Power Lunch - Inflation in America, a bull bear on China and the Gap CEO exits. 7/12/22

Episode Date: July 12, 2022

Inflation in America. Households are feeling it. Business owners are worried about it. A top market strategist shares her gameplan for investors. Plus, is it too risky to invest in China? And, are shares of the Gap so beaten down that they’re a buy? Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome everybody to Power Lunch. I'm Tyler Matheson. Glad to have you with us here on a summer Tuesday. Here's what's ahead. Inflation in America, households are feeling it. Business owners haven't been this worried about it since about 1980. But is it at a tipping point? We've got a game plan for investors like you that includes looking for value in some unusual places. Plus, is China investable? The Bulls say China's reopening will pay off. The bears say it's too risky, given sudden COVID shutdown. and all the rest. The risks and rewards are putting some money in the world's second largest economy. We'll explore that one. But first, a check on the markets. The Dow is up 172 points at its high, down 93 at its low, and right now kind of splitting the difference, higher by about a quarter of a percent or 89 points. The S&P 500, essentially flat, negative, positive, take your pick, Kelly. There it is at 3854. And NASDAQ also,

essentially flat. Shares of Boeing up 8 percent, however. Strong deliveries there that reached the highest level since March of 2019. Oil prices slumping down near 96 a barrel on demand concerns, and you're starting to see it, Kelly, of course, at the bump as well. Yeah, no question which way that one's going today. And it comes with the American economy defined today by one word, inflation. A new CNBC morning consult poll shows nearly two-thirds of high-income Americans are very concerned about rising prices. Business owners call inflation their number one most important problem. The housing market may be slowing, but potential buyers still say prices are too high. And in the commodity complex, as Tyler mentioned, oil is back below $100

a barrel. Metal prices are falling. What does it mean when you add it all up? We have all of these angles covered. We begin with Sharon Epperson with more on how Americans are feeling about inflation. Sharon? Kelly, a new poll of Americans making $100,000 a year or more found that healthy income isn't necessarily going as far as it used to. About one-third or 34% of the 1,000 adults surveyed by CNBC and Morning Custle last week said they are worse off financially than a year ago. Almost half, 46% said they've had to cut household spending due to inflation. And 38% said they plan to cut spending if inflation gets worse. Now, after paying higher prices on everything from gas to food to housing over the past year,

these high earners said the first expenses to go are dining out at restaurants, entertainment outside the home, and travel and vacations. More than half also said they delay big household purchases. If inflation continues to rise hitting, say, 10%, 7 out of 10 adults said they would have a difficult time keeping up with monthly expenses. And we'll get another read on inflation tomorrow when the consumer price index for June comes out. Remember, it was 8.6% in May. And we saw a huge increase in gas prices last month.

So we'll see how that plays out in the June CPI, Kelly. This data is a good reminder, Sharon. While no one's crying for the high earners at a time of inflation, the lowest income households are much closer to the brink, but they will be crying for the restaurant owners whose clientele is suddenly not showing up. Absolutely, absolutely. And this is a wake-up call for so many Americans, including high earners. It's a time to kind of take stock of where you stand, what your needs and your wants are, and figure out what is optional, what you can cut out. It's also a time if you are making that higher salary. You have certain protections through your job like disability insurance.

This is the time to protect that income. And also financial advisors say this is the time to hear it all the time. Increase that emergency fund. But we are slowly starting to start. see savings rates rise. And so if you have a savings account in an online bank, you could be earning one and a half percent. Sounds like nothing. I know. But it's been much higher than it has been and much higher than at your average bank. So this is a time to try to boost the savings too. Absolutely. Sharon, thank you very much. Well, inflation is also finding its way into Main Street businesses as optimism there slides. Kate Rogers has that part of the story for us. Hi, Kate. Hi, Tyler. Overall optimism slid again in June by 3.6 points to its lowest level in nearly a decade of 89.5 per the NFIB. Every month of the year, so far, this index has declined in every measure in the index fell this month. Now, the key challenge here, no surprise, it's inflation, with more than a third of owners reporting it was their single most important problem in operations. This is up six points from May, also at its highest level since Q4 of 1980. It's also far ahead of both labor quality,

in taxes, which have both held the top spot on and off for years. And as inflation weighs on operations, the survey finds that owners expecting better business conditions in the next six months is at its lowest level ever, a net negative 61%. Expectations for better business conditions have also fallen every month in 2022. The group's chief economist Bill Dunkelberg writing declines in the net percent. Expecting better business conditions have always preceded downturns in economic activity. At a net negative 61 percent, the lowest in four, 48 years, it is strongly indicating bad times for the economy to come. Dunkelberg also noting a mixed picture on Main Street as housing has been doing really well.

Restaurant sales are higher while workers are still in demand. Owners are also raising prices, but the production side shows some signs of slowing, he says, flashing greater warning signs about what the future may hold. Back over to you. They're worried, obviously, about inflation. One of the metrics here was labor quality as well. Labor supply must be worrying them tremendously also. And what they have to pay for it.

Yeah, and that had held the top spot for a long time. Now it's the second most important issue for owners, about 50% of them reporting job openings that couldn't be filled down one point from May, historically, very high. You're seeing more owners raising their prices, or their pay, rather, to find these workers that they need. And then they're kind of grappling with inflation and how to pass that on to consumers. As these recession fears continue, that's really a tough call for smaller businesses to make because it could be harder for them to absorb those costs if you don't wind up,

passing them on to the consumers. So they're all making tough calls right now for sure. All right, Kate, thank you very much. Kate Rogers. Now, on the housing front, confidence in the market is still pretty weak. Prices are stubbornly high, even amid rising rates. Diane Oleg has more in the state of housing, Diana, which will be a major figure in the way inflation and rents go from here. Absolutely, Kelly. Confidence in housing has definitely shifted both quickly and dramatically, thanks to the sharp junk in mortgage interest rates and still high home prices. The share of homeowners who think now is a good time to sell fell from 76% to 68% in June, that according to Fannie Mae.

Just 20% of consumers think it's a good time to buy, although that's slightly improved from May. The biggest issue may be that more people are concerned they could lose their jobs, and the share who think the economy is on the wrong track hit a survey high of 81%. That may also be why more potential buyers are canceling contracts on homes they recently agreed to buy. cancellations hit 15% in June, according in Redfin. That's the highest share since the first months of the pandemic when home buying paused immediately, although very briefly. Cancellations were at about 11% one year ago. Buyers are canceling for several reasons.

Some are afraid prices will fall in the coming year and they'll lose money on their investment. Others are not qualifying for loans at the higher rates. Still, others may think that if the market cools a little bit, they can get a better house at a better price. Well, I guess maybe the, the, the, key question as well, Diana, is why haven't we or will we start to see prices drop more? Well, we've seen the gains shrink, and we're seeing that already. But these prices were just, they were like a freight train. And in order to stop that, you really have to see a huge turn in the market. The supply demand imbalance has still not been fixed yet. We haven't seen more construction.

We haven't seen the number of sellers that we need to put their homes on the market. So when you still have that imbalance, prices are still going to hold. But we should see the gains of at least, come back down to, I want to say, come back down to Earth. All right, Diana, thank you very much. Diana Oleg reporting. While rising prices are a concern for many investors, collapsing metal prices, collapsing prices could be flashing a warning sign of their own. Christina Ports and Evilis looking at the metals cool down.

Christina. Tyler, the doctor is in and the economy isn't looking so hot. Copper's nickname is Dr. Copper, the medal with a PhD or doctor. in economics because of its use in a range of items we buy from cars to appliances. In other words, a barometer of the health for our economy. And copper futures were lower today with the base metal recently hitting a 20-month load just last week. Precious metals aren't faring that well either.

You've got silver that also hit a two-year load just last week. While gold is often seen as an inflation hedge, it actually fell to a nine-and-a-half-month low just yesterday. So investors, what they're doing right now, they're turning to a stronger U.S. dollar as a hedge given higher rates. And really, with a graph that we're showing you soon, you're really starting to see a dichotomy between both of these hedges. And why else are we seeing metal prices collapse? You've got slowdown fears. A stronger U.S. dollar makes dollar-denominated metals more expensive, tighter central bank policy,

and then renewed Chinese lockdown fears this week clashing with the optimism surrounding Chinese stimulus that we had at the end of last week. So take a look at some of these metal miners in just the past 30 days. You got IAM gold, King Cross, Barrett Gold, all down double digits, even more, more than 20% lower. And so Wall Street, as of now, is relatively bearish on metals. You've got TD Ameritrade worried about prop traders at banks who hold large gold positions that can be easily liquidated. And then you've got Goldman Sachs today coming out with anode Bank of America, too, slashing copper forecasts, saying the metal slump has much further to run. So let's talk a little bit more of that relationship between a rising dollar, falling euro, and gold.

Explain it. Tees it out for me a little bit. Well, if you have a discrepancy, right? So traders will try to take advantage of the discrepancy between the euro and the dollar, you know, putting more money into the U.S.D, especially because the consensus, maybe the central bank in Europe is further along in their tightening process. So more money pours into the U.S.D. that doesn't do necessarily, it's not necessarily a good thing for gold at the moment, which is why the consensus is that it could fall a little bit further as more people go into the U.S.

dollar. All right, Christina, thanks very much. Christina, parts of nevelas. So as you've just seen and heard, inflation may define our economy right now, but our next guest still expects it to recede and says a recession can also still be avoided. How should you invest in these times? Megan, shoe is head of investment strategy at Wilmington Trust. Megan, it's good to see you again. Let's start with the sort of weather inflation or how much will inflation receive part of this. How important is this to investing right now?

Oh, it's the single most important issue that investors are facing right now. And we have a very important inflation report tomorrow. We are expecting inflation to decelerate into the balance of this year. And we're hoping that at least at the core level peak inflation. is behind us. But for consumers, as we all know, food, energy are very important. So while we typically would be focused a little bit more on core and the impacts on monetary policy, headline inflation is very important. So the risks there being food and energy. But we do expect it to decelerate. Recession odds are elevated, say maybe 30 to 40 percent over the next year. But we still think that there's a landing strip for inflation to slow the Fed to be on net, a little. little bit more dovish than what the market is expecting and the consumer to remaining good health.

So that all suggests to me, Megan, that the recession odds are rising, but it is not your base case, that the Fed may not be as hawkish as it is appearing to be right now, that inflation might be slowing, that we are closer to the end of this market sell off than the beginning. How likely do you think it is that the stock market in the U.S. begins to turn up? up over the next couple of months and maybe ends the year somewhat higher than it is at least today. Yeah, well, that's really interesting. So you raised a couple of good points, which is the duration of this sell-off. And we do think this could be a little bit on the longer side of things, mostly because the catalyst that we need in order to see the market bottom is not only inflation

to peak, but to get a better sense of the pace of deceleration and whether the Fed really will be able to maybe get to a point where they raise the next couple of meetings and then slow that pace or even pause and look around. But the key is that the market tends to sniff out any changes in inflation, even ahead of the actual data. You've had a number of guests and commentary on talking about how June CPI will be a little bit of lagged to some degree because of the changes and gasoline prices and energy prices and how much that has changed just over the last couple of weeks. So we do expect the market might sniff that out in advance. And that's just why it's just simply not a time for investors to be taking big bets in this market.

We've tightened up our positioning. And we're just looking to remain diversified and find opportunities within different sectors. So it's a dollar cost average in at reasonable intervals. It's an investor's market, not a trader's market. Well, I would say for the tactical trading point of view, we do have elevated cash much higher than we typically would hold and that we've held over the recent years. But for investors who have had, you know, we deal with a lot of investors who have had a liquidity event and are looking to put a large amount of money to work at a particular time, we still think it's a good idea to stick with a plan and dollar cost average in for those clients. because even if we get a recession, which is not our base case, but elevated probability, we're probably two-thirds of the way there to pricing that in.

And it's very difficult to time the market and the bottom perfectly, as we all know. So getting that cash in gradually and methodically, we think is still the right way to go. God, I'd love to have a liquidity event. That's all I want. I just want a liquidity event. If you become an influencer first. Become an influencer, maybe there'll be a liquidity event. Megan, thanks very much for your time today.

appreciate it. All right, coming up, high risk, high reward liquidity events. Chinese tech stocks are gaining 20% over the past two months while some are betting on China's reopening. Others say steer clear. Too much uncertainty about the country's government action. A bull-beared debate you won't want to miss and a shake-up at the gap. The CEO out of here, the company warning of margin headwinds, the stock's value cut in half this year. That's a gap. Why is it so cheap? Is it a buy? We will trade it in today's three stock lunch. All righty, folks, one of the most volatile corners of the market is U.S. listed Chinese stocks. Take a look at the numbers.

Names like Alibaba, jd.com, and Pinduoduo, all trading lower over the past year. Alibaba Duo duo down more than 45%. But amid some signs of easing COVID restrictions, those names have soared over the past two months. Look at those numbers. And just yesterday, those stocks sold off sharply again on renewed fears of fresh lockdowns, more regulatory challenges for big tech and so much more. With so much volatility, is China investable? Yes or no?

Joining us now is a China bull, Jonathan Brodsky, founder of Cedar Street asset management, and China Bear, John Rutledge, CIO of Safenand, a CNBC contributor and former economic advisor to President's Bush and Reagan. Welcome, gentlemen. Great to have you with us. Thank you. Jonathan, let me begin with you because I think maybe you have the harder case to make, at least to this skeptic here.

Why should I think China is a safe, not necessarily a safe, but a good return place to put my money now? Well, as you stated, it's pretty easy to be a pestinist. It's a lot harder to be an optimist, given the zero-COVID policy, geopolitical concerns and obviously one of the big elephants in the room and that is the regulatory issues between the SEC and the Chinese government around U.S. listed Chinese companies. But I think there's some silver lining behind the pessimism. And that's around the fact that we are moving away from a very aggressive zero COVID policy, 14-day lockdown to seven-day lockdown,

very localized approach. In addition, in the original COVID outbreak, the Chinese government really did not stimulate the economy very much. So there's a lot of policy room there with low inflation. But I think a key point for the viewership to understand in terms of where we are within the China investment landscape is just how dramatic the unemployment numbers have risen with youth in China around 20 percent. And given the fact that historically within China, you know, when you do have issues with government stability, it often comes from that crowd. The Chinese government is very inclined to find ways of stimulating. the economy and finding jobs for these younger people who are really struggling right now.

And we think especially that that is going to be oriented around the public markets, not around property investments, with some very interesting policy changes associated with access to southbound investing within Hong Kong, as well as tax deferrals for pension assets. So we think that there's actually some interesting trends from this very low point where we are right now. Very detailed prescription there or description, I should say, by Jonathan. John Rutledge, let me ask you how what Jonathan describes strikes you. It sounds in a nutshell, and I realize I'm oversimplifying it, that there is a lot of room for China to stimulate and particularly to stimulate at a target market of young unemployed whom they might be

worried about creating social unrest? Well, you know, Tyler, in 100 trips to China over the years, I've been mostly a China bull in the sense that every time people say China's going to crash, I say, no, it's going to keep growing. And that's been true until now. But right now, I don't want to own anything in China until at least the end of October. And let me tell you why. October, Mr. Xi Jinping is going to be appointed, very probable.

to his third term as president, which has never been done before since Mount Saiton. And that makes him effectively lifetime leader. Fortunately, he's 66, so that's not that long of a period. But so between now and then, the look is everything for him. He has announced a policy that's called the New Development Concept. New Development Concept is what Kevin Rudd, former PM of Australia, called Pivot to the State, which means that all direction for the economy for now is going to come out of Beijing. He has criticized CEOs of service companies, tech companies, for being not patriotic.

He has denied credit to three of them in the last week. So the service companies are being shunned to the side in favor of the industrial companies that he controls more tightly. This week will have a GDP number. It's going to be the first negative number since the first number. quarter of COVID and the second one in modern Chinese history. We have a Shanghai lockdown over the last two months that took Chinese growth rates for the year from eight and a half down to four. And so what's happening there right now? COVID numbers over the last several days have popped up again. Now,

they're tiny by Western standards. Yeah. But she has his entire reputation resting on the zero COVID policy. And zero COVID means shut it down. So today, there 11 cities shut down, that's 114 million people. And it's the heartland of China's industry. Let me come back to something you began, and I want to bring Jonathan back into the conversation, if I might. But, John, let me ask you to linger for a moment. You said, I certainly wouldn't consider China investable until after the October.

I guess it's a Congress where Xi will presumably be reelected as president of the country and ahead of the party. at that point, what would make you say, okay, now that we know this, we can go ahead and invest? Is it that kind of binary situation or not? Whatever the outcome, it's going to be more certain after October than it is right now. Okay. And he is under intense personal pressure to deliver a good economy by October. He's instructed the provincial governments to do everything they can to hit it, five and a half percent target.

It's going to be four, not five and a half. So that's not going to happen. But longer term, they have all the advantages they've had for the last 30, 40 years, and they're still working for them. Problem is Xi Jinping has controlled the government top down, and it's pushed the people into what I call this, think of as the Savonarola effect. When you shock a system, it moves backward in time, and backward in time for China, it's Mao Teut. This is a newly centrally controlled economy. All right, let's go back to Jonathan and get some final thoughts there reacting to what John Rutledge said and maybe particularly focus on that post-October window, I guess, or moment that could be historically and market significant.

It's always difficult to time the markets, and I think that John made some points that are favorable for the bull case, and that is Xi Jinping, in order to get elected, needs to not only control COVID, but he needs to get the economy going. Historically, there's been an orientation around state-owned enterprises as dominating the investment landscape. But I think Chairman Xi and the rest of the government knows that that's not the real job creator within China. The real job creator is in mid-cap and small-cap companies, especially those oriented around megatrends. That's going to be environmental improvement, electrification, non-bank financials, health care as examples. Those really benefit the small and mid-cap part of the market in China, especially around Hong Kong, where we're very bullish on investment flows, especially southbound, away from the property market.

So although it's very difficult to time things, given where the concern is from a valuation perspective, number one, and number two, the volatility of this upcoming election, there's a strong case to be made that if you stay away from the large data-centric companies and move towards smaller megatrends, oriented businesses, especially those that are going to benefit from southbound investment out of China, which is being promoted by the government. You stand a good chance to be in a good spot a couple of years down the road. All right. Gentlemen, there's the debate in a nutshell for you. John Rutledge, Jonathan Brodsky. Thank you very much. Thank you. Up next, finding the top state for business. CNBC is set to reveal this year's winner. We will give you a key hint next. And in today's working lunch, we're taking you down to Mexico for a look at the country's first fintech

unicorn. Power lunch is back in a moment. Welcome back. We are getting set to reveal America's top states for business for 2022. It's always an intense battle, but this year it comes with extra difficulties like a crippling worker shortage. Scott Cohn is live in the mystery top state to tell us about why that is a game changer this year, Scott. Yeah, it is. Kelly, you know, for years we've talked about what they call the skills gap, companies trying to find talent, and how states that can help companies bridge that gap have an advantage in our study. Well, for 2022, that gap has gotten wider and deeper. With his pick of engineering jobs to choose from, heavily recruited Ohio State graduate Robert Yango

took a job in Texas. Because I've been in Ohio my entire life, I decided that I wanted to explore and see other things. But now it's not just the engineers getting snapped up. BMW's 2020 scholars. These community college graduates in South Carolina all had guaranteed jobs with automaker BMW before they started school. The industry itself is growing so fast that there's not enough of us to fill the industry. BMW has been partnering with community colleges here for a decade.

Because of that. They've added a program in high school, building a worker pipeline. We continually need more of these people and the industry needs more throughout the world. The race to rebuild the American supply chain has escalated the war for workers, now expanding to manufacturing. There is a stark need for people who have the ability to work not only with their hands and then to troubleshoot that back across technology. The states that are winning, experts say, are taking the long view. They're thinking about ways that they can attract talent, but more importantly, they're looking at a long tail of how they can actually build their talent.

With all of that in mind, we've retooled our metrics just a little bit in both the workforce and education categories to account for career education, community colleges, industry-recognized certificates, and the like. You can read more about our methodology and our study and all about competitiveness at topstates.c.com, which is where you'll be able to see where your state stacks up tomorrow and tomorrow you'll be able to see where I am. I'll give you another hint. Playing the blues. Now, every state has a blues scene, but this state's blues scene is special. Playing the blues. Topstates.cc.com, guys. And I mean, Memphis would be too obvious, I assume. It's got to be way more subtle for that. Memphis and New Orleans would be too obvious.

I can't. That's a really good one, Scott. I'm thinking it's got to be, I'm looking, I'm looking around there. It looks like rain showers are coming. It looks like it's green. Humid. I think Tennessee is not a bad guess. Something Southern. Tennessee's not a bad guess. All right Scott, we'll see you tomorrow. Interesting. Okay. All right, man. See you. Like no comment. All right, let's get to Bertha Coombs now for a CNBC News update. Hey, Bertha. Hey, Tyler. Hey, Tyler. Today is hearing for the January 6th committee. They played back some videotaped excerpts from the recent behind closed doors testimony of White House counsel Pat

Spoloney. He talks about how he thought then President Trump was getting bad advice from outside the White House on challenging the election results, recounting how he was dismayed when he walked into an Oval Office meeting to find, among others, the one-time CEO of Overstock.com, Patrick Byrne. I walked in. I saw General Glenn. I saw Sidney Powell. sitting there. I was not happy to see the people in the old lives. Well, again, I don't think they were providing. Well, first of all, the overstock person, I've never met him to this guy was. A senior Islamic State Group leader was killed in the U.S.

airstrike in northwest Syria. The strike also wounded a senior ISIS official closely associated with the leader. And Spotify announcing that it's a requiring hurdle, a music recognition trivia game for an undisclosed amount. The deal will push Spotify further into its mission to make its app more interactive as it invests in video, live streaming, and podcasts in an effort to diversify its revenue streams. And Tyler, it sounds like hurdle is like a cross between Wordle and name that tune. Yeah, it does. It sounds like Wordle with music. Thanks. Exactly. Exactly what it is.

Bertha, thanks. All right, ahead on Power Lunch, folks, we got biking, distressing. Dretting, excuse me, dressing. We're not distressing. And flying. We got big calls focused around the consumer in today's three-stock lunch plus, Kelly. We'll go yield hunting to find you even more opportunities. Companies paying out a record amount in dividends, despite all this volatility, will run you through some stocks and ETFs with solid returns.

Welcome back, everybody. 90 minutes left in the trading day, and we want to get you caught up across the markets. on stocks, bonds, commodities, and dividends where we are seeing some record payouts. But let's begin with the markets where the Dow is hanging on to a 35 point gain. It was up almost 200 earlier. The S&P is still negative by 7, though, and the NASDAQ is down 25. Now, some of the alternative financial names, if you want to call them that, are seeing green today, like Affirm, Block, PayPal, and Coinbase, a firm is up 4%.

And it's a big move higher for the airline stocks. Now, you've got a couple of things going on here, plunging oil. prices are helping. So too is that jam-packed Heathrow traffic where they're saying they're going to have to halt new schedules till September. So American up 10% United Delta Hawaiian all up 7 to 8% today. And the semi-stocks are also seeing a lift. Western Digital, Micron and SkyWorks, some of the winners there, micron up 3%. Two of the biggest losers today are over in the cloud where names like ServiceNow and Paycom remain under pressure. Service Now down 12%. Let's get now to a busy day in the bond market where the focus is on yield curves and currencies and rates and Rick Santelli is tracking

all the action. Rick, what are our takeaways? Yeah, I'll tell you, all of the above, and let's not forget, the reason we're studying all of the above is because central banks have been so busy the last decade and a half. Accumulating large positions are central bank nine trillion ECB boatloads of negative securities. That's why inflation and resists. We're and tightening cycles are so painful because of decades plus of manipulation by the big central banks. Look at the intraday of tens. You see that sell-off that push yields up right around one eastern?

That was a failed auction. I gave it a D-minus. It was an ugly auction in front of tomorrow's CPI. Look at a two-day of tens and realize less than a month ago, June 14th, we had intraday highs on tens, a whisker shy of three and a half percent on two-year no yields around three 3.47 were much lower in yield, higher in price. Look at a three month of boons. Look at how they've dropped from 177 to its current level just above 110. And then look at a three month of the euro versus the dollar. You notice how the right side is the same? His interest rates

fell the last six weeks in Europe. So goes the euro currency. Add in the ECB and fragmentation. There's going to be trouble in Europe trying to get these markets to normalize. And finally that yield curve. Here's the real recession. curve, three months to tens. It's nearly cut in half just on a month to date chart. Kelly, back to you. A big drop and a fast drop. Rick, thanks. Now, I mentioned falling oil. Let's get the full details from Pippa Stevens with more on today's slump. Pippa? Hey, Kelly, big declines across the energy complex sending oil tumbling more than 8% to its lowest level since April and falling here into the close. A number of factors weighing COVID cases in China are jumping, which could hit demand.

The dollar is also stronger and we've got mounting recession fears. This all ahead of President Biden's meeting with Saudi leaders later this week, the White House has said that OPEC does have room to raise production. But energy aspects and Rita Sen saying she doesn't believe they have that spare capacity. And even if they did, would they be willing to raise output? Now, today's decline is at odds with comments from key agencies, Fatih Birov from the IEA, saying the world has never witnessed such a major energy crisis in terms of both depth and complexity. Meantime, OPEC today released its first look at

2023, and they see a tight market. So a lot of different moves here. WTI down more than 8% at 9950. Brand crude also falling below 100 bucks currently at $99. Meanwhile, gasoline futures down another 6%. So that is one bright spot for consumers, Kelly, with gas prices expected to continue to decline. Absolutely. Pippa, thank you very much, Pippa Stevens. Now, let's look at the rise in dividends that we've seen and some of the ETFs that track them. Despite how rocky the markets have been, dividend payouts hit another record in the second quarter. According to S&P Dow Jones, companies in the S&P 500 paid out a record $140 billion in dividends last quarter. They estimate that dividend payments will jump more than 10% in 2022 year on year.

That's the first double-digit increase since 2014. And there are a number of ETFs that invest in dividend-paying stocks. like the VIG from Vanguard, the S-CHD from Charles Swab, the DVY from I-Shares, and the VYM. They're all actually down for the year, which reflects the price action that we've seen. But within them, some names that come up constantly and are pretty familiar. Big dividend payers, widely owned names like Coca-Cola, Pepsi, Verizon, and Broadcom. Verizon's still sporting that 5% yield. Some other popular names, IBM, Exxon, and Philip Morris.

and there you see yields of more than 4% for all three. Tyler, over to you. All righty, thanks very much. After the break, today's working lunch, we got John Ford, who's going to speak with the CEO of Clip. FinTech companies are among the winners today with PayPal, block, and a firm all up more than 2%. And today, John Fort brings us up close with the founder of a startup bringing digital payments to Mexico in a way that reveals the category's global potential.

John. Hey, Tyler. Yeah, Adolfo Babatz is founder and CEO of Clip, a company that allows small businesses in Latin America to accept credit cards and digital payments. Adolfo worked for PayPal before realizing Latin America needed its own fintech and starting Clip a decade ago. Clip raised $250 million in a series D round last year and intends to go public in the U.S. eventually. Adolfo grew up in a wealthier part of Mexico City and when a major earthquake struck in 1980, he saw how people's economic status affected the devastation. But in the case of this earthquake, particularly, it was also the part of the city where you lived. Mexico City is built over a lake. And the parts where the lake was, they tend to shake a lot more. Okay. We live in the South.

The South is firm ground. So in the South, there were no problems. There were no homes destroyed, no buildings. Everything was, everything seemed normal. But as the day started following, I remember my brother, my oldest brother, went to the baseball stadium to carry corpses. About 5,000 dead. Adolfo started to feel a social responsibility to improve things after that. Later, he saw the potential for business and entrepreneurship to have a positive grassroots impact.

Now, with Clip, he's making it easier for small businesses in the region to transact, set up omni-channel processes, even get access to capital. and an interesting part of the equation is helping them sell top-ups, wireless services. Cliff has almost doubled the size of the pie in terms of merchants that accept digital payments in the country, just by just simply by itself. So number one, it's that. Number two is to make sure that we provide tools to the merchants that really help them grow their business. And what are those tools? Number one, financial services.

We can provide it with a loan, we can provide it with a bank account, we could eventually provide it with insurance on the business. How to sell online, how to sell on multiple formats. That's kind of the third piece of this. How do we really give them tools to sell more, selling via WhatsApp, selling top-ups, selling services, things like that. And the fourth piece, it has to do with APIs. How do we leverage payments, clips, amazing things. payment infrastructure so that everyone can use it. Here in the U.S. we talk a lot about fintech in terms of crypto and buy now, pay later,

which is fine. But it's also interesting how digital and mobile payments are changing the rules of entrepreneurship in emerging markets. Guys like Adolfo Babatz have a front row seat, guys. So let me ask you a question. They've got some fantastic blue chip investors, including SoftBank, Goldman, and several of the General Atlantic, among others. So they've got that edge. But what is their edge in terms of service over the big guys like PayPal or MasterCard, like Visa or Square? Well, being on the ground, understanding local merchants, local cultures, and the services they need. Adolfo used to work for PayPal and was really in charge of managing Mexico for them for a period of time before he went and started Clip, decided that some of the things that he wanted to do, PayPal wasn't moving as quickly as he wanted to.

and that's part of what inspired him to start the company. Wow. Interesting story. Amazing. Yeah. John, thank you very much. Our John Fort in today's Working Lunch. Coming up, all fun and gains, cruises, casinos, and beer stocks are hired today. We have those details next. Welcome back to Power Lunch, everybody.

It looks like investors are betting today. The consumers are looking to get out and have fun and maybe even downplaying some COVID concerns because the cruise stocks are getting a nice pop. Carnival up 8% Norwegian right on its tail. The casino names are John. led by Caesars and Win Resorts. We're talking about here three to four percent gains. And finally, the beer stocks, Molson Coors, Boston beer nicely in the green with nearly

4 percent gains. And there's a whole lot more stock action ahead. Three stock lunch coming up next after this quick break. Don't go anywhere. All right. Welcome back, everybody. Time now for three stock lunch. It's going to be a lightning round.

We're looking at some consumer focused movers gap lower after its CEO announced she's stepping down after two years on the job. Peloton higher on news it will outsource all manufacturing of its products. And Southwest, higher on an upgrade at Susquehanna, who sees a 23% upside in shares here to help us trade them all. Eva Ados, she's chief investment strategist at ER shares. Eva, welcome. Let's kick things off with the gap, which has been to me sort of a terminally troubled company over the past decade. Yeah, I agree.

It's a sell for us. It's in the news today with their CEO departing within a year. That's not a surprise to us because they're underperforming in all key three areas. SG&A costs a rising gross margin is dropping. EBIT margin is dropping. They have by far the worst revenue growth and margins in its sector. And that's a company that saw a 50% increase in their inventory. That's why the economy was good.

We're very concerned what's going to happen to them in an economic slowdown, have extra pressure on their margins and further mark those. Well, speaking of potential big changes in a business model, how about Peloton, Ava, where now they're outsourcing the manufacturing? Yes, that's a sell too for us. And that's because out of the 56,000 global publicly listed companies that we're tracking, this is one of the worst, if not the worst example of corporate greed. And that's because there was key insider trading of $500 million at the top of the market,

$400 million in dollars in key executive compensation while they had $1.9 billion in losses. That's why their gross margin was dropping. SGA was rising. The fundamentals did not look good. They certainly did not justify such a big compensation. so we're concerned about their culture, about their management. There is nothing worse when an entrepreneurial company is managed by bad entrepreneurs. And unfortunately, that's a case.

So certainly not a buy, I would say sell. We will have to have you back to talk more about that because you seem to be suggesting that the executives there traded out of the stock with some foreknowledge of what was to come. And we'll have to talk about that a little bit more. But meantime, we've got a minute. Let's talk about Southwest Air. Is there finally something you like ever? Finally.

So that's a buy. Definitely. There's pent of demand when it comes to travel with cities today, as you mentioned earlier. And also, that's the company that has the biggest revenue growth in its sector. It's growing by 168%. They are improving in all key three areas. SGNA costs are dropping. Gross margin is rising.

A bid margin is rising at a 52-week low. And their valuation is similar to their peers. So definitely a buy. All right, definitely a buy, two cells and a buy. So much positivity for the airlines of all things today. Yeah, yeah, exactly. Eva, thank you very much. Eva Otto's for three.

I guess they don't fly into London Heathrow. Right. I mean, I understand that there's that much demand, but there's still a lot of bottlenecks. Crazy. And SAS is on strike. I'm planning to go to Norway. Who knows?

We'll see. Forget that. Forget that one, man. Thanks for watching Power Lunch, by the way.