Power Lunch - JPMorgan Rescues First Republic, New Mortgage Fees, and a Cruise Comeback? 5/01/23

Episode Date: May 1, 2023

JPMorgan is buying First Republic, as CEO Jamie Dimon declares this part of the banking crisis over. But a big bank is now getting even bigger. Is that a good thing? We’ll debate.Plus, new mortgage fees are going into effect today. Some buyers will pay more, and it’s quickly becoming a controversial issue. We’ll separate emotion from the facts. And, Norwegian Cruise Line is higher on strong results, and reporting strong demand and pricing for this year and next. Is the stock finally a buy? We’ll ask our trader. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome everybody. Good afternoon. Welcome to Power Lunch for a very busy Monday in a very busy week. Alongside Kelly Evans, I'm Tyler Matheson. J.P. Morgan buying First Republic, Jamie Diamond, saying this part of the crisis is over, but big banks getting even bigger, is that a good thing? We'll debate it. And new mortgage fees going into effect today. Some buyers will pay more. It has become a controversial topic. We'll separate the emotion from the facts. plus the cruise comeback, Norwegian. Those are my folks, Norwegians. Higher on strong results and reporting strong demand and pricing for this year and next.

Is the stock finally a buy? We'll get to all of that. But first, Kelly, over to you for a check on the market. You know, I've got some Scandinavian too. Yeah. Thank you, Tyler. Hi, everybody. Here's the broad look right now.

Dow's up 71 points. S&P at 41, 81, up a quarter percent. NASAC's gone positive by 22 as well. J.P. Morgan, higher, one of the best banks, really. today after rescuing First Republic. 2% share gains, so it's kind of muted. It's come off the highs a little bit. We'll have more on this in a second.

PNC did not get the bank. That stock is moving lower. GM is rising on an upgrade from Morgan Stanley's Adam Jonas. He is going to overweight from equal weight. His price target 38. It's a 33 right now. Company also cutting hundreds of jobs from product development. Its latest step in cost cutting.

Shares are up a little less than 2%. And Tyler mentioned Norwegian. Strong earnings. Positive outlook. But look at the five-year stock charts. Still nowhere near pre-pandemic levels. That's at a 9% pop to 14 and change today, Ty. All right, thanks a lot, Kel. We begin with First Republic, J.P. Morgan Chase, acquiring all its deposits and a majority of its assets after regulators first took possession of the ailing regional bank.

Jamie Diamond declaring, quote, this part of the crisis is over, but others still have concerns. This is what it was expected, but I'm surprised that it took this long to get here. The question is, have we created the new. moral hazard. And the moral hazard now is never buy a bank until it goes into receivership. At the end of the day, you had to go to Papa Jamie and put more than 10% of deposits of the United States of America into one bank. I mean, it does speak to the situation, I think. We're making the big banks bigger. We change in the conventional wisdom about what is a safe bank. It turns out that the banks that were once viewed as too big to fail and too big to manage

are now to save banks. Well, it's not just banks that are the key issue for investors. The Fed making a major interest rate decision on Wednesday, all while the markets seem to be increasingly tippy-top heavy. We've got a reporter roundtable to break it all down. Here on set, are Leslie Picker and Steve Leasman. Mike Santoli joins us from the New York Stock Exchange, and also with us is Gunjan Banerjee, lead writer at the Wall Street Journal. Good to have all of you here. Let's mix it up a little bit. Leslie, what about that point that Gary Cohn made, I think it was Cohn, on moral hazard of the idea that you won't buy a bank unless it's first in receivership? I thought that was a really critical point. And it just goes to show exactly

how we will be looking at these situations moving forward, because it's clear. And you can see it in the stock price reaction. All of the Wall Street analyst coverage from today, J.P. Morgan got a good deal here. This was a good situation for J.P. Morgan. to be the winner of these assets, of these liabilities. And so he brings up a good point. You know, what is to have a private capital market solution ahead of time? When you can get it out of receivership, you can go above your deposit cap threshold as a result of that. And, you know, from a financial standpoint, J.P. Morgan is looking at an accretive deal.

Is the $250,000 FDIC coverage basically a moot point now? Does anybody care about it? They do care about it, and to the extent that... How can you say that? Well, I mean, there will be smaller banks. They were rescuing the banks, weren't they, in part that put $6 billion, $5 billion, $6 billion in a month ago? Yeah, no, I think it's a great point regarding these specific situations, which grew at a really rapid pace. They had a specific concentrated group of customers.

Oftentimes they were startups in the case of Silicon Valley Bank. In this case, it was high net worth individuals. they had a large concentration of their deposit base that was above that threshold. Now, there are discussions with the FDIC. There was actually some news out just a short while ago about their decision to, or several options that they're floating with regard to reforming that level of insurance. But historically, that is what matters. And there are smaller banks that fail all the time that do have to abide by that.

All right, Steve, let's turn to the Fed, which is meeting starting tomorrow, and the results will come out on Wednesday. Do these bank wobbles matter to the Fed and what they do on interest rates as opposed to what they do with regulation? Yeah. Mr. Barr's report on Friday. I think there's two ways that it matters. I'm wondering now if maybe they wanted this thing resolved before the Wednesday meeting as well as wanting it resolved by Sunday. I mean, look, obviously they try to get these things done on the weekend.

But I think it matters to the extent that there's potential systemic risk from this. And I think they look at this and they see something. of a green light to raise rates because it doesn't feel like this is wider. There obviously may be other banks, but if they can be handled in such a way, which by the way is my one concern with J.P. Morgan. I have

a different one with everybody else, which is J.P. Morgan, they sometimes said Papa Jamie, whatever it was, or Uncle Jamie, whatever I want to call it. Is this where we want to use Jamie? Is this the bank we want him to come out? Now, I had the discussion with Lazzca. Right, right. If you're trying to sort of finesse the king

in a game of bridge, you You don't play the ace until you've seen the king. And if Jamie's the ace in this case, I'm not sure we wanted to play the ace here. But maybe that's okay if that's one. And the other one, though, is that the Fed's going to consider is this longer-term risk or effect of tighter lending standards. And that's going to be something that the Fed needs to weigh. It's probably a reason to pause. And I can give you a little heads up on our CNBC Fed survey tomorrow.

A lot of folks, everybody thinks the Fed's going to hike, but a lot of folks think the Fed shouldn't hike because of concerns over banks. Mike, just jump in here because the market reaction is also telling. And what does it tell you? Well, the market is still behaving as if the stress in regional banks is beyond that phase where we have to worry about day-to-day liquidity issues and a real stampede of deposits away. And it's more about earnings power is going to be impaired over there,

but it seems to be somewhat segregated from the rest of the market. Today, you have consumer cyclicals and you have industrials that are generally up on the day, even with the regional banks giving up another 2% and trading very close to their lows. And then as it really gets integrated into the Fed outlook, the way the equity market seems to be approaching it is the SVB crisis or the crisis that was touched off in early March sort of gave us back 25 to 50 basis points of hikes that we might otherwise have expected. That could be wrong in the end, but right now that's the premise. And the question is at what cost? And if we don't know,

We don't know the cost in terms of credit contraction. We know that Jay Powell conceded in the last press conference that they considered pausing and that there is going to be some effect, contractionary effect, of these credit issues. But we just don't know what. Meanwhile, economic numbers coming in a little better than expected. It seems like activity levels have been warmer than feared. And so today, even, when you got the better economic data, better than expected, not necessarily great, you see yields drift up a little bit.

You see us brace from eight, can we pause or not? And so I think that's going to be the push poll that we're in for a little while. But right now, I don't think that the market feels as if this is going to be, okay, who's next? That game that we remember from 15 years ago. Good, John, jump in here. One of the topics that we've got our eye on is how concentrated the stock market's performance has been in a few, in a handful of stocks, five to ten of them. How do you look at that particular sort of state of affairs? Thanks, Tyler.

I mean, it's fascinating. Looking at the market, you wouldn't even know that there's a banking crisis going on that First Republic had just gone under. I think a lot of investors did breathe a sigh of relief with some of the tech earnings that we saw last week, and that helped drive the market higher. And I almost wonder if Apple's earnings later this week are going to be more consequential for the market. than, you know, this bank failure than some of these other things going on at the regional banks. And I think that's because a lot of investors are kind of flying blind when it comes

to gauging the fallout from these banks in terms of lending standards and their impact on the economy. And they're taking solace in the fact that maybe the Fed will pause after this Wednesday. Interesting to see citizens there down 5%. P&C down 5%. You know, again, trying to figure out, Leslie, like what are the next moves? Are we, like I said, if maybe we're not in that game, we're waiting for the next domino to drop here on the banking crisis, or maybe we will be again after the rate hikes. I thought it was interesting that David Einhorn wrote that he's moved from Barish on the market to neutral

because he basically thinks the crisis will make the Fed less hawkish down the road. But, you know, after Friday's inflation data and everything else like Steve's talking about, maybe they'll just hike again this week and maybe even again in June. Well, I think what you said last hour, and I was over there nodding in agreement with you, is this idea that, you know, the people who are banking experts, the analysts on Wall Street, the CEOs, the people who are in the C-suite, they all seem to think that this crisis is largely contained. Diamond himself said, you know, this phase of the crisis is over.

I don't know what that entails for what the next phase looks like or whether there is the next phase. But then on the other hand, you have investors. You had Mark Rowan of Apollo saying he thinks there will be more that comes from this. A lot of hedge fund managers and investors, we were, you know, chatting over the weekend. They're like, this is not over. This is, we're very concerned about a credit crunch here. We're very concerned about liquidity.

So from the investor perspective of things, it does seem like there is more concern, even though you don't see it in the broader market today. But there's different levels of concern, though, right? Which is the one where market sees up, where the Fed has to step in and reverse course, reverse policy. Listen to Mike Santoli. It struck me that the sense out there in the market is that there's been a lot of adjustment that's taken place.

and the question is, is there more adjustment to take place? Are all the uninsured depositors out of places where they feel they can lose their money? And is the fallout from that decline in liabilities on the books of banks already been, what's the right word, incorporated into the outlook for the individual bank and by the market for all of the banks that have to suffer this decline in liabilities? Mike Santoli, react. Yeah, I think that the market is at least gravitating toward the idea that there will be continued pressure on deposit flow, simply because other short-term cash-like instruments like money market funds are just that much more attractive. And it's either the banks are going to have to pay up to keep the deposits or the deposits will leak out over time.

I think one of the reason that the equity market has been able to seem a little more steady in the face of all this is, One, you know, as you mentioned, the very largest stocks are supporting the indexes. A lot of other stocks are registering some macro concern. And the other one is we're moving in, at the most, quarter point increments every six or seven weeks. That's not a game changer on a short-term basis, whether for deposit flows or the cost of capital or anything else. The S&P is exactly what was a year ago when the Fed funds was a 50 basis points. Okay, so it's not all about, is the Fed with us or against us? Gunjin, we've spent 11 minutes now talking about a variety of interesting topics.

And the one topic, the current banking crisis, this part of the banking crisis may be over. But I'll tell you one potential crisis that is in no way over, and that is the debt ceiling debate that is going to come up and heat up over the next six to eight weeks. How might a default play out in the markets for stocks and bonds and anywhere else? I think a lot of investors I've been speaking with are certainly more focused on the Fed right now than the debt ceiling. Though I will say looking past the broader indexes and this remarkable calm in the S&P 500, the NASDAQ, the NASDAQ is on the verge of entering a new bull market. We are seeing people grow a lot more cautious.

For example, one measure of leverage among individual investors has been hovering near its lowest levels since 2018. We've seen people pull back on that really aggressive. options trading. They've ramped up bets on a bond rally. So I think you are seeing people grow more risk-averse and kind of afraid of placing big bets in either direction, ahead of the Fed, ahead of the debt ceiling, and, you know, ahead of all these earnings that we still have coming out the next few weeks. Fed first, then earnings, then debt ceiling, and economy. There's a whole lot to look at. Good John. Thank you very much. Gun John Banerjee of the Wall Street Journal. Steve Leesman, Mike Santoli. And welcome back.

Miss Picker. Thank you. Nice to have you in the house. Thank you. All right, here's what's ahead on Power Lunch. Despite being closely tied to the regional bank space, the mortgage market has seemingly held strong against all this ongoing volatility. But new mortgage fees go into effect today from Fannie and Freddie. And they are creating some waves.

Plus, further ahead, this week is giving us some key insights on the economy. We've got the Fed Wednesday. We've got jobs Friday. But first today we'll get a gauge of the consumer with the CEO of Mattel. Power lunch is back in a moment. Welcome back, everybody. A new change in fees coming from Fannie and Freddie, and it's sparking debate over the mortgage industry.

Diana Oleg is here to explain what's happening. Diana? Well, Kelly, these are upfront fees that generally can be folded into your interest rate based on the borrower's risk. Now, they were designed to protect Fannie and Freddie's finances, as well as, of course, the taxpayers that back them. After the foreclosure crisis and the Great Recession, these fees increased. But after a recent review, they're changing again. to both bolster Fannie and Freddie's finances, as well as help lower income, especially minority

borrowers, get into home ownership. So starting today, the fees will increase cost to borrowers overall. That's in general by four basis points. So if you were at 6.5, that becomes 6.5%. But the fees are different depending on the borrowers' down payment and credit score. And some borrowers with lower incomes will see the fee reduced, while others will see it increased. Now, recent reports made this highly political, so much so that FHFA director Sandra Thompson, who oversees Fannie and Freddie, issued a statement last week saying, higher credit score borrowers are not being charged more so that lower credit score borrowers can pay less. The updated fees, as was true of the prior fees, generally increase as credit scores decrease for any given level of down payment.

Now, what is happening is more of a leveling of the playing field, but high credit score borrowers are still paying less than low credit borrower. How much less, Diana, overall? It depends on the borrower. I mean, there are literally 80 different slots in the grid depending on what your down payment is, what your credit score is, where you are on that whole thing. So it's impossible to say exactly.

Okay, Diana, stay with us. As mentioned, there's been some outrage over these fees that the government is playing Robin Hood here, taking from the rich, giving to the poor, but are they just trying to make the housing market more accessible? To get to the bottom of this, we bring in Guy Secalo. He's executive chair of Inside Mortgage Finance. Guy, it's good to have you.

It's pretty wonky, but consequential debate. A lot of people try to figure out what's really going on here. What do you say? Yeah, it is hard to figure out. It's a little bit in the weeds. It's the kind of thing that mortgage lenders normally track, but not anybody else. But, you know, the bottom line is some borrowers who have high credit scores are going to be paying slightly more. And some borrowers with low credit scores are going to be paying slightly less.

So let me ask you this. I get the idea to make the housing market more equitable, more accessible, more available to people. But to the extent that you make loans more available to individuals who are shakier credits, are you inviting a possible sort of replay of the subprime crisis of 15 years ago? I don't think I'd go that far. We're certainly increasing. the risk. You know, two of the biggest factors over the years that have determined credit risk or the likelihood of a mortgage default are no equity or high loan to value ratios and low credit scores. So to the extent you mix those two, you're certainly encouraging more risk. All these loans that we're talking about also carry private mortgage insurance. So to some extent, that is meant to offset the risk to Fannie Mae and Freddie Mac. Is it true what Diana said that high-income borrowers still pay more than lower-income ones?

Higher-income borrowers are going to pay a slightly higher fee than they were in the past. But the difference is if you've got a low credit score, let's say 660, compared to someone with 760 and the comparable loan-to-value ratios, you're going to pay three times as much with that lower credit score. So the lower credit score individual still pays more than the apples to apples on a similar size loan than a high credit score individual. But the high credit score individual is going to be paying higher fees and the low credit score individual is going to be paying lower fees. Right? Exactly. It's, you know, marginally different.

It's not a huge increase, but that's basically it. And it's, you know, a goal is to make Fannie Mae and Freddie Max loans more accessible to lower income and minority borrowers. And this is one way to do that. Yeah. You said this was in the weeds. I got poison ivy now, Kelly. I was going to ask about a 40-year mortgage. I mean, we've seen innovations like these discussed.

And would something like that be more straightforward? Are there other ways of achieving these goals? Or why do people think that this one in particular is useful when it's hard to understand, sort of small potato? around the cost of owning a home. Why this fix when are there other fixes out there? Well, it is unusual to see something like this. Traditionally, we've seen Fannie and Freddie have special programs targeted at lower income borrowers or people with lower credit scores,

and there's an education function, and there's a specific application, but it's outside the mainstream. This is one of the first attempts we've seen that's really mainstreaming the underwriting to bring in lower income and minority borrowers. Do you think it's going to make a big impact? Because, for instance, one of these changes on a $350,000 loan would be, you know, in the range of $1,300. Yes. I think people are going to know it. You know, normally people don't focus on Fannie and Freddie's pricing. You know, when a lender quotes them alone, they see what the lender's quoting them and they don't really understand how much

of its government implemented and how much is just going into the lender's pockets. So I don't think the average consumer is going to figure this all out, but it's certainly going to have an impact. And I think in a higher interest rate environment like we're in now, when you're talking about mortgages at 6.5% or more, it's going to be more noticeable because all fees are more noticeable. Would it, by the way, guy, we've got to go. But the spread between the tenure and the mortgage rate is still quite high. Ironically, because of some of the banking problems and the Fed tightening and everything else. You just wonder if you got that spread down if it would go a long way. It would. If we had what we'd consider a more normal spread, you'd have much lower interest rates than

we're seeing now. Yeah. Guy, we appreciate it very much today. Thanks for joining us. Great to see you. Take care. Guy with Inside Mortgage Finance. Interesting conversation. Very interesting. All right. Still to come. Looking for a spark between electric cars, smart home devices, battery backups. At this point, it's hard to deny that the future of your home is anything but electric. And yet, all those advanced devices are being connected by the same electric panel we've been using for decades. We'll take a look at one company trying to fix that in today's clean start. More power lunch right around at the bed. Welcome back to power lunch. We've seen the gains diminish somewhat. The Dow hanging on to about a 31 point increase here. The S&P up six,

the NASDAG positive by four. Over in the bond market, Rick Santelli tracking the action. We saw yields react to that data this morning, Rick? Wow, swiftly. That's how they reacted. 53.2 is our April read on prices paid. And this morning, that turned out to be a nine-month high, highest level since July of 22. And the markets pretty much immediate. Look at an intraday of two-year. You could see at 10 o'clock Eastern the way rates pop. Now, many were asking me prior to that, hey, can you see the effects of the banking issues and the takeover and J.P. Morgan, all of that in the market. Well, yields were higher taking some of the flight to safety out. But the move on the 10 o'clock Eastern number really was the event of the day. You look at 10-year note yields, same effect,

and 10-year note yields have just kept on moving higher. As a matter of fact, right now, twos, threes, five, sevens, tens are all on pace for a one-week high-heel close. The only thing that isn't, 30-year and 20-year, they're a little bit, longer term. And if we look at January Fed Fund futures, and I really think this is important, at 10 o'clock Eastern, look at the way the price went down, bringing more Fed in. It quickly came back out because most likely this is going to be the last rate increase on this cycle. And do remember, it's the slow effects of a fast fed tightening cycle, in my opinion, that's forced another banking issue. And most likely, these slow effects will keep bubbling up in the weeks and

quarters ahead. And finally, look at that March 1st of 30-year bonds on the precipice of a two-week high closes. Longer-dated treasuries seem to be moving up and yield, a little bit more aggressive, potentially giving us some clues about a steeper yield curve down the road. Kelly, Tyler, back to you. Rick, thank you. Let's get to Courtney Reagan now for the CNBC News Update. Courtney, Courtney? Thanks, Kelly. Here is your CNBC News update at this hour. Three crew members are missing after a tanker fire off the southern coast of Malaysia. The tanker was on its away from China to Singapore with 28 crew members on board and 23 were saved, this according to the Malaysian Maritime Enforcement Agency. The cause of the incident is under investigation,

the Maritime Agency said. Five environmental and cultural heritage groups are suing the Federal Aviation Administration over the agency's dealings with SpaceX. The groups allege that the agency violated the National Environment Policy Act when it allowed SpaceX to launch its starship rocket from its Boca-Chika, Texas facility, the launch hurling chunks of Congress. creed in metal sheets thousands of feet away into a sensitive habitat and sparked a 3.5 acre fire on state park lands near the launch site. And Democratic Senator Ben Cardin of Maryland is expected to announce his retirement Monday after serving three terms. The 79-year-old's retirement is likely to create a highly competitive Democratic primary to replace him as the party faces a tough

electoral map to maintain its slim majority next year. Tyler, back over to you. Courtney, thank you very much. And still to come, Mattel, and Hasbro taking off the kid gloves. The company is delivering mixed results, but announcing some key licensing agreements. We'll speak to Mattel's CEO when Power Lunch returns. Welcome back to Power Lunch, everybody. The Milken Institute, Global Conference, kicking off today in Beverly Hills. They've got a host of CEOs and industry experts gathering together,

including our next guest who has a great view of the consumer and the toy industry in particular. Enon Kreis is the chairman and CEO of Mattel. Enon, it's great to have you on the program. Thank you for having me. You know, toys were a hot topic last week, especially after what happened with your rival Hasbro there, Peppa Pig and Plato and all the rest of it. Tell us what you think is going on in the toy industry. Is it about hot products? Is it about strong concerns?

Is it about all the millennials in household formation? I mean, what's happening here? Well, what we're seeing is strong demand for quality product and trusted brands. We've always said this is what's really driving the industry. We saw growth in consumer demand for our products in the first quarter, and we expect to see that through the rest of the year. And it's all driven by quality, product, trusted brands, and this is where the fact that we own one of the strongest portfolios in the world,

including and family entertainment, is playing to our advantage. Year over year, though, your sales were down, if I'm reading correctly, and Barbie had a notably tough quarter, down 40% in sales. I know you're looking forward to the Barbie movie, to give that a little juice. Tell me why sales were down as much as they were. Well, we were impacted by elevated retail inventory entering the year, but the underlying consumer demand was positive. In fact, consumer demand was double digit ahead of gross billings. So you have to really look at the discrepancy between elevated inventory and the underlying

performance. We expect that to be corrected by the end of the second quarter and to see growth for the full year in consumer demand for our product. Barbie was the number one doll property globally and number one doll property every single week in the US. And of course the Barbie movie will be an event, it would be an important event not just for Barbie, but we believe through the film industry. And we expect that to be an exciting movie, an expression of Barbie on the big screen, and we could not be more excited about how this film will be unfolding. And what it really means for Barbie,

not just for this quarter or this year, but in terms of how we manage the franchise going forward. I joked Enon about your competitor a moment ago, but are you guys actually colleagues? I mean, I look at a couple of the deals being struck. Speaking of the Barbie movie, you are going to be helping them with some monopoly games starting this fall.

You'll be working together on Hot Wheels and UNO. Talk to us about that. Is consolidation at hand here? Well, this is a cross-licensing agreement between our companies. It is the first one that we've done, but it's targeted around Barbie Wood Monopoly and Transformers around Hot Wheels and Uno. It's a win-win for both companies, but the real winners is the consumer that will enjoy and have more ways to engage with the favorite brands, especially around a busy summer period with both Barbies. and Transformers having big theatrical releases.

I think it's wonderful that two rivals and competitors, such as yourselves and Hasbro, somebody said, play nice, and you did. I think that's very nice. That's very good. Tell me a little bit about inflation, and I'm thinking here about materials inflation or supply chain inflation.

How has that impacted your business, and have you been able, if there are cost increases, to pass on those cost increases, to consumers in the form of price increases. Yeah, we saw significant inflation over the last few years. In 2023, we expect inflation to moderate. We already implemented price increases last year.

We haven't announced any price increases this year, and we don't expect to increase prices at this point. Inflation is moderating, especially in input costs and shipping. wage is still an inflationary factor, but all in all, we expect inflation to moderate in 2023. Enon, we thank you for being with us today, and we really appreciate you're fighting through the noise there in the background. It's not easy to do what you just did and stay focused.

We appreciate it. Enon Kreutz of Mattel. Thank you so much. Still ahead. Our homes are now chock full of the latest smart devices and electronics. So why haven't we changed the way we power them in decades? Look at one startup that's trying to change that. As we head to break, CNBC celebrates Asian-American and Pacific Islander heritage throughout the month of May,

sharing stories of influential AAPI business leaders. Here is Albert Chang, Amazon Prime Video, U.S. Vice President. I'm proud of my Chinese culture. I am proud of the Confucian principles in which I was raised. But I'm also proud of being born as an American where I can embrace all the positive qualities that makes this country so unique. And, you know, as a community, the Asian culture or community had ever really had a voice. And what I'm really happy to see is that that voice has only grown louder and prouder because a lot of the attention has been placed on certain individuals and the community

that's been given a profile on the world stage. Some news out of the FDIC. Now, Leslie Picker has those details. Hi, Leslie. Hey, Tyler, the FDIC, outlining three options to reform. Deposit Insurance System following several recent bank failures. Among the options disclosed in a report earlier this hour, the FDIC's preferred choice is altering the system to provide targeted coverage with different limits across account types where business payments are granted

higher coverage than other accounts. The rationale in making this the favored option for reform, according to the FDIC, is that business accounts pose a greater financial stability concern to the system. The other two options that they laid out include limited coverage, maintaining the current framework, which provides insurance to depositors up to a specific limit. It's currently $250,000, but potentially they would increase that limit, or unlimited coverage, which would extend insurance to all depositors, regardless of size. Congress has to set the limit, or has set the limit at $250,000, so it would be up to Congress to effectuate some of these changes or something else. And as for the overall impact on the banking system, any increase in coverage that would result in more

insured deposits would result in a higher deposit insurance fund. So this plan would require a larger amount from the FDIC insured institutions to cover more deposits in that fund, guys. All right. Thank you very much, Leslie Picker. Well, you know, we talk a lot about electric vehicles as the future of sustainable car travel, but planes are big polluters too. Now, thanks to the In the Inflation Reduction Act, a greener jet fuel could soon take off. Pippa Stevens is here with key details, including who is set to cash in. Pippa. Yeah, Tyler, so we're talking about sustainable aviation fuel, and that's important because right now it's really the only viable way to cut emissions from planes, which is one of the most challenging industries to decarbonize. Hydrogen is nowhere near ready for planes and lithium ion batteries are too heavy.

So SAF, as it's known, is the only option. It's made from feedstocks like used cooking, oil, agricultural waste, and animal. buy products, and it's a drop in product, meaning it's blended with traditional jet fuel and used in existing infrastructure. All told, it can cut emissions by 80%. But so far, the industry has failed to take off because it's simply too expensive, costing between three and five times more than jet fuel. The Inflation Reduction Act seeks to change that by offering SAF-specific tax credits,

while also allowing producers to take advantage of other credits in the bill. When combined, Credit Suisse estimates certain types of SAF could, ultimately become cheaper than jet fuel. Companies involved in production include Neste, Shell, OMV, and darling ingredients, while airlines like United, Delta, and American are buyers on the other side, but right now, still a very nascent industry. SAV. SAV.

SAF. SAF. SaF. And the fuel works as good as regular jet fuel. Yeah, up to a certain percentage. So it's still blended with jet fuel, but it's a drop in product, meaning you can just drop it in, blend it, exactly. And then it works.

Same engine. It works the same way. Same engine, yes. Tyler's like, is my plane flying? Yeah, is my plane safe with the animal byproducts? Safe for staff. Yep. I don't like the saturated fats on my wings.

Thank you. Pippa, thank you. Speaking of sustainability, our homes are increasingly becoming a command hub for all kinds of smart tech and smart power. One major component of that actually hasn't been very smart at all until now. Diana Oleg here with the details in her continuing series on climate startups. Diana? Well, Kelly, most of you probably have some kind of smart home device. smart thermostat, security system, battery backup, but the electrical panel that connects

it all hasn't changed much in decades. And the more we electrify our homes, the more we need something better. With electrical power for home, vehicle, and battery backup, increasingly running off the same system, the race is on to reinvent the 75-year-old electric panel. Names like Lumen, Schneider, and San Francisco-based startup span are making the systems smarter. A smart panel is capable of measuring every circuit in your home and allowing the homeowner to control every circuit. The panel connects to an app that shows the consumer where all of the home's power is coming from, the grid, solar, battery, so they can see exactly how and how much they're consuming.

The span homeowner app gives you incredible visibility and control over what's happening in your home in real time. And that is increasingly critical for climate resiliency. I think more and more homeowners are starting to understand that, Having a home battery or an electric vehicle that can back up your home during an outage is critical. Rao, who helped develop Tesla's power wall, says he hopes Span will be in 10 million homes by the end of the decade. And so to his investors who don't seem too concerned about the $7,000 price tag. It's obviously not a cheap product, but when you look at the alternative solution of if you have to upgrade your circuit breaker and upgrade your supply from your utility, that gets very expensive.

In addition to Wellington, Span is backed by Wireframe Ventures, Capricorn Investment Group, Munich ReVentures, Fifth Wall, and Amazon's Alexa Fund. Total funding so far, $231 million. Now, some home builders are adopting the Span panel because it reduces the cost of the home at the time of the buildup. But Rao says the vast majority of his business today is still retrofits. He says many of the new electrical options for the home, especially EVs, require you to upgrade your system. anyway, including replacing that panel, guys. All right, Diana, so give us an idea of how this panel can help the consumer not only save energy, but money.

Well, because knowledge is power, right? If you know exactly what you're using and when, you can sort of scheme that when it comes to perhaps selling back some of your solar power back to the grid or using it at different times of the evening when rates might be lower, you really begin to understand where and when your costs are coming from. and if you really dig into it, you can definitely save money. All right, Dye, thank you very much, Diana. Oleg.

All right, coming up, cars, cruises, and ships. We'll get the trade in GM, Norwegian, and On Semi in three-stock lunch. Power lunch is back in two. All right, folks, time for three-stock lunch. Let's take a look at some names, seeing a nice boost today. First would be GM shares the automaker up more than 2%. Morgan Stanley's Adam Jonas upgraded that stock, saying it was oversold. Next, Norwegian cruise lines hired today after reporting,

revenue nearly tripled in the first quarter. Shares are up nearly 10% as a result of that. And finally, on semiconductor shares there soaring up almost 8% after posting first quarter results that beat on both the top and bottom lines. Let's trade the names with Ari Wall, managing director at Oppenheimer. Ari, welcome. Let's start with GM. What do you think? Yeah, for General Motors, you know, I'm a technical analyst, and this stock just does not, it's trendless. And for that reason, we are on the sidelines. But I can say this. If you're bullish on the fundamentals, we would recommend placing a stop on a closing basis at $31.

That being the stock's 22 lows, it's the lower end of the range. And so if you fall below there, that would be a definitive breakdown and suggest that the range is potentially turning into a downtrend. generally speaking, we don't buy stocks below the 200-day average, as GM is. So we would cite cautiously simply on that idea. Could say, though, perhaps on an industry neutral basis, would be looking to buy auto components on the pullback or over automobiles and looking at a name like active on weakness. And on semi, of course, having a nice day. A lot of questions and focus on the auto sector, broadly speaking. All right, what about Norwegian area?

let's totally move to a different part of the market, the cruise line. What do you do with that? Yeah, let's consumer services. We're overweight. We like the group. However, we like more of the restaurant space, I think, to get exposed to that. For us, cruise lines are a beta trade. They can move a lot in a short amount of time.

And if we're right that there's more to this market recovery, that the S&P 500 is going to continue to move higher, cruise lines like Norwegian can move with it. You know, with that said, here are the levels I am watching $14.50. That's the 200-day average. It's essentially pushing right into it right here, right now. If you get above there, that would be an incremental positive as the stock has also moved above. It's 50-day average today at $13. All right.

Last on our list today is on semiconductor. On or off? We are on. Okay. Now we got one where I get a little bit more excited to talk about here. First off, as we think about the technology sector, it is reclaiming its leadership role, but I think it's important to note that the drivers of that leadership are different than the drivers that we saw last cycle.

It's been about this reversal into the semiconductor industry. It's not the same SaaS software leadership like we saw last cycle. And so for a name like On Semiconductor, which is up big today after posting earnings, this is strength to stick with. This was after the stock reset to its 200-day average. So with this inflection, we see this as a sign that the stock's up trend is restarting. And these next stop, we're going to be watching how that reports this week. But generally speaking, it's the broadness of this strength in this industry group, which makes it so compelling and where we have conviction to lead the market higher.

All right, Ari, thank you very much. We appreciate your time today. Ari Wald. Thank you. Thank you. Still to come, Jack Dorsey's via Culpa and the latest office trend that puts Clay quitting the shame. And don't miss our CNBC special. The Fed decision, Tyler and I will be live in Washington, D.C. on Wednesday starting at 1 p.m. Eastern.

We've got a great lineup. I hear it's a little cozy on set, though. Yeah, supposed to be a nice little intimate setting for the Fed meeting. Like a fireside chat. We'll be there. We'll be back after this break. Twitter's former CEO, Jack Dorsey, that is not Dorsey. that is openly criticizing Elon Musk's leadership of the company

in a series of social media posts on Friday. Using his new social media venture called Blue Sky, Dorsey saying, quote, it all went south and Musk should have walked away from the acquisition. That was a dramatic 180 from Dorsey's original claims that Musk was the singular solution to Twitter's problems. It seems like the founder there, not liking, not getting any shade to Mr.

So I looked at this blue sky as well because it's one of these newer social media sites. Apparently it started as a project within Twitter by Dorsey himself. He's on the board of it. It's a little bit more of like a bespoke social. I don't know if I have the mental capacity to figure out another social media site. At this point, by the way, if you're on Twitter and used to be a blue check and have lost it, if you edit your bio and write the word blue check, the blue check will reappear. So they said it right.

I tried it out. So what does that blue check mean, that you or you or what does it mean? It used to mean that we were, you know, okay, this is, you know, the thing. is CNBC Kelly versus an imposter. Now, of course, you only get the blue check, I believe if you pay for it, but that's been filled with bugs as well. So the buginess, I think, of Twitter's attempt

to turn itself around has been one of the more comedic features. But there's so much, like Musk's announcement over the weekend, I think it was this weekend, so brilliant, right? The idea of, hey, you want to read Washington Post, financial times, all these things, you know, these gated articles on Twitter,

I'll let you pay, you know, piecemeal for that. As a user, I would love that. trustee's actually going to be able to roll this out successfully, after all the blue check drama, not so much. Yeah, that's it. When someone will forward me something on Twitter, and I am not a Twitter signatory or whatever it is, a subscriber, it frustrates me. I'd like to be able to go and get that article. Maybe it's Washington Post movies. I know we don't have time, but can we just show the TikTok videos real quickly, quiet quitting? Remember it? Check out what's happening on TikTok. Right now, people quitting live on TikTok.

Oh, no, they don't have it. Okay. People quitting live on TikTok. I'm out of it. But I'm going to just say, why is it still going on? Is the labor market still that strong? People can just do that and throw up a nice little TikTok video. Yes. I am out of here. If that's the case, then the Fed's going to have to hike by 50 on Wednesday. All right. Busy week ahead, everybody. It started busy with the news on First Republic. And there's more coming. Thanks for watching Power Lunch, everybody.