Power Lunch - Is the Worst Over?, and “Layoff Etiquette” 4/5/23

Episode Date: April 5, 2023

Is the banking crisis finally over? JPMorgan CEO Jamie Dimon says “no,” and that the repercussions will be felt for years. But we’ll speak to an analyst who’s upgrading one regional bank, saying there’s still “value” in it. Plus, what’s the best way to get laid off: in person at the office, or from the comfort of your own home? Our panel will discuss that and several other hot topics of the day. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

All right, well, in a power lunch, everybody, alongside Contessa Brewer. I'm Tyler Matheson. Glad you can join us on this Wednesday afternoon. Coming up, is this banking crisis over? Jamie Diamond says no way, and the repercussions will be felt for years. But we'll speak to an analyst who's upgrading one regional bank saying there's value there. Plus, what's the best way to get laid off in person at the office or from the comfort of your home? I mean, those of us who've been through it before would say, how about not? Our panel will discuss that in several other hot topics of the day. First, let's get a check on the market. Stocks mostly lower a weak ADP number on jobs, raising concerns about the economy. The Dow has a small gain there.

You can see up about two-tenths of a percent. The NASDAQ and the S&P are off and in the red, as is the Russell 2000, Tyler. So speaking of NASDAQ, why don't we go there now? And Christina Partsen-Evelas, who can fill us in on what's happening? Hi, Christina. Hi, well, like you mentioned, it's just another down day for the NASDAQ. And this has to do with another hiring report this time from ADP that showed a slowdown in private sector job growth. And that really has investors worried that the market is starting to cool, which is why you're seeing defensive investing, driving markets, utilities, health care, hire. Those are the best performing sectors today. Tech and consumer discretionary, the worst groups, which leads me to what's going on here. These concerns about the economy are hitting some high growth names like Z-scaler, CrowdStrike, Atlassian Z-Z-Scaler down almost 80.

percent right now. Cryote strike down almost 7 percent. And these are the biggest losers on the NASDAQ 100. Even a name like Palantir can't break the trend. It announced today it's expanding its partnership with Microsoft from the private to the public sector and yet the stock is down 4.3 percent. And of course you got the utility names, aka the defensive plays that are winning right now on the NASDAQ. American Electric Power is up 4 percent. Excel Energy also up 4 percent. And another bright spot is U.S. health care providers. We can see that with the IHFETF, a good barometer. That's up 1.9, almost 2% right now on pace for its fourth positive session in a row,

led by names like United Health and Molina Healthcare. Christia, thank you very much. Well, today's ADP data show that more signs that we could be heading into a recession. But as slowdown risks climb, we want to break into three key sectors at Wall Street's watching. Banks, technology industrials. First, regional bank, Zion's getting up. An upgrade to buy at Baird. The analyst says weakness in the group is beyond overdone.

Jeffrey's raising its price target on meta, saying investments in AI could boost revenue there. And finally, Caterpillar lower again today and down 7% so far this week, growing concerns around the health of the global industrial space. We've got three analysts making these calls and covering these newsworthy names here to weigh in now. We'll begin, though, with Zions, that stock down from. 43% in the past month here to discuss his call is Baird's David George. I guess, you know, babies and bathwaters, tarring with brushes. That seems to be what you're saying here.

This company doesn't deserve to be hit and taken to the woodshed the way it has been. David? Yeah, good afternoon, Tower. Thanks for having me. And that's right. This is, from our perspective, not a crisis, but the banks have been priced as such. And we think that has provided an outstanding opportunity to buy a number of regional banks and Zines is one of them that we think has conservatively at least 100% upside the stock

trades at less than five times earnings. We think the market is pricing in a permanent impairment and profitability, which we simply think is unlikely. Conservatively, a double. You don't hear that very often here on CNBC. What is the risk to that forecast here? Well, the risk, I think, for the most part, is really not a lot of the issues that market participants and the media has been discussing. I don't think deposits will be a meaningful issue. And I think when the banks start to report earnings over the next week or two, we're going to find that results are likely fine for the most part. And the vast majority of the deposit movement that we're talking about has really been confined to the likes of California,

New York, and really to just a handful of banks. It's not something that we think is particularly systemic. Clearly, as the economy slows, we're fully on board with the notion that credit is going to deteriorate and really normalized from current levels. To give you some perspective, bank not performing loans and losses are at multi-year, if not multi-decade lows. So by definition, they have nowhere to go but higher. But at these valuations, again, at less than five times earnings, we think that there is a very considerable margin of safety to buy a number of these stocks right here, right now.

So you have Jamie Diamond saying that the current crisis is not yet over, and even when it's behind us, there will be repercussions from it for years to come. How do you coincide his take, his perspective with what yours is that this is all silliness at this point? Well, so we cover J.P. Morgan and we've had meetings with Jamie many times over the last 20 years that we've covered the stock. And obviously, we have a ton of respect for him and his views. And there are some things that will have lasting implications. In particular, private equity deposits are going to be something that's going to be very, that's probably not going to be encouraged by commercial banks. I would imagine that that degree of concentration is something that many banks aren't going to be

comfortable with. And then furthermore, he talked about a lot of interesting things. One in particular was that federal regulators encourage banks to buy treasuries, and now they're being vilified for them by all the mark-to-market tourists that want to mark these banks to market. So clearly, there are going to be some ramifications, probably on the regulatory side. But again, at these prices, you're getting paid very handsomely to take that risk. And again, that margin of safety in our view is very, very high. All right, David, George, thank you for joining us. Appreciate that.

Well, despite the negative sentiment around meta and the company's big push toward the Metaverse, that stock is up more than 75 percent this year. Our next guest sees even more gains. Let's bring in Brentfield, who's the senior analyst at Jeffries now. So, Brent, I'm curious, where do you see meta making an upside climb? here. Is it on these AI investments? Yeah, the first leg of this journey, Contessa, was driven on expense savings. The stocks doubled since Zuckerberg took a U-turn on expense. The next leg of the stock's going to come from revenue rate acceleration, and that'll happen in the back half of this year.

It'll be modest. It's not going to blow your socks off, but it's going to go from single-digit, you know, desal to a single-digit, you know, mid-single to high single-digit growth. And ultimately, a lot of these cost savings will start to kick in, which yields a $12 to $14 earning story next year, which again, you just put a high teen, low 20 multiple on it, and you're at $240 to $280 on the stock pretty quickly with not a crazy multiple. So the Metaverse isn't going to drive this. What's going to drive this is advertisers coming back to the platform, blapping the iOS changes, the re-engagement back with reels,

and ultimately, I think, you know, the upside scenario here is if TikTok does get banned, it's obviously like gravy. We're not embedding that that's going to get banned in the model, but that would also help them as well. Okay, so your thesis leads me to two follow-up questions here. One is on revenue. Are you assuming then that the advertising environment is easing up a bit that companies are getting ready to tiptoe back in with advertising? And two, on the expense front, some of that expense cutting has come at capital expenditures, that they're pulling back in on what they're spending there.

Could there be a medium to long-term backlash against that kind of moderating of CAPEX? I've said this across tech. Tech was overspending. The pandemic wasn't sustainable. And ultimately, we think overall tech is overspent. So we're just getting back to a more normal environment. And I think a plus to them on making that U-turn. So we don't think this has any impact on that.

In terms of your question on advertising, I'd say, look, in the front half of the year, I think it's a tail of two halves. Front half, everyone's still worried about the economy. Advertisers are maybe frozen up. There's some seasonality. But I think as we go into the back half, things will start to open. You've got easier comps and you've got some of these improvements they've made. So, again, I want to be very clear. Like, the stock has had a huge run up over 70 plus percent year to date.

So we're not making a call. It's going to straight line from here. What we're saying is it probably taps the air brakes in the short term, but it grinds to 250. It's flowing to its current point. And so ultimately, I think the call is it's just going to grind from here on advertisers, slowly coming back to the platform. And a lot of these changes we talked about are being more optimized throughout the platform, then layer in all these AI changes over time.

you've got, I think, a better story that's not trained at a crazy multiple. Brent, you brought it up. I was going to ask you whether TikTok's banning is central to your thesis. Clearly, it's not. You said it would be gravy for meta if it did happen. My question, I guess, is do you think it's going to happen, number one? And number two, what percentage of the TikTok users might migrate to Instagram, or does Instagram and meta sort of lack the cool facts?

and that there might be some other competitor who would pick up a fair share of those users instead. As a father of three teenagers, they're all on Snap and they're all on TikTok and they're all on Instagram. So they use them all. Clearly, they use them all and they use them for different things. And so I think ultimately Snap's a messaging tool. They're not influenced by the brands. They use Instagram for high quality pictures and travel. and then they get silly on TikTok like everyone else does.

So you think about like there's a use for all three, but ultimately I don't think it gets banned is my view right now. And I think there's a way they can figure it out the fine line of walking what's good for the consumer and what we have to do around security. So I think they'll find that fine line. What that line is, I don't know exactly, but I think they'll find middle ground. So again, if it does get banned and I'm wrong,

then it's obviously going to be great for Snap. It's going to be great for, it's going to be great for Mata. All right. Brent, thank you very much. Great to be with you today. Thank you. All right. Caterpillar down again today after a falling 5% in yesterday's session.

The stock down 16% in the past month, making it the worst performer in the Dow. Here to discuss the issues weighing on Kat. Rob Wertheimer, director of research at Milius Research. Rob, has Kat been overly punished here? Well, we do think it has. And so if you think about what the drivers are for Caterpillar, it's all the disruption we've seen across the last year. It's the energy crisis and the need for energy security in Europe where CAT is going

to have tremendous business selling pipeline equipment. It's infrastructure in North America. It's reshoring in North America, bringing investment here. We've had a decade of underinvestment. And those things are still intact. The banking stuff is definitely caused uncertainty in the market. and there's modest spillover to the actual real end markets for Kat, but the industrial upcycle still has strong support.

How much are they dependent on government funding and how might government funding cuts affect them? Yeah, and so if you think about what happened, the last time we had a real kind of meltdown on the financial markets way back in 2009. We did not have an infrastructure bill really waiting in the wings to come through in funding. And so I wouldn't say Katz dependent on it,

but that's a support that we didn't have a decade plus ago. You think about the reshoring, and these are happening for real kind of geopolitical slash supply chain security reasons, and we didn't have that driver either a decade ago. And so certainly that is a strong support, but the fundamental drivers are not really government money, but it's just the need in the world for investment in both old and new energy and in factory capacity. What are the big headwinds for Caterpillar? Boy, I mean, there's actually a bunch of tailwinds. The headwinds that the market has been focused over the past couple of weeks, let's say,

are, you know, does banking tightness, does tightening of credit cause either people to purchase fewer machines because they're paying more interest rate for them or just does it cause project delays, etc. I think the bigger issue in the economy is just that the Fed's trying to slow things down. There's just too much activity and too much work there. But some of the work that needs to be done and is, you know, more or less funded is, is on that infrastructure side. Caterpillar, correct me, if I'm remembering history correctly, Caterpillar has these kinds of moments where it goes into the deep freeze,

and then it comes back. It'll be the worst stock in the Dow this year, and it might will be the best next year. Am I right on that? No, you're 100% right. And, you know, as the tech world has grown, you know, the flow of money that surges in and out of tech, obviously, you know, is quite large, and it's even relative to larger industrial.

So I think we've seen a little bit of that over the past few weeks. You can't have the 75% move in meta that was just discussed without the money, you know, flowing out of somewhere. Coming out of somewhere, yeah. Yeah, I mean, so that definitely happens. I guess our messaging is just that the, you know, the end markets for cat, the drivers for cat are still present. All right. Thanks a lot. Rob Werthimer, we appreciate your time. Coming at the latest on the battle to win AI, Google's already fighting Microsoft in the search.

Now it's taking on Nvidia in the race to make the fastest chips. We'll have more on that. next. Johnson and Johnson shares higher today as the company may finally be close to settling lawsuits related to its baby powder. It won't come cheap. Power lunch. We'll be right back. All right, welcome back, everybody. Time for today's tech check. And we look at the battle over AI with Deirdre Bosa, who joins us now. Hi, Deirdre. Tyler, it's been kind of fun, hasn't it, to see the tech titans trade shots back and forth with billions of dollars at stake. Our audience, They might remember that back when Microsoft first showcased chat, GBT,

Sadie Nadella said he wanted to make Google, quote, dance. Ever since we've seen a feisterer, more aggressive Google on the generative AI front, the company has now published a scientific paper that seems to fire back, letting Nadella and NVIDIA, another giant in the space, know that not only are they dancing, but they don't even need a partner here. The paper says essentially that its supercomputer is faster and more efficient than comparable systems from Nvidia, and that matters, because the chips at the compute level is what drives the products like chat, GPT, and Bard.

Large language models, they are becoming so big guys that they cannot be stored on a single chip. So they have to be split across thousands of chips, which then have to work together creating a supercomputer. So Google here is saying that its in-house chip, it's known as the tensor processing unit or TPU, is being used now for 90% of its work on AI training. And Google says it can be strung together to create better generative AI than comparable. systems from Nvidia. Now, the context here is that more big tech is designing their own chips like Apple and its M1 series that displaced Intel. There's also Amazon's custom computing chips for data centers aimed at lowering costs for its customers. And guys, this is likely just the

start of the AI battle at the chip or the compute level that will drive these consumer-facing products. At this stage, though, Wall Street, it's worth noting, is somewhat skeptical that Google is going to displace Nvidia anytime soon. Several analysts noting that Google compared its system to a less advanced version of Nvidia's in Missouho called that initial stock movement that saw Nvidia shares down. An overreaction certainly looks that way since they're back in positive territory. There is, though, however, that longer-term risk to Nvidia is now incredibly high valuation that more of big tech shifts to their own custom chips. For other chip makers as well, that is a threat. And the winner there would be Arm.

Let me ask something that's maybe a little bit tangential to what you've just been talking about, but I'm curious. You say that Google has its own chip. They manufacture this chip. Where do they do it? Did they manufacture it in their own fab places or what? So they designed the chip with the help of Arm. Arm is the chip company that is owned by SoftBank that is expected to IPO in the next year.

And then those chips are typically made by one of the big manufacturers like TSMC. see, but the importance here is that they are designing it and displacing some of the chip makers that we know very well, like Intel and Qualcomm and others in the future plausibly because they're bringing it in-house and that helps save costs for them and their customers. I mean, you've set this up in sort of like a sharks versus jets kind of way, Deirdre, but in reality, I mean, look at Intel. They've already seen what can happen when you've got a tech giant saying, hey, we can do this ourselves and we can do it better and we can do it more cheaply.

So what should Nvidia be reading into this? Exactly. And we should really note that Intel and Nvidia are in very, very, very, very different positions. I mean, Intel has had problems for decades. And Nvidia is seen as really the giant in the space. The leader at the compute level for artificial intelligence, nobody, Google included, is going to be challenging that anytime soon. But it is sort of that longer term case that there could be less reliance.

And there's even some doubt over that Google chip. and what it can or cannot do. So some cold water thrown on that paper, but it really just underlines the fact that this battle in AI is taking place at the top of the stack for consumers and at the bottom of the chip level. And there's going to be so many more iterations

of this in the years to come because we're still at such early stages. All right, Deirda. Thank you very much. Deirdreboza, reporting from San Francisco for us. Great to see you. All right, further ahead, Johnson & Johnson, reaching an $8.9 billion settlement in its Talcum Powder lawsuits.

Details on that settlement when Power Lunch returns. We'll take a look at that one next. Welcome back to Power Lunch, everybody. Let's check the markets right now. The Dow eking out a small gain of about 68 points. But the NASDAQ more than 1% lower in S&P 500, kind of splitting the difference off about a half point. Bobazzani's at the New York Stock Exchange.

Let's go there now. Bob? Soft landing of hard landing. They can't decide. And you can see this in the sectors and how crazy it's been in the last couple of weeks. So look at the cyclical groups here. Deer Caterpillar Cummins all up last week, hopes for a softer landing and down. Essentially this week, if the economic data has come in a little bit weaker than anticipated.

Also, take a look at the semiconductor. It's a big leadership group in the last couple of weeks, generally all trading down today. Again, the same reason can't figure out whether they're getting hard landing, soft landing. Defensive stocks are holding up very well, and that's why the Dow is up today, because it's got a lot of consumer staple stocks and health care stocks in it. So Johnson & Johnson, hope for that settlement there. Amgen, Merck's doing really well the last few days. Procter & Gamble also trading to the upside.

You don't see utilities lead the S&P 500 very often, folks. But American Electric leads the S&P 500 today? Yeah, look, and this is, of course, as you saw yields coming down on some of the big treasuries bonds, we saw utilities move to the upside. So here's the fundamental dilemma. It's the hard versus the soft landing. And very simply, it's tough to get the Goldilocks story right. The Bulls need the data to show the economy is slowing so the Fed can stop hiking.

We all get that. But the recent data we've seen the ISM services and the manufacturing numbers and the Jolts report is slowing a little more than they had anticipated. And so then you cause a more serious recession. So the bottom line here, Contessa, is getting the tone right for the soft landing and the Goldilocks is proving extraordinarily difficult. for market investors. Contessa, back to you. Bob, thank you for that. Let's get right to Bertha Kuhm's now for a CNBC News Update. Hello, Bertha. Hi, Contessa. Here's what's happening at this hour. Cash app founder Bob Lee was reportedly killed in a San Francisco stabbing, according to sources. The 43-year-old tech executive and former chief technology officer of Square was taken to

a hospital with life-threatening injuries and later died. Local police say the incident was being investigated by the department's homicide detail. Former President Donald Trump is encouraging GOP lawmakers to defund federal law enforcement ahead of the fall government funding deadline. Trump made the statement on his truth social platform calling on congressional Republicans to cut money designated for the Justice Department and FBI. Trump's comments come one day after he was arrested and pleaded not guilty to criminal charges in New York.

And billionaire Elon Musk has been bumped off the number one spot in Forbes' annual world's billionaires list. Tesla and Twitter chief is now the second richest billionaire behind Bernard Arnault, the chairman of French luxury giant LVNH. Musk is now worth an estimated $180 billion down roughly $40 billion from last year. I imagine, you know, when you're down 40 billion, you must have some belt tightening going on. Well, of course, he made a big purchase. Yeah, I think he paid on what was. It was roughly 40 billion for that happening. 44, right, for Twitter?

I wonder if the return on that investment is paying off for him. Not yet. It doesn't look like, right? Bertha, thank you. A head on Power Lunch. Growing Fears abound. A red scare hits Hollywood in Silicon Valley. The White House mourning companies to keep an eye on AI.

And corporate America struggling over how to handle layoffs. We discuss all the. those stories next. All right, welcome back to Power Lunch. Middle of a shortened trading week, and we want to get you caught up on some top stories. We've been following lawmakers now, visiting Silicon Valley and Hollywood with a warning

on the threat from China, a growing number of voices, raising concerns over the advancement of AI and more corporate layoffs, raising the questions about the best way to notify your workforce. We're going to talk about all three of those topics with Ed Lee, New York Times reporter

and a CNBC contributor. Jeff Kilberg, KKM financial founder and CEO and also a CNBC contributor. And Domchoo contributes probably more than anyone to CNBC. How are you? Good to have you all here. Ed, let me start with you. I did not realize that there was a House Select Committee to study the Chinese Communist Party, and some members of that committee are going out this week to meet with, among others, Bob Eiger and Tim Cook.

Explain what they're going to be talking about. So the committee is, I think, relatively new. I think with the House transferring power over to the GOP, they've started to kind of formulate these committees to look specifically at what they consider big threats to the U.S. China is, of course, a threat that both sides, both Democrats and Republicans have been looking at very carefully. The meeting, apparently, this big sort of trip out west is really just to kind of get a feel for what are you doing in entertainment, what are you doing in technology, to give us the

ability to compete better. Now, it just feels a little bit, it's very political, of course, but look, let's take a close look. We buy half a trillion dollars worth of stuff from China every year, and they buy about $150 billion worth of stuff from the U.S. So it's not as if there is already a lot of interaction, a lot of trade, that kind of cooperation in sense. But when it comes to intellectual property, like with movies, what's allowed, what's not allowed, when it comes to technology, of course, we all know what happened with Huawei, what's happening with TikTok, now, and now with AI, of course. So, you know, there is a sense that, like, are we, we need to be more strategic about how we're producing our goods, what we're selling to them, but we're

not selling to them. So I think it's more of taking the temperature than anything else. But clearly, I think this, the House, Congress definitely wants to take more pointed actions on it. So, Jeff, let me, let me turn to you. There's, there's the tech trade. There's the China trade. Is it a both and and either or? How do you navigate in this sort of difficult space? Well, Tyler, it's all the above. And ultimately, what you see is the fact that we really have the opportunity to get some reconnaissance mission with this group that's going out to Hollywood, salty a little bit here

in Chicago that we didn't get the invite. But nonetheless, I think this helps us better understand where China's moving forward. And if you think about from a trading perspective, the last three years, the perspective, if you look at China versus the S&P 500, China has dragged 75%. So that's why I think there's an opportunity actually here and now to have some exposure to China. I talk to a lot of our clients, a lot of our family office clients. This is the time when it feels the worst. And there's going to be implications moving forward with China due to Taiwanese president meeting out West in California as well.

Yeah, I mean, they're trying to say now, listen, you shouldn't overthink the fact that the Taiwanese president is coming here. President Sai, that, you know, we get visits from top Taiwan officials all the time. So China, just be calm. I'm looking at this from the perspective of a group of companies that I cover in Macau, that the ratcheting up of tension between China and the United States becomes very nail-biting for the companies that need and want to do business in China. It's not just that. If you put all those dots together, what it comes down to Contessa is that ratcheting tension.

This is just the latest of it, right? because it wasn't that long ago, we were talking about spy balloons, right, and shooting those things down. Those were from China. And by the way, to tied into the business angle, it's not just about those casino operators that have a lot of operations in Macau. If you look specifically at the Hollywood angle of this, the number of Chinese production companies that have either bankrolled or invested heavily in some of the biggest blockbuster movies that have been released over the last 10 or 15 years is huge. So do you still want to have. those investments from those production companies to bankroll some of these large Hollywood

operations, or do you want to look a little bit more about whether or not you can wean yourself off of them? I'm going to be very curious to hear what these big media CEOs actually say about it and certainly what somebody like Tim Cook does because it's the intersection of tech and media and telecom and everything else. Let's talk a little bit about that artificial intelligence arms race that's caught the attention of business leaders Elon Musk and Jamie Diamond as well as President Biden. Here's what the president said about the benefits and the risks of AI yesterday at the White House. We're going to discuss the opportunities and the risks of artificial intelligence.

AI can help deal with some very difficult challenges like disease and climate change, but also have to address the potential risks to our society, to our economy, to our national security. Tech companies have a responsibility in my view to make sure their products are safe before making them public. Jeff, how much do you think that the CEOs of some of these big tech companies are going to have to keep addressing the potential risk and reward of AI. I think it's going to be persistent, Contessa.

And absolutely. Jamie Diamond talked about AI. It's going to be a part of our life. It is a part of our life. And as we continue to see the development, the evolution of AI, I think we have to realize it's a double-edged sword. He talked about the bad characters that are going to be in this space. But also, I think there's a lot of positivity coming out of AI.

But when we talk about the trade, when I look through all the noise, because there's going me a ton of noise. I think semiconductors by themselves will continue to grow and evolve. If you think of semiconductors, a $400 billion space, that's going to grow at 55 percent. That's projections. It's going to grow at 55 percent for the next couple of years as we kind of keep up with AI. Ed, and I imagine it's going to be a looming specter, not just for business, but for politicians as well. For politicians, for basically the media, I mean, if you think about how very quickly, just, you know, after ChatGPT was sort of released to the public and people were experimenting, we're now seeing, you know, AI-driven sort of photos, AI-driven videos that are just

completely made up. I can only imagine, you know, the equivalent of a bot army, but using AI, whether it's coming from a place like China or Russia or anywhere else, any bad actors out there in the world, how much havoc that would wreak on this country politically, but also just in the media sphere. So, unfortunately, the cat's out of the bag, right? The Pandora's box has been opened. It's now just a matter of figuring out how to, not about containing anymore. It's about how do we deal with it. Go ahead, Jeff. You bring up a great point, because when you talk about that interaction you have with Chad GPT, I have a couple of teenagers who've been trying it, it's not authentic. It's not real. It almost feels not human. So I think there's an initial wave. Everyone wants to get onto AI,

and then there's going to be a reversion to human, connectivity, in person. We're kind of realizing that COVID, but I think AI is going to have a lot of waves up and down as we continue to evolve. Yeah, I was going to, you have kids. Yes, sir. I'll tell you one thing AI is doing and is going to do, it's going to make parenting a hell of a lot harder. Because you can ask questions to AI, like I saw the other day. How do I, what's the best way to get the smell of alcohol off my breath?

Okay? And it will give you a good, a good doggone answer. Good catch there. That was right at the end, wasn't it? That was not artificial intelligence. Not at all. So the interesting part about this, this is an extension, AI, right? What it does is I focus on the national security side of things.

This is very much an extension, artificial intelligence of the supercomputing battle that has been happening between the U.S. and China specifically for the better part of the last 20 years. And I think I got more finely in tune with it because I did a story about five, six, seven years ago with when the Oak Ridge, National Laboratory here in America unveiled what was then the fastest supercomputer, which is Summit, the DOE did it. And the whole point was that you were trying to make sure that you had the best supercomputer over China. This is AI. So if we're going to talk about pausing AI here and development here, you want to make sure China's doing it too. Otherwise, they're going to beat us.

That's what it comes down. And also, I mean, Jamie Diamond can have all the group of interdisciplinary ethicists that he can call in to try to make sure that J.P. Morgan Chase is approaching this in the right way. but all it takes is one bad actor. All it takes is one group that pushes this in a direction. And you know, you're right. There's no putting the genie back in the bottle. And finally, McDonald's announcing a wave of corporate layoffs, which I might have been subject to if I had said what I almost came out of my mouth a moment ago.

But the way they're going about it by closing offices and notifying people at home virtually has people questioning, what's the best way to cut workers? Ed, let me turn to you. When I first heard this, I thought this was kind of chicken, that they didn't want to do it. Chicken what? Chicken, just chicken, that they didn't want to do it. It was cowardly.

Cowardly. Cowardly lion-ish. Yeah, I'm with you on that. It just, you know, I think it's certainly they're taking advantage of the potential moment, right? I think the sort of the statement that McDonald's made was, oh, a lot of people traveling during this week. So we just decided to make this easier in terms of how ours or relaying the information. I mean, just unfortunately, like, that's the world we live in now. People are laid off via email.

People are laid off, like, by your swipe badge. Like, you can't swipe in. You know, etiquette is just, there's no more etiquette anymore. I suppose, Dom, there is an argument to be made for this because if you're doing layoffs the old-fashioned, somebody will get a call, you go to an office. And HR. Everyone in the office sees you walking and they know what's happening. They know.

And so there is, in some ways, a privacy advantage here. This has all been created because of COVID, right? And because of work from home. I don't believe that if you didn't have COVID lockdowns, I don't believe that if you have a hybrid work environment like we do right now, where people come in two or three days a week or whatever it is, that you would have a company doing this kind of thing. But the downside to having remote workers or people working from home is that a company can then use that as cover in a way like this to avoid having some of those conversations person to person.

And for me, I don't necessarily agree with it. But I kind of feel as though if you want to take the good from work from home and hybrid, you take some of the bad. And to me, this is bad. I would much rather somebody, if they're going to have this kind of a decision, do it face-to-face person-to-person. It's a very personal thing when somebody loses their job. Because ranting in your living room about it. it's just not the same as saying it off to your boss. No, I don't think it is.

Jeff, you get the last word on this one. Jeff, you're the founder and CEO. You don't have to worry about getting laid off, I guess. That's right. And I think it's rude. It's a congruent line. And this is just the world we live in. So absolutely rude at McDonald's.

Employees are not loving it. Shareholders are loving it, though. And if you look at the stock at all-time highs today, it's remarkable to see four days of 27 times. I don't want to be a buyer up here. But if you think about just the culture we're kind of living in now, you know, you walk into Chicago in a corporate setting, like that, it's just changed. So I hope we have some

reversion. I hope people treat each other like humans again. It's disheartening, tie. All right. Jeff Kilberg, thanks very much. Ed Lee, thank you. And Dom Chu, the ultimate contributor. Thank you. Thank you. Still-LICM yields falling on ADP data. The latest sign of

a slowing economy will get into it. The yield on the 10-year note falling to the lowest level since September. Rick Santelli is tracking that action for us from Chicago. Hello, Rick. Hello, and no matter which direction you look on the treasury curve yields are dropping precipitously. Just consider. Look at a three-day of two-year note yields.

And look at every one of those swan dives we have each session. On Monday, it was ISM prices paid, the lowest level since July of 2020. That was manufacturing. Yesterday was jolts under 10 million, smallest level since May of 21. And today, it was services. That's the key sector. And that price is paid, also the lowest since July of 2020. Open the chart up, there's your seven month low in the making with regard to 10-year note yields. And finally consider this. A two-year note on the 3rd, the 3rd of March, had a close of 5.07 percent. Look at it now.

Three and three quarters, basically. Ten-year, ten-year had to close at four in a quarter. A whisker below of 424. On October 24th, we're almost 100 basis points lower. Now, twos to tens at minus 46? Well, that's because T bill yields are staying high, two-year notes, not so much. But it's still basically the most inverted going back into the 80s. Three months to two-year is the most inverted going back to the 80s at minus 109.

And the definitive, the definitive recession trade, minus 155 three months to 10 year. There's pretty much no way to put a good face on this. The only thing I can say is that I don't know what the third. Federal Reserve officials are looking at. Maybe inflation isn't coming down as fast as they want, but ultimately with the economy doing what it is, it certainly is coming down rather quickly, in my opinion. Tyler, back to you.

Yeah, some of the data. Back you back you up there, Rick, very much. Rick Santelli, thanks. Up next, FedEx cutting costs, reconfiguring its operations divisions into one organization. So what does it mean for the stock? We will trade it in today's three stock lunch. Time now for three-stock lunch and we're sipping on some big movers of the day.

FedEx hire after announcing its hiking its annual dividend by 44 cents and consolidating its operating structure as well. United Health hire on an upgrade to strong buy at Raymond James and C3AI on pace for its worst day ever after short-seller Kairsdell Capital accused the firm of accounting irregularities. Here to help us trade all three names is Cartney Garcia. She's senior wealth advisor at Payne Capital, management and a CNBC contributor. All right, Courtney, let's start with FedEx.

Yeah, FedEx, I have a buy on here. There are some very positive news that came out, which you alluded to, but basically they're going to be merging their ground and express businesses moving forward. And the reason that's so important is because it's really going to lower their costs moving forward. And this is going to be lowering cost by 2025, about $4 billion, and another $2 billion by $27. And that's on top of some of the cost-cutting efforts they already have, like cutting some of employees. What's interesting is this is going to become a lot more similar to the way that UPS, their biggest competitor, is structured. And interestingly enough, UPS has unionized workers, which means that they're paid about twice as a bunch of FedEx. Yet their profit margins have been superior.

It's likely because they're more efficient. All their businesses are together. And I think that just goes to show how much more upside there is for FedEx now that they're going to consolidate businesses like this. And add on top of that, they just increase their dividend by another 10%, which is always a good sign. We'll get that up 1.75% today. Nice to see you, Courtney. Let's go to United Health. Yeah, United Health. I also have a buy on here. I think what you're seeing with United Health is a couple things. Number one is there were some concerns that the changes to Medicare were going to be a headwind looking forward for United Health. It does look like that's actually going to be a little bit more beneficial than had previously been feared, so not as much of a headwind. They also had a recent

acquisition of change health care, which is going to benefit Optum, which is one of their growth drivers moving forward as you have some cost synergies there. But largely, you've seen a poll back here this year with United Health and healthcare industry in general. After there's a lot of optimism last year, these things did very well. And there's been this rotation out of the space. But I think the fundamentals continue to look strong. And I think a United Health would be a good name to play here. Final name here, C3 AI. AI. I do have a sell on. There was news out today, which you had brought up. But there were accusations that there have some questionable accounting methods kind of to boost what their margins are looking like. I don't want to comment on that too much,

but that is why it's down so significantly today. I think the bigger concern is this is a company that's up over 90% this year. It's had a really good run, but it is not profitable. It doesn't pay a dividend, and that's really not the kind of company that you want to be in currently. And when you do look at some of their customer acquisition and the fact that as customers are ending their trial period, they're not signing on for larger contracts, I don't think that's the kind of company that you want to be in right now. Courtney Garcia, so good of you to join us today. Thank you. Thanks for having me. All right, coming up, Fallout for Pharma.

Johnson and Johnson agreeing to pay nearly $9 billion to settle talc cancer claims. The details are next. Johnson and Johnson agreeing to pay nearly $9 billion to settle lawsuits related to its talc-based baby powders. Meg Terrell joins us now in studio. Hi, Meg. Hey, guys. So looking at the stock price, a lot to untangle here, but investors really like this. And the fact that investors are bidding the stock up on a $9 billion.

settlement offer shows you just how much was really hanging over J&J from these thousands of talc-based lawsuits where people were claiming that the talc baby powder from J&J had given them cancer. Now, J&J disputes these claims, but it has come back and increased a settlement offer to almost $9 billion from a previous offer of $2 billion. This is part of a very complex sort of strategy they were employing that was known as a Texas two-step where they were trying to put these liabilities into a separate company and file that company for bankruptcy with that $2 billion settlement. Now, the difference here in addition to the higher amount is that they say they have 60,000 plus claimants who are on board with this new settlement

offer. That is not a done deal, though. They have to get 75% of all the claimants to vote in favor of this. I'm told there are 90,000 to 100,000 potential total claimants here, so they have to surpass that 75% threshold. Now, as all of this, the company is specifying there is no admission of wrongdoing here. They say they are doing this because, quote, resolving these cases in the tort system would take decades and impose significant costs on LTL. That's the name of the sort of company that held these liabilities and the system with most claimants never receiving any compensation. So this is taking so long and costing so much. They just want to settle.

A couple of questions. The $8.9 billion sounds like a lot of money. Over what period of time is that money paid out? 25 years is what it's going to be done, although they've already taken a charge in the first quarter of that additional $6.9 billion. dollars. And I saw an analyst note today calling that amount de minimis for J&J. Well, that's what I'm driving at here, is that the charge is not insignificant. It's serious. It's $9 billion. But the amount of cash out from the company to the claimants per year over 25 years is not. That's right. And so that's why you're seeing the stock go up on this,

even though it seems like a large amount for a company of J&J's size and, you know, their firepower. It's not. You know, the interesting thing is years, years. ago when all of this talc litigation first started, there were a lot of questions from analysts for insurance companies about what their exposure was to litigation settlements and or verdicts because we did see some winning verdicts in these talc lawsuits. Anyway, I think there was some more than $2 billion. And we didn't really know because the insurers themselves, when they were asked, they said, well, we don't really know what our exposure is. We don't know what reinsurance is going to do. We don't know how long the legal process.

takes to play out, but you've got travelers, Chubb, and the Hartford that even years ago were listed as possible insurers. It's going to be really interesting to see whether this is all Johnson and Johnson self-insured or whether some of the insurers have exposure to this settlement as well. Really interesting. Yeah, definitely agree. Not sure of the insurance situation here, but certainly people are pretty happy. In the cases that have gone to trial, these talc cases, was Johnson and Johnson winning or losing? They were doing both, but some of these awards, as contest appointed now, we're more than $2 billion, and they were going one by one. Individual cases. They go through thousands of them. You can see the risk there.

Meg, thanks for explaining it to us. And thank you for watching Power Lines.