Power Lunch - Inflation Slows, Food Fight 1/12/23

Episode Date: January 12, 2023

December’s CPI number fell slightly, the first drop since May 2020, as inflation cools. We’ll explain what it means for markets & your money. Plus, McDonald’s vs. Yum! Brands: who’s a better buy right now? We’ve got 2 analysts battling it out in a “food fight.” Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody. Welcome to Power Lunch alongside Kelly Evans. I'm Tyler Matheson. The big news out today, a big drop in inflation, December CPI, falling just a bit. The first drop, big in the sense that it's the first since May of 2020, Kelly. Plus a food fight. McDonald's versus Yum, Big Macs versus Doritos, Locos, Tacos. We've got two analysts battling it out, which one is a better buy right now. But first, a check on these markets. The Dow and S&P hired the NASDAQ earlier at risk of breaking its four days. win streak. And let's get to the markets in a minute. Dom Chu and Christina parts and evalus tracking the action. Dom, you first. All right. So let's talk about a couple of big stocks, Dow components. Disney, first of all, probably the stock of the day. That stock getting targeted by activist investor Nelson Peltz and try and fund

management. He's jockeying for a board position, wants to push for changes there. Although he says those changes do not involve a CEO ouster of Bob Iger or any kind of breakup of the company. But still, Mark Parker, the current executive chair, at Nike is now going to take over the executive chairmanship at Disney as well. A lot of movement there on those parts. So one down component, Disney shares up 4%. Also watch what's happening with some momentum upside for the industrial side of things. Caterpillar shares, one of the few, if not the only S&P 500 and Dow component stock to actually notch a record high in trading today. So that mining construction equipment still showing some upside moves here, up two and a half percent intraday.

So keeping on Disney and Caterpillar from the Dow side of things. things. Now, Christina, what are you checking out in the tech side of things from the NASDAQ? Well, thank you, Dom. You've still seen a lot of names that are hovering near their one-year lows, leaving questions about when is this bottom going to settle in. So Tesla, for example, 18% off. It's 52-week low, and it's one of the weakest players on the NASDAQ 100 right now. You can see it's just trending about 610 to a percent lower. Cloud names, Z-scaler, Workday, Datadog, all lower. There's been some conflicting messages. Morgan Stanley, downgrade Z-scaler, whereas Bank of America names it a top pick.

Cognizant Tech, one of the big winners today on the NASDAQ after announcing a new CEO and revising their guidance. Lastly, I'll end with Airbnb, because that one is trending higher as well, over 4.5%. It continues to be a hot name. It was a hot name yesterday, too. Travel sector as a whole has been in focus after some recent positive analyst commentary. Ty? Christina, thank you very much.

The consumer price index falling one-tenth of a percent. in December from November. That was pretty much as expected. It is, however, the biggest monthly drop since April 2020 peak of the pandemic. Year over year, headline CPI did rise 6.5%. That's still high, but it is the smallest year-over-year annual increase since October of 2021. The number's reinforcing what are the biggest concerns for CEOs this year, recession and inflation. Joining us now to discuss what he's hearing from C.

CEOs, Steve Adlin, president and CEO, the conference board, and also a CNBC contributor. Steve, always good to see you. Happy New Year. Great to be with you. Recession remains the number one concern of CEOs generally, but inflation is second. And so I would think that CEOs feel a little bit better today than they did yesterday. Yeah, it's hard to know. The conference board just completed its major annual study, and we had over 600 CEOs involved in this study around the world. And you're right, the top three worries of CEOs around the globe are recession, inflation, and also labor shortages.

That's an unusual combination, Tyler, because you typically know when you're going into a recession, you tend to see layoffs, which, you know, we see a little bit of it. But in the aggregate here, we got them, we have unemployment at, you know, we have unemployment at its very lowest level. So basically full employment. The top external factors are those. The top internal factors are how do you drive revenue growth and how do you drive talent retention and acquisition

and then profitability that comes out of it. So what are CEOs doing about it? They're taking steps to amp up innovation and digital transformation. They're taking steps to focus on high growth geographies and high growth products and services and they're reducing cost. That's really important.

This investment in digital AI and all these other areas are in order to make up for the labor shortages. So you point out a couple of things that are interesting here. CEOs are concerned about recession, but they say, I can't get enough workers. I can't get. Those things seem opposed. The other thing that seems opposed is that they're worried about recession, but they're also worried about inflation. How do you fight inflation? You raise interest rates.

does that do? It increases the possibility of recession. Yeah, that's right. And so this is a very unusual time. Typically when you're going into a recession, you're seeing a big hit to employment. This is the first recession we've seen where you've had full employment and labor shortages as a result of it. And so therefore, this is really a Fed created. You know, people say it that way, a Fed created recession in the sense that interest rates are being raised. You're talking like we're In one. You don't believe we're in one right now. Do you or do you? Economists disagree. Most economists say that we will be entering one in this quarter. So anytime now, Tyler, it's going to descend. But regardless, it's weak. And that's what CEOs are telling us. And they need to, they need to deal with that. The CPI report, you know, yeah, it was a little bit better. But, you know, the headline report was impacted by a little lower gas prices. In fact, if you look at the core without food and energy, it actually went up. month to month, as you noted. So, you know, we're not out of this yet, which means that the Fed is going to continue to have to raise rates. And that's what CEOs are really worried about.

Where does it end? And can they actually engineer a soft landing here? And they don't think so. So, Steve, one thing I'm curious about is how CEOs behave this year when they are staring at an economy that could be going up the precipice. Some of those kind of, what was the phrase that Soros had for it, but those self-reinforcing loops. You know what I'm talking about? reflexivity, I think he called it. Anyway, so are they firing in advance of this? Are they trying to hang on to their labor because it was so hard to get in the first place? What are they doing about CAPEX? What are you hearing? Yeah, well, this is a really important point. CEOs could create a recession here by taking their action. So this time, you know, typically you see big layoffs,

and you are seeing a little bit in the financial sector and in tech. But in total, you're not seeing layoffs. You're seeing employment growth. That's a big difference. But where you are seeing, things scale back is in capital investment. Part of that is due to the increasing cost of that investment, and that's driven by the interest rate. So you're seeing a little less investment there. If you see a lot, that could exacerbate the situation and create a huge, huge recession. But I don't think that's what is going to happen. That's not what CEOs are telling us. They're saying it's going to be relatively shallow, relatively brief, and we should be through it by the end of 23. And we should start seeing inflation hit Fed goals of around 2% in 2024.

Yeah. We'll see. Steve, we appreciate your time and your insights today. Steve Odland with the Conference Board. Turning back now to the markets, which are rallying as CPI cooled in December, met estimates. The Dow's back towards session highs up to 72. But our next guest is still warning.

A soft landing is unlikely, and he expects higher rates for longer. Mike LaBella is senior portfolio manager at Franklin Templeton Investment Solutions. Great to see you, Mike. So why do you think we're heading for a harder fall here? Well, it's not that a harder fall is guaranteed, but it's important that we don't get overly excited right now. It's great to see green on the screen after such a rough year last year, where it was one of the top five worst markets in almost 100 years. But despite the good CPI report today, we have to remember there's still a long way to go.

The wages and services component, the CPI is the stickiest component. that's where it's going to require the most amount of work. So the Fed is going to continue to raise rates, and they know the lessons of the 1970s. So they're going to err on the side of raising too much rather than declaring victory too early. And if the Fed is successful with winning the battle with inflation, what are we then left with is the economic slowdown in recession? How bad is that? What is the impact going to be on earnings?

And that could be the next major headwin for the market. So it's important not to declare victory too early right now. One of the things that I think is interesting in my notes from your earlier conversations with one of our producers is that you say higher rates will shift flows from equities to fixed income. Basically, that feels to me. I've read a piece from Howard Marks a couple of days ago. This feels like an epical change in investing. For the past decade or more, bonds were not investable. You've got no return for doing that.

Now you're getting to a point where there is a normalization. let's call it, of interest rates, and so fixed income looks much more investable. It's going to be a major regime shift, Tyler, and it's going to be generational, right? We've been had a decade. That means a generation of investors have come to the market where putting money in their savings account or buying bonds have done nothing for them. So we used to say, Tina, there is no alternative but equities. Well, now there are alternatives.

So the equity market is going to have to adapt to that. And one of the major areas that you're going to see that adaptation is around equity market valuations. Equities are going to have to provide more in the realm of earnings and profitability in order to garner those types of valuations that they saw in the past. So the types of stocks that are going to do well when fixed income is an actual option are going to be different than those that did over the last 10 years. So you're going to see a bigger shift into value into areas of the market where potentially they're growing a little bit less, a little bit more steady, a little bit slower. but where there's greater earnings profiles today. That's very interesting. And that sort of agrees with what Howard Marks said.

I don't want to take put words into Mr. Marks's mouth far from me to do that. But the idea is that the kinds of stocks that will excel in this different, there is an alternative world, will be qualitatively different from what worked in the past, the high-growth, high-beta kinds of names. So let's talk about abroad. Are investors worried about Ukraine? Are they worried? Are they more worried about China? What? Or what should they be more worried about? Yeah, look, so part of the positive news on inflation is not the only positive news for the market. Towards the end of the last year, we saw a lot of the

fabor rattling coming from China starting to cool down. You saw the war in Ukraine start to slow down as we enter the winter. The issue is, though, that neither of those two issues are going away. Those are structural issues that we're going to have to deal with. The war in Ukraine can start to flare back up in the spring and have major supply considerations. China is still going to be a very turbulent relationship. You saw some of the legislation coming out of the House of Representatives this is still very much anti-China. So trade disputes and conflict is going to be there. This is going to add to inflationary pressure as it pushes to de-globalization, more reshoring. And it's also going to add to potential volatility in markets. So again, we don't want to

believe we love the false sense of confidence here. Oh, sure. I was just going to say that when it comes down to tactically what you should do with this backdrop. One of your overweight recommendations is utilities, which are guests yesterday, who is a utilities analyst, for lack of a better word, herself warned us away from. She said they're trading at the highest relative value to the S&P 500 since 2004. They've already had their year of a good run. What's your response to that? So not all utilities are equal. You have to pay attention to valuations and there are still cheaper values of markets. Duke Energy out there. It's trading at a discount to the utility sector as one of them. But you also can look outside of utilities for utility-like performance.

Why did utilities have such a good year last year? Because a strong dividend, less sensitive to the economic cycle, many of the issues that we may encounter in 2023. So other sectors you can look for that aren't as quite as bid up as utilities, things in health care, companies like Pfizer, the telecom sector, very, very resilient in the economic slowdown, stocks like AT&T, have a very high dividend and are still not priced up. And you can even go into more traditional sectors, industrial, things like Lockheed Martin or other areas of the market, outside that utility that provide lower beta, higher dividends, high profitability, but less attention to the economic cycle.

And again, that's an important area to diversify to this year if we continue to have some of these headwinds come through. All right, Mike, Mike, thank you very much. We appreciate your time today, Mike LaBello. And coming up, a food fight, McDonald's versus Young, chicken nuggets. versus KFC fried chicken, which is the better stock to buy now? Two analysts will make their cases. Food fight.

Next on Power Lunch. We've got a bit of a food fight. Brewing New Year's means new calls from Wall Street, and two names keep popping up from multiple firms. One would be McDonald's, the other, Yum. Both Yum and McDonald's up double digits in the last three months. But which of these two should you use to feed your portfolio right now? Here with the Bull case for Yum is David Tarantino. Beard Director of Research and Senior Research Analyst, and joining us with the Bull Case for McDonald's, is Nick Settian Wedbush Senior Equity Analyst.

Nick, why don't I let you go first and make the case for why you think McDonald's of these two may deserve more of your capital right now? Well, first, thanks for having us. I think the answer is pretty straightforward. I think it's just a straightforward, a simpler story with McDonald's. So I think the visibility is very high around 2023 expectations. I think in an environment where, you know, the customer is going to become more value conscious. McDonald's tends to win pretty consistently. I think the European concerns are overblown.

They're clearly gaining share in Europe. And I'd rather err on the side of caution in terms of exposure to Europe than China. And so I just think the volatility on China is here to stay. And so I'd rather, I'd much rather own shares of McDonald's. Thank you, David. It's almost like we could put up a chart of, you know, China's stock market versus the S&P or something. And it's these often behave like proxies. So do you like Yom because of the China factor?

What about the volatility Nick's talking about? Yeah, thanks for having me on the show. And, you know, first I should preface this by saying we have an outperform rating on both McDonald's and Yom. So this is a bit like asking me, which is my favorite child. But we do think there's more ups. side and Yum. And the China recovery is only part of that. As I look at why we like Yum, we think structurally over the next few years, they can compound more top and bottom line growth than McDonald's and do that with a model that requires less capital. And we think inherently

that deserves a higher evaluation. And the setup for 2023, we do think there's a lot of emerging markets, including China, but also outside of China. that are still recovering from COVID, and we think that can lead to really strong top-line performance for YUMM, and that should help sentiment and potentially help valuation metrics expand. One thing I would note is Yom, if we look out to our 2024 estimates, trades at a discount to McDonald's, and we think that that can reverse as the sentiment improves, and they show good operating results for the year. Nick, do you want to respond to what he just said there, what David,

David said? I'm not looking at the 2024, but on 2020, you know, McDonald's already trade that over 19, I'm sorry, Yomk trades that over 19 times and McDonald's trading sub 19. And a month ago, you know, things have changed so much. So I just think right now looking at the 2024 is a little bit, you know, I just don't have that that type of visibility. I do know that I have a very high degree of confidence into McDonald's 2023 numbers. And I just don't think it's, you know, worth taking the risk on the volatility in China, particularly if the COVID numbers go up.

All right. Interesting conversation, gentlemen. Nick Setchin, we appreciate your time. David Tarantino, you as well. But we haven't settled the question of which would you rather, Tyler, McDonald's and Yom Brands. I would probably go for Yom Brands, They have a more variety of restaurant selections, I suppose.

If tacos and burgers aren't to your liking, maybe a subway sandwich is, and get this, the privately owned fast food chain has reportedly retained advisors to explore a sale of the company, which could value it at over $10 billion, not a huge amount, considering how many locations they have. A subway representative told CNBC, the company doesn't comment on ownership structure and business plans, but it's focused on moving the brand forward with its transformational journey to help franchisees be successful and profitable. A lot of drama there in recent years. Up next, California reeling. The state's financial infrastructure, I should say, making a shocking 180.

They've gone from $100 billion surplus to a $22 billion deficit. We'll look at how. Plus Nelson pelting Disney. The activist investor laying out his case for a Disney proxy fight. We'll be right back on Power Lunch. Stay with us. Welcome back, California reeling from its most severe and sudden reversal in the state's financial history. Robert Frank here with the incredible details, Robert.

Yeah, so just six months ago, they had a $100 billion surplus. Now they're looking at a deficit of over $20 billion. We've never seen a reversal of fortune like that for California, which is known for its booms and bust, right? So what's happening? It's all about the stock market. California gets more than half its revenues from the top 1% of taxpayers, and almost all of that, or much of it comes from tech,

the IPOs, the stock options, all the stock sales. We know what's happened with these stocks. over the past year. Capital gains have gone from over $31 billion last year to about $16 billion this year. So that's cut in half. And we haven't even seen the worst of it when the sort of taxes get paid in April. So we're going to see what happens as the market goes forward. But, you know, they have a $300 billion budget that they just proposed by the governor. So they haven't really cut spending by much. And if you look at pre-COVID, their budget was around $200 billion. So their spending has gone up by a third throughout this COVID, and they just, until now, haven't had to adjust.

Have people, is the wealth migration affecting California in the way that we hear it is affecting in some, in New Jersey, New York, Connecticut, and so forth? It didn't last year, because just like New York, there were a lot of millionaires and billionaires who left, but those who stayed made so much more in wealth and cashed in their stock that it sort of masked that problem. Now we could start to see that problem more exposed because the people who are staying in California are just not making as much or becoming millionaires and billionaires. The other, so a couple of interesting dynamics here as well. What do they do with the surplus?

We know at one point they considered or I think actually gave checks to blunt the cost of inflation to their constituents, which is now fueling the market selloff that is undermining the budget. So that's on the one hand. Was there a rainy day fund? I mean, is this deficit going to trigger consequences? I had a whole chapter in my last book about California's budget problem where they're so reliant on the most volatile end of the income stream, which is the wealthy. And so right after that, not because of that, but right after that, Jerry Brown passed a rainy day fund. They've now got $30 billion in that fund, which is terrific. But the legislature is already saying let's spend it to make up this $20 billion.

So already two thirds of it could be spent over the next year. So that is the good thing. The other thing, as you mentioned, they gave a lot of it back in the form of rebate. checks that's not going to be repeated. But there's, look, the markets, unless they really rebound, unless we have an economic boom nationwide in the back half of this year, they're just not going to make that up. And New York is in a similar situation, not because of tech, but because of Wall Street. You wonder, when you think about muni bonds, people looking for yield everywhere, thinking, well, this is such a sure thing. Now, I'm not saying default, but, you know, bigger risks than maybe you might

have gone. And the pensions, because a lot of California's costs were going to bail out the pensions, which are now also deeper in the hole because of the stock market. So New York, Illinois, California, all of these folks now have pension obligations that add to the budget pressures. All right, Robert, thank you very much. Robert Frank. Let's go to Bertha Kuhm's now for the CNBC News Update. Bertha? Hey, Kelly, here's what's happening at this hour.

U.S. Attorney General Merrick Garland has appointed a special counsel to investigate how classified documents ended up in President Biden's home in Wilmington, Delaware, and in office in Washington, D.C. Garland's choice is Robert Her, who previously served as U.S. Attorney for Maryland. Earlier today, I signed an order appointing Robert Her, a special counsel for the matter I've just described. The document authorizes him to investigate whether any person or entity violated the law in connection with this matter.

On Capitol Hill, more House Republicans are calling for Representative George Santos, to resign. Fellow New York Congressman Mike Lawler says Santos has lost the support of his party and constituents. South Carolina's Nancy May said Santos should step down, but then added, quote, obviously he won't. And government agencies say global temperatures did not set a record in 2022, but it was the fifth or sixth hottest year on record. The agencies agree that the important trend is that temperatures over the last seven years are above previous levels. Tyler? All right. Thank you very much. Bertha Coombs ahead on power lunch. Yields on the move following

today's CPI report. Investors looking for any clue on where the Fed will take interest rates next. We will hear from Pimco's Jerome Schneider next. And with rates the way they are, it is not. Maybe the best time to buy a house, especially not a multi-million dollar luxury condo. that's a problem facing the condo king of Miami. We'll be right back. Welcome back to Power Lunch, everybody. Stocks higher following this morning CPI data showing that inflation is cooling just a bit. The Dow trying for its first three-day wind streak since guess, November. Bond yields pulling back some, the 10-year yield now, a tick below 3.5% at 3.451. The question on investors' minds now is, will the

Fed keep raising rates or pause and how should you position meantime. Live at Cebo is our own Rick Santelli and Jerome Schneider, managing director and head of short-term portfolio management at Pimco. Rick, yours. Thank you, Tyler. Welcome, Jerome. Happy New Year. Let's get right into it. When I look at the landscape, especially post-CPI and see the big drop in yields and all

the buying, first thing I'm thinking about is how juicy these yields look, really from Teebles all the way out to the three-year. Your thought. Obviously, the recalibration last year in yields meaning bonds are back, but for several reasons. One, clearly yields are back from that regard. Investors can see that across the curve, despite where your outlook is for the economy, despite where you think the Federal Reserve is going to do. The front end is a little bit safer. So there is a siren song of safety in the front end of the yield curve that we have to be very cognizant of despite the uncertainty where the economy is going and despite the uncertainty where the Federal Reserve might ultimately prove its destination to be. And the issue with the short end is that if investors,

There's viewers out there think, wow, I love this, I can get 410, 414 in a two year, or I can get 440 in a T bill. But you have rollover risk. Right. And you want to think about it from a perspective of not only having capital today that you want to preserve, but capital over the next one to two years to preserve, perhaps to allocate. Let's put it this way. The reallocation of capital over the past year has been one that higher rates, higher cost of capitals, has led to a recalibration of risk. Where we stand today is that bonds offer a volatility suppressant to overall flows. said simply the income from bonds is something that investors need to consider in the current

environment no matter what trajectory interest rates are ultimately headed. And so while inflation might be the factor or data point du jour, we ultimately have to be in the position to actually put it into a portfolio and rationalize that their income is actually something substantial this point of time. A big discussion we had on CNBC this morning. Who's correct? Can the market be wrong? Can the Fed be wrong? And you and I were discussing this off camera. Not an easy topic, okay? So I'm going to go first, okay? I think the markets are never wrong for one reason. Because if the information in the moment, there's people that make markets, there's people that take markets, they're willing to financially put themselves at risk to give you

a price. That price at that point in time, given all the information, is the price. And if things change, it will replace. Your thought? We actually, you see that in the markets, we're going on right behind us here each and every moment of the day. What I think is the rationalization is the tension between the destination where the Federal Reserve of Monetary Policy and the market expectations are. You have jobs which are clearly on that still remaining hot, weekly jobs that is something that we should be paying attention to. He's continuing claims. Exactly. He's a big deal. So the tension here is rationalizing what is currently the truth in the market size versus where the destination of that truth might reside three, six months before. And then overlay

onto that economic conditions that might evolve over that point in time. Earnings, S&P evaluations, things like that are going to come under pressure as we get further than economy. And at PIMCO, we're expecting a slight recession as a result over the course of later this year. You know, there was a point in time where we were using things like the greater fool theory that people would be, investor would be buying things that really didn't make sense. But always knowing that their negative interest rates was a great example in Europe. Why would you buy them? Because the next person is going to pay up more than you.

There is a bit of that, and I don't mean that in an insulting way at all. There's a bit of that in the short maturities that's creating this tension with the Fed. Many people believe there's going to be a recession, but yet I know there's trading stocks from the long side. And interest rates, they're buying them looking for rates to go down. How can you explain that? Well, I think you have to look at it in a slightly different paradigm. That's a capital appreciation trade area of people trying to buy on the fallout. What we're really talking about today is a situation where the second component of return, total return, is income and income generation.

So you don't necessarily need to be exactly right in the forecast of the person to come after you today, especially with rates at 4 and 5% and 5% and some asset classes in fixed income offering 5% to 7% yields. It's actually pretty attractive. So the precision isn't exactly what's needed. The recalibration of rates, the liquidity environment, the higher cost of capital, those are all things that actually are playing positively to the outlook for investors, whether institutional or retail at this point in time. The front end is just a safe place.

And everything is paused. Pause. When is Fed's going to pause? I personally think they're going to remain as sticky and is high for as long as possible because I don't see any golden reason why they should put their butts on the line and do anything different than that. but investors are trying to maximize return. So there are odds a bit.

What in your world will give the Fed a concrete reason to draw a line in the sand and pause? Well, there's a difference between line in the sand and drawing a line and drawing a line with a permanent marker. Okay. So the Fed is avoiding having to use a permanent marker versus the market. We're clearly seeing pushback even today in real time with regard to how we want to think about the market. The Fed is pushing back on easing financial conditions. And that's really what the market's going to have to focus on, is if financial conditions get too, easy along the way. The Fed actually might push back to the harder. No matter what the future holds.

All right. I believe some of my compatriots on the New Jersey side have a question for Jerome. We will just leave it there, Rick and Jerome. We thank you very much. Not a bad time to be the manager of a short-term high-income fund. Jerome Schneider with Pimco and our own Rick Santelli. Let's turn to two commodities where oil's closing for the day higher. Energy, the best performing sector on the S&P 500, so we've let Pippa Stevens out of her box. Out of my box here. Welcome to the parents. table. Thank you. Thank you very much. I know I'm a little bit intimidated. But turning to oil, it is higher today for the sixth straight day. And of course, this optimism is thanks to the inflation report and some, you know, jitters that maybe the Fed will slow its rate hikes and that

we then won't see this huge drop off in crude oil demand. Now, commodity prices have been so volatile, but it does really feel like there's been a little bit of a sentiment shift in recent sessions. And of course, it's turned more optimistic with China demand front and center here, especially with the lunar new year around the corner. And that is translating to gains for the energy sector, as you know, to the top group today. Now, every component is up more than 1%. But there are two notable mooters. First up is Hess, which is at a record high, and then SLB.

We've talked about that name quite a bit. That is at its highest since 2018. Wow. You are the most important person that we need to track this year. You know why? Because energy could spoil the fun. Look at, we're back to 78. We got down to what below 74 maybe a barrel.

is reopening. Gas prices have been such a help on the CPI front. And now if they start coming back, it's going to be bad news bears. And you certainly can't expect that oil and the energy complex is going to deliver that kind of decline in the inflation rate in 2023 that it did from this point a year ago. Big go. Yeah. Exactly. It was the biggest contributor to the overall decline. And that's probably not going to happen again. Exactly. We can't rely on that going forward. So it begs the question, then what are we going to see from the CFI reports in 2023? But also, I think it's important to take a step back and look year over year because prices are still up. So while it's not as bad, it's still bad.

Now gas up 19 percent, electricity, up 14 percent year over year. So this is certainly still pinching consumers. Oh, yeah. I hear about it all the time. People say, I just got noticed that my bills are going up 20, 30, 35 percent. They're furious about it. So hopefully some relief to come. But gasoline now, I see in New Jersey, at least under three.

dollars a gallon for regular at some places. There's been actually, I don't know if we've been starting to track this pit, but a surprisingly slight demand lately for getting. Yeah, yeah, demand has been softer. Yeah, yeah, yeah. Do we know anything about this? We're still getting some more data, some more read-through there, but that's certainly something I just got off the phone with it, and capital is John Kilduff.

And, you know, there has been some soft demand, and we're not necessarily certain if that's going to hold going forward. And that's been, of course, a key contributor here, so we shall see. Yeah. Who wants to go out? Yeah, well, that's what I said. It's just the weather, you know. Yeah.

But habits have changed, too, I think. I think people don't go out, you know, and drive around quite as much as they used to. Or they have these Teslas that they're just. Pandemic effect. Or whatever. Pippa, welcome. Nice to have you with us here. Thank you.

Good to have you out of your little two box there. And still to come. Oh, I'm looking over here now? Okay. Still to come, sales of an ultra luxury condo launching in Miami's exclusive Fisher Island. But it couldn't have come at a worse time. Diana Oleg is on Fisher Island with more. Dye.

Well, Ty, let me just tell you the prices on this project. Can I say they are an island unto themselves? We will run the numbers and the risk coming up next on Powerland. Welcome back, the so-called condo king of Miami, launching sales of his multimillion dollar units during a time when luxury real estate is kind of grinding to a halt. Diana Oleg has more for us. Diana? Well, Kelly, I am standing in the last undeveloped lot on Fisher Island just off the coast of Miami Beach. It is a 216 acre exclusive, ultra exclusive community, only accessible by ferry or yacht and only accessible to residents, their guests and guests of the small luxury hotel here.

Miami mega developer George Perez bought this land at a premium and is building a 10-story 50-unit project with a sellout price tag of 1.2. billion. Units start at 15 million and the project includes a 90 million dollar 15,000 square foot penthouse and a 55 million dollar ground floor villa with a half acre backyard and of course a yacht slip. But pending sales of all Miami condos in the five million dollar plus range were down 89% year over year in December and Perez just launched the sales here last month. We still see a great level of for those people that can afford the best. So in this one, for example, without really doing any marketing, you know, almost 30% of the units are spoken for.

Contracts have gone out for over $300 million. Now, if he does get $90 million for that penthouse, it will be not just the most expensive on this island, but the most expensive condo sold in all of South Florida. The last condo that sold here on Fisher Island, here on Fisher Island a year ago sold for 40 million back to you guys how do your sources explain that decline in sales at that upper end is it it's not it's probably not interest rate related particularly no because nobody in that range is using a mortgage right so they're not concerned

about mortgage rates going up it's more about the markets the overall concern in the economy but interestingly when you go to the 50 plus million dollar range those sales are still soaring so you know If you're still stuck under 50, you might be worried. Over 50, you're not. Are foreign buyers as prevalent or important to this kind of project as they once were? And where are they? Well, the short answer is sort of in the middle, because what we're seeing here in all of Miami is actually a shift. You're seeing more New Yorkers, more Californians coming into the state than you are.

Usually it would be all Brazil. But what Perez told me was that of the 30% that's pre-sold, he's seeing some from Brazil, some from Mexico, some from Canada, but a lot from New York. And they don't usually see that share here. Usually they get a lot more foreign buyers. But really, the market here is kind of flipped to more domestic. Very interesting. Diana, thank you very much. Diana Oleg drew the lucky straw to go to Florida.

Coming up, three big stocks making even bigger headlines. Disney's proxy fight, Americans sky high profits, and Nike just doing it. this year. Three-stop launch is next. Welcome back to Power Lunch. Nelson Pelt's not holding back about what he thinks needs to change at Disney as he pushes for a board seat. Here's what he told our David Faber earlier today.

I'd like to see this company stop running like a matrix and start running like the companies we've been involved in, where they have real CEOs of businesses with real P&Ls, real cash flows, and really. and real projections. I know it's hard in the movie business, but it's not that hard in the streaming business, okay, and they've got to be able to do that. I know many other shareholders of Disney, and if any of, if there is a shareholder of Disney that's happy with what's going on, that guy's been short to stock. All right, so what should you do with Disney stock if you own it? Let's trade that name, in today's three-stock lunch.

Joining us, Lee Munson, Portfolio, wealth advisors president, and CIO. What's your view on Disney, Lee, and this spat? You know, I think it's a non-issue. I get it. There's a lot of old-school value players that are depressed because the stock is down. I don't like seeing the stock down.

I love to see it down because it gives me the opportunity to buy more shares. Also, Disney's only one of the only stocks right now in this sort of trading no-man's land we're in where I'd actually buy today with some confidence. I understand that people can't tell if you're getting parks for free or if you're getting Disney streaming for free. But all that cash burn that everybody's complaining about got them more subscriber growth than Netflix. They've got the movies people want.

They've got the content that people want. And you're going to have to give it some time. So, you know, Disney and the CEO, they're clear. They know they have to get to profitability. But I think you've got to spend more than what people are comfortable with. And the stock is reflecting that. I think it's a killer deal. And I don't think that this whole situation is getting a board seat is really,

critical. Disney's going to do what Disney's going to do. And so far, they're winning the streaming wars. All right. The stock knocked down. All right, maybe it will come around to share your point of view, Lisa. What about Nike? This is the stock up 9% in January. And think about what it was. I mean, kudos to everybody who is buying this stock in the general October lows. It's up like 40%. Where most large growth, you know, the indexes are they're up a big nothing. So this is a classic American company that's done very well. They beat estimates, but it's got a few issues. Number one, when you look at analyst's price targets, it's right about where the price of stock is. So analysts haven't had time

to raise their price targets. And I think, you know, it's going to give you a little bit of not a lot of energy on institutional ownership. But let's get to the heart of the matter. If Nike's going to continue working and not bump into the macro later this year, it's because that direct-to-consumer growth is going to stay there. I think it will. I understand that people still like to go to foot locker to look at shoes. But the profit is in direct to consumer. Also, China's opening up. And on top of that, the dollar's getting weak. They sell most of stuff abroad. So it's got a tailwind. I think you can see the stock continue for the rest of the year. Let's move on to American Airlines. Is this a name you own or one that you don't?

I don't own this stock. I fly American a lot, unlike some gold platinum. Let me tell you how I see this. I think if you've been buying it recently and you have a little trading profit, I take some of your profits off the table. I understand they're doing great. They're as far as profitability is concerned. But we still have an issue with having enough pilots and having enough planes to get people to do what to buy tickets, business class, high profit tickets in the front of the plane. There's simply not enough business class seats to go around for all the upscale leisure travelers to meet demand. And for this talk to continue on for the rest of the year, I think that you've got to see pilots come online. I think you've got to see more planes with more business class seats come

online. And I'm leery about that reality happening in the next six months. All right, Lee Munson, thank you very much. We appreciate it. And don't miss an exclusive interview with CEO of Nike John Donahoe coming up in just a few minutes here on the closing bell. just after our program. Shares of Anheuser-Busch dropping about 2% earlier today. UBS downgrading the stock to sell or pour it away and lowering the price target a few dollars. UBS cites weakness in China and overall lack of positive catalysts. UBS expects consumers would trade down to the value segment, Bush beer, which could offset some weakness elsewhere.

We also heard some stories about how younger drinkers are increasingly opting for wine and spirits as opposed to beer. But even Constellation in its recent earnings, that's not traded lower than next day. Now that the CPI report is out, markets are focused on the next big thing. There's always a next big thing, and this one is bank earnings. We're putting them under the microscope next.

Earnings from B of A, JPMorgan, Wells, and Citigroup all out in the morning. We've heard a lot of belt tightening coming to financials. Dom, too, putting it under the microscope, Dom. So, I mean, the reporting that we've seen over the course of the last several weeks It's been focused a lot on the job cuts that we were seeing on Wall Street and some of the bonus compensation or compensation cuts that we could be seeing in the offing right now. It's important because for many of our viewers out there who work on Wall Street, as I once did, this is bonus season, right? This is about the time of year when a lot of people look towards what they're going to get paid. Now, over the course of the last several weeks, as I mentioned, we've seen headlines coming out in news reports where we've seen roughly 5,000 employees that could be affected by job tightening and job cuts at so.

major Wall Street firms. They include Goldman Sachs, City, Wells Fargo, and Morgan Stanley, amongst others. Now, we know that Goldman Sachs is probably the most high profile one of that group there. We've seen numbers roughly in that 3,000 jobs range that could be cut there. So this is going to be a big focus for a lot of traders and investors for sure in some of these bank stocks as they report earnings in the couple coming days now in the offing. The reason why is because with the job cuts that are happening, could it be enough to help offset some of the weakness that we are seeing. Now, I mentioned in the last hour some of the profit declines that we are expecting to see at the major banks. What it will come down to for a lot of folks is about

whether or not those cost cuts that are happening right now are enough to kind of offset some of the capital markets weakness and some of the other pullbacks that we've seen from mortgage businesses like Wells Fargo or elsewhere in the market. And that's the reason why, guys, I think it's going to be a little bit more interesting this time around just because of the compensation side of things and whether or not those particular moves are going to move the needle for these bank So job cuts are one thing. You mentioned bonuses. What are you hearing about where bonuses are going to come in? So we've already heard some reporting that some Wall Street firms are going to cut back on bonus pools. We've heard Credit Suisse has its own problems, but we've seen bonus pools there could possibly cut by 50% according to some of these reports.

What's curious about this is whether or not this could be that bottoming process coming out, right? Is the news now bad enough for some of these banks where this is now a sign that this could be the catalyst for a turnaround? And the reason why I mentioned that is if you take a look at a chart of the financial sector, we've mentioned the outperformance of some of these banks overall. It's not really the banks, though, that are outperforming in the financials. If you take a look at a one-year chart of the financial sector spider versus the S&P 500 and S&P 500 regional bank ETS, the white line is financials and the green and orange line are the banks. They have been underperforming financials.

It's the insurance companies. insurance companies, the asset managers. That's why the banks are going to be key, because this could be an important signal about whether or not the banks could be having a bottom right now. Totally. Tom, great to see you. Good to see you. Thanks very much. Thanks for watching, Power Launch, everybody.