Power Lunch - June Trading Begins With A Whimper 6/3/24

Episode Date: June 3, 2024

The Dow is lower today after weak U.S. manufacturing data raised concerns about the strength of the economy. Banks, industrials and other shares dependent on economic growth led the pullback.But Wall Street is coming off a strong month, with all three major averages notching their sixth positive month in seven. Is today’s action just a blip? We’ll ask our experts.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good Monday afternoon, everybody, and welcome to Power Lunch alongside Kelly Evans. I'm Tyler Matheson. Markets are split to start the week and the month. The Dow starting June with a decline of 300 points. The NASDAQ, however, with a little, little, and I do mean little gain, getting a boost from Nvidia up more than 3% after announcing a new generation of AI chips and also getting a price target hike to $1,500 from Bank of America. Also, meme mania, it's back today. GameStop soaring after the trader known to. Roaring Kitty posted a screenshot appearing to show he holds $116 million worth of the stock. We'll have more on that coming up, but it's off the highest shares are still at 35 percent, 31. We also want to update you on a stock we discussed on Friday show. Boston Beer giving back Friday's gains after Japanese company, Suntory, denied those reports.

It's in talks to buy it. Sam's shares are down about 4.5%. But let's start with the question of market leadership, as once again, Nvidia is driving the NASDAQ higher, but the Dow and S&P are negative. Mike Santoli, if they'd just put it in the Dow, that would solve all of our problems, right? Yeah, it might solve the Dow's problems retroactively, perhaps, Kelly. The record of Dow inclusions, as you know, is not necessarily great on an outlook basis.

But it's remarkable the degree to which NVIDI explains a lot, not all, but a lot of the divergences we're seeing this year. Under the surface, it has been an uneven performance. The S&P 500 is really not far from its record high, you know, within a percent or two. The equal-weighted version never got as high. high and is now down more. You are seeing things like the mid-cap index decline as well. Now, sometimes when you get this sort of arrhythmia in the markets, not everything moving in one direction, it can mean that the market is sniffing out some kind of macro problem. It's obviously

worried about slower growth or higher inflation. It's not clear to me that's the case. Recently, when yields have gone higher, breath has worsened. And today you have a day where breadth is not great and yields are down. And I think that is because we've decided to worry about the possibility of a little more of a slowdown. In bull market, some of this sort of repairs itself. The way the market currently plays defense is to buy the big, expensive, crowded growth stocks that we're very confident on the story of and sell the other stuff. So I guess until further notice, this is the churning market we have. It's been this way for a couple of months now. Yeah, indeed. So what do you think the trajectory? Is there a lot? We're going to talk in just a minute with Hugh Johnson, who's going to lay out his case

for why a hard landing and maybe some rougher days for the market are ahead. What do you see that might lead you to that kind of thesis? Well, I see the market being very sensitive to signs that a helpful deceleration in consumer spending and perhaps manufacturing can easily tip over into a stall or worse. And I think that's what you're seeing right now. You remember about six months ago when everyone was getting excited about the possibility of a soft landing and people would come out and say, hey, it always looks like a soft landing until it goes too far, and then it's a little bit too late for the Fed to adjust. I think that that's in the market's mind.

I don't think there's a lot of clear and present danger of it going in that direction very quickly. But it just shows me there's not that big a macro cushion. Right now, disinflation has to continue observably. And, you know, you probably want to stay around 2% real growth. And that's where the, you know, the current quarter is in question on that score. Well, then I guess you're kind of in agreement then with what we're going to hear from Hugh Johnson. So why don't we bring in Hugh, who is chairman and chief economist, with Hugh Johnson economics. Hugh, always good to see you. Your language on the case for a harder or hard landing is extremely surgical, very carefully worded.

The case for a bare market on hard landing remains strong and cannot be easily dismissed. The case for a bare market and hard landing cannot be ignored. These are careful phrasing. Is this, though, your base case that there is likely to be a hard landing? Or just that we can't ignore the possibility? It's the possibility. I think what I'm calling it is, you know, it's a very close call. In other words, I think the case for a hard landing or a recession certainly has to be not dismissed, has to be taken seriously.

I think the odds still favor, although I'm saying this with my fingers crossed, is that we're going to have a soft landing or the economy. is going to continue to expand, but at a slow pace. Keep in mind, it is now currently slowing. We had 1.3% growth rate in the first quarter. That's not particularly impressive. And as we start the second quarter, when I look at the month of April, I can calculate what I think is real gross domestic product for this, simply the month of April, and we're talking about 0.9%.

So the economy is slowing. Consumer spending is slowing. So you have to take seriously the possibility of a hard landing, although, believe me, it's a very, close call and I'd like to cross my fingers and hope for that soft. So maybe it's like the Senate's majority right now. Maybe it's just a little bit tipping one way or another. Let me follow up with one question. You know, the old cliche is that history doesn't repeat, but it sure can rhyme. If you look back at the history of bull markets,

you point out that this bull market that we're in right now is roughly of the duration and magnitude of most bull markets, which would suggest that we may be. may be in the eighth or ninth inning of it. Yes, exactly. It's if you take the duration as well as the magnitude of this bull market, starting in March of 2020, which is everybody dates it differently, but I think that's when you should date it. You take the duration of this one, 51 months, the average is 47 months since 1890, and the magnitude of this one is currently roughly the same as the magnitude of all the

whole markets, the average magnitude since 1890, which was 143%. That's where we are now, which just simply says take seriously the possibility that this one could end. We could have a bare market. It could be accompanied by recession. And when you look, as Mike is suggested, at the performance of the markets, particularly utilities, which performed great, very strong performance in the current quarter. The message there is you've got to really take it seriously or there's a possibility that we could have that so-called bear market and recession. Again, fingers crossed, hopefully it's a soft landing. Hugh, are you happy to stay in potentially less lucrative parts of the market until we know that answer? Because some people

were anticipating a bare market for the last year or two now. I know. And I've been among those that have expected it to come, especially when you look at things like leading economic indicators, which have been down now 25 or 26 months. That's not good news. And when you take a look at of course, the yield curve, which we've been talking about continuously for about a year, year and a half now. Those are signs that you might be headed for trouble in the economy. So I think, yeah, I've got to take it seriously. So to some extent, and I don't like to be buying things like utilities and staples

and safe sectors of the market. But quite frankly, given the performance of the market, given the case for hard landing, you have to have some of that in your portfolio, along with, quite frankly, communication services, which has been acting performing well, and of course, technology is performing spectacularly well. But believe me, when you see utilities and staples perform like that, get some defense into your portfolio just in case. Mike Santoli, I don't want to nerd out here, but since you mentioned the yield curve, it's been negative for a very long time. And as a predictor of the markets or an economic downturn, it has been pretty good. But even if we go

into a downturn or a slight downturn. Now, boy, it's taken a long term, a long time for that yield curve to be vindicated. Without a doubt, you know, there maybe has been another example before where it's been similarly long before we got a recession. I'm not sure I have a real sharp takeaway except to say you had an incredibly transparent and aggressive Fed that told the short end of the yield curve, just get higher. We're just going there. And therefore, it inverted probably sooner than it would. But we had unemployment go down through an entire tightening cycle. There's a lot about this cycle that just hasn't matched up. You know, Hugh is mentioning, you know, the length of the bull market. Others would date it to October of 2022 since we did

have a 25% drive. We had two bare markets within two years, basically. When does that happen before? Yeah, 2022 was a not good year at all. But that's a very interesting point about the transparency of the Fed and that by virtue of being so clear about what they were. going to do. Maybe we got to that point of inversion of the yield curve quicker. That's for economists to debate, not the likes of me. Hugh Johnson, Mike Santoli, thanks very much. Appreciate it. My pleasure. Turning now to a bright spot amid the sell-off, the meme trade. Shares of GameStop are soaring 40% after Roaring Kitty, as the trader is known, posted on his account a $116 million position in the company. But is the GameStop rally really here to stay? What does it mean for meme

trades, and I would add for the market overall, it's asked Michael Noss. He's chief market strategist at trade ideas. Michael, as this becomes more and more common, people are starting to wonder whether we should institutionalize as a trading strategy being long, heavily shorted names. And I'll just note, Raz Muson ran the numbers this morning. They said they don't love the way it looks for the long run. It's too hard to market time and to know when exactly these stocks are going to pop. What are your thoughts? Yeah, often, if we're looking at heavily shorted names as a broad bunch, generally speaking, they're heavily shorter for a reason. You know, that's why I think even the phrase meme stock, I think, needs to start to be

broken up a little bit here, where we have stocks like AMC down 99% from their meme stock craze and we have Bedbath and Beyond that's just gone completely. Then we have GameStop that actually has been holding in a lot better than the other ones throughout. So it's one of those things at time where if you're looking at everything that's shorted very heavily, Well, the ones that continue to move down and the short sellers are right, they don't need that reason to cover.

When you look at things like GameStop that were shorted heavily, and then all of a sudden you get these spikes out of nowhere, that's where the shorts need to cover. So I think if you're looking at high short float names, it really, really makes sense to look at the underlying trend of the stock and see are the shorts winning or are they starting to get nervous. That's an interesting way to look at it. Do you have any names that come to mind?

is, do you think it's just important to kind of maybe message this a little bit differently to retail traders who maybe you can tell me keep getting burned by this and maybe they don't? Maybe they're profiting nicely. I think there's two different camps when it comes to the meme stock traders. There's the people who are looking for that kind of quick hit and they're in and they're out. And those people, I think, are having a really good time. The ones that just simply look at a heavily shorted name and say, hey, I'm going to buy this one, I think those are the ones that have a little bit, a little bit of a harder time. So that's why you look at just say a basket of AMC, bedbath and beyond and GameStop, Well, two of three of those are zero or near zero.

And then we have this other one that's holding strong. So if you are going to diversify, I like names that are still profitable in and still have sectors. I mentioned Nordstrom, the last time GameStop, did this little pop. That's a heavily shorted name that's doing well. Some of the marijuana stocks have popped up recently. They are also heavily shorted. And some of those maybe turn around stories. So just like anything, I think if you're going to look at a name that's heavily shorted or a quote-unquote mean stock,

It makes sense to look under the hood at some of the financial data and some of the technical data there as well. I'm trying to wrap my mind around marijuana and investing in the same breath, so to speak. But be that as it may. Is playing the meme stocks, is it really a sensible way to try and make money? Well, you know, I wouldn't suggest everyone take all of their 401k money that they have in their spy and put that as well. But one thing that a lot of the data supported last time we had this big meme stock rally is that a lot of people weren't doing that. Of course, there's going to be some. But some are using this as a bit of a market engagement tool.

They're taking a little bit of money from, say, Robin Hood or something like that. And they're playing some of the meme stocks while still depositing their monthly paycheck into investing account. So if you agree with some of the turnaround stories that people are talking about with GameStop, then maybe it's a place to take a shot. Just like I mentioned last time, I think you just need an exit plan. I think you can trade anything technically or fundamentally as long as you have a plan for when to get in and you have a plan to when to get out if you're wrong or more importantly, when to get out if you're right. So I really like what you just said there because it suggests to me that there is a sensible way, potentially, to do this with, let's call it discretionary investment cash, so long as you have that exit strategy in place.

so long as you are not playing with the real core of your portfolio that you're going to someday have to depend on. Yeah. And again, there can be both baskets here. We remember that the meme stocks got really, really hot during COVID when there was a lot of stimulus money and, you know, the sports were shut down and people were looking for things to do and it became this kind of worldwide phenomenon. And a lot of people were worried that this is just, you know, people gambling on stocks.

and they're not going to, you know, do the sensible investing on top of that. But what we found out is that this actually brings people into the market. And it brings some excitement and some interest and some research into the market. So as long as you're doing it sensibly, I think it's a good thing for markets. And I think it's a good thing for investors overall. Although some people are calling into question whether this is even the real roaring kitty. Yeah, could it be psycho kitty? You know, why is the YouTube account, you know, dormant?

And, you know, there's so, I think that's what I was sort of hinting at with the first question, Michael. It just feels like once this is out there for so long, there's going to be big players who are going to come in and try to game the system or work the system to their own benefit, you know? And I just, I wonder, I just wonder about that. Well, we know there are some things that are, we could say, unusual with this. And first of all, a lot of the rally started before Roaring Kitty came back. I brought actually a long-term chart of GameStop going back all the way to 2007. And this $10 area, here we are right there, so this $10 area was resistance in 2007, again 2010, and became supporting. We actually bounced off that pretty hard even before Roaring Kitty came back.

So it looks like there is some sort of buying under the hood. The other question that I kind of had when I was looking at the tweets and the Reddit post last night is his last summer. of what occurred in his YOLO update, as he called it. He had about $30 million in his account. And now he has roughly $130 million. So it makes you wonder, is there some sort of outside investing going on? Did he just make some really great trades elsewhere that he's now putting into GameStop? But there are a couple things that are a bit unusual.

I don't blame if he is just trying to be aloof and a little bit recluse right now. I really don't blame him. I imagine everyone in the world is trying to try and to try and to talk to the guy, and you have to be a little bit worried about, you know, our regulator's going to have a problem with what he's doing and that type of thing. So it doesn't surprise me, but really, when it comes to GameStop, nothing surprised me anymore. Aloof kitty. Michael Nouse, thank you. Appreciate it. Always good to hear from you. Talk to you guys soon. You bet. Coming up, Spotify raising prices. This comes at a time when consumers remain sensitive to price

hikes, but the CEO says this is the year of monetization and feels audio has different rules. from video platforms. That's in tech check when we return. Spotify is raising its prices for the second time in a year. Hiking an individual premium plan by a dollar to $11.99 a month shares jumping on that news, but not all streamflation is equal. Deirdre Bosa has that story in today's tech check. Hi, Dee. Hey, Tyler, exactly. Not all streamflation is equal. And while the trend of pricing has been up to the right, for the most part, Spotify occupies a unique space, and that is very stickier. That is audio. Data from research firm antenna shows that less than one and a half percent of Spotify users canceled subscriptions in the month of April. Video streamers, though, they are more

fickle, data showing the 35 percent of users who cancel. They actually return within one year, and the number of serial churners has more than tripled since 2019. Now, Spotify's also focused on audio, where its main competitors, they're mega caps. They have giant other more profitable businesses of which audio compliments. Take Amazon at the center of that flywheel is e-commerce. Prime subscriptions are meant to get users to buy more stuff. And over the years, they beefed that up with faster delivery, grocery, pharmacy, video and audio streaming is another sort of perk. Apple music likewise, likewise, that is meant to keep users inside of the iPhone ecosystem. So audio isn't the entire ecosystem itself like it is for Spotify. To that point,

antenna looks at the survival rate of users that join Amazon music, Apple Music, or Spotify. More than 50% of Spotify users are still subscribed 12 months later versus 34% for Apple and Amazon each. Now, Spotify also has more share of the audio streaming market than either of those names. So now it is betting that users will be willing to pay more also. With this hike price, guys, this was interesting, a premium Spotify subscription, it now costs more than Apple music plans. So it's taking a little bit of a gamble here. It has so much of the market.

It knows that it's hard to switch, right? You can pretty much get all music. You don't have to choose by series like you do a Netflix or Disney or a Macs with an audio streaming site. So they're taking a bit of a gamble. People could switch to an Apple music for cheaper, but again, they wouldn't be able to get their playlist to go with them. And of course, and YouTube is a player in the music world as well. Of course.

I was following you there with the idea that audio is a sticker, a stickier product than video is. But then you said plus 50% of Spotify's folks stay for 12 months versus 34% for Apple and Amazon. Why would their products have a lower retention rate, I wonder? Apple and Amazon? Yes. Well, I think that Spotify, maybe some analysts would argue it's because they don't have that focus on music, right? Or audio. It's not everything that they do.

Whereas with that price like today from Spotify, they said, listen to their users, this is going to let us reinvest in more products that you love. Whereas, you know, if Amazon is making money off of its audio, it might put it somewhere else like advertising or e-commerce or, you know, one of its other many, many businesses. So it has a lot of other things to focus on, right? Maybe amounting to not as great of a product and this whole idea of best of breed, right? A company that focuses on one thing versus everything may do that one thing better. The question, though, is to people want to pay for it. All right. Deirdre, thank you.

Deirdre Bosa on Spotify. Further ahead as weather patterns continue to change and intensify, many startups are actually entering the weather prediction space and now AI is getting involved. We've got all the details in today's Clean Start. right after this. Welcome back to Power Launch, everybody. The Dow right now is off 242 points, was down by, oh, more than 300 at one point not so long ago. The NASDAQ barely, barely positive. And Bond yields are falling. Let's get that side of the story from Rick Santelli. Hi, Rick. Hi, Tyler. Indeed, Bond yields hovering at some of their lowest yields highest prices of the session.

And it all began, well, this morning around 10 o'clock Eastern. ISM prices paid, drops from a nearly two-year high as you see on this chart. And what should ring true is, is that it was a small concession with a big market move, just like Friday, whether it's personal consumption expenditures, when any of the inflation data comes in near as expected, without any surprises, or makes subtle progress, the markets get quite euphoric. So we need to pay close attention here if it gets legs. Now, if you look at two-year and dollar index, you can see clearly at 10 o'clock Eastern when that was released, the dollar index gave up some ground to your note reversed from Thursday's two month, excuse me, one month high to now about a three week low. And the dollar

index is on pace for the lowest close in two months, sensing at least gravitating to the notion that the worst part of inflation and the rise in prices paid in the rearview mirror. And something else happened today. If you look at Atlanta GDP now, and I'm not saying it has a high accuracy rate, but many pay close attention to it. Today, its current read is the second lowest read of 2024. Kelly, Tyler, back to you. Wow, that's second lowest reading of 20. That explains the market action, Rick. Thank you. How is oil fitting into this picture? Let's ask Pippa Stevens, because we're down nearly 4%, but there's also these OPEC agreements to extend production cuts, which is the predominating force here. Okay, so this is all about OPEC today. Now, it's important to

remember that there are currently three different sets of production cuts in place, and all three of those were extended. But what's key and the reason why oil is down almost 4 percent is that there's now a path to bring all of that oil back to the market. And we're talking about about 6 million barrels per day that they've been cutting, and so that's 6 percent of global demand on a daily basis, so it is a material amount. Now, the key thing here is that there was that 2.2 million barrel per day voluntary production cut introduced at the beginning of the year, and that the market had largely thought would be extended through the end of this year. Instead, they only extended it through Q3, meaning come October, they're going to start unwinding that output. And, you know, demand

has been pretty weak. We haven't been seeing inventory draws. And so the market is taking this as more weakness ahead. And then if you have supply coming back online, that's why we're seeing this dip in oil today. When did they make the decision to bring that supply back online? Was it just this weekend? Yeah, so it was this weekend? Yeah, so it was this weekend. I was just a week. How could you not be glued to your screen? It's riveting. So those barrels were straw coming back in October, and the group did bend over backwards to say they can always adjust,

but the bottom line here is that the oil is coming back, and so that's what the market is reading is bearish. All right. Pippa, thank you. We appreciate it. No further questions, you know? Well, Vicki, you know, and if the data is going to go that way, too, then we've got a double whammy for crew just sending it lower.

Sima, thanks. We'll go to see the motion now. Now let's go to see what movie. Right. Here we are. Here's the news update at this hour, guys. The State Department says Hamas has not responded yet to a new ceasefire deal. According to U.S. officials, a proposal was submitted Thursday. It would unfold in three phases ending in a withdrawal of Israeli troops from Gaza.

The State Department says it is completely confident Israel will agree to the framework despite Prime Minister Benjamin Netanyahu's describing it as flawed and in need of more work. California's largest wildfire of the year is 75% contained today after score. 14,000 acres over the weekend. Local officials say the flames destroyed one home and hurt two firefighters after leading to the evacuation of thousands of people east of the San Francisco Bay. The cause of the fire still under investigation. And Dallas Cowboys legend Larry Allen died suddenly on Sunday, according to a statement from the team. The Hall of Famer lineman was on the family vacation in Mexico. He spent 12 of 14 seasons in Dallas before retiring in 2009.

Larry Allen was just 52 years old. Tyler. Yeah, some people think he is the best offensive linemen in NFL history, among them, certainly. Seema, thank you very much. Coming up, a major cancer research conference underway today, hearing from CEOs, and the latest industry news will trade at least one of the key names in today's three-stock lunch. We'll be right back. Welcome back to Power Lunch.

The world's largest cancer conference is taking place in Chicago, and our Angelica Peoples is there talking to some of the biggest names in the pharma industry. She joins us now. What are you hearing, Angelica? Yeah, Kelly, one of the biggest trends in cancer research is this move away from traditional chemotherapy and toward more precise drugs. Now, one of the approaches that we're talking a lot about is targeted chemotherapy, what you'll hear called the industry as ADCs. And these are drugs that are already on pace to become a $30 billion category by 2030. And the competition is only getting hotter with names like Pfizer and Merck, making big bets here. Japanese company Daiichi Sankey is a pioneer here, and their breast cancer drug is already changing treatment for the disease.

And they presented some new results here this weekend that could allow 70% of people with metastatic breast cancer to receive their drug in her too. Ken Keller, Daiichi's U.S. CEO and Global Head of Oncology, sees this as just the beginning. I think right now we're just scratching the surface of what the future is going to look like. In the future, I think ADCs will displace chemotherapy in most every setting. That's obviously an ambitious goal, but we are seeing a ton of investment here. Guys. All right. Thank you very much.

Angelica, we appreciate it. And her reporting will continue from the ASCO conference in Chicago. Time for today's three-stock launch. And with our trades today is Gina Sanchez, Chief Market Strategist at Lido Advisors and a CNBC contributor. First up today is Johnson and Johnson. Johnson shares are up fractionally on news coming out of that ASCO conference. The CEO Joaquin Duato expressed that J&J's goal is to become the oncology leader. What's your trade here, Gina?

We own J&J, and this is one that we are actually still very positive on. The big overhang for J&J continues to be both at Talcum, the lawsuits that involve Talcum and Asbestos. And what we see is that the price is largely priced this in, in our view, and there is a tremendous amount of potential growth. And, you know, never mind that you're getting continued dividend growth out of this stock. They handily beat expectations. And so J&J is doing what it's set out to do, and it is establishing itself in other growth areas like its acquisition of shockwave, which happened. and, you know, that is a huge market in terms of, you know, being able to go in and take out, you know, arterial plaques that are, that are to avoid, you know, cardiac disease. That's a big market.

They have another expansion into atopic dermatitis through their acquisition of Jersey, of Yellow Jersey therapeutics. So that is all very positive. So we think that the pipeline is very, very robust and the risk is priced in. All right. ECHOS OF MIFFAR there with J&J. Let's move on to Costco. Another all-time high after a number of bullish analyst notes from Wall Street, B ofA, boosting its price target to 874, reiterating by Loop Capital. We spoke with Laura last hour, hiking her price target to $890.

You agree with Costco? Just stick with it. We do. We own this one as well. This one has been a fantastic holding for our portfolios. It has gone really, really strong. And I think an interesting canary in the coal mine is that they opted not to increase their subscription prices because of concerns about a pullback in consumption, you know, in consumption going into the latter half of the year. Now, what's interesting about that is I think that that's very, very bad for the entire industry in general.

But Costco is one of those names that benefits when people look to save money. So I do think even if they might be seen as a tad overvalued at this place, I do actually think they can defend. if the market goes into a prolonged downturn. So if it's a mild downturn, it's actually still great news for Costco. So all in all, good news or bad news, this is the stock that can play both sides of that. All right, let's go to Spotify. We've just been talking about a little bit. Shares jumping around 4%. As we discussed earlier, the streaming company says it's going to raise prices of its premium subscription plans following a similar price hike last July. How about Spotify at $309? So this is an interesting one. I think the market is very, very, very,

enthusiastic about their goal of becoming profitable, so they're showing profitability. The question is, can they sustain that profitability? The bigger challenge that I have is that the business model itself is very challenging. Spotify is competing against other much larger entities for whom music sales is only a component of a much more diverse portfolio, like Apple and Amazon. And so their growth is somewhat limited, it's capped at what they're, you know, what they're competing against. Meanwhile, the cost to actually pay out royalties, that just seems to be an immovable floor. And so I think that it is basically making money between the wallpaper and the wall. This is not one that we're that enthusiastic about it's a sell,

in my opinion, even though it is doing very well and they are getting towards profitability. It's just a question of whether or not they can maintain it. Very interesting. All right, Gina, thanks very much. Gina Sanchez for us today. And climate change continues to disrupt weather patterns around the globe. We'll explore the great. growing business of forecasting technology to help combat extreme weather and be ready for it. Power lunch is back into. Welcome back. Summer is here, and it's expected to be one of the busiest hurricane seasons in recorded history. And thanks to climate change, the intensity of these storms is increasing.

It's why weather prediction is now more important than ever before, and it's still hard to do. Diana Olik is here with the latest in her continuing series on climate startups. Diana, they think they have a better mousetrap now? They do, Kelly. Look, the weather forecasting, space is becoming increasingly crowded, much of that, of course, thanks to AI. So investors are seeing big opportunity, especially in startups. As hurricanes, tornadoes, wildfires and drought become more frequent and more intense, weather forecasting becomes that much more critical. Entrance to the field like Tomorrow.io, Google DeepMind, and California-based windborne are using

new technologies to both disrupt and detect. We operate the most comprehensive belief. We operate the most comprehensive balloon constellation on the planet. And we also do AI-based weather modeling. And so our mission is to mitigate the most destructive aspects of climate change. Windborn's balloons can fly for weeks, as opposed to today's government-launched weather balloons, which stay aloft for just a few hours and cannot reach remote locations. This means that we can collect roughly 40 to 50 times more data per balloon. And we can also collect this data over oceans and over under-observed areas by launching from

easy-to-reach launch sites. The balloons use satellite communication to deliver their. data in real time. The world currently lacks weather data for 85% of the atmosphere. Winborn's goal is to close this gap with its technology, using fewer balloons to offer global coverage. Demand for this data from both government and big business has the funding flowing. Winborn just closed a $15 million round with lead investor Kozla Ventures. There's about a hundred billion dollar market now, and it touches pretty much every industry. And it hasn't really been meaningfully disrupted since the weather company in the 1990s.

So that makes it a very attractive market for us. In addition to Kozla, Winborn is backed by Footwork VC, Pair VC, Convective Capital, Ubiquity Ventures and Sousa Ventures. Total funding, $25 million. The World Economic Forum named Extreme Weather and Weather Uncertainty as the biggest risk to businesses over the next decade. Windboard says its technology can make a two-week forecast as accurate as today's two-day forecasts. Back to you guys. That would be so exciting. That feels like the final frontier if we can actually crack weather forecasting.

So talk to us about the balloons, Diana. How do they direct them or guide them? Do they get them back? Well, Big Shock, they use a smartphone to do it, and they have this special flight software that helps them to steer around certain areas. They can tell the balloons to even move around geographical locations that might be dangerous. like Israel or Ukraine, and they can have it either drop sand in order to go higher or drop air in order to go lower and set it into a certain windstream where it surfs the air and then they can direct it around where they need to go.

Now, the balloons, when they're done, they do fall back to Earth and their waste. But they say there are so many fewer of these balloons necessary than the traditional government balloons that while they may have waste products from, say, dozens or a couple of hundred balloons, the government waste thousands of them. Kelly? All right. Thank you very much. Diana Oleg reporting. And coming up, the winners of the National Economic Challenge, the econ version of the national spelling bee will meet the newly crowned champs when we return into. And remember, you can always hear us on your podcast.

Be sure to follow and listen to Power Lunch wherever you go. We will be right back. All right. Now let's get back to the National Economics Challenge earlier on the exchange. We dipped into the questions. and now we have a winner. Let's bring in Steve Leesman. Hi, Steve. Hey, Tyler, thanks very much.

Yes, we have a winner not only in the top division, but in the second division. We have Mount Hebron from Elcott, Maryland. This is their ninth win overall over the years here. Let me introduce the winners to you. Give us your name and your favorite economist. Hi, my name is Mahin Pandya. My favorite economist is Milton Friedman. All right, hold on to that thought.

We'll come back to that. Hi, my name is Diego Salamanca Murphy, and my favorite economist is Daniel Conman. Nice. Not economist, really? Is any behavioral, psychologist? That's okay. Cool. Hello, my name is Dundu Manoj Palai.

My favorite economist is Hayek. Ooh, that's a good one. Hi, my name is Pernit Aynneungi, and my favorite economist is Dave Ricardo. Nice, Dave Ricardo. Okay, so here's a question. This is your ninth win and Mount Hebron. What exactly would you say is in the water? in Ellicott, Maryland?

I think it's a lot of with our teacher. He really supports us, and he's also, he's very educated in this topic, and it really helps us to learn and become better. What's in the water in Maryland? I mean, I got to say, like, our school's been doing it for a while, and, you know, our success only really started around, I'll say, 2016, and that's because of the generational amount of, you know, input and work that we've been putting into the program.

One thing I heard is that the older students teach the younger students. That's right. Okay, let's move on. Invitya, buy yourself. I'm going to say short. Why? I'm just saying, but actually, you know what, I'll say bye. Fed going to cut this year? Sorry? Is the Fed going to cut this year? Yes. Why? Because it needs to. Why does it need to? Because unemployment is going to start increasing. How come? I'm just envisioning that as the future. Is the Fed restrictive right now, would you say? I'd say it's pretty restrictive, as being really careful about decisions,

but I want my shares to go up, so the Fed should do some real cuts. They should cut rate so your shares go up. Now, are you learning about the aggregate good in Mount Hebron or just your own personal self-interest? Personal self-interest. What's the neutral rate? Right now, I think they'll have to cut a bit more

to get a bit of neutral rate, but I feel I see that coming in the near future. Where would you put the neutral rate? I'd say at least I could give you an estimate, but definitely lower it significantly because as we know, Mount Hebron is developing us and developing our human capital. And what I know is that I want my shares to go up.

So by the time I graduate college, I can be a millionaire. All right, AI, you worried about it? Not at all. No, why not? Because human capital, technological advance, we'll see economic growth. Why Hayek? Why Hayek?

You know, he was like an underdog when in the world of economists, you know, Keynes maybe overpassed him. He didn't get the Nobel Prize till later. And, you know, I love the story of an underdog winning, and that's why, yeah. Tell us why, give us one thing from Ricardo

that our viewers can take away that they maybe don't know. Specifically, he introduced comparative advantage and that revolutionized the international trade allowed for more specialization and increase the variety of goods we have and overall to the net benefit of the All right. One more question. Ten year at the end of the year, what's the 10 year bond going to be? It's about four and a half right now, maybe four 48. What do you think is going to be?

I'll say three and a half. Three and a half down a percentage point? Why? Because I've been trained by Mr. Prime in Mounthaven High School and what Mount Haven says goes. Okay. Tyler, I'm going to send it back to you. I think we're, we're, we're, we're, we're shorting, NVIDIA. You've got to go long the 10 year, I think. Will you take a notes, Tyler? I was taking notes because that was a great interview. I mean, that was really, really good.

Did these kids skip a beat? Nobody skipped a beat? Nobody skipped a beat. I've never, and concise, I want them to come on on Fed Day. Yes. I want all four of them to come on on Fed Day and be our panel. I think that's the win. And they want to, they want to cut because they want their portfolios to go up.

They want their shares to go higher. so they can be a millionaire by the time they leave college. I love it. Steve. We got to go, Tyler. What was the answer to question number three? Do you remember? Oh, question number three.

It was 95%. Oh, Paul got it. It was what the participation rate was. That's why he's the, I know I got it wrong. That's why Paul's the producer, and I just read what's on the screen. Well, thanks a lot, guys, from the National Economic Challenge. Thank you for bringing that to us. That's great.

I guess may have eloped to Ellicott or Ellicott City. I can't remember. Yeah. How about that? All right. Well, Tyler, coming up, Sailor's massive settlement, the MicroStrategy founder agreeing to a multimillion dollar deal to end a lawsuit accusing him of tax evasion. We will get key details after this.

Welcome back, Michael Saylor, the CEO of Micro Strategy, and a longtime Bitcoin Bowl, settling a tax fraud case. Kate Rooney here with all the details, Kate. Hi there, Kelly. Yeah, so this was a tax fraud case in Washington, D.C., Michael Saylor and the company he founded Micro Strategy agreed to pay a $40 million fine and what amounted to the largest income tax recovery settlement in the district's history. The suit was filed by the office of the Attorney General and alleged that Sailor illegally evaded

more than $25 million in D.C. taxes over the course of 15 years. The AG says Saylor claimed to be living in lower tax states like Virginia and Florida, which notably has no state individual income tax. The AG claims Saylor was actually living in a D.C. penthouse. full-time overlooking the Potomac River where they say he was docking multiple yachts and that Sailor, quote, openly bragged about his tax evasion scheme, contending that anyone who paid taxes to the district was stupid. Microstrategie, the software company he founded and is still the chairman of, is also implicated here. The AG claims the company failed to pay the corporate

taxes required for employing DC residents. This company got its start in software, but it's really become a proxy for Bitcoin since Saylor started buying up the cryptocurrency to hold on micro strategy's balance. He denies those allegations, though, saying, quote, Florida remains my home today. And I continue to dispute the allegation that I was ever a resident of the District of Columbia. I have agreed to settle this matter to avoid the continued burdens of the litigation on my friends, family, and myself. Kelly and Tyler, back over to you. But no direct impact to micro strategy that we could see otherwise? Yeah, it is sort of, you know, still trading like a Bitcoin proxy. And it's interesting. Nothing really about Bitcoin

mentioned here. It's just sort of a good old fashion tax fraud issue. And yeah, it seems to be resilient here, not taking much of a hit. It just often pops up in that context. For now, we appreciate it. Kate Rudy. That's it for Power Lunch. Thank you so much, thank you so much, everyone. Closing bell starts right now.