Power Lunch - Inflation Situation, Bitcoin ETFs 1/11/24

Episode Date: January 11, 2024

Stocks are falling today, after the “rate cuts are coming soon” narrative took a hit thanks to hotter-than-expected inflation data. We’ll discuss what it means for both markets and the Fed.Plus, Bitcoin spot ETFs have officially begun trading after receiving SEC approval. But what’s the different between them? And which should you buy? We’ll explore all of the options. 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 Kelly Evans, I'm Tyler Matheson. Stocks coming up, stocks falling today after rate cuts are coming soon. That narrative takes a hit. Thanks to hotter than expected inflation data. The consumer price index rising three-tenths of a percent from last month and 3.4 percent from last year. A smidge higher than expectations, but that's all it took. We'll discuss what it means for the markets and the Fed. Plus, finally, the day is here. Seven Bitcoin ETFs are trading. What's the difference amongst them, though? How do you know which one to buy? Where can you even get access? We'll explore all of that ahead. Let's get a quick glance at these markets, though,

which are coming back from their session lows. In fact, the Dow is only 36 points from turning positive, seven for the S&P, which was positive briefly earlier on in the session, of course, and the NASDAQ is only down 10 right now. It was shaping up as a good day for big tech early. Maybe we'll bring that back with now everyone but Alpha. bit in the green. Google, Amazon, Netflix, and Vida all hit record highs today before turning lower and now they're making another run at it. And the same is true of Microsoft, which very

briefly passed Apple in market cap. There you see it. Apple back on top now at 2.881 trillion versus the market cap of Microsoft at 2.86 trillion. Either way, it's a lot of money. And such a sign of the times and the rise of AI. We start with the markets today after that hotter inflation report, which was putting pressure on stocks. Investors have to figure out how this will impact the Fed and earnings and you name it. Our next guest has been quite cautionary, saying the lagged impact of the Fed's tightening will continue to weigh on the market more broadly and on the business cycle. Let's bring in Michael Cantrowitz. He's chief investment strategist with Piper Sandler. Welcome to you. You know, I was joking with Craig Johnson the other day because your technical

analyst has been so bullish. You've been much more cautious. And this has been one of the weirdest cycles. we've all ever lived through. Yeah, absolutely. Craig's had a great call sticking with it throughout the year with all the concerns and pullbacks. We're actually pretty more aligned this year. Really? Is he more cautious about 2024?

He sees limited upside for equities, some rotation out of some of the larger cap names. I think where we differ a little bit is in how much breadth we can get out of the market. And our view here is that, don't confuse a bond yield rally, which really propelled the stock market back two months in year, with an earnings recovery rally. Right, right, exactly.

So we saw, in other words, bond yields, which went to their lows below 3.8% in late December, and we're showing this chart here. That's really when we saw a lot of the stocks, a lot of the momentum names and that kind of thing break out to their highs. It's interesting to me how much just the tenure going back above 4% seems to have changed the narrative. And do you think that's the culprit here? Yeah, well, I think we came into the end of the year, and people really focused just on how we're going to end the year.

And then we started the beginning of the year, and people said, okay, I got a lot of growth stocks because those have all done so well for so many years and certainly last year. All of these cyclical, risky, high beta value names and small caps went from 52-week lows, many of them to 52-week highs. And I got no defense. And we've priced in perfection, a soft landing, rate cuts, tight credit spreads, low volatility, and pretty much a much new high in the S&P. So I think the reality is that we got a little ahead of our skis with, in terms of how much the Fed will cut this year, at least given the data we have today, and we've got to digest that. It sure does feel as though the market was pricing in a more rapid and maybe more precipitous decline in interest rates than is now likely. Do you see that today's CPI number

as indicating that inflation is plateauing at a higher level? Is this a pause in a decline, a towing that will require the Fed to stay tighter for longer or what? I think the route or neither because it's really, we're talking about tenths of a percentage point here and that's margin of error stuff. Yeah, I think the most important thing for inflation is that oil prices are really low, gasoline prices are really low. And for the consumer, I think that's having a benefit. The economy is still okay.

Employment is still okay. The data are softening, but not enough to really have a big impact on wages. and companies' pricing ability, it is declining, but I think we've seen the low-hanging fruit from... The increase in prices is declining, but prices themselves are not... I ordered last night from a not very fancy Italian restaurant in my town, a chicken parm, a pizza, and a pasta al-vodka, and it was $70. Would everyone else have? It was... I'm going, wow, that's a lot of money.

With Tippett was 85, and I'm a, you know. Well, wait, and that gets back to employment. Prices aren't going to really fall on a lot of the services, and that's where CPI remains sticky in this report, until you see jobs really declining. Companies can either hoard labor and, you know, and suffer on margins and keep prices high, or they're going to have to cut their prices to maintain market share.

And one of the things that you've really been emphasizing over the past year is quality. So it's kind of whatever you think of the Fed, whatever you think of, you have to stick with quality. On that front, we're about to head into earnings season, which is a key time we often differentiate between who's got that quality and who doesn't. The banks start tomorrow, for instance. Anything you're picking up there in terms of where we might see some negative surprises? Yeah.

And it's the earning backdrop that keeps me more staying away from some of the real high-risk recovery trades that certainly worked in November, December, as we got relief from bond yields, but I don't think are going to continue working to start the year. We've already seen the Russell pull back quite a bit. and a lot of the winners from that period. So I think that comes back to earnings. We have, coming into this quarter, a three-year high in large, mid, and small-cap negative pre-announcements. Those are companies coming out and saying, hey, before we report earnings, we're just going to guide you a little lower. Right. We're not seeing a robust pickup in earnings revisions,

even though the market's done great, but you're not seeing the knock-on effect of that. So within financials, we look at stocks every quarter that are more likely to miss estimates due to their history of actually missing estimates due to their cyclicality and the dispersion of earnings estimates. And in financials, we've seen earnings dispersion or uncertainty really widen out compared to the last quarter. And three stocks are showing up as very likely to miss. One is Goldman Sachs next week, which have on average missed about 25% of the time. And their dispersions up quite a bit.

Wells Fargo tend to miss by about 35% of the time. Again, the uncertainty is increased as well. And then Bank of New York, 40% of the time. And then the one other name I wanted to ask you about is Boeing because it is so significant to the Dow and, of course, the ecosystem around kind of aerospace more broadly. And you were picking up on weakness there as well, even prior to the latest incident. Yeah, Boeing's been in our cell model for quite some time. Our cell model looks at a lot of kind of forensic accounting data. It's very fundamentally driven.

It's not based on my macro outlook or market outlook. It's purely looking for what we call it red flags across the financial statements. And so Boeing's been, flagged is very expensive for a while. Their profitability has been far subpar, say the least, relative to their peer group. And some other red flags are showing up in terms of the variance increasing in their sales and earnings. Anything else you'd mention as we head into earnings season to watch for? More broadly. Well, I think what you know.

Or just the fact that you're warning that the season as a whole could be a disappointment. I think what we could see, given that you could argue the bar is a little lower today because of all of these negative pre-announcements. That may give you an indicate, you may end up seeing more companies actually beat, but will they guide higher, is the question. So the statistics on beating don't always correspond to companies also guiding higher, i.e. the future matters more than the past. Yeah, and we know stocks often like that guide more than they like the past looking results. Michael, thank you, as always. We appreciate it today coming in. Good to see. Happy New Year. Welcome. Let's get out to Chicago now for the bond market reaction to this morning. It's slightly

hotter than expected inflation reading. Rick Centelli, standing by now at the CBO. Yes, a pretty busy place today. And if we consider CPI was a bit warmer, and there were certain aspects of it that really merit some attention. I found that if you look at the three-month annualized core, it moved from 3.3 versus 3.4.

It actually moved down. But the six-month annualized rate moved up from 2.9 to 3.2. Now, let's look at some charts quickly, Tyler. Intro of twos. We're doing a lot of work under yesterday's lows. Look at a two-day, and you could see what I'm talking about. Now, look at a two-day of 30s. Exactly the opposite.

We're flirting with yesterday's highs. If I recall, they were about 421. So the Tuesday 10 spread, it is the least inverted in two months, and when it comes to inflation, there's no better place to talk to traders than this floor, because obviously it's going to make a huge difference in how, Equities are traded and volatility. Jim, happy new year? All right, you saw the CPI data today.

Your thoughts? Look, it follows up on the employment data we just saw, right? A actually robust labor market. That doesn't mean, however, ironically, that the economy is strong. GDP itself is going to slow down. We're seeing all those clues out there. The thing is the irony and the disconnect between the labor market, ironically, and growth. Those things are very different.

And that's not where it was 40 years ago. We're getting a rebalancing. Well, last time we talked, you said a lot of this inflation is structural, so it's not going away. Quickly, what do you mean by that? Well, it's stackflation, right? You get stagflation. If you get people on the bottom with money and the top is coming apart, right? If the stock market, if growth and earnings are poor, that doesn't necessarily translate in the trickle down right away.

So I think we're getting a stagflationary environment, which is much more difficult for the Fed and entities to deal with. Last time I saw you, it was about these option expiration, the big quarterly expiration. What's the volatility? What types of contracts? What are you looking at as we move towards the middle of January? So today, particularly interesting, right? We get a bad number and the market kind of tries to sell off. But what happens again? We bounce right back. Why are we bouncing back? January OPEX is the biggest OPEX for single stock. So all the tech names are strong relative today. Not a surprise based on the flows. This is beach ball underwater activity. This tends to happen until through OPEX, or at least the Wednesday of OPEX the next week. Now I have to ask. I know that on our channel we've talked about the,

SEC and the ETF and the hack and all of a sudden it's good. And today, of course, we see all the listed contracts at CBOE. Give us some thoughts that maybe you haven't heard expressed on a final word on the ETF. Well, two factors, right? Everybody's coming in. The flows are there. This is a whole new group of people that can now be involved in it. That's positive in the short term.

But ask yourself, is that positive in the long term? If the regulators start regulating Bitcoin day in day out, that kind of changes the reason for owning Bitcoin. Especially if you listen to, to Mr. Gensler. He didn't give it a ringing endorsement by any means. Well, thank you for joining me today, as I said, Happy New Year, Chem. And we're going to turn it back over to Tyler and the gang. All right, Rick, thank you very much. We've got some breaking news now on the national deficit. It is breaking. The Treasury making a big announcement just moments ago, and Avin

Javers is in our D.C. newsroom with details. Hi, Aiman. Hey, there, Tyler. Well, we've got the monthly Treasury statement in from the Treasury Department, the National Deficit, monthly budget for the United States for December of 2023 was $129 billion. That's $44 billion higher than it was a year ago in December when it was $85 billion. That's an increase of 52%. So the deficit going up here in December of 2023, and it's a story of interest rates, meaning that it costs more to finance the U.S. government and everything that it does, Tyler. Back over to you.

That's amazing. That item alone, that line item alone, as Kelly has pointed out, is going to be, if it is not already the largest single item in the federal budget as we look at our new fiscal future. Amen, thanks very much. Appreciate it. You bet. Cal? Yeah, that's incredible.

Quandry. Coming up, more tech firms trimming staff, leading many to wonder whether the MAG 7 is all that magnificent. But is this new strategy of consistent efficiency actually driving the names higher? Power Lounge will be right back. Welcome back, everybody. Jobless claims might have been strong this morning, but the tech layoffs just keep coming. The latest is Google cutting hundreds of jobs in its engineering product and hardware

divisions. Let's bring in Deirdre Bosa for that story in today's tech check. What now, Deirdre? Well, Kelly, these latest layoffs, they might be part of a bigger trend. A step down in hiring across tech, that could actually represent a new normal. It's no longer about post-pandemic workforce rebalancing. It's now about reallocating resources and talent in the age of generative AI. Look at the trajectory of meta-Amazon Google hiring over the past. few years. First, they got fit. They learned that they could do more with less during the year of efficiency, and then AI comes along further enabling or even supercharging that drive. As Jeff Richards of GGV put it, the 2223 get fit trend dovetailed right into the 2023, 2025 AI adoption,

driving massive upside and productivity. Tech could just be the first. Now, as other industries adopt AI efficiencies, their pace of hiring, that could slow as well, having a major macro impact across labor. As for the mega caps themselves, non-core and profitable businesses like streaming and devices, that could give way to AI ambitions. At Amazon, the latest cuts, they were in Prime Video in MGM Studios. At Google, it's the hardware division that makes pixel smartphones and Fitbit watches, as well as the unit working on its AI assistant. Now, generative AI has moved into a mission-critical position, side projects or moonshots that may grow out of those ambitions not exist separately like they do now. So Google Assistant, for example,

could be seen as redundant. On that note, Kelly, opening eyes GPT store, now open for business. Essentially, it's Apple App Store moment. And that's another indication that the space is moving quickly and even the incumbents need to keep up. And I can tell you that these so-called GPTs needed less engineers to develop than something a product like this would have in the past. So this trend of layoffs, but also slowing hiring, seems to be here to stay. So I hear you saying effectively that the companies, maybe they're going to take a page out of Mehta's book. Remember last year was the year of efficiency? In other words, that the companies may become leaner, but more focused.

Yeah, and I think that's the first phase, right? That year of efficiency, more focus. That's what Wall Street especially has demanded over the last few years. after all of the pandemic hiring and spending. But what I'm saying is we're seeing the beginnings of a new phase, one that's enabled or maybe supercharged by AI. They got efficient, and now they're realizing that they can keep that efficiency or become even more efficient by farming out tasks to AI.

So, meta, for example, may not need as many junior engineers going forward as they may have in the past because AI can just take on those tasks. And tech just might be the first. Other industries could do the same. All right. Deirdre Bosa, thank you very much. Thanks, Dee. And further ahead, Taiwanese voters are heading to the polls on Saturday to elect a new president and legislature.

The results could be a game changer for U.S. China politics. Details when Power Lunch comes back. Welcome back to Power Lunch. That big energy deal we talked about yesterday, it's official Chesapeake buying Southwestern for $7.4 billion. Here's what Bill Perkins of Skylar Capital told us about why this deal is a perfect match. If you look at their rig counts, their frat crews, they're very similar. And so you can have rig efficiency and drilling efficiency, but you can also have operational efficiency. So a merger makes a lot of sense for these two companies.

Let's talk more about this now with PIPA Stevens. And again, we should maybe add an asterisk that it probably needs to have regulatory approval, or at least not have them come and stand in the way. Yes, that is certainly true. And obviously these deals have been more closely scrutinized. However, this market is fragmented. And so this combination would create the largest U.S. gas producer leapfrogging EQT, according to Andrew Dittmar over at Enveris. But still, there's only about 7 to 8 percent of total U.S. natural gas output.

So it's not like they have a lock on the market by any means. I mean, that's less than 10 percent. And so there's less of a case potentially. But definitely, I mean, they forecast the closing in the second quarter. But still, regulators will probably take a look at it. Now, what's really important here is that we've seen all these deals in the end, energy patch so far. And what's driving all of these is very specific acreage. So in the case of Exxon and Pioneer, they want Exxon wanted Pioneers Permian acreage. In the case of Chevron and Hess,

it was all about Hess's Guyana assets. So with this deal, Chesapeake is looking to expand its footprint in Hainesville. So you can see on this map that's in East Texas and Western Louisiana. And the reason why that region specifically is so important is because it's right next to where the LNG export facilities are. And so that's what Chesapeake is betting on here. Southwestern also has assets in the Utica and Marcellus regions. That's in Appalachia up in the north where Chesapeake is also drilling. And so it's a strategic play that the avenue of growth here is going to be in LNG. And that's why Chesapeake wants a bigger footprint in Hainesville. So the thinking right now, or at least what I'm sensing from what you're saying, is that while

regulators will certainly look at this, it's almost their obligation to, the end result in terms of market share of this combined entity would not be that great. That's right. It only be about 7 to 8 percent of total U.S. production. And so that's not that big of a market share. It's not a big enough lock. Who would still be bigger? Sorry?

Who would still be bigger in terms of acreage or whatever? Well, so they'll be the biggest. They'll be the biggest. So they'll leapfrog EQT to become the biggest. So that certainly means that this deal will be more closely followed. And yet it's still only 7 or 8 percent. Exactly. But it does follow on this phenomenon that the bigger place,

players are getting even bigger. And so they now have a much bigger portion of the pie, not just in that gas, but in oil as well. And so that is a theme that's playing out. And with predictions for even more deal activity throughout the course of this year, that could be something that gets a little bit of a closer look. I remember we asked Toby Rice about the speculation

when he was on a few months back. And I forget his exact answer. How would you feel about no longer being the number one player? And I think he said we want, it wasn't as important to be the biggest as it was to be the best. Yeah. And so if it does drive efficiency across the industry,

They say 400 million inefficiencies for this Chesapeake Southwestern deal. So they're banking on that. That's the other thing is that you want strategic acreage and then also synergies so you can cut costs. Right. Pippa, thanks. Pippa Stevens. We appreciate it. All right. Let's go to Bertha Kuhm's now for a CNBC News update. Bertha. Hi, Tyler. Donald Trump had his five minutes in court and now he's getting out, even before the proceedings are over. The former president said he'll hold a press conference in the next few minutes at his Wall Street property. which will fall during the state attorney general's closing arguments.

The judge allowed Trump to speak in the courtroom earlier this afternoon. He used that time to call the case, which could cost him up to $370 million and bar him from the New York real estate industry. Well, he called it a fraud. Congressional leaders are reportedly closing in on a roughly $70 billion bipartisan deal that would expand the child tax credit. To sources with knowledge of the talks tell NBC News, the arrangement would also provide new business-friendly tax provisions

in exchange for the Democratic push to expand that child tax credit. And the iconic fruit stripe gum is no more. The maker of the colorful product says it decided to sunset the 54-year-old brand and its mascot yipes the zebra. You may remember, each stick of gum, contained a temporary tattoo of yipes. I can't say I remember, Tyler. You just took the thought out of my head.

I cannot say that I remember this. It's vaguely in there somewhere, but I don't remember it. Therefore, I'm sorry to say I'm not going to miss it. I guess not as much nostalgia. Bertha, thank you very much for that sad news about fruit stripe gum. All right, still to come. Major developments on the geopolitical stage on deck in Taiwan this weekend.

We will discuss that when we come back. Welcome back, everybody. The day has finally arrived again for Bitcoin after an initial fakeout caused by that hack on the SEC X account. The first ever spot Bitcoin ETFs received the green light. They're up and running. Those funds saw big swings on their first day of trading, mirroring a volatile day for crypto prices more broadly. Vanguard telling us Bitcoin ETFs will not be available for purchase on the Vanguard platform, and they have no plans to offer funds of their own.

Merrill Lynch also reportedly taking a similar stance. Eleven funds, however, starting to trade today with the two biggest being the Grayscale Bitcoin ETF and the Invesco Galaxy Bitcoin ETF. Grayscale CEO Michael Sonnonshine weighed in on the historic event earlier today. investors should have choice, but GBT is coming to market in a very differentiated way. It is going to be, as of this morning, the second largest spot commodity ETF in the world. It has $28 billion of assets under management, and other issuers may try and differentiate on fees. For GBT, it's about size, liquidity, and track record.

Here to discuss the market impact and explain how this all works is our own Bob Pazani and Kate Rooney. Kate, let me begin with you. How did these funds get up and running so quickly post-SEC approval? And how did they instantly, instantly accumulate? What did that guy just say? 30 billion in assets. So that's a particular example, Tyler, with grayscale, because they already ran this publicly traded gray scale Bitcoin trust. They've had that for years. They had about $28 billion in assets. They did what's known as an uplist. So they converted that Bitcoin trust into an ETF. So that's how they were able to. able to gain the momentum. Others are trying to catch up, but they did some seed investing, basically, where they got money from private investors before they launched this, so they were

able to accumulate billions of dollars ahead of these launches. BlackRock is a good example, where they were able to raise money ahead of this. But a lot of the back and infrastructure, kind of boring stuff that we don't normally talk about if it weren't a Bitcoin ETF, happened over months and months, like the authorized participants or the Wall Street players. They have been preparing for this knowing that this was, one of the worst kept secrets on Wall Street is someone describing it to me the other day. They knew this was happening. They knew they were going to get approval.

So they've been ready for this, and they were ready to launch today. Bob, how easy is, will it be, is it, to invest in one of these things? And obviously, they're priced in such a way that you do not have to spend, for example, $40,000 or $50,000 to buy a Bitcoin. Yeah, this is the beauty of the way it's set up now and why a lot of people were in favor of Bitcoin ETFs. This is a safer, cleaner way to own it. It transformed gold 20 years ago. You and I were around, Tyler, for the gold ETF in 2004. A lot of people used to own gold and gold bars and gold coins in their basement. And all of a sudden, you didn't have to do that. There was a custodian to hold it

for you. And that's what's going on with the Bitcoin ETF. There's now a custodian. Coinbase is the custodian for a lot of this that holds it. And they're the ones that are responsible. If you don't forget your passport, you don't lose it, they hold it for you. So that's the key here. I would just say the big question for today, for all of us who watch this, was there a lot of interest? And there actually is. There is considerable numbers here. I see almost $4 billion in trading that's been going on here. And there's some winners already.

Grayscale, as Kate mentioned, is obviously the big one because they're converting an existing fund there, $27 billion. But look at IShares. That's a brand new fund there. They've got some significant volume there. Fidelity's also got significant volume. ARC's doing pretty good overall. I'd say there's going to be some very clear winners here, and you're going to be differentiated based on how much liquidity there is,

what's the ease of trading, and what the fees are. And you see some of these fees are. The initial fees here for several of them are zero. They'll change in six months. They'll get fees 0.2, 0.21%. I shares is at 0.12 for the first 12 months. That'll go up. And gray scale Bitcoin Trust, that's at 1.5%.

You see the problem there, that's a little. a little bit of an outlier, but as Kate has been pointing out, they can be an outlier. They've got a lot of money. It's very sticky, and there's some tax implications of coming out. So if I had to rate this in terms of interest, I'd say interest is very high on the initial day. Bob, that's exactly what I was going to ask is about these fees, because it's ultimately a commoditized product, isn't it? Why shouldn't the fees be in a race to zero, which will undermine the profitability in long run? And what are the tax implications that could argue for one and a half percent on gray scale versus a couple basis points for everybody else?

And Kate's done some great work on this. If you sell out with the amount of money you've made over the years, if you hold on the gray scale, it's going to have significant implications, tax implications. But you're right. There's a race to the bottom, just like there was with any of the stock ETFs that trade out there. And this has happened literally in the last five days. On Friday night, I wrote a story about some people who had already said this is what our fees are going to be. Monday morning, that was changed. They were changing around.

Other people announced new fees. Then Tuesday they changed it again because they all looked at each other and said, oh my gosh, we're going to lose if we don't cut the numbers. And literally Tuesday, Wednesday, they were changing the numbers. Overnight I'd come in and the number I had before was wrong on the day before. So think of how much the investors going to benefit from this. The beauty of it when you have a lot of people involved in it. And, Kate, that also raises the question about coin.

base. The CEO obviously was excited about this earlier on our air. He said they're going to be a custodian. They're going to be involved. But Dan Dahliv, who's been a long time bear, says, you know, they're going to lose money because they're charging two and a half percent on trading right now. And these ETFs, of course, they're going to, you know, they're not going to be on their platform. And they're not going to be trading as much. And perhaps maybe they will go the Robin Hood route and start letting ETFs trade on their platform. But it does have big implications for their business model. And the stock's down more than 6 percent today. That's been one of the big arguments around Coinbase is that why would you,

If you're a new investor in Bitcoin, for example, why would you want to go to Coinbase versus buying this alongside any other equity in your Fidelity account or Vanguard? Actually, Vanguard, we should mention, is not allowing this Bitcoin ETF to trade. But the ease at which you could do this in a Robin Hood or Fidelity is a threat to Coinbase. We talked about fees. Coinbase still charges about 300 basis points of 3% on a lot of the retail Bitcoin trading. So talk about pressure on fees, this could be a forcing mechanism for them to need to lower fees like we've seen play out in the brokerage world as well.

But guys, I also want to make one point. I thought the best way to think about this. And I think Kelly, you'll like this reference, especially, pickleball. So you think about Bitcoin. Bitcoin and this ETF is like pickleball getting added to the Olympics. So it's got a lot of momentum. People like to play pickleball. It's kind of this divisive thing.

You've got these country clubs saying, hey, it's too loud. We don't want to add it. But pickleball is here to stay and this Bitcoin ETF is here to stay. I just thought that was such an interesting way to think about the relevance of this whole thing. You think about it like pickleball. It's popular. And now, in this case, it's here to stay. It has not been added to the Olympics.

But it's a good framework. Did I love that. Is it in the Olympics? Pickleball in the Olympics. Hey, one real quick thing, people are asking me about why don't they track Bitcoin right now? Because the prices are all over. These are new products except for grayscale. And so there was a reference price that the company started, just like an IPO.

They pick the price. They're going to do it. And don't worry about it. In the next few days, these products should track Bitcoin. If they don't, there's going to be a problem. Just don't use the prices today. The reference prices don't mean that much of what we're doing today. Let's start tracking that as of tomorrow.

That's interesting. We are out of time, but there is so much. I don't know how we liken this to the pickleball analogy, but Hester's dissent, the questions that we had, you know, five years ago when they denied these ETFs about, you know, where the pricing is coming from, some of the platforms that they're citing and all the rest of it. This story will go on, but we'll leave it there for now. Thank you both very much. We appreciate it. Bob Bassani and Kate Rooney. Taiwan's elections could have an impact around the globe for investors, businesses,

even our relations with China. We will discuss what's at stake there when power lunch returns. Taiwan holding its presidential election Saturday and given China's claims to Taiwan, the results in the aftermath could have a major impact on the already delicate relationship between the U.S. and China, depending on which party wins. Eunice Yun is live for us now in Beijing with more on the importance of this election. Eunice. Thanks so much, Tyler. Well, Beijing is framing this Saturday's vote as a choice between peace and war.

There are three candidates. The frontrunner is the ruling party's Lai Qingde, also known as William. Beijing has described him as an extreme danger. Xi Jinping government perceives him and the DPP, his party, to be pro-independence. And since the Chinese Communist Party insists that Taiwan is part of China and not an independent country, they see him as a threat. Now, his two main opponents, especially his main rival, Hoyo E, of the KMT, are perceived by Beijing as safer and more likely to maintain the status quo, even though the difference between the

parties isn't really very different. So for investors as well as U.S. businesses, if Lai wins, which of course is expected, then they could expect that Beijing will maintain a very hostile stance. Hostilities will be ratcheted up most likely militarily as well as economically towards Taipei. They should expect to see a greater risk of a global supply chains. If there is an upset, however, there is a possibility that there could be a reduction in tensions and possibly because Xi Jinping's government has suggested that it is willing to engage in talks under that scenario. But either way, whoever wins, it's really seen as very important because of the concern in Washington that President Xi Jinping might be preparing for a military action over the coming

years. So this period and this particular presidency is seen as critical. Guys? Is this a perhaps you know, perhaps you don't, is this a straight up vote? In other words, does the winner of a plurality win, but could the presence of a win or does the presence of a third party set up the potential for a runoff? The expectation is that there wouldn't be a runoff at all because the third party candidate is seen as trailing, even though he has been able to attract much younger voters. The main focus has been on lie and how the polls have actually been narrowing, but the most likely expectation or most likely scenario, if it isn't lie, is that the winner would be the main opponent from the KMT. All right. Thank you very much. We appreciate it.

Eunice Yuni, reporting from Beijing, where it is the middle of the night. Our next guest says no matter who wins the presidency in Taiwan, it's going to be a big deal for China's president Xi Jinping and relations between China and the U.S. Let's welcome back Dennis Unkovic, partner at Meyer, Unkavik and Scott. He advises U.S. companies doing business in China and has been there more times than I can count.

Dennis, welcome. Good to have you with us. There are the two main parties here. I find it slightly ironic that the more, quote, acceptable or moderate one in the eyes of Beijing is the KMT, the Kuomintang, which is the party of Chiang Kai Shack. That is amazing when Chiang Kai Shack essentially lost and moved his people to Taiwan. The Guelmendong was the big enemy.

But at this point, the DPP, the Democratic People's Party, which is the party of the current president, it has over the last eight years drawn. a very careful, but I think, planned movement away from China and toward the West, particularly the U.S. Would a victory by lie be a scene, as Eunice seemed to suggest, as a more provocative result for China or would cause them to become more bellicose and belligerent? The answer is, yes. I go back to the, we had an interview a couple months ago.

Do you remember when the president met with C in San Francisco? And the most famous quote from that was, reunification of Taiwan with China is inevitable. That is what Biden was told by C. And if anything since then from observing from afar what's going on, they've ratcheted up that even more. And when you see saying, look, this is a question between peace and maybe war, that's really very frightening. But I wonder, Dennis, to your point about its inevitability, if this is actually a choice about war, or if everyone is coming around to this idea of its inevitability.

Kelly, I don't think that war is inevitable because China in... No, reunification is inevitable. And I'm not sure at this point. Do you feel like the stakes are being lowered somewhat, that it's almost, as if the international community is preparing itself to resign itself to this reality. I hope not. China has said by 2049 100 years, Kelly, since the Chinese Communist Party took over, we are definitely going to have Taiwan. I don't think that reunification is going to come about through a military situation now. Basically, Xi Jinping has three options. Do something with the islands surrounding Taiwan, blockade Taiwan, or. actually militarily attacked. I do not think that the Chinese at this point have the capability

or are willing to risk their overall economy with what would come as a result of that from an invasion. But are things being ratcheted up? Yes. And is the DPP if they win William Lai? Yes. I think it's going to be more serious. What should American businesses that have a stake in China, either as a manufacturing source or a market? What should they do on Monday morning when the results are known. Is there anything they need to be doing by way of preparation or reaction? A great question. I think I would advise what I've advised for the last five years. If you are sole sourcing out of China, the PRC, you need to look at alternative sources of supply. That doesn't mean you stop doing business Tyler in China, but you have to say,

look, I cannot expose myself as many companies did during COVID to a sole source supply of China. And that means the board of directors and the C-suite executives have got to say, this is a major priority, and that's what I would do Monday morning. All right, Dennis, thanks. Great to see you, Dennis Uncovic, once again, on China. Thank you. Well, Microsoft briefly overtaking Apple is the world's most valuable company coming up. We will trade it in three-stock launch. We're back in two. Time for today's three-stock lunch. Starting with Microsoft, briefly overtaking Apple is the most valuable company in the world before retreating some. Here with our trades is Ava Otto, CIO of ER shares.

Ava, what do you think of Microsoft? Welcome, first of all, but what do you think of Microsoft? So Microsoft is a hold. It's almost, as you said, a $3 trillion stock, almost at its all-time high. But we need to remember it has among the best margins in its sector, 43% for EBIT that's 3 to 4 times larger than its peers. And also, we have seen recently shift when it comes to the market to a less aggressive position. And that has benefited large-cap stocks, mega-caps, and in that case, Microsoft.

And so for that reason, with the tensions in the Middle East, in the Red Sea, the supply shocks that we are seeing, and also the recent inflation reading with a 0.3% increase, and that's slightly elevated. So I think this tension in the market in a less aggressive position is going to benefit Microsoft and also large-cap and mega-caps. Exciting day to see them at least briefly overtake Apple. Feels like a preview of a bigger story this year. In meantime, KB Home, Ava, better than expected Q4 results beat on the top and bottom lines. But EPS and revenue were down year on year. And the stock is in the red right now.

What do you do with it? So that's a sell. As you said, their home sales are down and also their home prices are down. Their revenues are also down for the last year. And we believe that's going to continue with a 7 to 8% mortgage rate. range. That's not allowing, especially younger, first-time buyers to buy a new house, but also for current homeowners who have secured a 3% mortgage rate during COVID. They're reluctant to face a 7-8% so they're not selling their houses to buy new ones. There's very low activity,

and we think the low demand will continue until we see a significant drop in mortgage rates. And so for that reason, I think there are better allocations for investors in other sectors. All right. Ava, let's move on to the question of the day. And that is Bitcoin up more than 10% this month on hopes the SEC would approve spot ETFs, which it did, a game changer that lets investors play the space without directly owning the stuff. The SEC, of course, did so yesterday. 11 new spot Bitcoin ETF started trading today. Which one, if any, do you like best, Ava?

I would say BlackRock. First of all, I think the underlying asset will appreciate in value because there is higher demand. but also owning an ETF is a safer, most importantly, a safer, but also more convenient way for institutions and money managers, but also first-time retail investors to buy and get exposure to Bitcoin instead of buying it directly. The reason why I choose BlackRock is that we're speaking about a portfolio of one asset, one single security, which there's nothing creative about it. So it all comes down to who the custodian is, in most cases that's Coinbase, except for Fidelity,

which is its own custodian. also the expense ratio. That's why there is a price war. We've seen the prices come down. The expense ratios come down. They're waiving their fees for the first six months or $1 billion or $5 billion. And I think BlackRock being the biggest asset manager out there with $2.5 trillion in assets, they have economies of scale to compete in this war and be among the winners with further drops,

as we have already seen them dropping their rates. Eva, great to see you. Thanks for being with us today. Thank you. Ava autos. And there's more power lunch after a very quick break. Welcome back. See, I was the one who wanted to do three stories.

Yeah, we're going to do it. There we go. Less than two minutes, 90 seconds. Let's start with Hertz. That's the big stock story. Shifting gears and selling 20,000 electric vehicles from its U.S. fleet. The shares are down 4% today. A lot of these are Tesla.

They had that big agreement with Tom Brady and Tesla shares are down 3% today. All right. They've invested a lot in those cars. Well, now, if you drove on the highway this holiday season, you likely notice an electronic safety board featuring festive joke-themed sayings. Well, the federal rules don't like that. They say lose the humor. New guidance, they say cut that out. No fun on the road.

I think they're good. New Jersey has these now. And they're, you know, you roll your eyes sometimes, but it catches your attention. Yeah. And it gets you thinking. All right. Now, we've got one, we've got 45 seconds last. It is a day of joy and melancholy.

because Kelly is going to step away for a few months. Thank you. To do the most joyous of things, and that is to add to your wonderful family. Or certainly the most difficult. Yeah, the most difficult thing. So there you go. We've got one, two, three, four, and there is number five coming along shortly. Kelly, the floor is yours.

We're going to miss you so much. Is it bad if I still want to do the football story? Yeah, no, you can do the football story if you want. Because I need everyone's, Taylor Swift gave him the, and everyone's got to watch Peacock. We have the exclusive name this weekend. streaming playoff game this weekend. That's amazing. She never stops working this woman. Belichick out. What do you think about Belichick and Saban out? End of an era. Yeah, and Pete Carroll. We'll see. And beginning of an era for some of us.

We'll let the people come in here, but I'm going to let them get too comfortable. Thank you. I will miss you. Closing bell starts right now.