Power Lunch - Home Improvement Trade & $335M Climate Tech VC Fund Closes 1/22/24

Episode Date: January 22, 2024

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

Welcome to Power Lunch, everybody, alongside Contessa Brewer. I'm Tyler Matheson. And the rally is still rolling along off the best levels of the day, but still more record highs in including the Dow 38,000 for the first time. What needs to happen for this rally to keep chugging along? All right. Let's get a look at the numbers right now. Tyler mentioned that the Dow hit a record high above 38,000, a little more than a month after crossing 37,000 for the first time there. The S&P 500 also hitting a new record today. Now you see the Dowell. up a third of a percent, S&P 500, the same NASDAQ composite up four-tenths of a percent. Now, the NASDAQ composite didn't hit a record, but the NASDAQ 100 did, which means the bigger cap tech names are outperforming the smaller names. The little guys are trying to run and keep up. You can also see that in a chart of the Russell 2000, still about 25 percent below the all-time high.

It's set back in November of 2021. That underperformance, one sign the bears are pointing to, but right now the Bulls are winning. Let's bring in Mike Santoli for more on where the markets stand right now. How do you read the tea leaves, Mike? Well, Tyler, the first thing probably to note is that a new record high in the S&P 500, especially after a long drought, and this one has been over two years, is generally more a show of strength that should continue as opposed to a warning sign that a top is likely in. If you look at the prior dozen or so, let's say 14 times where the S&P has made a new record high after a year without one, the forward returns are actually better than average, up 90%. of the time over 12 months. Obviously, that's no guarantee. Clearly, there have been exceptions. And I do think one of the quibbles that people are going to point to is the unevenness of the gains,

especially in the last few weeks, where you do have a small handful of the mega-cap tech stocks carrying the weight. That said, I think we could take some comfort in the fact that it's also occurred as economic data have been better than expected, and the odds of a March Fed rate cut have declined, which suggests that good news for the economy is somewhat good news for the S&P 500. index and by implication for most of the stocks and for the earnings outlook. So I would say a net positive sign, even though we maybe have not quite had enough payback from that fourth quarter rally in the average stock just yet. Thank you. Mike, stick around as we want to keep the conversation going. Our next guest thinks the market is due for a pause. Let's bring in Brent

Schuette, a chief investment officer with Northwestern Mutual Wealth Management. Brent, welcome. Good to have you with us. You heard Mike there talk about what history tells us, and history tells us that when the S&P says Mike hits a new high after not having hit one for a year or more, that the performance is usually pretty good. Is what you're saying, does it quarrel with that thesis or does it just mean we're going to have a pause and then we'll pick up and move farther higher? Unfortunately, I think it quarrels with that thesis. I think this time is a bit different given kind of what's happened post-COVID and where

we're at right now. Look, to me, I think a lot of the good news has been priced in. People see finally inflation coming down. That was something we forecasted. Now we're worried that inflation is moving from a COVID thing, which is what that was, to something of an end of a business cycle thing. So we're relinking to an economy that looks late in the economic cycle where wages rise, they stay elevated, and that puts upward pressure on inflation, which is where we think

we're at right now. And given that backdrop, we don't think the Fed is going to be easing policy anytime soon. Certainly if they do, I think they really risk a wage price spiral. And we think inflation numbers have bottomed. out, but they are certainly showing signs of pushing back higher. So, for example, the Cleveland Fed median CPI is rising. Core inflation is kind of stalled out in the 3% area, as has services X shelter, which is in the 5% area. And so we think, you know, these things are going to cause inflation worries to come back. The federal reserve is going to stay tighter, and the market will actually

experience some sort of a pullback in the coming months. I see in my notes that you say we continue to forecast a recession. You're fighting the good fight there. A lot of people have given up that forecast. You have not. I wonder why, number one, you see that as a probability. But number two, if there's going to be a recession, why wouldn't you then believe that the Fed would be more inclined to cut interest rates to make sure that the economy doesn't slump deeply? I am more inclined to believe the Federal Reserve will cut rates when they see a recession, but by then I'd imagine the stock market would falter if history is any guide. And so to me, that's kind of the sequencing. I think you will see the Fed eventually come.

rates once they see the labor market weaken, but that tends to be a trending type of an index. And typically, when the Fed cuts rates, it doesn't arrest the stock market decline immediately, nor does it arrest the recession immediately. And that typically has a period of negative returns, which I think is more likely than not. Look, last year, we were fighting the good fight of inflation coming down and no one believed us. That's happened. This year, I feel just as lonely as I did last year. I still think a recession is likely, just given that I don't believe the Fed is going to ease

policy until you see that labor market weekend, which by then it's too late. Well, listen, Brent, the voice crying in the wilderness is often correct. It's just unheard. Let me bring Mike back in here. Mike, we're looking for some data later this week. The fourth quarter GDP numbers, we're looking for the personal consumption expenditures price index. How much could those numbers move the markets? I think, Contessa, pretty significantly. I mean, I think a premise for this market remaining on firm footing is the disinflation story has to remain believed and plausible, and it has to show up in those PCE numbers to some degree. I think there are some patience that we can have here, and I know

the Fed is not going to be committing to rate cut soon. I don't think it has to commit to rate cut soon, but it also has acknowledged that there is room for making policy less restrictive, even if the economy hangs in there. And I think that's where the market is right now. The tracking numbers for fourth quarter of GDP still look pretty good. Maybe we're not going to be quite as strong as two percent plus, but, you know, kind of muddle through economic growth and inflation coming down is a decent backdrop, but it has to be proven out in those numbers. If the Diller outlook, Brent, that you've predicted holds true, where do you see opportunity right now for investors?

I still see opportunity in fixed income, which yields, you know, four and a half to five percent in investment grade, which I think is compensation for any near-term risk that inflation rises. Look, I think the Fed knows how to quell inflation. They've certainly been fairly aggressive, but they haven't gone all the way yet. I think they will eventually get inflation under control and people buying bonds here with yields in the four and a half to five percent area, with real yields, you know, around 2 percent, I think, will be eventually rewarded for their patients. Are there equity categories that maybe have not been participants in the rise so far that you like? We do. You mentioned one of them in the opening. You mentioned the Russell 2000,

the S&P 600 is a little bit higher quality index, but certainly I think some parts of the market have already discounted the reality that we may have a mild recession. And that's the small cap area, which is, you know, 13 to 25 percent off its highs. It trades it 14 times forward 12-month earnings that aren't expected to grow. If you contrast that with the S&P 500, trading at 21 times forward 12-month earnings that are expected to grow 5 or 6 percent. I think that's the area for opportunity for investors who tend to think past the 36, 9, and 12-month basis. I think that's where the gains are going to be had over the next few years. Brent Shudy, the lonely guy. But a nice guy. He's just a lonely guy. But we like him. Brent Shudy, Mike Santoli, like you too. It's all good. See ya. Everybody among friends.

Thanks. Shares of Apple rising once again today, up 4% in a week, close to getting back above $3 trillion in market cap. There you're seeing up a percent and a half. The company, though, facing challenges on several different fronts in several different countries. Steve Kobach is joining us with a look at what Apple's up against here. What kind of headwinds there are for them? Yeah, there's just a ton of regulatory and legal pylons on Apple so far this year, just in the last week and a half or so. And some restrictions being implemented on Apple's ecosystem. But more telling than that, it's how Apple responds and waters it all down. Let me give you some examples of the last few days. The Supreme Court last week declined to hear that Epic Games lawsuit. Now, Apple won all but one count in that case,

and it's now legally required to let apps offer discounts by sending its users to a separate website in order to pay. Now, that, of course, would normally cost the app a 30% fee that goes to Apple. But look, Apple found a way around it, and it's still going to charge 27% for people who use those external websites for payments. And some other things going on, a concession from Apple, actually, Apple offering in the EU to let third parties have access to the wallet app that means square cash and things like PayPal, for example,

can start taking access to that. And another concession, selling the Apple watch without that blood oxygen sensor in order to comply with a U.S. government import ban over a patent dispute. That's still being appealed, but right now a kind of light version of that watch being sold instead. But look, we're still waiting to see how two big things coming up, how Apple responds to the EU's Digital Markets Act, which goes into effect later this spring and goes directly after Apple's lucrative app store and other core services. In the meantime, you have other regulations coming up. There's this DOJ anticipated case against Apple. That's going to be a huge antitrust case that's also in the cards here. But we're getting some hints how Apple will respond.

Can we put up a year-to-date chart of Apple stock? There has been a pile on here. There's been a lot of trash on Apple. I'm talking aside from all the downgrades that we started the year from. Yeah, but the stock is pressing in on 200, right? Is that year-to-date? Year-to-date? Up 1%.

Not wounded fatally here at all. And two weeks ago, it was all doom and gloom because of those downgrades, because of these fears around a kind of lackluster iPhone cycle that they're in the middle of. But there's still tons of optimism regardless of all these headwinds. But what's clear, and not just from Apple, but from other big tech, is that the European unions trying to tackle some of these privacy issues around technology. and the DOJ and its big focus on antitrust issues, that it has an impact. And even if Apple has figured out a way to dodge and weave a bit, that they are still headwinds. Right. That's exactly true. And it's going to be more fully realized, I think, in the EU starting in early March,

because Apple is going to be forced, for example, to allow other app stores on their iPhone. It's going to be forced, for example, to allow these alternative payments that we know how they're going to get around that, for example. And so, and various other things. And that all just chips away little bit by little bit into the profitability and those high margins that all these services have for Apple. Have they been able to go back and start selling again those watches that had that blood, not I want to say blood alcohol. Blood oxygen. Maybe that's the next version of alcohol. Might be helpful. Exactly. Have they been able to continue selling it? They're selling it, but without the feature enabled. So in order.

to comply with this import ban, they got permission saying, you can still sell it, you just have to switch off that oxygen sensor, and they're going to keep doing that until they can figure out a way around it, or the case is resolved and appealed. But in the meantime, there are other things they want to do with that blood oxygen sensor in future versions of the watch that maybe can't do right now until they figure out this patent issue. So the future of the Apple, look, Apple was really bullish on health. I don't have to tell you that. They've been talking about it forever. And something, a core marquee feature on the Apple Watch, And being hit by in a regulatory legal way is a big headwind.

Couldn't they ultimately go to this company that has this? Oh, absolutely. And license it. They could. And that's what Mossimo, that's the name of the health tech company that's at the center. That's what they want. They would love to collect, you know, two, three, four bucks per Apple watch sold. Apple went through that dance with Qualcomm.

They're still going through that dance with Qualcomm. They don't want to do that if they can avoid it. It might end up going that way. But for now, they're going to fight it every way they can, which is telling. instead of playing with regulators, it's telling how they're willing to go hard and fight beat by beat, country by country. I mean, I think that's something people need to watch as these new headwinds start to come, especially that DOJ case and especially the EU regulations. Steve, thank you. Thanks, guys.

All righty. Coming up, Home Unimproval. Gothenheimer downgrading the improvement giants, lows, and Home Depot. The analyst behind that call joins us next. Plus further ahead, big tech dominating the VC's funding space with names like Microsoft, Amazon, and VDia, Google, spending around $25 billion on venture funding. Power months will be right back. All right. More details coming in now on that takeover offer for Macy's hot news and Courtney Reagan has been working the phones. What have you learned, Cort. Hi, Tyler. Yeah, so according to sources

familiar with Macy's thinking, the department stores board basically just feels it evaluated the offer and it's just not executable. The price is too low at $21 a share. They point out that, look, we were trading above $25 a share last year. The financing isn't really all that clear. even with a letter from Jeffries. Neither of these parties, Arkhouse or Brigade, has ever run a company before. It's not totally clear why they are interested in Macy's or if they really want to buy it or trying to potentially bid up the price to attract another suitor. So there does seem to be some interest like other activists and investors in recent years, Starbore Value, Jana Partners in Macy's owned real estate to try to unlock that value.

but you might remember it's really hard to actually do that as previous activists ultimately realize and sort of walk away. Macy's has done what it can do to unlock that value themselves, of course, when and where possible. And, you know, these sources also say, look, Macy's is always going to take offer seriously. They're going to evaluate them, do their fiduciary duty. But in the end, they just don't believe that this offer really is a real offer, nor is it in the best interest of its sharehold. I've reached out to Ark House and Brigade Capital as well to get some of their viewpoints. We know that really the specialization for these companies is actually debt and real estate, specifically high yield debt there.

That's what Brigade Capital Management specializes in, and that Arkhouse is a PE fund with a specialization in real estate. And I'll bring you more when we have it. Contessa. All right. Courtney, thank you very much for that update. You can see the shares on the move there. Meanwhile, shares of Home Depot and Lowe's both trading lower. They got hit with downgrades at Oppenheimer to perform from outperform.

The firm says the valuations might not reflect the real challenge facing home improvement retail. But as there will be better entry points ahead, here's the analyst behind that call, Brian Nagel. Hi, Brian. How are you? Let's talk a little bit about Home Depot and Lowe's. As a customer, they are brands that I know very well. Why are they so challenged right now? What's what about the current economic environment is providing such a challenge?

Yeah, perfect. Well, I mean, look, I think it's always smart to start any conversation on Lowe's and Home Depot. I'm just talk about the underlying quality of these companies. These are very well-run companies and over the longer term, very well positioned and what I view was a healthy sector. You know, my concern and my reason why downgrades today is that we're still in this softer demand backdrop. Okay. And there's a lot of factors that contribute to this. I think one of the biggest remains of pull forward in demand into the pandemic.

So we're sort of safe doing the after effects of that. We've obviously still have higher rates. Hopefully they're going lower, but they're higher at this point. So all that's contributing to what I think is still a weaker demand backdrop and then hence weaker sales at Home Depot lows. I'm looking at these stocks. They've had nice groups up. They've traded multiples that are now pushing towards recent peaks. And I think that's where they're vulnerable here in the near.

term. You've also lowered your price target. So, for instance, Home Depot, your previous target was 360. Now it stands at 345. And Lowe's, you lowered that from $275 to $230. If those price targets hold and the share price gets to that level, are those great entry points for investors? Well, I think they're getting there, right? I mean, that's, I think that's where the stock starts getting more extreme. We also, as part of the work that we published this morning, you know, introduce what we call downside support levels, which would be, again, below those price targets. And that's where I think the stocks get really attractive, all else is the same, you know, meaning that if we look at if they were hit these type of prices, okay, that would basically

that means that they're trading at tropish multiples on cyclically depressed earnings, and then all also saying you start buying them. So, but again, the price targets gain, there would be a starting point to make them more attractive here in your term. Let's talk a little bit about what you see for earnings, and you've lowered those, forecasts as well, not by a ton, but by a meaningful amount, what would have to happen for earnings to start going the other way? And I guess behind that question is the idea that if these are not attractive prices to buy or own right now, might the companies look a lot better three to five years from now? In other words, are they long-term winners in your view after they get past this

decline in price in your view and decline in earnings? Yes, let me answer the second part first trial absolutely. These are stocks, I think, longer-term investors. You know, long-term is not a perfectly defined term. Okay, three to five years, absolutely. I mean, like I said, these are very well-run businesses. And the home improvement sector in the United States is a very healthy sector in both Home Depot and lows essentially dominate that sector. Long-term, they're attractive. Now, in the near term, though, we're just in this malaise. Yeah. You know, we saw this through 2023. Okay, again, like I was say before, it's a function of a pull-forward in demand, higher rates, other factors. And my concern here is that just because the calendar

shifted over to 2024, we're not going to get this immediate switch, if you will, to stronger trends within home improvement. I think it's going to take a while. I think it's going to take maybe to later 24 into 25 to start seeing some noticeable improvement. And that's an odds. If I'm reading sentiment correct, that's an odds with what the market is thinking right now. All right. Terrific analysis here, Brian. Thank you so much. Thanks for having me. I appreciate it. Oh, you bet. Brian Nagel. After the break, solar edge shares higher after announcing sweeping layoffs. But even with that lift, the stock is down more than 70% over the past year. We will be right back.

All right, welcome back to Power Lunch, everybody. As stocks are rising to new level highs, bond yields are pulling back. Let's get to Rick Santelli in Chicago for a full accounting. Rick. Yes, Tyler. You know, we started out this morning with our 21st consecutive negative month over month change and leading economic indicators. And if you want to know a worse period, you'd have to go back through a 24-month period from 07 to 09. That was the last time we strung this many negative months in a row. And Tyler's correct.

Treasuries reversing what has been, for the most part, a lower price, higher yield 2024. But short maturity, two-year note is bucking the trend a bit. today it's the only maturity that hasn't traded under Friday's lows yields. It's the only maturity. Now, as you look at it today, you see what I'm talking about. And it's the only maturity that's been going in and out of unchanged. As you see this one-month chart, we're hovering near a one-month high-yield close. Why am I mentioning this?

Because it was really longer-dated treasuries that led most of the rate increases over the last several weeks. but short maturities now may be taking the lead because the notion of how aggressive the Fed's going to ease is under review. And that's reflected in short maturities. And it's reflected especially today because at the end of the week, we have some of the most important metrics the Fed likes regarding inflation with the personal income and spending trove of data. And finally, an historic day may be coming harking back to 1989 when the Japanese stock market made its all-time highs and all-time. high closes, just a whisker shy of 39,000. And here we are right now, around 36,500, at the best levels basically since 1990. Pay very close attention to this because many believe it's going to be a

very important resistance level and may give us clues about the Japanese stock market, currency, and economy for the rest of 2024. Contessa, back to you. Rick Santelli, thank you, sir. Shares of Solar Our edge higher today after the company announced it will cut 16% of its workforce. Pippa Stevens joins us with more. Is this all about efficiency? Yeah. So they're dealing with a demand slowdown and then product oversupply.

And so they clearly need to cut their costs. And so what they said was they're going to cut 16% of their workforce about 900 people. Also slow down their manufacturing. And in some cases then cut it all together in other places. And then they also shuttered one of their e-mobility divisions. And so CEO Zeevlando said it was necessary in order to align. their cost structure with the rapidly changing market dynamics. By that, of course, he means that the market just has not turned around yet. We kept hearing that, you know, it's going to bottom,

it's going to bottom. Demand will bounce back. That keeps getting pushed out. Now, Solar Edge, not the only one. Sunpower, of course, last week announced their restructuring in December, end phase also announced a restructuring. Why is there a slowdown in demand? Because I was under the impression that there are some state governments that have renewed rebates and tax incentives for people who are buying solar. And I don't know what the infrastructure. your plan looks like for commercial customers, but it seems like there should be more. So for consumers, it all comes back to higher rates because it makes you very rarely pay for in these systems outright. And so then you are getting a lease. And so when rates go up,

that makes your costs go up. Additionally, there's a lot of focus on the price of your power. And so when we saw Nat gas surging above $10 per minute VTU, there was so much focus on electricity bills going up. And so when there's less chatter about that, less focus on that, and the consumers aren't watching that as obsessively, they've less of an incentive. Because it's all about the spread between how much they're paying per month and what their electricity rates are. And so when that's not favorable, then customers in places like Texas and Florida, where power prices are traditionally cheaper are not going to go solar at the same rate. Pippa, thank you.

All righty, let's get to Bertha Coombs now for CNBC News Update. Bertha. Tyler, the U.S. announced another round of sanctions today aimed at Hamas and an Iraqi airline. The Treasury Department says that target fly it targeted Fly Baghdad and its CEO for providing assistance to Iran's military wing and proxy groups in Iraq, Syria, and Lebanon. The airline denounced the decision and called on the U.S. to provide material evidence for the claim. The U.S. also sanctioned a network of Hamas-affiliated financial exchanges in Gaza. Lawmakers on the House Energy and Commerce Committee are calling on the Food and Drug Administration, to give a briefing on heavy metal contaminated applesauce pouches that ended up on U.S.

store shelves. The high levels of lead and chromium were traced to cinnamon from a manufacturer in Ecuador. And Dexter Scott King has died. The youngest son of Martin Luther King Jr. And Coretta Scott King was battling prostate cancer, according to the King Center in Atlanta, where Dexter King served as chairman. According to his wife, he died peacefully. in his sleep.

He was 62 years old. If you're a man, please, please go get your prostate, get that checkup. The earlier you find it, the better. We've had a lot of those reminders in the news this past week. Bertha, thank you. Up next, our Clean Start series often covers climate startups raising big money.

Today, we look at one of the firms that provides all that cash. It's next. A handful of big tech companies are becoming the biggest spenders in venture capital and in the race for generative AI. And there's a new nickname for the group. Kate Rooney is here with who they are and what they're spending and where. Kate. Hey, Tyler. Yeah, we love a good acronym.

The new one for this group is Meng. It's M-A-N-G, Microsoft, Amazon, Invidia, and Google. Altimeter Capital is a poor of Agriwal coined the term in a blog post where he points out that these four spent a combined $25 billion in Bavis. venture money last year, making up a total of 8% of all VC funding in North America. That was up from just 1% a year earlier. And for data and AI startups, it's actually closer to about 30% of the total. The launch of ChatGBTGPT really kicked off this spending mania. There has been a shift.

Before ChatGBT, BT, it was all about mobility startups. So think about Waymo, Cruz, Orivian. Now the big tech companies are spending on anything related to large language model startups. Think of Open AI, for example, funded by Microsoft. You got Anthropic, inflection. Some are actually funded by multiple Mang names at the same time. And this guys may be a match made in heaven in many ways. So these startups are some of the Mang Company's biggest customers.

They spend big on cloud computing and hardware. In Nvidia's case, as Agriwal, and Altimiter put it, whenever a new data or AI project launches, the cash register rings at the hyperscalers. The structure of these deals is also very unique. It's part equity. and then it often includes credits for cloud computing. That makes it hard for a traditional venture capitalist to compete with big tech, also seen as a wing for man, for May, rather,

since those dollars and credits eventually make their way back to the big tech companies. But some are actually questioning the strategy of this round-trip funding. As benchmarks Bill Gurley puts it, this, quote, goose's revenue at big tech. He expects a, quote, massive mess in the end, guys. So we will see there. Back over to you. So the companies, I just take. Microsoft is an example.

They will finance the tech startup, and then the tech startup spends money back at Microsoft. So it's a round trip. Round trip. So that's what some are questioning. So they're getting these cloud credits. And on the startup side, it's a great thing because some of their biggest cost right now, it's cloud computing. So they say, great, we're going to get this massive amount of funding. We're also going to get credits to spend back at Microsoft.

For Microsoft, they're saying, okay, we're going to invest in this startup. But it's coming back to us in the end. So it is sort of this recycled capital. And that's what some are wondering. In the end here, how that actually ends up. But there are some historical analogies. Google, for example, has done this with advertising dollars for years, which Mark Cuban actually pointed out on that Twitter thread.

So there is a historical analogy, but some are worried here. You know, it's sort of interesting because a company that I cover, Vici, which is gaming reet, is actually going into offering credit to its tenants now, and the tenants are then paying back the rent, right? But you're growing the business, assuming that at some point, you're going to have more money coming in the door. That circular capital is super interesting. You see it in real estate. That's a great point, too, Contessa, with, you know,

sometimes they'll get a discount. If you see a Whole Foods, for example, come into a mall, they'll sometimes discount the rent for certain reasons. So you are seeing these interesting capital structures, but it comes at a time when overall venture capital is compressing. It's pulled back massively, except for this one bright spot, which is generative AI, and the big tech companies are really the ones funding it

and propping up valuation. It's making it a lot harder for the venture investors out here in Silicon Valley to keep up and say, we can't give you billions of dollars in cloud credits. We can give you money, but we can't quite keep up with a pocketbooks at one of these big tech mannames. Makes sense. All right. Well, thank you for that, Kate. I appreciate that.

For our series on climate startups today, we're going to mix it up a bit. The next one marks 50 companies that we've profiled right here on Power Lunch. So let's take stock and talk capital with a special guest. our senior climate correspondent, Diana Oleg, joins us to go deep and dirty into Clean Start. Well, Contessa, look, so far we've tracked $4.6 billion in venture capital into these 50 companies. Clean energy, clean tech, sustainable, anything and everything. But last year was rough. The dollar volume of VC funding going into Clean Tech and climate in 2020 was down 20% from 2022,

and that according to Pitchbook. But one VC, Arctern, is announcing here on CNBC today that it just closed its third climate fund with $335 million. This is the first big climate tech fund close of this year. So to talk about it, we have Arctern's co-founder and managing partner Murray McCaig. Murray, thanks so much for joining us. Thank you for having me. Sure. When we spoke last week, you referred to 2023 as, and I quote, brutal for raising money for VCs in capital and climate.

Tell us why it was so brutal and whether you think 2024 will be better or worse. Yeah, well, at 2023 was a tough year all around for all industries, and climate tech suffered a bit from that. But looking at 2024, there is an enormous amount of climate venture capital on the sidelines, and it's going to start moving this year, particularly in the latter half of the year. So I would say in the first six months of 24 is an incredible opportunity, to be investing in emerging climate tech companies. Now, I know you don't like to pick a favorite child that is a favorite sector within climate, climate tech, clean tech, etc. But you said there are business models that you think are better

than others. Explain why, and even if you could tell us, maybe perhaps one favorite child within the sector. Well, maybe if you think about one of our favorite overall themes is the electrification of everything. And within that sector, we love mobility and home electrification right now. These are two sectors that we think in 24 are nearing an inflection point, and we saw this in Norway with EV sales, where they went from 1% to over 80% in a very short time frame, less than a decade after they reached that tipping point. And so we are actively looking to place capital in that mobility and home electrification

space. In the mobility space, we just made an investment in a company called Recurrent, which is using AI to provide a highly accurate battery health report for used EV buyers. Also in that space, we invested in Harbinger, which is poised, in our opinion, to be the Tesla of medium-duty electric trucks. And then on the home electrification front, we made an investment in Palmetto, which is a marketplace where Americans can go to both find and buy solar. And then Spann is another a really interesting investment in the space, a smart electrical panel for the home. So these are two sectors that have us very excited for 24. And we actually covered Spann as one of our clean starts.

But I'd also like to ask you, who are the investors who are putting money into your fund? And what makes them different than perhaps some of the other climate funds? Yeah, well, you know, at our turn here, we've been around for over a decade now. And that has just allowed us to get to the point where we can start attracting a lot of this institutional capital that won't even look at you as a fund until you're on your fund three, four, five, etc. And we've just finally reached that point. And, you know, these are, you know, some of the top investors in the world, but they also have serious decarbonization goals. And we're allowing them to both, you know, achieve their financial goals, but also to kind of take the

decarbonization that our portfolio is delivering and allow them to roll that up to help them meet those goals internally. Wonderful. Great to hear. here. Murray McCaig from Arctern. Thanks so much for joining us. Back to you guys. All right. And Diana, thank you for bringing us that fascinating interview. We have a new report today on the investigation into the trading scandal, which led to the resignation of two Fed officials. Megan Kassela joins us now from Washington with the latest. Megan, what have you learned? Thanks, Contessa. We have just received that long-awaited report, which finds former Fed Bank

President Robert Kaplan and former Boston Fed President Eric Rosengren did not violate federal laws with their financial trading activity back in 2020. The report does, however, say that both officials created the appearance of a conflict of interest with those trades, which you'll remember led them both to resign in late 2021. The Feds Inspector General today says that Kaplan's trading activity did not violate laws, rules, regulation, or policy. But the report highlights a lack of information, as it calls it, surrounding Kaplan's trades saying he did not publicly disclose specific dates of some of those trades and other details. As a result, Kaplan's actions created with the report calls, quote, an appearance of acting on confidential FOMC information and, quote, an appearance of a conflict of interest.

Now, a spokesperson for Kaplan today referred to two previous statements saying Kaplan adhered to all Fed ethical standards and policies. On Rosengren of Boston, he was similarly found to have created the appearance of a conflict of interest with his trades. We have reached out for him to him for comment as well. Contessa. All right. I'll pick it up, Megan. and thanks very much, Megan Cassella, still ahead. A commodity commotion.

Shares of agricultural trader, AMD, plunge 22% as the company suspends its CFO amid an SEC accounting probe. Those are never good headlines. We'll bring you the full story when Power Lunch returns. All right, welcome back to Power Lunch, everybody. Archer Daniels Midland facing an accounting probe, and Dom Chu has the details. Dom.

So ADM is having its worst stay on record right now. The food processor and farm supply company is the subject of a probe by the securities and exchange Commission with regard to some of its accounting practices, specifically related to its nutrition business. Now, ADM has placed its chief financial officer on administrative leave, effective immediately. It also lowered its full year profit forecast as well. Now, that combination of factors has driven a large number of analysts downgrades, also price target revisions from analysts on Wall Street. Barclays, for instance, has double downgraded that stock to an underweight.

It was overweight before they sided amongst other things the company's announcement, along with other themes like weakness in the soybean market, more stringent spending from consumers. So today's move has Archer Daniels Midland hitting its lowest level since early of 2001. So keep it on those ADM shares, guys. I'll send things back over to you. All right, Dominic Chu, thank you for that. Still ahead, Gilead's disappointing drug study. Shares of the biotech company tumbled toward nine-year lows following dismal lung cancer

trial results. We'll give you the trade on that name. And more in today's three-stock lunch. That's next. Time for today's three stock lunch where we look at three big movers of the day. And here with our trades is George Ball, Sanders, Morris, and Harris. Up first, Affirm Holdings, the stock is up a lot today, about 4% after being down more than 10% in the past month. George, welcome. What's your trade on Affirm?

A firm can best be described as almost a cult stock, but not quite. It's got some of the Reddit, some of the contrarian speculators who like it, but I think it's a sell. First, the final paylator stocks are apt to be hurt in the next order to half, either because the economy turns soft and consumers pair back, or because rates stay here for a year, in which case, the cost of borrowing money. for a firm and the other by now pay later companies is going to hurt their profit margins substantially. So if you want to gamble, maybe gamble on a firm, but affirmatively, I would probably rather sell the stock than be a pure speculator. The fundamentals don't justify its price today or really what it's done today either. It's better to be avoided to be in it. George, up next we have Gilead Sciences.

The shares down more than 10% today after a lung cancer study showed disappointing results. What do you think of Gilead? Gilead, and I want to say this very carefully, is a strong buy, but buy it later. The disappointing results with Toltevi are one phenomenon. Gilead has a large pipeline of seven or eight major drugs that will have phase two, phase three studies coming with results in the second half of the year and the first half of next year. Look at the history of pharma companies. When you get ones like Gilead that have a portfolio of drugs under study and they get disappointing

results, they gap down, they go into investment, hergatory, for three to six months, and then they do well as people focus on their product pipeline. So Gillian, I think, is buy, but buy it in three months. Don't buy it now, unless you want to wait through the purgatory period. What would be the signal to buy, George? What would be the signal? I think the signal is a passage of time. Wait until late in the second, late in the first quarter,

early in the second quarter, and at that time, people were all forgotten about the disappointing results of this AGC drug, and they'll be looking forward. So it's simply a calendar, not a bell ringing here or any other fundamental thing. Got you. Let's move on to a sticky stock 3M. The company on deck to report fourth quarter results tomorrow. Shares are flat today. Your trade, George, on 3M. My trade would be to buy it before the earnings, buy it on the earnings, buy it after the earnings. There is a great deal of latent potential in triple M. Its management is disparaged.

And when management are disparaged, they fight like rats with their back to the wall. 3M has a big moat of patents. With a spinoff of its health care business, it'll have three segments, transportation, safety, and consumer. and those are big, strong sectors, where I think the management is going to do everything it possibly can to beat expectations to have free cash flows that are higher than analysts are estimating. And right now, it's selling at a very low multiple of free cash flow about three-eighths

of what it was selling at four or five years ago. So a sneaky fastball is triple-em, not only as a big company, but one that has big upside from the current $108 price. Three M had a big potential to it, I think. We began with Buy Now Pay Later. We're going to end with Buy Now Buy Later. George Ball. Thank you, my friend.

Appreciate it. Thank you. And closing time is next. We only have two minutes left in the program, and we have several more stories we want to tell you about, so we'll get right to it. New data show that cargo theft has spiked more than 57% in 2023 versus the year prior. nearly $130 million worth of goods stolen in 2023.

But since reporting cargo theft is not mandatory, the amount is likely much higher than this, according to CargoNet. And these would obviously be major thefts, probably done by organized crime rings. Yeah. Okay, so as the insurance reporter around here, I'm frequently asked,

why are our premium so high? Why? I want to know. When it comes to car insurance, one reason is that people keep crashing into each other, Why? They are using their phones behind the wheel. This should be a big no-da, but here it is. The Insurance Information Institute is out with a release today that says insurers are spending more on claims than they collect in premiums, which means premiums are going up more, and the number one cause behind distracted driving is cell phones.

I'm sure it is. It shouldn't take a study for us to know that because even people who generally drive well. Maybe insurers could improve their margins to the extent they have. have margins if they would not advertise quite as much. You can't get away from the ads. You can't. Very busy weekend of football that the Lions are one win away from their first Super Bowl. One of few teams have never been there.

The 49ers overcame a 7.4th quarter deficit. They have lost the previous 30 such games under Coach Kyle Shanahan. But the indelible image to many, Jason Kelsey shirtless in Buffalo stealing the spotlight from his potential future sister. They don't like that, no way. And that Bill's game sent Kelly into labor. we happily report she delivered a healthy baby girl this morning thank you for watching power lunch i believe it on patrick mahomes the baby's not named yet i think the name should be taylor or

travis