Power Lunch - Inflation Coming in Hot, and Production Pause? 2/24/23

Episode Date: February 24, 2023

Stocks are sliding, as another inflation reading comes in hot. So how much more does the Fed have to do to bring it down? And how much could it hurt stocks? We’ll debate.Plus, natural gas prices are plummeting amidst a supply glut, as companies cut back on production. We’ll talk to the CEO of EQT, the biggest gas producer in the U.S. about what comes next. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

All right, welcome to Power Lunch, everybody. Good afternoon. Good, happy Friday. I'm Tyler Matheson alongside Kelly Evans coming up. Stocks sliding. As another inflation reading comes in a little hotter than expected, this one is the Fed's favorite inflation gauge. So how much more does the Fed have to do to bring inflation down to the level it wants? And how much will stocks be hurt in the process? Plus natural gas prices plummeting. There's an oversupply problem. Companies are cutting back on production now. We'll talk to the CEO of the biggest U.S. gas producer EQT. First to check on the markets, though, we are way off session lows. The Dow was down 510 at one point. We're down 365. Still looking at going into the red for the year, the NASDAQ, down about 2% right now. And that makes it the worst performer.

Software names getting hit particularly hard as we see rates back up, 10-year nearing 4%. And consumer discretionary, one of the worst performing sectors today. Tesla, Amazon, Chipotle, Etsy, some of the names in that group. they are falling today. Lots of red tiles on the board right now. Our next two guests weighing in on the latest hot inflation report that has Wall Street selling today. In a new op-ed, Ron Insana says there are an increasing number of splinters in the economy. Ouch, that makes, describing the current state of the overall economy, almost impossible. Michael Carfeld says dividend growers are the perfect place to be in today's uncertain environment, and he's got good

reasons to say so. Let's bring in Ron Insana, CNBC Senior Analyst and commentator and co-CEO of Contrast Capital. Michael Clarfeld is portfolio manager with Clearbridge investments. Ron, one of the things that interests me, and I was very persuaded by it, in your op-ed, is that you point out that residential real estate is collapsing, auto sales are down, manufacturing activity is contracting, how do we avoid recession or do we? I don't know, and I refer to it as a trifurcated economy. We've got three different groupings, really, of activity in the economy. We've got, as you said, those things that are in recession.

We've got some businesses that are booming, like travel, at tourism, and hotels, restaurants are doing very, very well. You've got inflation in some sectors of the economy, disinflation and others. Then you've got strong jobs overall, but certain sectors that are laying off people by the tens of thousands. So I think the current environment defies

an econ 101 moniker, whether it's, you know, recovery, recession, stagflation. name it. None of those words and phrases really apply to the current situation. Michael, how about you? I mean, we point out those sectors that are either in or seem to be softening heading towards recession. We know that the yield curve is inverted. We suspect that the Federal Reserve is going to raise interest rates once, maybe two, maybe three more times. Do we avoid recession? And what are the safe havens for investors if perhaps we don't? Yeah, I think this is. I think this

This economic cycle and this market cycle has really defied most forecasters. It's very challenging. It's so unlike anything we've seen before. And I think rather than sometimes try to fully predict what's going to happen, try to figure out an investment strategy where you'll be relatively successful under a range of scenarios because obviously, you know, a lot of different things could happen. And that's really where we think the attractiveness of high quality dividend growers comes in. If inflation's persistent and interest rates are higher for longer, high-quality dividend payers

will be a pretty good place to be because it's likely to be a choppy market environment and dividends usually provide some downside protection. And from an inflationary perspective, dividend growth could help to offset the ravage of inflation and protect your purchasing power. On the flip side, if somehow we're lucky enough that actually inflation is near peaking and the Fed's in a position to cut interest rates in nine to 12 months, which isn't really our base case, but it's certainly a possibility, then we'd expect a pretty much. strong economic, a pretty strong market recovery, and we'd expect dividend growers to participate

nicely. So that's kind of the argument for not just owning, for instance, Ron, six-month treasury bills, that maybe you have more market upside. If you'd like that upside, along with the yield, I don't know, a lot of people go, I'll take 5.1% in a T bill right now. Yeah. Even in a one year. Well, and that's the thing. So they go, okay, well, you get that for now, but then in six months, I guess the implication is yields are lower, and this is a sweet deal while it I mean, listen, I'm throwing most of my theses out the window because we thought the Fed would overtight and we thought there'd be a broad-based recession. And then you'd see the Fed pivot or pause or pivot. None of that's happening right now.

And again, you break down today's inflation numbers. 9.6% of the increase in the PCE was energy, which has already come back down. You've been talking about natural gas, but crude oil prices have fallen, gasoline prices have fallen. Commodity prices broadly are falling. And it's not yet translating. Housing is coming down in price, not showing up in some of these indicators. I mean, I'm going to say something real crazy. Okay.

But it's not that crazy to argue. Well, maybe it's a little crazy. Sounds like conversations I have at home. That maybe. I'm going to say something real crazy. Just maybe. Just maybe they don't need to tighten in response to these lagging inflation reports. I mean, the business cycle may still be intact.

And if so, the playbook clearly points towards a big slowdown coming. And I don't know if we really need to freak out over the January data when we kind of know where we're going. Well, not only that. I think, you know, one policy tool does not fit every problem that we have right now. I mean, the labor market is tight, irrespective of interest rates. It has everything to do with demographics. We're not overheating with a 2% economy. Capacity utilization is at 78%.

You don't overheat the manufacturing sector. So, again, typical business cycles in recession. So I don't, I wish someone would have some enlightened commentary about other policy tools we might be able to use to address some of the issues in the economy that don't just fall. in the Fed's lab. All right, Michael, let's turn back to that thesis of yours, which is that dividend growers are a good place to be. You have a couple of names, Williams companies, Avalon Bay, and Apollo,

three in very different parts of the economy, but all three with the common factor of growing dividends. Yeah, so I think you guys have talked about natural gas, and I think we've all seen that gas prices have actually come in pretty dramatically in the last couple months, predominantly because it's been such a warm winter. And that's a problem for the gas producers, but not for the gas pipeline companies. And the biggest change that we've seen in what makes it so constructive on natural gas infrastructure longer term is obviously the war in Ukraine, right?

So Europe, which is an economy as large as the United States, previously has relied substantially on Russia for its source of natural gas. It's obviously not going to do that in the future. And U.S. will be the biggest beneficiary there. And in Williams, you own a company with a 6% current dividend, a terrific current yield, attractive dividend growth, strong balance sheet, and really what we think is a very attractive long-term outlook, both driven by this European pivot towards U.S. natural gas and also an embrace by policymakers that natural gas actually plays a key role in the energy transition.

So we think there's a long growing runway for natural gas for decades to come. Give me a quick phrase on Apollo. Yeah, so Apollo is a great company run by really smart people that's trading very cheaply. So the stock yields to about 2.5% lower current yield, but it trades at 11 times earnings, a very low multiple. And they're forecasting 20% growth this year and sort of high teams growth as far as the eye can see. We think that ultimately you'll probably get some multiple expansion, but you don't need it. With that kind of earnings growth, we expect very attractive capital appreciation over the long term. All right, Michael, thanks very much.

We appreciate it. Have a good weekend. Michael Clarfeld. Ron, it's not always good to see on a pleasure. When you're here, it's Friday. That's good. Well, we know that, yeah. We know that. Because that's when they asked me to come in. Good to see you, man. You too.

Let's dig a little deep right now into that big inflation report that's moving the market today. CNBC.com retail reporter Melissa Repco joins us now. Melissa, what did this piece tell us about the consumer? Hey, Kelly. Inflation came in hotter than expected today, and it signals that consumers are still facing a lot of sticker shock. Food prices continue to be one of the most inflated categories, with prices up more than 11% year over year in January. It's worth noting that the PCE metric adjusts for consumer changes,

such as swapping out more expensive brands for cheaper ones. We heard many shoppers are doing that from Walmart's CFO John David Rainey earlier this week, who said customers are buying more of its cheaper private label items and opting for lower-priced proteins such as peanut butter or hot dogs. Rising consumer prices will likely be one of the top risk factors for the retailers reporting next week, including Target, Macy's, and Best Buy. Those companies sell more discretionary items like clothing, home goods, and electronics. We're also going to have some more retail reports, Melissa, next week.

We got some this week. They were decidedly, I guess you'd say mixed or Walmart certainly and Home Depot. Next week, several more. What should we look for? So next week, retailers will be on tap that have a wider mix of merchandise. And those are ones that may be more vulnerable to this consumer shift. Consumers have become more thoughtful about their spending. and they are looking for ways to save.

And that's made companies more cautious. We heard that this past week with their full year outlooks and pushed retail stocks lower. The XRT retail ETF is set for its worst week in nearly eight months. Home Depot CFO, Richard McPhail, said the company has seen, quote, an increasing degree of price sensitivity, even as demand for home improvement continues. TGX, CEO, Ernie Herman, said more shoppers are turning for its stores for value as household costs continue to rise. And Walmart CFO said a bigger chunk of retailer's sales. sales are coming from groceries as customers buy less general merchandise. Walmart noticed a

pickup and discretionary merchandise in January. Why shoppers were willing to buy bigger ticket items when they were on sale after the holidays. Back to you. All right. Thank you, Melissa. Coming up, natural gas prices down 75% in the past six months. Companies are starting to hold back on production. We'll ask the CEO of the biggest U.S. producer how they can make money at this price. And oil, $76 a barrel today, down almost 20% from a year ago when Russia invaded Ukraine. Coming up, we'll talk to former Ohio Senator Rob Portman. As this war drags on, our sanctions against Russia having any impact. Power Lunch will be right back. Come back to Power Lunch, everybody. Energy stocks falling today, along with just about everything else.

Let's bring in Pippa Stevens with more. Pippa Huck. That's right, Tyler. Energy stocks are under pressure this month. Despite oil and gas companies posting record annual profits and doling much of that after shareholders, Wall Street's been unimpressed by production. plans and projections for higher capital spending amid cost inflation. Lower commodity prices also having an impact. But executives saying oil could be heading higher, including Devin's CEO Rick Moncrief, who earlier today told CNBC that they haven't seen demand let up and he thinks prices will strengthen over the course of the year.

Meantime, Pioneer Natural Resources, Scott Sheffield saying yesterday that he is very optimistic that oil will move back into the 90 to 100. $100 range sometime this summer. But commentary around Nat Gas has been more muted. Companies have talked about cutting output, and Devin's Moncrief said he thinks prices will be soft throughout this year. We've seen a dramatic decline over the last six months for Nat Gas. In August, U.S. prices topped $10.

Fast forward to this week, and they dropped below two. Guys? Exactly. Thank you, Pippa, for more on that big decline and the impact it's having on production. Let's bring in Toby Rice. He's president and CEO of EQT Corp. They're the largest nat gas producer in the U.S. with operations across Pennsylvania, West Virginia, and Ohio.

Toby, it's great to see you again. Welcome. Hey, thanks. This, I mean, whiplash. Why did prices go below two? Do we have gluts out there? What's going on? Well, it's real simple. Simply put, weather did not show up this year.

That had an impact of destroying about almost 500 BCF of demand. And, you know, that works out to be around about 12 BCF a day of demand. was lost. Ten of that from weather and the other two BCF a day coming from Freeport being offline. The good news is we do think that there will be some balance towards the second half of this year. A couple of things to look at, you know, activity response from operators. This low prices, you will see activity levels moderate. We've already seen about 10 rigs come off and we'll continue to see operators reduce activity levels to match the current commodity prices. but, you know, the short-term signals being what they are, the long-term signals for natural gas are extremely bullish,

and we're extremely excited about the future that natural gas will play in our energy of the future. Let's talk a little bit about Europe, and Europe did an amazing, they benefited from a less severe winter, I suppose, than often is the case, as we have. But Europe did an amazing job compensating for the lack of Russian natural. gas. Do you think they can repeat, pull that rabbit out of the hat year after year after year going forward? What a miracle it was for Europe to be able to stock up before this winter. Why was that able to happen? It was because of American natural gas. We supplied over 50% of the natural gas that went into their stockpiles. Unfortunately, the other 50% came from Russia and that supply is no longer there. So while Europe has been able to sneak through this winter, we need to be thinking

about how are we going to help Europe get through the next winter. Certainly. And what's the answer to that? That's kind of where I'm driving. Is it Norway? Is it Qatar? Is it us? Where does it come from to power their power? The United States is going to continue to play a leading role in providing energy security to Europe. We need to be thinking about what else we can do to fast track the infrastructure, structure that it takes to get our LNG volumes up so that we can provide the energy security that Europe needs. One of the things I think that's a really important lesson that was learned in 22 is that energy security matters and without energy security, you cannot transition.

And Europe is a great example of what happens when you don't have energy security, you go backwards on your energy transition plans. So the key to energy security is American natural gas and we need more help to get more permit reform so we get the pipelines built, the LNG facilities built, so we can provide energy security not only to Europe, but to Americans in this country. So Toby, will you talk a little bit about how this might be weeding out some of the weaker players or affecting them? And why you, you know, you guys have held up relatively well amidst the price plunge, a little bit off the 52-week highs. But what's the effect you think across kind of some of the smaller producers, from the big to the

small, all up and down the food chain right now? Well, I think you're seeing a sobering effect with these lower prices. I mean, activity levels are getting pretty frisky. I've seen things like people wildcatting for gas prospects. I haven't seen that in the last 10 years. That type of stuff goes away when gas prices go below $3. Now, one of the things that's really important about EQT is that we've made significant progress reducing our cost structure so that we are going to be able to generate free cash flow in any commodity price environment. This year specifically, we'll be able to generate free cash flow and be profitable down to a Henry Hub price of $1.65. That is not the case for others in this industry, and you'll see activity levels come down as a result. Let me take you back to that

tantalizing comment that you made earlier, which was that you need energy security to make progress toward a less carbon-intensive future. Am I correct in assuming that what you mean is that we backslide and we try and make up for shortfalls by going back to coal or other. dirtier fossil fuels. Yes, and Europe is certainly an example of going back to coal, but let's look what's going on here in the United States this past winter in New England because of an inability to have sufficient pipeline infrastructure to deliver gas to New England. New England had over 30 percent of their electricity was generated, not from coal, but from

oil. So it's not just what's going on in Europe. we also have a tremendous need for more infrastructure and more natural gas development here in the United States. And the good news is we've got the resource. We sit on a amount of reserves here in Appalachia that is equivalent to Russia. We just need to get the pipelines connected to the markets that's so desperately needed. I guess the final sort of outcome of this all being, Toby, and as inflation watchers are looking at this too, could we see prices quickly go back up? you know, as we knock out some of the weak players, are we going to see this kind of back and forth effect,

taking that gas prices back up sharply higher? Or do you think more to the point that futures markets are saying that we could be below $5 now for quite some time? Well, Kelly, I think that in a completely normalized market where natural gas can flow to where it's needed, we think that we can put natural gas on the doorstep of Europe for a cost of $12. And that would imply a $4 gas price here in the United States.

And we've got the resource to be able to provide over four times the amount of algae we currently produce. And that's a pretty sustainable price where operators here in the United States can make moderate returns, and we'd be excited about that. Unfortunately, we live in a world where the natural gas is not able to be able to go from supply and demand.

Those market inefficiencies come in the form of pipeline infrastructure blockages and permitting delays, and unfortunately, as long as those that exists, we are going to continue to see high, volatility and extreme price swings in areas that need natural gas that don't have the infrastructure to get it. Toby, thanks very much. We'll have you back soon. Appreciate it. Yeah. All right. Thanks, everybody. Thank you very much. All right. Still to come, more on today's market moves. The Dow,

down 330 points off the lows of 510, but it has been a turbulent week. Plus paying rent and building credit. We'll take a look at one startup looking to help raise lower income Americans credit scores. That's today's working lunch. We'll be right back. Welcome back stocks and treasuries reacting pretty sharply to that inflation number. Rick Santelli has reaction in Chicago where we're watching the 10-year near 4% Rick. Yes, 10-year near 4% and the two-year note, well, getting close to 22 and a half year high yield close. Let's start at the beginning. Here's a one-week chart of two-year note yields. And at the current level, right around 481, They are now up 11 on the day, up nearly 20 basis points on the week.

And as you see on that chart, we kept stopping right around 4.7, 2.5%. That was the high close for this cycle last fall. And finally, after knocking on the door many times, it zoomed through like a hot knife through butter on that date of this morning. And clearly, guns hot in the two-year has changed the dynamics of the spread to some extent. Here's Tuesday's. It was becoming less inverted because the 10s. were being aggressive. They switched today, pushing that yield curve back further into negative territory. And if you look at the two-year, on pace to close, as I said, the highest yield

closed since July of 2007. And finally, what did all that do to our currency? Well, it gave it a turbo charge. Here's the dollar for one week. It's currently up nearly one and a half percent since last Friday's closed. Tyler, back to you. Rick, thank you very much. Have a great weekend. Let's going out to Bob Pisani for more on today's market moves. So softening off the lows a little bit, Bob. Yeah, Tyler, we've made a couple of attempts to rally, but they're not very convincing. And the problem is the inflation news is just going against the bull. So if you look at the movers today, not a lot of stuff in the green. J.P. Morgan, one of the only stocks that have been positive for most of the day, but the rise in interest rates and the rise in the dollar in the last

couple of weeks has put tremendous pressure on the growthier parts of the market and on emerging markets. So Apple, Microsoft, and particularly Intel, all have been drags on the Dow, including today. If you look at the big decliners this week, even some consumer discretionary names have had a tough time. Ford and General Motors have had a terrible week. Don, 9% there. Intel on that dividend cuts been terrible this week near a new low for the month. Netflix, also down. Tesla had a roaring start to January and all through middle of February, but Tesla also has been looking very topy in the last week and a half. S&P 500, well, you take your choice. What time period do you want to look at? We're closing out the month right at the lows. We're down about 3% for the month of February,

and yet we're up 3% for the year. What time period do you want? Well, it depends on what you want look for here. I think the important thing here, and I put up that two-year yield, I know that Rick just mentioned it, I can't tell you how much I hear now from stock people who are saying clients are very interested in these two-year yields as they start to approach 5% on a technical level. Stocks are now losing money to bonds. Bonds are serious competition for money for investors when you get a 5% yield or close to it. And I think that is the major story. story that we've been seeing in the last couple of weeks. Guys, back to you. All right, Bob, thank you very much. Bob Pisani. Let's get to Sima Modi now for a CNBC news update. Hi, Sima.

Tyler, good afternoon. Here's the update. There are nine air pollutants at levels that could cause long-term health problems in the air in and around East Palestine, Ohio, where a train carrying dangerous chemicals derailed this month. The Washington Post reporting the findings by Texas A&M researchers is based on EPA data. It appears to contradict federal and state reassurances that the air is safe even as some residents complain about rashes and breathing problems. Twelve states led by Democrats are filing suit against the federal government, challenging special restrictions on Microstone, one of the two drugs typically used for medication abortions. The move comes as a Texas judge appointed by Donald Trump considers a separate suit by an anti-abortion

group that seeks to immediately stop sales of the drug, with the argument that it was wrongly approved by the FDA 23 years ago. And for everyone keeping score, Selena Gomez is once again the most followed woman on Instagram. She had given up that title to Kylie Jenner when she took a break from social media, but her reign may not last long. Gomez now says she is taking another social media break. Both women, by the way, have around their 380 million followers. I think, Kelly, very similar to it. I was just going to say, I still have an open Instagram.

I've got what, 6200 Seema? How are we going to get that count up? Keep posting. You got to build content. Tyler, I don't know. If he got on Instagram and Twitter, you overnight, Tyler, I'm telling you. Oh, that's for sure. Right. All righty.

Thanks, Emma. A head on power lunch. The war in Ukraine one year later, the U.S. spending a staggering amount on aid and weaponry, and there is still more to come. We will speak with former Ohio Senator Rob Portman about that and more when we return.

They see a window of opportunity for equity markets to rebound. Let's go to work. Countdown to the opening belt. Trading starts right now in a still cautious and uncertain environment. Welcome back one year ago today, Russian president Vladimir Putin ordering a full-scale invasion of Ukraine. With tens of thousands dead and tens of billions of dollars spent in aid, the work is not yet done. Kayla Taoshi has more, Kayla.

Kelly, the Biden administration just today unveiled a new $2 billion aid package, including advanced weaponry and training for Ukrainian soldiers to use it, bringing the military aid dispersed to Ukraine to a total of $32 billion. The U.S. has also sent $24 billion in direct budgetary assistance and about $2 billion for humanitarian purposes. A total of $56 billion, but roughly half of what Congress has greenlit for Ukraine in all. That's resulted in big contracts for Lockheed Martin, Raytheon, BAE systems, and ammunition maker Olin. But some companies are already looking toward reconstruction. A delegation from J.P. Morgan Chase, which restructured Ukraine's sovereign debt last year, visited President Zelensky in his bunker in Kiev to discuss access to capital and long-term growth.

Black Rock's Larry Fink similarly consulted with Zelensky in September and signed a deal in November to enlist more investors in the country. The World Bank currently estimates the country's rebuild once the war is over will total $349 billion. Tyler, thank you very much. Let's break down the impact that the sanctions are having. on Russia with us now as former Ohio Senator Robert Portman. Senator Portman, welcome. Good to have you with us. And welcome to the post-Senate career. How's it going? You liking it? Thanks, Tyler. I'm glad to be out, but I also want to stay engaged on issues like Ukraine because they're so important for our national security. So I'm glad you're taking some time in the one year anniversary to talk about that. One of your many areas of expertise is trade. You're a former

U.S. trade representative. We want to talk about trade with Russia and the sanctions and trade with China. But let's start with Ukraine. Are the sanctions really hurting Russia? Yes and no. I mean, there's no question that they are hurting Russia in certain sectors, including not allowing Russia to proceed with some of the advanced manufacturing they'd like to do, not having access to semiconductors and other materials that would go into manufacturing. And then there are obviously other sanctions that have been applied to the country financially, which are having some impact. But the Russian economy is not being affected as much as some of us that hoped that it would be, because that would put pressure on President Putin to do the right thing and to pull out of Ukraine

and stop this insane invasion, which makes no sense logically. And then second, of course, they're continuing to gain revenue from their exports of oil and gas, particularly to countries like China and India. And that makes it difficult with the price being so high, as you guys just talked about earlier today, that price continues to be historically high. So that's been helpful to Russia. So look, it's good to have the sanctions in place, need to tighten them as much as we can.

That's one of the two ways in which you get, I think, the Russians to the bargaining table. The other one is to actually have more victories on the battlefield, which we'll talk about. But it's difficult to do that when countries continue to buy their oil and gas and those prices continue to increase. Has, I take it. So sanctions alone are not going to force Putin to do what we want Putin to do.

And as you say, success on the battlefield is a critical. component of that. How would you grade the efforts of the Western countries, the United States, the UK, and NATO, and others in getting battlefield equipment into the hands of the Ukrainians at speed in sufficient quantities to actually make a difference? Are we doing well or not from where you sit? Yeah, Tyler, we need to be on an A game right now. And we're at about a B, B, B, So look, I admire the fact that the Western coalition has come together. And by the way, it's not just the NATO countries. It includes Japan, Australia, and others.

And I admire the fact that we've been able to have such an amazing cohesion between ourselves, not just as to the military side, but as to the political support for Ukraine. But we're not doing it fast enough and we're not giving them enough stuff to be able to actually turn the tide. I think we have a window of opportunity right now. And I think the Russians could take advantage of it to regain the momentum themselves. As you see in Bakhmut, they're making slow grinding process as an example. But we also have an opportunity here for us to be able to turn the tide

and be able to really begin to regain the momentum that we saw, remember in Herzogne and where the Ukrainians took back territory that Russia had taken. So there's an opportunity there, the Harkev area, the same thing happened. We need to get back to that kind of a spring offensive. That's going to require three things in my view. One is these longer-range missiles that Ukrainians have been asking for for a long time. Why? Because Russia has pushed back its equipment depots, its arms depots, its logistics to beyond the range of the Ukrainian missiles. And the Russians have long-range missiles and Ukrainians don't. So we need to have those long-range missiles.

Very important. I hope we'll see something along those lines here in the next few weeks. And second, I do think they need airplanes and particularly F-16s. This fourth-generation fighter is very important. They've been asking for them for a long time. When I was there as the co-chair of the Ukraine caucus, it was interesting to meet some of these Ukrainian. top gun pilots who came in and met with us and said they have the capability to be trained up immediately. So that's important. And then finally, we need to get these tanks moving more quickly. I know the Abrams tank has now been promised, 41 of them, but probably not delivered until the end of the year, which is too late. Wow. So insignificantly, these Leopard 2 tanks from Europe, and there are lots of them there need to get in quickly. And also those larger and very

effective Abrams tanks made in the state of Ohio need to get there too. So if they could have that kind of equipment, I think you could see a real sea change and you could begin to see this window of opportunity be in the favor of the Ukrainians. Senator Portman echoes somewhat what Fred Kemp told us last hour that he thinks, you know, kind of a drawn-out struggle favors the Russians and that he would prefer to see the U.S. try to help the Ukrainians kind of in this window of time that you referenced. But what does defeat really look like for Russia? How should we expect Putin to act if he really senses that that, that, you know, that, you

that he's not going to come out of this victorious? Well, it's very difficult to predict what he will do, and no one thought that it made sense for him to go in in the first place. He made a huge mistake. He also underestimated the Ukrainians and their fighting ability, and certainly underestimated how those countries supporting Ukraine, including the NATO countries, would react. So it's hard to know, but I do think that the only thing that will persuade him,

Kelly, is going to be victory on the battlefield in conjunction with a weakening economy in Russia because of the sanctions that are put in place on a pariah country, which Russia is increasingly becoming around the world. So this is something that I think, you know, we have to squarely face is that he's not going to back away or come to the bargaining table unless he feels the pressure. And I think, you know, everything we've learned in the last year would strongly indicate that that has to be victory on the battlefield and tightening of the sanctions.

Let me turn to something that is of great concern to American business, probably even more concern than what's going on in Ukraine. And that is China. China making noises potentially of sending arms to help Russia. China, at best, an unreliable trading partner, it would seem, to the United States, making a bellicose statement with respect to Taiwan. Can China be a reliable business and trading partner for the United States if it does some of the things? it seems to be threatening to do under Xi Jinping.

Well, it's a great question because the Chinese economy, obviously, is far larger than the Russian economy, has a much bigger impact on the global economy, trades extensively with the United States, so we have a stronger interest there as compared to Russia, not a big trading partner with the United States. So a lot of American jobs are tied up in that. They also finance a lot of our debt. We are now facing larger and larger debts and deficits. So I think it's a very fair question. I think three things.

Number one, China has a choice to make on this Ukraine situation. And if they did make a decision to move ahead with openly arming Russia to help in this, that would be a huge mistake. And I think we'd have to see sanctions, and I think we'd have to see a big impact on their economy and our economy as a result. I hope they'll make the opposite choice, which would be to say what they have said for years, which is they believe in territorial integrity.

And they believe that one country should not be able to invade, another country. They've been, you know, critical of other countries doing that. Sometimes the United States, they've, you know, they've alleged that with regard to Iraq as an example. They should stand with their longstanding principle of no territorial integrity shall be violated. If they did that and said that they were not going to provide the Ukrainians' weapons, but they were going to say that what Russia is doing is wrong, that would thaw the relationship between the United States immediately, not just with the American government, but with the American people. Second, they've got to play fair in terms of the trading rules, and they haven't been,

and they know that. And, you know, this is something that the Trump administration tried to enforce through tariffs. They were successful in some respects. But in other respects, China continues to take IP. They continue to play a different game in terms of subsidies and selling below their costs called dumping. And so they need to change that behavior. And then finally is the aggressive actions that they are taking around the world, as we saw, with a balloon that was clearly used for espionage floating across our skies, but you see that all over the world, including obviously in the Indo-Pacific area and particularly with regard to their aggression toward Taiwan. So they have a choice. And if they make the wrong choice, it will be difficult to see

an expansion of trade, certainly. And I think very likely you'll see a continued effort by American businesses to figure out ways to move their manufacturing out of China. Senator, it's great to see you. We didn't get to the tragedy in East Palestine. We'll save that for another time. Obviously, a very important story. important story for American business as well. We'll have you back soon, Senator Rob Portman. Thank you. Those people need some transparency. Yep.

Thanks so much. Thank you, sir. Thank you, sir. After the break, John Ford brings us his interview with the CEO of a startup working to help build the credit scores of lower income Americans. That's today's working lunch. Before the break, though, during February, we're celebrating Black Heritage through the stories of some of our CNBC teammates, contributors and leaders in business.

Here is Robert Refkin, Compass, founder and CEO. I know that I'm only here today because incredible black leaders paved the way by creating opportunities for me and my generation. I remember my early 20s on Wall Street, trailblazers like Vernon Jordan, Bill Lewis, Ray McGuire. They were an example to me of what was possible. And they gave me advice, mentorship, and ultimately the confidence and motivation to pursue my dreams and found compass. I'm going to work as hard as I possibly can to be a positive example for others of what is possible. Higher prices are squeezing low and middle income consumers, which today's PCE inflation gauge confirmed. And today, John Ford brings us up close with a startup founder whose company is tracking that impact with real data and giving renters a tool that might help keep their heads above water, John.

That's the hope, Tyler. and Wimuma Abbe is co-founder of Issu, a company that lets renters get a boost to their credit scores for paying on time. He told me the company works with landlords who have 3.5 million units across all 50 states. The idea is for landlords to give tenants an incentive to pay on time and for tenants to have a way to build a good credit history

and lower their cost of borrowing. Abbe knows what it's like to struggle under economic disparities. He grew up poor in Nigeria and in grade school discovered entrepreneurship when his sister sent him an experience. gift, a Nintendo Game Boy Advance. One of my friends that was incredibly way, way wealthy, said, wow, you know, this is fascinating. I can't buy this.

You know, I can't find this in the market. Would you be willing to sell it to me? And I'm like, wow, this person really wants it. So I, you know, I proposed literally two and a half times the price and he bought it. I took the cash, went to the market, bought two. and a bunch of cartridges, multiple Pokemon games, and then all the kids were buying it for me.

I became the dealer, essentially. Nintendo dealer. Now, Abbe was able to get the goods from markets in a dangerous part of town where his friends would never go. That helped ease the burden on his mother who was paying 60% of her income to send him to a good school.

And that forever sensitized him to the struggle of low-income families. It's going to get worse in these current times according to the data he sees. households savings are down. Debt is skyrocketing. From a microbe standpoint, this pain is going to be prolonged, especially with companies letting people go. We're in for a very, very long era of pain for households, especially low to medium income households that we serve. We see data that are very,

very scary, where debt's where equity ratio during the pandemic was around 15%. Now it has a surge in up to around 39%. That is concerning. The healthy level is around 25 to 30%. It growing up to 39% in surgeon is incredibly concerning. So, Wemimo, they're sending us a flashing red warning sign that lines up with not only today's PCE number,

but also Walmart and TJX's reports earlier this week. The mainstream consumers in a vice between inflation and high interest rates that look like they've got to go higher. So his company attempts to help people raise their credit scores, right? By including rent as one of the metrics that is used in tabulating that higher credit score. He's concerned about high debt to equity ratios.

If you raise credit scores and more people are able to take on more debt, is that necessarily a good thing? Well, at the individual level, remember, if your credit score is higher, they don't have to pay as much interest on that debt. It's going to help you overall. I was also talking to Intuit CEO Sasan Goddarsie this morning. Intuit just reported last night. Credit Karma is seeing that creditors are saying no to more subprime and near prime borrowers.

If you're prime, you've got a much easier time accessing capital. And so, boy, if you can get closer to prime when you're struggling, that's going to help you a lot. Makes a big difference. Surprised he's so bearish on his segment of the population. That was very eye-opening. They're supposed to be, you know, getting the wage gains right now and maybe outpacing inflation. He says not exactly. And Issuu sells to landlords, right, who want to have access to the best possible credit-worthy tenant,

even if they're not doing really well on the income side. So in a way, the difficult times, he would argue, create more of a market for his product. True. All right, John, thanks. Good to see you. Coming up, we will trade some of today's big movers in three-stock lunch when we return after this. Time now for our weekly ETF tracker. This week we look at short-term government bond ETFs. Now, those funds had more than $4 billion worth of net inflows in the last week.

The reasons are pretty obvious. Fears of higher interest rates as inflation stays hot. That is sending people hunting for yield. They're also getting yield in bonds. Look at the six-month T bill. It is actually yielding more than 5%. Well, actually, a little less than it right now. 4.917, turning to some of the specific ETFs in the space. You can see that the gains are very small this week, which is kind of what you would expect from short-term bond funds. Very small, triple-digit decimal points there. But it's better than what investors have gotten out of their stock funds lately.

Our ETF data come from our partners at Track Insight. More information available on the F.T. Wilshire ETF hub. Kelly. Tyler, shares of Beyond Meat jumping today. It's finally safe to bite on this stock or not. Our traders take on that and two other names coming up right after this. Welcome back. It's time for today's three-stock lunch.

And we have Beyond Meat surging on surprise sales beat for the fourth quarter. Adobe lower on reports the DOJ plans to file a lawsuit blocking their $20 billion Figma deal and booking higher on a fourth quarter earnings beat thanks to strong travel demand. Here to help us trade all three is Delano Sapporo. He's founder and CEO of New Street Advisors and a CNBC contributor. Delano, welcome. Beyond me, a lot of people don't like what's going on revenue and profit-wise here, but the stock's up 10% and 53% this year. Would you be a buyer? Yeah, I'm actually a holder of this stock. And I think if you look at the life of the IPO for the stock,

it's performed pretty badly over the past couple of months, as you mentioned. It's performed really well. I think they have a turnover strategy in place where they're focusing on, obviously, their large grocer partnerships, and then also on the retail side for the retail side and for the restaurant side, strengthening that relationship with McDonald's. It's one where you're going to hold a little bit longer because this is something that's obviously new to the market. It's new to the consumers. And they're still seeing how that plays out as far as keeping that consumer demand in place that was really hot during the pandemic. So I'm holding this stock and waiting to see the strategy play out.

Let's move on to number two, Delano, Adobe. Yes. And with Adobe, for me, that's a fade. And I think a couple of reasons, right? The growth has been slowing for the company, right? And if you look at just the most recent, obviously, their most recent quarter. But I think one thing is the Figma deal is obviously the big thing in play. They paid two times premium from the most recent private valuation for Figma.

So people could argue that they paid a lot for that. And I think it's an act of looking for more growth for the company, which has been slowing. So I'm staying away from it for now. I'm waiting to see if things get better. Booking a buy? I think booking is a buy. Had a great quarter, strong. They have a portfolio of assets performed really well, so I like it.

All right. There we did it, Delano. We got it in. Thank you so much for your time for today's three stock lunch today. I think we've ever finished three drinks so quickly. I have. It didn't end well. But this did, right? All right. Well, thank you all for joining us for Power Lunch for a Friday. Thanks for watching today and every day. Well, you'll see you Monday on that note. Closing bell starts right now.