells me that you think we're near the end of this cyclical rise in interest rates. That would suggest to me that this is a very

We're getting close to a very good time to buy and own bonds. Either if you want to buy those bonds and hold them to maturity because the rates aren't likely to go much higher from where they are today, or if you want to buy those bonds and then sell them when rates start to come down and the bond value goes up. You're absolutely right, Tyler. We believe that we are getting close to the end here. We have had a huge repricing in the fixed income markets over the last two years. A year ago, or a little bit more than a year ago, we had a 10-year treasury that was at 1.5%.

Today, we're sitting at 4.71%. So we think that a lot of the damage has been done, and now that yields are higher, that break-even, You know, that yield per unit of duration has gone up immensely in the fixed income market. So it's giving you an opportunity that now with the coupons being so much higher that you're not going to get as, you know, these moves up and rates aren't going to hurt nearly to the same degree as they once did. Let me squeeze in one more quick question and get one more quick answer. There is the rate the Fed can control, which is basically the Fed funds rate. at whatever it is. And if they stop, that's one thing. But the rest of the market is not control, it may be influenced by the Fed, but it is not controlled by the Fed. It is controlled by private

buyers, which can include the Fed, but generally not. Do you see if the Fed is done, could the rest of the market nevertheless continue to rise in interest rates because of the fundamentals or the mechanics of that market. In other words, that the issuance is so high and that the buyers are becoming fewer. There's always that possibility. There are, you know, you have, but there are certain segments of the market that need to buy longer assets because they need to match their assets and liabilities off, you know, such as insurance companies and such. So I think that there's going to be a segment of the market that is going to want to buy bonds. at the long end of the curve. Obviously, there are others that are, you know, don't want to catch

a falling knife. And so they're trying to wait. But again, I will reiterate, I believe that, you know, right around 5%, that's the sweet spot. And it's because you're now getting to the point of where an earnings yield is with stocks. So it's, you know, you're making that call of, you know, where is the value add? And I think that, you know, you know, fixed income now is getting to the point where it is more of the value add than equities are. Because I feel that equities are going to be range bound at least through the end of the year because there hasn't been a catalyst. Okay, Kevin, thanks. Kevin at Riverfront Investment Group, Kevin Nicholson. All right, coming up, the next generation consumer, what will the restaurant experience look like in a few years and what is most important to younger consumers?

Bernstein out with a new note on the all-digital future. We'll speak to the analyst next. The holiday season, just around the corner. Can you believe it? This year, shoppers are back in plastic as nostalgia is driving attention to Barbie Pokemon and Super Mario Brothers toys. Details on what sales could look like when Power Lunch return. All right, welcome back to Power Lunch, from digital sales to laborless stores. Technology is slowly taking over the restaurant business. And while we may not know what the future of food holds exactly, Bernstein says, better innovation will be the distinguishing mark between restaurant chains. And they even have a few names, they say, already ahead of the curve. For more, let's bring in Danilo Garjulo, senior research analyst for restaurants at Bernstein. Danilo, thank you very much for being with us. You say that social media is the new real estate and that companies with a visible digital presence

will outpace those who mostly rely on physical stores as a primary form of advertising. I guess what you're saying here is that the companies that are out front on Instagram and TikTok and others will have the more effective connection to consumers, the more effective advertising. But I also wonder if this isn't an opportunity for the smart, local, non-chain player to make their name and prominence more notable online digitally as well. Yeah, that's a great question, Tyler, and thank you for having us. I would say the local players obviously have an advantage into using the digital communities locally to really foster the consumer on their street or in their local cities to basically get some presence that they wouldn't have otherwise and some additional advertising they wouldn't probably have otherwise.

The real challenge, and that is the reason why we believe that we are leading toward a more chain restaurant, in the United States, well, the real differentiator here is going to be who's going to be able to afford that level of investment to really bring at scale consumers onto your restaurants. Again, we think that larger companies, you know, companies that have real kind of digital assets already developed as well as better and more refined ways to get to the consumers through data could really understand who to target in a more cost-efficient way. so the ROI for them is going to be higher, and therefore we believe that there is going to be even more concentration in the U.S.

Although I will say a diner in my town of Delhi has 50 million views on TikTok and almost half a million followers. That's amazing, yeah. Park would, and they're just the local joint, and they now draw people from all over. They have a dynamic personality. Yeah, I'm wondering, Danelle, it's fascinating to think about it because little Angelo's, My favorite Italian restaurant in Bloomfield, New Jersey, there's the plug. They can't afford to compete advertising-wise with Olive Garden or anybody else on television.

They're not going to buy a spot on an NFL game, but they can get to me on Instagram. Yeah, and I think the kind of the key difference is going to be, again, who is able to do it at a scale? the local restaurants might be able to get their local community excited. You're looking potentially at kind of edge cases of restaurants who have been particularly popular in their local communities. For those type of examples, absolutely, I think that the social media expansion as well, it's just in general digital advertising

is more like kind of a more democratized way to get access to your consumers versus just focusing on the real estate. But we're talking in our view onto edge cases. On average, if you're thinking about kind of the global tech capabilities that a local restaurant might be having, but it's a little rarer to see those type of examples. So on average, we're expecting to see more sophisticated players to be able to be outpacing the local restaurants. Although your point is very valid. You may well see, you know, the very special place that is able to really attract the local consumer and boost up more narrative.

You like yum, you like Chipotle, McDonald's, Wendy's. I think the trillion-dollar question, Danilo, overhanging this whole space right now where the stocks have been a little weak in recent months. Well, maybe there's two of them. But the first is what happens with the weight loss drugs? I mean, are they seriously going to eat away? I forget the number we heard yesterday over from Dan Dahlavut, Mizzuho, but he was saying they could lose 30 billion in revenues. I mean, just these astronomical numbers. And, of course, number two, how consumer spending trends look.

But how do fast casual restaurants compete with the fact that people losing weight appear to be eating less than they used to? Yeah, and I would basically split your question in two parts. I will say the first part, are we going to be seeing lower number of people, like a reduction in traffic because people might be eating up less. That's a potential outcome of the search of the GFP ones. At the same time, restaurants remain a place where it's more of an indulgence, it's more of an affordable luxury type of experience. And so it's unclear whether people are going to be necessarily cutting off their kind of weekly discretionary

and their weekly self-endangent situation. If they decide actually to go to a restaurant, there is also a question on where are they going to go and what kind of food are they going to be purchasing for time. And here is where, I think, the fast casuals of the world, you know, chip holders of the world, with their customizations and maybe even kind of leaning towards

leaner meats and more customizable salads could be actually better position to get additional traffic from people who might be just improving and upgrading their quality of their menus. Yeah. It's very interesting, Danil, we really didn't even get to the digitization of the connection when I'm in the restaurant or pre-ordering online and using my phone or a kiosk to do it. That's another fascinating area that I'm skeptical of.

But that's for another conversation. Danilo Garzullo, thank you very much. Appreciate it. Thank you. You know, I'm thinking there I go to a restaurant, and I may be a, a, a, choosy kind of person. I don't want the onions on my hamburger. And I've got to go down to the third level of menu tier on my phone. No, no onions, no special sauce. And by then, I'm ready to throw my phone through the window. Yeah. Or if you get to then the payment or like your login is saved.

The payment. The payment. I feel you're paid. Google pay. I mean, whatever. I don't know, man. Singaporean authorities seizing 150 properties, 62 luxury cars, thousands of gold bars and jewelry in a monetary laundering scandal that quickly grows to over $2 billion. We'll explain how this scandal is shining a light on family offices and China when we return. Welcome back. We are about to enter a hugely important period for retail, and the sector has been struggling. The XRT Retail Up, we're showing it there on pace for its third loss in four sessions, down 7% over the past month. and flashing a death cross lately with the 50 day moving below the 200-day moving average. So how important is this holiday shopping season?

And what are the trends exactly, Courtney Reagan? What a holly jolly intro. Death cross. Welcome. Hey, Santa. With the teddy bears in the background. No, this season, though, obviously, it's always hugely important. It's the biggest quarter for most retailer when it comes to revenue.

Their inventory has been planned a year in advance. And while Black Friday isn't as big in stores as it once was, that is fair. It is still predicted to be the biggest. in-store shopping day this year, followed by Super Saturday, which falls on December 23rd. Censormatic predicts 10 of the busiest days of the season will make up 40% of holiday sales. Meantime, online sales expected to grow just under 5% according to Adobe's forecast out today. And toys could be the second most popular item behind apparel this year, even though toy sales are expected to continue the year's trend of lower sales compared to last year.

Good news for parents, I mean Santa, toy inventory levels. Very healthy. Toy prices are down 2.9% over last year. And discounts, averaging about 35% off. That's according to Adobe, many of the season's hottest toys ring of nostalgia. Coming off the heels of the successful movie, Mattel's Barbie Dreamhouse, it's on mini-hot toy list. It's about $200. There's also Hasbro's Furby, if you remember that. Nintendo's Super Mario Brothers Wonder Game, Pokemon, Trading Card Game, Tomogachi, Virtual Pets.

Remember those, Kelly? Those are going to pop up on mini list this year. I could never keep it a lot. I know, right? It just always dies. Less nostalgic, but Gabby's dollhouse cruise ship, play set, LOL, surprise, magic flyers. Those are likely to be hot items, too. So have supply chain issues basically been ironed out?

For the most part, they really have. Yeah, and it was a tough couple years, but for the most part, they have been ironed out. And everyone I've asked when I was talking to the story about inventory, so it's not problem. What's this I hear about Toys R Us trying to come back in a limited way? Yeah. Okay, so Toys R Us, obviously, as we all knew it, did go out of business as a more, let's call it, traditional retailer when you're looking at the business model. So Toys R Us was purchased the IP by W.HP Global. So they own the branding, the names, they own Jeffrey. And so they partner sort of

with operators or at the case of the American Dream Mall with American Dream itself. And they're running a store there, for example. They also have a partnership in Macy's. So Toys R Us have pop-up stores in Macy's. Is it like spirit where they might just appear certain times of the year or or they're more permanent installations. So the ones I'm mentioning are more permanent installations. Yes, yes. And so that Macy's pop-up kind of started as a pilot, and then it went very well. And so it continued to expand, but then they do have a couple stand-alone stores.

I knew you'd know the answer on that. Thanks, Gordon. Appreciate it. Let's get a check on that wild bond market. Let's go to the wild Rick Santelli for the action. Rick. Tyler, not as wild today as it has been consolidation in front of the jobs, jobs, jobs report. Look at an intraday of tens, but maybe more importantly, look at a two day of tens.

We're doing a little bit of work and holding basically yesterday's low yields. It's the same with all the longer maturities and even with most of the curve, higher in price, lower in yield. We still see what is called a bull steepening today because short rates have dropped even more aggressively today in front of tomorrow's report than longer dated rates. And if you look at a 10-year on a bigger front, many have been writing about how aggressive rates have moved up since the September. Fed meeting. They've been moving up aggressively since May. Early May, we're at 3.30 in tens. And finally, I continue to point to that big parking lot that was filled with two and a half trillion treasuries in December because it's now at the lowest level in more than two years at 1.26 trillion. And I do believe that that is part of the equation about reluctance to be

holding certain treasuries. Kelly, back to you. All right. Rick, thank you very much. Rick Cassantelli. Over to the energy market now, you know, crude's only down a cool 13% in 10 days or something like that, Pippa. Yeah, the unwint here has been very fast. We saw so much money chasing this market and now we are seeing liquidation of some of those hedge fund players that are saying rising rates are going to ultimately kill demand. Now, the gasoline demand is really interesting here because we've seen essentially a collapse in the gasoline crack spread with Arbob futures down about 10% this week. And we should have brought this up with Courtney, but it sounds like we could be below $3 nationally all of a sudden. And a

big change from how bad we thought it was going to be? So there are some questions, though, about the accuracy of that EIA data. So there's a growing camp that's saying that really doesn't tell the whole story. Patrick DeHan over at GasBuddy is one of them. And he says that the EIA data is measuring from rack to retail. And so that's from the wholesale distributor to the gas station. It's not measuring when Mom and Pop drives up to the station and fills their tank. And so what he said is that stations are waiting to fill to refill because they think that

maybe prices will be going lower. And so it's not as dire as it would look. Also, refiners are running full out in order to capture the distillate margins. And so gasoline is a byproduct of that. So we do have a little bit more of production here than we would normally. All right, Pippa, I have to leave it there. Thanks very much. Pipa Stevens.

Let's go to Bertha Kulms for an update. Bertha. Hey, Tyler. Lawyers for former President Donald Trump are asking a judge to dismiss his federal election interference case in D.C. They argue he is immune from prosecution for, actions they say were taken in his official role as president. The motion is possibly the most pointed attack on the federal case, which charges Trump with plotting to overturn the results of the

2020 presidential election. A federal court has ordered Alabama to adopt a new congressional redistricting map that could lead to the state electing two black representatives for the first time in its history. The map creates a second district with a near majority of black voters. Alabama Republicans were ordered to redraw that map after the Supreme Court and lower courts ruled that their other proposals diluted the power of black voters in the state. And French researchers say Western Europe's highest peak, Montblanc, has lost more than six feet in the past two years. Surveyers measured the mountain aided by a drone. They say it's now up to expert scientists to look at the data. and put forward theories to explain the phenomenon.

I guess shrinkage happens in nature as well, Tyler. I don't know. Look at that. That's just six feet in three years. That is amazing. Bertha, thank you. All right. Coming up, in today's three-stock lunch,

we will take a look at stocks that could be debt on arrival in this higher interest rate environment. Power lunch will be back in two minutes. Welcome back. Time for today's three-stock lunch. And today we want to focus on companies that care. a lot of debt, as we've seen rates surging higher, potentially affecting what they'll have to pay and what their earnings will be. CNBC.com compiling a list of names that have a debt-to-equity ratio over 150 percent, negative earnings growth and are within 5 percent of their 52-week lows right now.

That list includes General Motors among the automakers also hit with a strike. Here with our trades, Boris Schlossberg is BK asset management. He's also a CNBC contributor. Is GM our first stock, Boris? It is our first stock, and it's really my worst stock, or the one that I think has the weakest story here. Because, you know, forget about the UAW strike, forget about the fact of the news today of the 20 million airbags. The basic underlying business of GM, I think, is really as ostensually threatened.

They're running negative cash flow right now. As we all know, it's much more expensive to finance a car here, so it's going to be much harder to sell new vehicles. And their whole investment into EV has yet to pay off. I've yet to hear one single positive review about all their EV investments as to get consumers excited. So I think just the fundamental business alone is going to weigh on them on top, of course, all of the interest expenses they're going to be facing. Let's move on to Coca-Cola, Boris.

Coke is a much more different story. I mean, here I think I actually absolutely like, this is my strongest buy amongst all of the debt, high debt companies, because it's organically growing at about 10%. It's actually benefiting, I think, from the global inflationary spiral, because the costs are contained, but it still has pricing power. There are nations across the world like Indonesia, Malaysia, Middle East, where the young population does not have access to alcohol, so they have a natural organic growth over there.

If you really want to bargain hunt, sell the puts to 50. Then you're going to get an absolutely great price of Coke. I think, you know, with the dividend yield growing forward, it's just a good long-term hold, in my opinion, at this point. Decent interest coverage, but still, the fact that they have a high debt load is noteworthy. All right, what about Dominion Energy? So Dominion Energy is definitely a speculative buy, but so much of the bad news is already in the stock. I mean, sort of the joke on the street is a D stands for dog in the stock.

But they are doing a couple of things, I think, are very positive. They are getting rid of a huge amount of assets. They're going to sell about a third. They're going to reduce their debt load by a third. Their interest rate serviced by about $750 million. That's all very positive. And they're trying to stabilize the business and grow it much more sort of a steady electric regulatory environment. And I think if they can achieve that, given the fact that all the news is kind of baked into the stock,

there's definitely a potential here for an upward to climb. So to me, this is an interesting, although albeit very speculative buy right now. All right. Woof. Boris, thanks so much. We appreciate it, Boris Schlossberg. We're going to take a quick break. I'm tired.

We'll be right back. Welcome back. A multi-billion-dollar money laundering scandal in Singapore could have far-reaching consequences for global capital flows in the world's biggest banks. Robert Frank is here with the key detail. of this story. Robert. Tolly, this was a big one. Singapore authorities freezing more than $2 billion worth of assets, including 152 properties, 62 cars, thousands of bottles of expensive liquor, gold bars, jewelry, you name it, they found it. Ten people have been charged with laundering proceeds from illegal gambling and other operations. All the suspects are from China. That has cast

a spotlight on the massive wealth that's moving right now from China to Singapore. In fact, more than $1.5 trillion poured into Singapore just last year, much of that from the Chinese wealthy, trying to protect their fortunes from the Chinese government and tensions in Taiwan. Also in the spotlight here are family offices. Singapore officials are investigating whether any of the suspects may have used family offices to launder this money. Singapore has become a huge global hub for family offices thanks to its light regulation and taxes. Family offices have tripled in Singapore just since the pandemic to, over 1,000 today.

Singapore has been flooded with so much Chinese wealth that it's imposed several new taxes on high-end real estate luxury cars, really anything that the wealthy buy. So these are largely Chinese nationals that are under investigation here. That's right. And it's expatriated money.

Right. And so Chinese officials right now are trying to keep as much capital in China as possible because of what's happening in the economy. And there's a suspicion that perhaps the Chinese authorities told Singapore, look, you've got to get these guys. Do we know whether Americans move their money to Singapore for not necessarily to launder money, but to take advantage of something you mentioned? In fact, Ray Dalia, the famous hedge fund manager, has his family office in Singapore.

Sergei Bryn and Google has his family office in Singapore. That's what I'm asking. And so it doesn't mean they're doing anything wrong. This is a very well-regulated place, family offices. They want the support network, the whole sort of cluster of expertise in Singapore, the wealth managers to develop that as an industry in Singapore. But there is a lot of American money, European money, Russian money, all over the world, Saudi money in Singapore, because that's what they wanted. Is there potential cooperation with the Chinese a headwind here to, you know, I'm just curious about the geopolitics of that?

The geopolitics with Singapore and China has, I used to live in Singapore. So it's a very sensitive relationship. I mean, Singapore is tiny relative to China. but China does not like when a trillion dollars goes from China to Singapore, Singapore likes to say, look, we can manage it. This suggests that maybe at least in this case, their controls didn't work. Especially as more people leave Hong Kong for Singapore. 100%.

Yeah, interesting. Robert, thanks. We appreciate it. Robert Frank. Meanwhile, be sure to join CNBC's Financial Advisor Summit on October 12th. Scan the QR code on your screen to register or visit CNBCEvents.com slash FA. I will see you there. By the way, there's more Power Lunch next.

Welcome back, everybody. Take a look at shares of Maradi Therapeutics, surging 26% in the last few minutes on a Bloomberg report that Sanofi is exploring an acquisition of the drug maker. The stock had been briefly halted for volatility on the news. Off slightly, but again, up 25, almost 27%. All right, coming up, wait watchers, Jeffrey says airlines. Airlines could have an ally in weight loss drugs

in the companies that make them. Lighter passengers means less fuel used to fly them and more potential problems. We'll discuss that and much more after the break. Welcome back, everybody, a little less than six minutes to go. Lots more stories you need to know about. Let's get right to it. Starting with some newly reported comments from Walmart gaining traction and executive claiming that weight loss to eating drugs like OZempic and WeGovi

are dampening food sales. This matches up with comments obtained by CNBC previously. You don't buy it? I buy it. I don't know. I find there to be, I mean, the OZMPIC is expensive, man. So apparently 40 million Americans, is it that they're on it or they're eligible? I think, I thought I read that figure the other day.

It was much higher than I thought. They're expensive, but there are some options to increase affordability. Marjoro and Mugovie and so forth. But I also wonder if high income people, and I know we're sort of trying to draw the correlation, but that people who can afford the drugs also might have had quite a bit of discretionary income at a place like Walmart to previously have spent it. Let's continue this conversation because weight loss drugs impact could stretch even into, it says right here, the airline industry. Jeffrey's out with some fascinating research using United as a model and claiming that a used passenger weighed 10 pounds less on average. The weight savings would equal around 1790 pounds per flight.

The airline would save 27.6 million gallons of fuel per year, or around $80 million worth going by the average price of fuel this year. Bear in mind some airlines already considering passenger weight into fuel costs with both New Zealand and South Korea, weighing flyers before boarding. I'm not going on those airlines. I'm just saying. Let's bring in Sheila Kailu, an analyst in Airlines at Jeffries. Sheila, welcome. Good to have you with us. I mean, I get the theory here, but But is it, I mean, there can't be that many passengers who were on these weight-loss drugs losing that much weight. And for everyone who is losing weight, there are probably others who are gaining it. Of course. Well, they weigh our baggage, so why not weigh us to charge X-Star? We were having a little bit of fun, given we cover aerospace and airlines. And airlines are having a really tough time. Fuel is up 30 percent. Labor cost is up 40 percent.

So they have two things out of their control. So what if, you know, weight loss drugs actually created a tailwind for them that they weren't imagining? And United Airlines put out a stat out there in 2018 that we extrapolated to get those ratios you saw. So what they did was change the feedstock in the paper they used for their hemisphere magazine and saved an ounce per magazine or about 10 pounds per flight. We took that same stat and said, what if 175 people lost 10 pounds each, you know, assuming some didn't gain weight? What would that mean for fuel savings? Well, it would save $80 million per year about 2% of United's fuel costs. And fuel is about 25% of airlines' costs.

So lots going wrong for airlines, but what if something went right that they weren't even planning on? It's a fascinating thought, and I wonder whether an airline might indeed induce or incentivize people to lose weight and say, okay, if you can prove to me that you just lost 20 pounds, we'll give you a 5% discount on your fare. Yeah, they wear our luggage all the time. so I'm constantly removing things out of my baggage, so why not put us on the scale, too, and motivate us. And, you know, airline season, earning season is upon us. So we'll see what happens with pricing. Just very quickly, New Zealand and South Korea Airlines are weighing flyers before boarding. Why are they doing that?

Are they doing that to make sure the plane isn't overweight, or are they doing it simply to collect data or what? They're probably doing it to move around people on the right side of the plane. equal weight across the aircraft. That's probably one of the things they were doing if they saw low capacity. I'm not sure behind their rationale. I think we're going to be a while as away before we start weighing people on U.S. carriers. But again, airline season, earning season is upon us. And we think it's going to be a tough earning season for these guys, given what's happened to their cost ratios. And thank you. Thank you very much. It's a fascinating, fascinating concept. And thank you for doing the work on it. Appreciate it. Thanks.

Nor do I think they need to go as far as weighing people to benefit. I mean, the point being, if the average population's weight lessens somewhat, it will help them at a tricky time. The Wall Street Journal is, meanwhile, reporting we wanted to tell you about this story before we go as well. General Motors has at least 20 million vehicles built with a potentially dangerous airbag part, part of a previous push from safety regulators, to recall 52 million airbag inflators made by Tennessee-based ARC automotive, which they claim can explode with too much force during a crash, sitting metal shrapnel at vehicle occupants. Got to watch the stock for stories like this. Shares are down about 3.5% at session lows a little bit off that level now.

And you think about it. How many recalls have been tied to airbags? The Takata airbags some years ago, a story that is still playing out as far as I know. Over again. Yeah, it's really something. And GM shares, how many times have those been in the crosshairs lately between our discussion about dead and the strikes and... The interesting point, too, about GM and its transition to electric vehicles.

When you think of electric vehicles, frankly, I'm telling you, I don't think of GM. I think of Volkswagen, I think of Volvo, I think of Audi. There aren't a lot of cheap compact models. The Volt has the potential or had the potential to be that. All right, let's give you one more here. Oh, give us Uber. Come on, give us Uber. Where is it? I'm going to find it. Take your packages to FedEx and UPS for $5.

That's right. There you go. That's the story we were going to give you. We gave it to them. $3 if you're an Uber one member. Oh, is that right? So, you know, another subscription as a service. Well, we thank you for watching Power Lunch once again.