Power Lunch - Investing in China, Goldman Sachs Job Cuts & Soaring Insurance Costs 5/30/23

Episode Date: May 30, 2023

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Welcome to Power Lunch, everybody. Alongside Kelly Evans, I'm Tyler Matheson. And coming up, east of Wall Street, Elon Musk visiting China, meeting with leaders there as he visits his Shanghai operations. But he isn't the only one in China. Jamie Diamond also in the country for the first time in years. Apples Tim Cook made some waves after visiting back in March. This as tensions between the U.S. and China remain high. Plus, despite facing headwind after headwind this past year, the markets remain. relatively calm. Every major risk seems to be quickly resolved

or at least ignored. But what some might see as calm against all odds, others could interpret as problematic. Kelly, more on this ahead. Tyler, thank you. Let's get a check on the markets. First, a couple of things to point out here. The S&P has gone negative and below 4,200 now with a

10-point drop, a quarter percent decline. The Dow is still down half a percent. The NASDAQ briefly went red is up by two right now. And all of this comes on a day when NVIDIA briefly joined the trillion dollar club. 404 roughly is the price there to watch for Nvidia to hit that milestone and we're a couple bucks back below that now at $989 billion. It of course joins the ranks

of Microsoft, Apple and Alphabet and Amazon, all thanks to that AI boom. We'll have more on that later on. Also let's get a quick power check on the positive side of the S&P today. Ford getting an upgrade to buy at Jeffries. With this 4% pop, it's also overtaking GM's market cap on the negative side, Comerica, down 6.5% actually off session lows. the bulk of the bank crisis seems to have subsided. A lot of the small banks are still struggling compared with the big ones.

And we'll get to more on that in a second time. All right, we begin with a major U.S. CEO visiting China today, Tesla's Elon Musk, meeting with top leaders and saying the country's development is natural. This after telling David Faber earlier this month that, quote, the Chinese economy and the golden doors of the global economy are conjoined. Eunice Yun is live in Beijing with more. Good day, Eunice. Hi, Tyler. Well, Elon Musk used a similar phrase here in China when he told the foreign minister that China and the U.S. are conjoined. He was speaking to the foreign minister after arriving here in Beijing. He's expected to meet with the premier and then also to visit his Shanghai factory, which he hasn't seen in over three years. Now, upon arriving, Musk right from the get-go, was speaking very positively about China, in addition to saying that China's

development achievements are, quote, natural, as Tyler had said. He also said that he opposes decoupling and breaking chains. This is a similar line that we hear from Beijing. That's where the phrase about the U.S. and China being conjoined came in, and also that he's willing to expand here and share China's opportunities. Now, his remarks were met with equal enthusiasm from the Chinese government. The foreign ministry said that the foreign minister was talking about how Tesla shows that Beijing has a strong commitment to an international business climate.

And then he used Tesla as an analogy for U.S.-China relations, saying that the two countries needed to, quote, avoid dangerous driving and step on the gas to promote mutually beneficial cooperation. Now, Musk isn't the only American CEO here in China. Jamie Diamond is headlining a J.P. Morgan conference in Shanghai. where about 2,600 bankers and clients are expected to gather. Shanghai City has already said that Jamie Diamond has paid a visit and met with the Shanghai Party Secretary or the Communist Party Chief there, saying that he would be investing more in Shanghai. And then for Shanghai's part, they say that this really shows the confidence that foreign companies have in Shanghai.

Guys? Eunice, thank you very much. And it's, of course, not just Musk in China. Jamie Diamond, as Eunice mentioned, making his first appearance in the country in four years, hosting a financial summit in Shanghai. All this coming just a few weeks before President Biden is set to host a first ever state dinner for India, a move seen as tightening allies in the region around China. So is this a thawing of business relations? Let's talk to Dennis Unkevick. Our friend and partner, admire Unkavik and Scott, someone with years of experience helping companies do business in China. Dennis, I guess I am a little bit confused. By, on the one hand, it seems

American business people are trying to be conciliatory towards China, keeping doors open, talking nice, where on the other hand, it seems that the political stance of the United States, the foreign policy stance of the United States, is to be tough on China. You almost, if you're a policymaker, can't be tough enough on China. Are we being too tough on China, politically, governmentally? That's a great question. My opinion is, no, we are not being too tough on China. Several companies, let's take Elon Musk, for example.

He wants to sell, as he's manufacturing in China, his electric cars. That's great. And he will be able to do that. But he has doubled down on China. But most of the companies in the U.S. that are dependent upon Chinese exports have had a lot of problems over the last several years getting things on a timely basis. That's why you see the offshoring or reshoring going on there. And the CEOs visiting now, Tyler, it's not a surprise.

Zizh Jinping had a zero policy, COVID policy in effect for three years. It didn't work. And as a result, this is the first open door when they're going back. If I were a CEO, I might want to go back. But would I want to make major promises to invest significantly more? The answer is no. How worried are you about two things. One is the state of the Chinese economy and whether it is as healthy as some of us are led to believe it may be or as healthy as the Chinese government may want us to believe it is.

And number two, the possibility that their battle with COVID is far, far, far from over. Two things. You talk about how good the Chinese economy is. The GDP in China is now about 4.1 percent. as of April two months ago. That is the worst in a generation of growth in China. So Xi Jinping, although he has significant power and can lead the CCP, he does not have a strong economy.

So it's really imperative on him to try to make nice with American companies. That's why I see you going on. And your second question was? My second question was about COVID and the possibility that there may be incipient strains there. that may handicap the economy more than we even know today. What do we know? Two things. Last week, NBC, you know them, of course.

Yes. A pronounced that there would be a new wave of COVID infections going on in China between now and June 30th. They were estimating 65 million Chinese would be getting this over the next six weeks. That is a very, very serious problem. When you go back to it, Xi Jinping doubled down. He said, I'm going to have a zero COVID policy. We're not going to allow anybody to get COVID.

Obviously, it failed. The Chinese economy went down for about three years, which is why in December, Xi Jinping did a complete 180 reverse and said, okay, we're going to have a new policy. So I think COVID is still a problem. One other thing, Tyler, why don't you ask the Chinese why they're not publishing statistics on

how many people are getting COVID and where it is? I think there haven't been in these statistics, the best of my knowledge in the last three or four months. Dennis, just to kind of sort of zero in on this, then, you know, as we introduced you, we said, you know, you help American companies do business in China. But I hear you saying now, companies are not doing enough on getting out. So is your business at this point getting companies into China or getting them out? I'm spending more time with companies wanting to look at an alternative to just doing business in China. You mentioned the CEO of Apple a little bit before. He had what's called a China plus the number one.

In other words, as far ago as three years ago, Cook was saying, let's find other places. Tyler at the beginning of this interview said, what about India? India can be one of the big winners because already you see Apple, although Cook was there making nice, they're already looking at off-sourcing. So, Dennis, I guess I would also kind of raise a comment from former Fed official Eric Rosengrin, who earlier today tweeted, as we know with Japan, they never got back to their growth path after the peak in 1990. You know, banks had misallocated capital. He said, China may now be facing the same challenge from its overinvestment in housing and its attacks on tech. And they seem unrepentant. I was in Japan last week in Tokyo in meetings. And it was the first time. since 1991, when the Japanese economy was growing at six plus percent.

So it took the Japanese almost, you know, three decades to turn it around. I think China is facing similar challenges. And that would be formidable and perhaps another reason for companies to think twice. Dennis, thanks for joining us today. Thank you, Kelly. Dennis, Donkavik. Over to the financials now, shall we? In just the past hour, the Wall Street Journal is reporting that Goldman Sachs is preparing

another round of layoffs amid the deal drought. Banks to the most part have been shaking off the crisis from earlier this year with the collapse of SVB. The big banks in particular, J.P. Morgan, a clear winner up 6% in the past two months while the KBE is down five. Our next guest favors the larger banks. He says more business will still flow that way. Mike Mayo is here on set with us, senior banking analysts and managing director at Wells Fargo. Welcome. Thanks for having me. Never a dull moment. Can I just ask you about the goal? I know Goldman is a little bit off topic, or maybe it's not, but of the major banks that should be doing so well right now, this is an investment bank, there are no deals.

What is your rating on Goldman and what should they do at this point? Well, I think Goldman's positioned well for the next several years. Remember, Goldman and the large banks fired nobody during the pandemic. So a lot of what's happening at Goldman out is simply a catch-up in pruning of the lowest performers. So I wouldn't have too much for a read into that. I mean, you do have lower for longer investment banking. is taking longer for all kinds of deals to come back. On the other hand, several bank CEOs said at our conference a couple weeks ago, they see green shoots.

So pruning. And you know, it also sends a message. If you're not coming back to the office now, you're probably going to go back to the office after these layoffs. So I think these firms are trying to send a message that bring that intensity level back up to where it was before the pandemic. It's an interesting point, but I wonder to kind of bring this back to the whole banking sector, the place you want to be right now is in that kind of what we call it bread and butter consumer business, right? Or maybe you don't want to be if you have to pay out 5%, but their troubles with Marcus seem to have happened at exactly the worst time, because wouldn't that be the

place to lean on for offsetting strength right now? For over 150 years, Goldman Sachs' greatest strength was their investment banking and capital markets businesses to large corporations and investors. They went out of their lane with Marcus. That was a mistake. I said it was a mistake from day one. they're retreating from that now. That's the right move. Better late than never. Sure. So let's talk a little bit about those big banks and how they have been able to, well, I guess sidestep some of the things that happened to the mid-size and the regional banks. You've got rising interest rates, and they seem to have stepped around that. You've got reduced deal flow, and they seem to have been making good, making do with whatever deals they've got.

you've got the issues of the banking crisis in the mid-sized bank, but they seem to have sort of stepped around that. What are they doing right? What is it that is native to those big banks that makes them your choice right now? Well, Tyler, I think you're summing up consensus right now, and I know you like me bringing props every now and then. So you're describing, I think, the typical bank stock investor, and the typical bank stock investor is in the dark.

Yeah. So what we did with the new report, today. I like you better with it on. You're not the only one. But we said, let's do a kitchen sink analysis of banks. And we said, let's assume deposits go down by another 8%. Let's assume Fed funds goes down to 2.75% that really squeezes the net interest margin. Let's assume a recession with higher credit losses and let's assume a lot higher regulatory costs. So you throw in that kitchen sink, and earnings get hurt at the regional banks by 25%. Earnings get hurt at the largest banks by 5%, maybe 10%.

So Goliath is winning. And so for all the actions, the regulators have taken for the last 10 to 15 years since the global financial crisis, and a lot of it was to prevent concentration of power. The reality is, business is flowing to the JP Morgan. The business has gone there. It's the hand of the market moving capital there, right? And I know you're talking about $1 trillion market cap firms today with a new one entering that. J.P. Morgan has the possibility of becoming a $1 trillion market cap firm in, you know, for the next five to six years.

And they're gaining deposits. So the history of the last 30 years in banking has been of the reduction in the number of banks there are, banks and SNLs in the United States. I don't know how many there are right now, but how many fewer will there be 10 years from now, 20 years from now? In other words, how does that the big get bigger phenomenon play out? Well, you know, Goliath is winning. You need scale to keep up. There's a little less than 5,000 banks in the U.S. today. Used to be what?

15,000? Yeah, used to be 15,000 when I started. And, you know, it's probably going to be half that in 10 years from now. Okay, there you go. And one of the biggest mistakes has been to prevent bank mergers. When I started in this business in the late 1980s, I worked at the Federal Reserve in Washington, D.C., and we approved bank mergers in 60 days.

Wow. Can you imagine? Yeah. Turning it around. In fact, the regulators, like we at the Fed in Washington, D.C., we were happy when a strong bank took over a weak bank. It was almost like, thank you very much for doing that. And that's where the U.S. banking regulators need to go today.

And it's not, don't cut any corners. make sure you're serving the community, make sure the competitive considerations are under control, make sure your Community Reinvestment Act is up to date and all that. Don't cut any quarters, but there's no reason you can't approve these mergers much more quickly. And there are some, look, the banks aren't going to zero. They're not being forced to sell their securities. The big banks are not raising capital, but you should still have the strong taking over the week.

Quickly, if you had one bank to buy today, it would be. J.P. Morgan's my number one pick. Business is flowing to them. They have the best relationship between revenues and expenses. And all this talk about AI. They have all sorts of new innovative AI technologies. Maybe they'll separate that out at some point, and you'll get a partial tech valuation for them too.

No worries about the Epstein connections, if there were Epstein connections. I've seen no evidence that would have a material impact of my financial or strategic outlook for J.P. Morgan. All right. Mike, thanks very much. Thanks for the eye shade. We appreciate it. Thanks for having me. I might borrow that for tonight, by the way.

Yeah, I tell you. It's getting light early, man. Yeah. All right, thanks. Good to see it. Coming up, no matter what negative headline comes out, the market seems to always find its center somehow. But what is making investors so chill, so zen? It could be that actual investors are on the sidelines while algo trading takes over.

That's next. Plus, further ahead, state farm shopping, stopping, excuse me, home insurance sales in California, citing wildfire risks will discuss that one. and more when Power Lunch return. We'll be right. Welcome back to Power Lunch, despite a challenging road ahead in D.C. for this debt deal. All signs do point to a resolution, or most do at least. And just like that, another major market risk may have been shoved aside. That seems to be the trend this year. We started the year with fears that rising rates would lead to a growth slowdown, maybe a recession.

Then we had the AI boom fuel tech stocks, the bank crisis contagion, prevented, maybe not, who knows, Government default, not this year. And yet, through all of this, the markets have remained relatively calm. Some would say better than calm. S&P is up 9% for the year. The NASDAQ up more than that. Semiconductor stocks, even more. For more on this whole phenomenon, let's bring in Hugh Johnson,

Chairman and Chief Economist, with Hugh Johnson Economics. Also with us is Greg Zuckerman of the Wall Street Journal. Greg, I'm going to begin with you. Is what we're seeing in the market today, a sign of investor conviction, confidence that that, that things are going to be okay, or is it something different? So our indications suggest that the average equity funds, the average individual investor, has been bullish but not necessarily overly bullish.

It's quant-type funds that are really helping the market. My colleague did a really good story today about those who target volatility. And these include sort of trend followers, CTAs, as we call them, risk parity funds, Bridgewater is a huge one. And they look back and they look at VAL, they look at the VIX and they see how low it's been and their models tell them to buy. So usually we sort of are here blaming the quants. We have to give them some credit here. What do you say, Hugh?

Is it is it a question of conviction? Is it a question of quants reacting to internal signals and thereby deploying capital into the market? What? Well, keep in mind, Tyler, that quants are unemotional. They really don't, they really don't get caught up in the day to day. week-to-week events that are really scary. Some of these things are really scaring small investors. I disagree with Greg in a little bit.

I think that I've never seen quite this level of widespread. Let's call it pessimism among average investors. So they're a little bit scared and they're caught up in some of these events. I think what gets them over, why this has been a good market. It's had stops and starts and why we sort of restart is primarily because in every case, Within a period of, say, two to four weeks, we've had a sort of solution, if that's the word, to some of the problems that we've had, the banking crisis. That's caused us to watch very carefully deposit outflows in bank lending. We're watching deposit outflows.

We're watching bank lending. They seem to stabilize. That's helped investors. Now we've got the debt crisis, of course, the problem of a possible default. We're watching very carefully. we hear the words like, you know, worldwide recession, but at the same time, we look at the details of the agreement between the House of Representatives and the president. And when you look at it, really, the level of fiscal stimulus that's being removed, the level of,

shall we say, restraint, non-defense discretionary is not much, exactly. And so investors will now get over that so-called default crisis or concern. So every time we get a crisis, every time we get an event like this, you bet investors are scared, you bet investors back away from the market, but at the same time, to some extent they come back to the markets largely because we start to see what looks like, I don't want to call it solutions, but something close to solutions. That said, Greg, the sort of quons are our friend until they're not. I mean, you know, we always pile on them at the first sign that they're, you know, causing a panic or, you know, so, you know, what would you be watching

for in terms of, you know, when they flip the switch and start kind of pushing the market the other way? Yeah, so I look at the VIX. The VIX at about 20 or so, it gets above that level and their models. And you don't want to generalize about quants. It's like saying mutual funds kind of thing. There are a lot of quans who do different types of things. But the ones we're talking about trend followers, risk parity kind of guys, they look back. And it's like, Bridgewater, they look back longer to some others, but they look at the VIX. And when it gets high, then they start getting concerned, or their models do anyway. They do some selling. But the fact that it's been relatively low for more than six months, you know, it's been dropping for a little while

over the past year. So if you want to go back that far, that's telling them to buy. But yeah, I would look at the VIX. Hugh, let me turn to sort of questions of portfolio structure and management and where we are, according to your models. If I, I am an average equity investor, and I like to keep 60% stocks, 40% fixed income or cash, something like that. Would you be, or 65%, 35%, 35%, where would you be right now? Well, I'm a little bit concerned about a hard landing. I'm not saying that the hard landing is going to derail this so-called good market or bull market, but I'm concerned that we might see a little bit of a decline in stock prices as a result of that.

What I'm seeing from the market sectors is I'm seeing positive performance from some bull market sectors. That's the good news. I'm seeing some good performance from the so-called defensive sectors like utilities and staples. That tells me, Tyler, in direct answer to your question, if you're 35 to 65 percent equities is your comfort range, be at about 50 percent, have a little defense in your portfolio, have some offense in the terms of technology and maybe communication services in your portfolio. portfolio, in other words, a very balanced portfolio without a big bet to the upside or a big bet to the downside. Hugh, good to see you, my friend, and Greg Zuckerman also to you. Thank you for being with us. Great seeing you. Coming up, crude down more than 4% today. As traders await what could be an impactful June OPEC Plus meeting. We'll have more on that next. A Crude below 70 a barrel.

Stay with us on Power Lund. Welcome back. Big Down Day for oil. Nearly 4% declines below 70 a barrel. Got to bring in Pippa Stevens. What has happened? Yeah, getting slammed today falling below that $70 per barrel level for the first time and nearly a month. And direct Cabin over at CBC Private Wealth basically said that a lot of this is due to anxiety before the OPEC meeting. And essentially, it is a no-win situation because if they cut production further, that means that demand is actually weaker than the market is anticipating. If they keep it where it is, that's also going to disappoint a bunch of traders. And then also there are the challenges of just simply enforcing the cuts they've already announced. And this, of course, is all within the backdrop of Russia now sending record.

amount of oil to China and India at the expense of other OPEC members. And so this weakness in oil is dragging down energy stocks, but there is one name that is bucking that trend and then some. And it is equitrans midstream. That is the company that operates and constructs the Mountain Valley Pipeline. Now, over the weekend, exactly. Exactly, the Mansion Pipeline. Man, why did someone give us a heads up about this?

There's one thing to look at one stock that might have. Yeah, yeah. So it was up 40% earlier today. last I checked up about 35%. And that's because the debt seal deal includes specific provisions that would fast track this pipeline that is so important to Senator Mansion

given that it goes from West Virginia. They're the builders of it or the... Yeah, yeah. So they're the builders, and then it's a joint venture. And Equitrans was spun out of EQT. So there's a bunch of parties involved, but they are the owner and then... Sorry, they're the constructor

and then the majority owner of the pipeline. And, you know, it was two years ago, it was 92% complete. And then... So that was back in March of 2020. Really? And then since then, it's just been undergoing all this litigation. And so the provisions in the debt seal deal means that all of the permits would be fast-tracked, and then any appeals would go straight to D.C. rather than being stuck in the circuit and Fourth Circuit. It's fascinating. And maybe such a template as the rest of the country will ultimately have to try to move forward on this infrastructure of other such deals to come. But maybe mention just, you know, this is just so important to him. So it's 92% complete. Yes, exactly. So it's just been sitting there for the past two years as it undergoes all these.

permanent requirements for things like passing through a forest and then water, waterways. It's a lot of streams that it either goes under or over or... Exactly. And this is angering a lot of climate activists. But on the flip side, you know, the case of renewables is that they're actually cheaper. And so if you believe in that, then even if there is a pipeline, presumably we'll still see more renewables come online because it just is more economical than a pipeline. Just need the intermittency issue.

Yes. It's what it was said. You need four times as much installed electricity of renewables to have the... same, you know, anyway, PIPA, thank you. We appreciate it. Pippa Stevens. Senator Mention, maybe the most powerful man in Washington after the president. You've said it. I believed it for a long time. Pippa, thanks. Well, let's get to Bertha Coombs for a CNBC News update. Bertha. Hi, Tyler. Thanks very much. Disgraced Theranos CEO, Elizabeth Holmes reported to a Texas prison this afternoon

to start an 11-year sentence for defrauding investors. Holmes entered the minimum security federal women's prison this afternoon more than a year after a jury convicted her on four felony counts of fraud and conspiracy. As she begins her sentence, she leaves behind her two young children, both under the age of two. The Carter Center sharing today that former First Lady Rosalind Carter has dementia. The center says Rosalind, who is 95 years old, continues to live happily at her Georgia home with her husband, former President Jimmy Carter. The announcement of Mrs. Carter's diagnosis comes as the former president continues to receive hospice care. And Golden Warriors General Manager Bob Myers is stepping down after 11 seasons with the team

and four NBA championships. Myers told ESPN that he plans to leave when his contract expires at the end of June. He says he turned down a new deal that would have placed him among the NBA's top earning executives. I guess it's like the old song, know when to fold him know where to go. Yeah, must be just time to move on there. And, well, looking forward to the finals, Denver and Miami. Yeah, I'm sad. No Celtics. No Celtics. Bertha, all right, there's always next year. Ahead on Power Lunch, insurance premiums are skyrocketing across the country, partly and due to an increase in natural disasters like wildfires, as well as inflation. It's putting pressure

on real estate properties. We'll talk about that next. Welcome back to Power Lunch, everybody. State Farm, getting out of the Golden State saying it's going to stop accepting homeowners insurance applications in California because of wildfire and construction costs there. But the nation's largest car and home, a property casualty insurer, isn't the only one under pressure. And as companies hike their premiums to keep up with costs, property managers and developers are facing difficult decisions. Contessa Brewer has a closer look now. It's astronomic and not sustainable. Francis Greenberger's really the pressure. The CEO of Time Equities oversees a large portfolio of properties and got

sticker shock when the insurance bill came. We just renewed our policy a couple of months ago at a 30% increase, 3-0. In Corpus Christi, Texas, insurance premiums tripled for this 800-unit apartment complex that serves as homes for nurses, airport crew, and those who work in the oil industry. That was pushing the premiums north of $2,000 a unit, which is absolutely. absolutely unsustainable and frankly out of line. And it's created, it has created a significant burden for property that, you know, serves a workforce housing community. Unable to hike the rent that much, the landlord, private equity fund, fundamental advisors, is left pinching pennies on operating expenses and facing the prospect of bailing on other bills, including their debt.

This pricing is killing deals. It's preventing new development. And it's putting some some companies that I've been talking to lately out of business. Property insurance prices are soaring because natural disasters are more frequent and more severe, and inflation has made repairs and replacement more expensive. Skyrocketing litigation, verdicts and settlements have driven costs higher, and insurance fraud is pervasive. But Danielle Lombardo, who heads up global real estate for Lockton, says banks and their mortgage requirements are part of the problem. Lender requirements dictate more insurance than is necessary for extreme events. If lenders were to take a more data-driven approach,

we would be in a situation where we could fix part of the supply demand issue in the market by having our clients buy less insurance. If a lender requires coverage that would pay to replace entirely a $40 million property in Texas, the policy would be $3.7 million, Lombardo tells me. If that lender used data that more accurately reflected its real risk, risk, the cost would be a million dollars. If those requirements changed, of course, insurers would be selling cheaper policies. Contessa Brewer, CNBC Business News. Here to talk more about California's impact on the insurance providers and the industry in general, let's bring him

David Matamadden. He's managing director and senior equity research analyst in the insurance sector at Evercore. This has been kind of an exciting year for insurance because we've had, you know, the stocks doing so well for a while. And then now obviously this huge, this huge, this huge news for California. Was it totally unexpected or did you have a sense it might be coming? Yeah, it's a good question. You know, we've seen some other carriers, you know, pull back on new business. Most recently, Allstate in November actually did the exact same thing that State Farm did and is, you know, pulled back on writing new policies in California. And Chubb has also, you know, done some actions as well over the years. So it's been, you know, one area.

area that is particularly prone to natural disasters, specifically wildfires, where, you know, the carriers are reacting to just a higher frequency of loss. And then when you are getting a loss, more severity just from inflation. So those are two huge, you know, kind of everyday, everywhere types of providers. I would have to imagine that's as true in California as the rest of the country. Where do people turn to for insurance? How expensive is that insurance now? Because, you know, what are the state regulators going to say? No, you can't race. prices? I mean, people are literally leaving the state. Yeah, there is an insurer of last resort in California. I believe it's called the Fair Plan. But there are also other avenues that,

you know, people can can access. And so the excess and surplus lines market is a market where you can, you know, write in, you know, a little bit less regulated policies where you're not as, you know, you're not as beholden to some of the restrictions. that, you know, an admitted, you know, policy is on a state such as California. The source in a contestor's report said that if insurers only insured not for the total risk of loss or the risk of total loss, but for something that was that the data would say was a more likely level of loss, how much would that change premiums and pricing? You know, I think that that is, you know, obviously the lower coverage limit, you know, the lower the cost will be.

But there are also various different elements you got to think about, you know, what is the deductible. So it's really hard to say for, you know, just a generic policy. But what I would say is that these are adjustments that all carriers are making where, you know, even if they're not pulling out and, you know, not writing new business, they are. trying to increase deductibles and, you know, at the same time as raising prices, just to deal with a lot of the inflationary, you know, pressures that, you know, you guys have spoken about. So there are some options, like you said, that people can turn to, but do you see any of the other companies that you cover saying, you know, I remember a story about Louisiana, you know, maybe 20 or 30 years ago.

It could have been flooding. There was an issue that drove a lot of the insurers out of the market. And that's what then caused some people to get together and say, well, we are then going, our agency is going to cover that state and they now are, you know, the top provider in the state and people have ultimately come back. You know, is there a market opportunity in California, biggest populated state in the country, I think, unless it's Texas, anyway, for to come in now opportunistically and say, okay, we're more comfortable, we're able to, you know, to write business and take massive share in this market? Yeah, I mean, there definitely are carriers that are coming in

specifically into the excess and surplus lines market. And there have also been a number of higher profile carriers, which have stopped writing on admitted paper and moved into the excess and surplus line market where there's more freedom in terms of rate as well as coverage. So we have sort of started to see that. But they're, you know, consumers will have options, but, you know, they are much more expensive options. Yeah. Speaking of more expensive, we don't have time to get into it, but, you know, social inflation, as it's called in the insurance industry, these court rulings and the extent to which it's up in price, that was a surprising one to me. So perhaps a topic for another time, but they are facing a lot of cost increases. David, thanks for your time today.

Thanks so much for having me. David Montemadden with Evercore ISI. Coming up, Airlines in the Green, coming off a busy Memorial Day weekend with United, American, and Delta, all on pace for their best months since January. How did they handle the holiday surge? We'll tell you when Power Lunch comes back after this break. Welcome back to Power Lunch, everybody. Yields retreating from their recent highs, investors a way to vote on that debt ceiling deal. Rick Santelli at the CME with more. Hi, Rick. Hi, Tyler, indeed. Everything from T-bills out the 30-year bonds yields are dropping. They're not all dropping in equal proportions, though. As you look at an intraday of two-year,

you can see that right now it's down about eight basis points or so. And if you open the chart up, you can see we've turned it from some of the highest yield closes going back to mid-March. There's so many moving pieces here. We have votes yet to be done on the debt deal, but assuming it all goes as planned, what happens to supply? That's the big question. Is there going to be a trillion dollars in T-bills? Where along the curve is Janet Yellen going to restock those shelves of supply

that is much needed to bring those treasury coffers back up to size? I'm not sure, but if you look at tens to twos right now, it's approaching minus 80. the most inverted it's been since March 10th. And we all know that ultimately supply is most likely going to be in the short end. So watching these yield curves is what traders are doing in front of some of the big moves Janet Yellen probably has in store when the final votes are tallied on the debt deal. Kelly, back to you. Everyone is watching and waiting for that, Rick.

Thank you. Coming up, a new tech titan hitting the trillion dollar milestone will track its meteoric rise and trade one fintech firm that could be next to join the club. If you think you can guess what it is, tweet us at Power Lunch and and we'll reveal it after the break. Welcome back to Power Lunch. I'm Christina Parts Nebulae. InVeus. Invidia's stock hitting an all-time high today and was briefly part of the exclusive $1 trillion market cap club end. And this is because it's CEO Jensen Wong's keynote over the weekend whipped up some more enthusiasm by outlining a slew of new products like a new AI supercomputer, a partnership with the largest advertising agency in the world to create

content using generative AI and a combo CPU or central processing unit with a graphics, which is in full production right now. The bottom line, Nvidia wants investors to know it's working on increasing revenues from adjacencies tied to its data center. So think of it like offering the entire AI ecosystem as opposed to just a chip. The stock is handily outperforming the S&PIT index as well as the SOX's ETF, but has many, including Kathy Wood, debating the stretch valuation. Bank of America points out today that only 15% of cloud servers can handle these super sped-up

processing powers or accelerated computing, which leaves a large total addressable market for NVIDIA. Kelly? Christina, thank you. It brings us to today's three-stock lunch. Trading the trillion dollar club is David Wagner. He's portfolio manager at Aptus Capital. David, welcome back.

It's good to see you again. Let's start with NVIDIA. Are you a buyer here? Yeah, Kelly, I like NVIDIA long firm here. But I think that investors need to understand that price volatility may be the norm moving forward, especially given current valuations. I mean, in this AI space, there's going to be winners, there's going to be losers. But it's a huge market. But there's going to be wild swings in prices and crazy valuations.

And what does Nivitia have? Well, probably a crazy valuation in the eyes of most people. But I think that's why it's really important that investors need to understand the bull case around Hopper. Because I do think that GPUs moving forward are going to continue to drive. positive earnings revisions. Basically what I'm trying to say is that there has never been a data center sales cycle that has lasted less than one year. So this past quarters, you know, it shouldn't be a one event pull forward of earnings and then they fall off a cliff next year. I do think that this is sustainable. Pardon me. But the biggest point that I can make known here is that there's

probably going to be air pockets in this name moving forward. But that's the risk of buying at this valuation. If there is an air pocket, say on earnings guidance, which is probably inevitable, the stock could pull back, you know, 20% here. But Kelly, I do like Navity here, though I recently trimmed it because I don't want to subject my investors to all of that volatility. All right. Let's move on to another one. The world's most valuable company, that would be Apple sitting at a market cap of $2.8 trillion leading the exclusive trillion dollar club. Do you see more upside here for Apple or are you a little more cautious? You know, Tyler, you know, there's a lot of, you know, convicted thesis for Apple here.

I mean, it's very polarizing. Apple's a name that I'm definitely not going to be betting against from a technical perspective. The technical perspective, well, it's very strong here, and I'm following the tape here, even at current valuations. I do think that ARVR front, you know, the developer conference next year is going to be the focus. It may not be a large financial impact, you know, in the near term. But from a sentiment perspective,

they could definitely show that, hey, you know what, Apple, it can still innovate. So I'm not betting against this name. So for our third stock, David, we asked you to pick a company that you think could join the trillion dollar club. What is it? It's going to take a little while. It's only about $500 billion in market cap right now, but it's going to be Visa. I believe that the combination of double-digit revenue growth and mid-teen EPS growth,

and the stock trading at a pretty sizable discount versus its historical multiples is definitely a reason, you know, to remain invested in this name. I mean, it checks a lot of boxes for this type of market environment right now. I mean, all told, the company's ability to protect the bottom line and a variety of macro scenarios, alongside a reasonable valuation that's only at, you know, 30% versus the S&P 500 on a premium standpoint. When it tends to trade at a 50% premium, you know, are all definitely reasons why you need to remain invested in this name. Very good. David, thanks. Good to see you. All right, folks. Save some more room because there's more power lunch coming up.

Welcome back, everybody, about three minutes to go and a lot more stories you need to know about. So let's get right to it today, starting with a big day for disgraced Theranos founder Elizabeth Holmes, to prison to begin her more than 11-year sentence, she was ordered to surrender by no later than 2 p.m. local time at a minimum security prison in Bryan, Texas. Remember, a federal jury in California convicted her in January of four crowns of criminal fraud for deceiving investors. You know, having just watched the end of succession, which was a Shakespearean kind of tragic comedy, I think of her case in the same sort of Shakespearean way or epic, you know, flying too high to the sun.

And I feel terribly for her children. Two children. Two children. She did the crime. She does the time. We'll see what that time amounts to. An 11-year sentence could, I don't know, maybe legal experts. Is that a couple of years in reality?

Is that not a tough way to start your life, though, with the visiting your mom? But again, a saga, I think she was hoping to out, sort of wait out the clock, and that was not the case. And some of the stuff was just so, you know, I hope Silicon Valley has learned its last. All right. Next up, Memorial Day weekend air travel back above 2019 levels for the first time since the start of the pandemic. The TSA screen nearly 9.8 million people from Friday through Monday, including a post-pandemic record of 2.7 million on Friday alone. Air travel is back, pent up demand. The issues here are there just aren't enough air traffic controllers to handle it.

So lots of airlines have had to slow traffic or reduce traffic into and out of many metros, including the New York area. Denver surpassing O'Hare's United's busiest hub. Is that right? Is that right? That was Denver going to the playoffs. Wow. Cities having a moment, isn't it? Wow.

I didn't know that. Tough airport to travel through. Disney's Little Mermaid had quite a weekend. I swam past the competition at the box office to bring in about $118 million if we use the four-day total. That makes the fifth highest Memorial Day opening in history. Not a lot of sort of coverage of this because the numbers weren't that impressive, but still it shows that the cinema can still draw people in. I didn't see it this week. I'm shocked.

Yeah. I was obsessed with a little mermaid as a kid. Maybe when my kids are a little older, we can do it. You'll go. You all go. I did go see the Yogi Berra documentary called It Ain't Over. It's marvelous. All right, community college enrollment growing after decades of declines.

It rose 0.5% from the year before after falling 8.2 and 10.1% in 22 and 21, respectively. All of this fueled by the high cost of college, as well as economic anxiety and a tight labor mark. This is a sign the labor market is weakening. You don't go to community college. You can go get a job. And Gen Z teens are being unruly in malls. I thought we were maybe past this as a society, but apparently TikTok is fueling this growing trend.

Garden State Plaza right here in New Jersey requires anyone under 18 to have a chaperone Fridays and Saturdays after 5 p.m. They had a couple of fights in the food court or something like that. You know, I used to bring my kids there as a place to go, especially in the winter. In the winter. Yeah. I don't think twice. We'll go to Garden State on a Friday night.

Thanks for watching Power Lunch, everybody. everybody.