Power Lunch - Major Media Moves, and 3% Mortgages? 9/21/23

Episode Date: September 21, 2023

After nearly 150 days on strike, Hollywood writers are close to a labor deal with studios. Plus, Rupert Murdoch is stepping down as Chairman of Fox & News Corp. We’ll discuss what it all means for the landscape.Plus, how can you pick up a 3% mortgage right now while rates are actually closer to 7.5%? We’ll talk to the head of a company with an interesting plan to let you buy both a house and its existing interest rate.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch, everybody, alongside Kelly Evans. Over there, I'm Tyler Matheson right here. Coming up, two huge stories in media today. After nearly 150 days on strike, the writers are close, inching close to a deal with the studios. And the actors may be close behind. So when will Hollywood get rolling the other way? Plus, Rupert Murdoch stepping down as chairman of Fox and News Corp, what this all means for his media empire. Plus, how to get a 3% mortgage as rates are 7.5. We'll talk to the head of a company with an interesting plan to let you buy the house and the mortgage interest rate assuming it. Looking forward to that, Tyler, very much.

Let's get a check on markets, though. Looking better than they did earlier this morning, still in the red, though, with the Dow down about half a percent, down 161. The S&P down 1% below 4,400 at 4359, and the NASDAQ under the most pressure. again today down 1.1% call it. And I'm going to cite those higher interest rates. Obviously, we'll have more on that in a little while with a 10-year nearing 4.5% today. Some of the biggest tech names are dragging down the NASDAQ.

Amazon, Alphabet. You can see Adobe. Amazon's now down 3.5%. Adobe is similar amount. So not a lot of relief here for some of the mega-caps. Tesla down 1.5%. Elsewhere, FedEx, beating on earnings and raising guidance. The company crediting steps it took to cut costs.

and operate more efficiently. It was about a year ago. The stock tanked on an earnings warning. It's up more than 80 percent since that bottom, around $140. Last September, Tyler FedEx is now at 262. All right. Thank you very much. Kelly. With every end, there is a new beginning. And after 140 days of stoppage in Hollywood, we are finally, apparently, getting some movement between the Hollywood studios and the Riders Guild. A deal would mean some return to normalcy in the media world, especially if movement can be made on the actors' front as well. But at the same time, the industry is losing one of its most infamous or famous executives. Rupert Murdoch announces he will step down as chairman of Fox Corp and News Corp

after more than 70 years in the media industry. Here to break down the news is Janice Min. She's the editor-in-chief of Ancler and former co-president of the Hollywood Reporter Billboard Entertainment Group. as well as our own Alex Sherman, CnBC.com media reporter. Why don't we start with the strike, Janice? What is the buzz you're hearing in Hollywood about how close the parties may be and how soon the actors might follow suit and settle?

People feel good today. It's the first sign of optimism since this whole thing began in May. There was a huge breakthrough yesterday with the studios, the AMPTP is their organization and the WGA, the Writers Guild, released a joint statement. Now, remember, these two sides have been in a standoff. They have been releasing dueling memos, and for the first time, it seemed like progress was getting made. I would be surprised if there is a deal today, but I think we are within spitting distance now.

I would say the appetite for this to go on any further, you know, people thought it would wrap up by Labor Day, and every single day it keeps going on is just more and more pain in the industry. So much anxiety, so much stress, people want it done. What about the, what about the SAG side of it? Is that likely to follow along in fairly close order? Or is this no indication that that could happen? You know, I think we've seen with Fran Dresher SAG president, she's a little bit, I think the comp, she's like the Sean Fane at the UAW of Hollywood. She has, come out very stridently against the CEOs, particularly against Bob Eiger. She's really rallied and mobilized the voters there in SAG, and it's 160,000 members about the size of the UAW. And I think she's

going to be tough. I think that group is going to be tough. And remember, the whole reason for this strike is that people thought they had nothing to lose. The economics for workers in Hollywood had gotten that dire. So there's going to be a lot of rhetoric to unwind. It's all going to come down to both with the writers and SAG around data transparency, but SAG is up the ask even more to ask for revenue sharing, which is something, if you ever worked in Hollywood, you know that went out of fashion when Netflix entered the marketplace. Right. Alex, is there anything you'd like to add here, or should we just move right along to

Rupert Burdock? To Rupert, Burdock. Look, I think both sides want to get something done. You've seen cracks on both sides, I think, recently. What were you starting to see, you know, whether it's Drew Barrymore or Bill Maher, go back on the air and say, you know what, we've got to get things moving here. and then rhetoric more on the sides of executives, particularly Warner Brothers Discovery,

saying, you know, David Zaslob, they're CFO, saying, look, we're taking a hit here, we've got to get this moving along. So you can see the runway towards something getting done, and that's why this has lasted so long. Both sides needed to feel some pain. Now they're feeling the pain, and that's sort of the gateway toward a deal.

Let's talk, why don't we talk about Rupert Murdoch stepping away? How is Lachlan Murdoch likely to be different? from his father in what he does, the way he runs this, quote, empire. I look at it this way. I view Rupert Murdoch as the builder of the empire, and now I think Rome, broadly speaking, is in decline, and that Lachlan will oversee the not dismantling of the empire, but the shrinking of it.

I agree. So we've already seen the shrinking of it. You know, when Rupert Murdoch sold $71 billion of assets to Disney a few years ago, that was most of Fox. Now Fox's Fox News and Sports and the Broadcast Network. So part A is done, or part one. Part two now is, okay, so Rupert Murdoch is no longer chairman. Lockland will run the empire formally. He's the chairman emeritus at this point, though he did say he's planning on sticking around and so forth.

He's 92 years old. Lockland is the guy that's in charge for the time being. But really the question is, what happens when Rupert Murdoch dies? Because when he dies, then voting control is split among four of his children equally. And so that's where the succession aspect of this begins. Even if Lockland is running the company, there is no clear answer that he will be the person that runs Fox going forward after that. And we know that there has been a split between James and Lockland. So where the other kids fall and where they support will likely cement the future.

of Fox, whether it's sold, whether the tone of it changes. But I do think you're absolutely right that the Rupert Murdoch stage of this is coming to an end. Yeah, it's so much. I remember being in that newsroom at the Wall Street Journal when he came back in the day after buying the paper and made the big announcement. And, you know, there was so much hype and interest back then. And it seems like it's in a way kind of fizzled out over the years. Just real quick, I want obviously bring Janice back into this as well. but we focus so much on Bob Eiger and what he's done or not done or needs to do at Disney.

What do you think the sort of not final verdict, but at this point the verdict is on how Robert Murdoch has handled both the paper and the digital assets in a similar manner during this period of transition. History will look fondly on his decision to sell to Disney. I mean, he now looks like Jeff Bukas and other executives that sold at the top. So clearly, when people look back on that deal, I think. they will have to give Rupert Murdoch credit to say, you know what, you saw this empire of linear media declining, and you got out. And now that's Bob Iger's problem. And of all of the deals that Bob Iger has done, which made him look like the greatest CEO of all time, the one that sticks out now is the Fox deal, which now looks like an overwhelming overpayment.

It's fascinating. Janice, why don't you comment on what we've just talked about here with Murdoch? I would just observe there will never be another Rupert Murdoch. Oh my God. There will never be another Rupert Murdoch. You know, we live in a land now, and especially in entertainment of sort of the MBAs in charge, you know, not these sort of wild brash creative executives. And so Rupert, what's interesting about Rupert is, you know, he built up this studio out here where that you can see the lineage from the studio everywhere. You have Dana Walden now at Disney, Tom Rothman at Sony Pictures, Peter Rice, who also was recently at Disney. he knows how to pick leaders and everyone in town still talks about working for Rupert with fondness. He's a character. However, in his recent years, Fox News overwhelmed the narrative of Rupert Murdoch,

and he lost control of it. And not only did he lose control of it, you also have a business now out of control with Fox, where, to Alex's point, it is in such staggering secular decline. I think they shed 11 million viewers in the last three years through the court meeting. And so Lachlan is being handed this not great package to manage. And so regarding the succession point, I mean, this is going to be the fifth season of succession that everybody wanted. I mean, I think the animus between the kids is so well documented. You know, I think many of us out here know both of them, both the Murdox. It's not great.

So you will see an empire that's already in the process of dismantling probably be further and further dismantled. And around the digital assets and news, the digital assets, Fox Nation is such a non-entity. It hasn't worked in such a small sense that it's not even brought up on the earning calls. We have to leave it there, guys. Thank you very much. We have a little breaking news to get to. Janice, always great to see you.

Thank you for being with us. Alex. Same to you. Appreciate it. We have the roll out of the latest COVID booster shots hitting some bumps. Angelica Peoples joins us with some fresh details. Angelica? Yeah, Kelly.

Finding the latest COVID-19 vaccines hasn't been easy. Moderna and Pfizer say they've shipped millions of doses of their new shots since they were approved in the U.S. last week. But some people who were lucky enough to snag an appointment are receiving cancellation notices or showing up to learn there isn't a dose available for them. Some are being told they'll need to pay almost $200 out of pocket. pocket because their insurance isn't yet covering the shots. It's even harder to find COVID vaccines for children. CVS says it expects to start receiving those shots late this week. Walmart anticipates they'll arrive after adult vaccines come in. A notice on Walgreens's website says appointments for children under 12 won't start until next Friday. Well, it might feel like

2021 when a vaccine appointment was hard to lock down. Now it's happening for a different reason. In 2021, the government bought and distributed all the vaccines. These latest COVID shots are the first to be introduced since the government stopped playing a leading role. Now, vaccine providers are buying the doses from distributors and manufacturers, and insurers are paying the providers to administer the shots. Two independent pharmacy owners I spoke to say this is the usual lag between the approval of a new vaccine and the availability of it. Pfizer and Moderna saying they're shipping out the doses, and we're trying to figure out if the distributors have those and if they're getting shipped out to the pharmacies. Americans were shielded from this reality before, and the transition has been a bumpy one so far.

Back to you, Kelly. Yeah. All right, thank you, Angelia. I tried to get a shot through my medical provider earlier today, and they don't have them, and they don't have no idea when they're going to get the latest version in. Really? Yeah. And they didn't know anything about CBS, obviously.

Right, I'm not going to say. Neither do I. Coming up, Chairman Powell playing a very delicate balancing act, declining to hike yesterday, but implying higher rates for longer, and making no promises about a soft landing. We'll discuss what we learned with bond yields on the rise today. Plus, those higher rates hitting the mortgage market, as home builders, home buyers realize that an 8% 30 year could be around the corner.

But one company has a way for people to get their hands on 3% mortgages. We will explain when, Power Lunch returns. Welcome back to Power Lunch. Stocks are under pressure today with the Dow heading for its third straight down session and the NASDAQ down more than 1%. And Treasury yields are jumping the 10-year back to 2007 highs. It's at nearly 4.5% after the Fed put a pause on rate hikes for now, but signals fewer

rate cuts next year. Let's bring in Brian Jacobson, Chief Economist with Annex Wealth Management and Kevin Mon, President and Chief Investment Officer at Henyon and Walsh Asset Management. Kevin, I'm asking a very simple question. What do you think is going on here? I believe, Kelly, that July marked the end of this rate hike cycle. Because if the Fed raises interest rates by just 25 basis points more this year, that's going to potentially push us into a recessionary period during the first half of next year.

Why is that? Because it's going to put more of a burden on the U.S. consumer that's over leveraged. A U.S. consumer that now has over a trillion dollars worth on their credit card. a U.S. consumer that put over $43 billion onto those credit cards in the second quarter alone. And now they're facing credit card interest rates above 24 percent before another potential rate hike. And we've started to see delinquencies pick up. Just last quarter alone, they rose to their highest level in more than a decade. So if the Fed's intended consequence is to push the economy into a recessionary period,

then raised by another 25 basis points. If they want to navigate the soft landing, let that July rate hike be the recessionary. the end and keep them at higher for longer, perhaps into the second half of next year. Brian, you agree with that? Well, in a way, I think that actually maybe the Fed has already done too much in the sense that if you look at some of the data on the amount of interest and debt expense as a percentage of personal income, it's gone from 1.4 percent and it's shot up to 2.4%. That's consistent with the historical average, but to get an average, you have to have

periods of time when it's above and below. it's just going to keep marching higher. So I would actually probably just say that the Fed has already done a little bit too much here, and the effects of that are going to start at the bottom of the economy, lowest income individuals who are more heavily indebted, also as far as the market's lowest quality stocks, typically it's the smallest ones as well. Those are probably going to be starting to feel the pain first the most and probably as early as the fourth quarter. So I really wouldn't wait until next year to say that we're going to experience the beginnings of a recession. And remember, a recession starts at a peak of economic activity, not at a trough.

Like 200,000 jobless claims. Just to throw today's data point out there, Kevin, just want to point out for those who, you know, we're all making it sound like, you know, if they do more, that would be worse. But if you're right that they're not even going to hike anymore, on average, the stocks decline about 25 percent from that point. So, and here we are with the sell-off. But I would look a little bit further ahead, right? I look out three years. I know that's a really long time in the histories of investing, right? But everyone focused yesterday that the Fed took off two rate cuts next year. They're only going to cut by 50 basis points next year. But guess what? They're forecasting they're going to cut by another 120 basis points in 2025 and another 100 basis points in

2026. That's nearly 3% in interest rate cuts over the next three years. The Fed doesn't cut interest rates if the economy's doing well. They cut interest rates if the economy is not doing well. and they need to stimulate the economy. If, in fact, they're going to be cutting rates to that extent over the next three years, that opens up opportunities in both stocks and bonds for investors to consider. It's going to be choppy for the next six months. Data dependency, we've got an upcoming presidential elections. We have the three Ss, the shutdown, the strike, and, of course, student loans.

But beyond that, I do believe better days are ahead when the Fed starts cutting rates. You know, there's talk and then there's action, Brian. And I think the talk yesterday was to reinforce the idea that the Fed believes that its work on combating inflation is not over yet. They wanted to send that hawkish pause message, as we described it yesterday. But there is a growing number of people who feel as both of you seem to, and that is that enough has been done. Enough is enough. And that we're getting into a dangerous point. What if the Fed doesn't cut interest rates as heavily as some people thought? They've taken, as Kevin said two cuts off the table for next year.

Yeah, here on our investment committee at Annex, we talked about that this morning as far as what's explaining some of these market moves. You see the big moves in the 10-year treasury, the 2030 as well, kind of that parallel shift when you go out there. It seems like the market is buying into the idea that the Fed does want to hold rates where they are longer. I thought that it was interesting how Chair Powell reiterated a few times about the importance of real rates, And then also he brought up the quantitative tightening, kind of reminding people that they do have those three tools. And in a way, is he suggesting that they could be cutting next year, not necessarily because they think that the economy is going to hit the skids, but mainly because they think inflation will keep falling.

And they just want to mark the nominal rate to the real rate to follow it lower. And if necessary, they can throttle back quantitative tightening. And so I would think that actually quantitative tightening, they're going to wait for something to break. We know in 2019 you had the repo madness this time if you see some unrulyness on the longer end of the curve. They'll probably, that might be the first thing that they do is start throttling that back. All right, gentlemen, thank you very much, Brian Jacobson. Kevin Mon, always good to have you in the house. Pleasure.

Thank you for having it. Thanks for having me. And yields are rising today following the Fed's pause. Let's get back to Rick Santelli for more in Chicago. Rick, please unpack all of this for us. And how does global debt issue, government debt issues fit in? Well, you know, listening to our two guests, all I could think about is, is that one of the biggest reasons why interest rates are going up is because the government spends ambitiously, and they continue to spend ambitiously. I think this is a big deal, and we need to pay attention.

And you could look at the Fed and the Roershack and try to figure out where rates are going to go, or you could just pay attention to the data and the fixed income treasury market. It's been telling you what to do. Let's look at initial continuing claims. Both today were at 10-month lows, going back, excuse me, nine-month lows, going back to January. And if you look at twos, fives, and tens on one chart, it says it all.

Twos are basically slightly lower yields on a date like the three-year is. If you look at fives, they're up a couple of basis points. Tens are up about a half-a-dozen basis points, and 30s are up about 11 basis points. And if you consider right now, Put them all on one chart. Three, five, and tens go back to 07.

I'm going to do this quick. O2s go to 06. O7s were started in 09, so they get back to 09. 20 years started in 2020, so it's at the highest yields since 2020. And the 30 is at the highest yields on a closing cycle basis since 2011. It's been very clear for a month that these long-dated treasuries in the steepening curve were the underpinnings of investment activity. So the Fed could say what they want.

You could try to mind their crystal. ball, but in the end, I think they're watching the markets a whole lot more closely than many think. And it's very difficult in the end to understand what the dots truly mean or to say we're going to have all this easing in the future. The only thing that matters in the here and now is that the market's guns, hots on rates, and even though the UK didn't raise rates, it doesn't matter at this point because they didn't raise rates because their rate fell, what? a couple of tents to around 6.5%. These are still too high globally, spending inflation, energy, and the prime minister of England, what did he do? He pushed back five years the forced transition

to EVs, and embedded in that is one of the biggest inflation problems the globe has. Tyler, Kelly. All right, thank you very much. Rick Santelli. And coming up, come for the hot dogs, stay for the catalysts. Evercore bullish on Costco. saying it has a long list of reasons to buy the stock. Power lunch. We'll be right back. Welcome back, everybody. The energy sector is actually one of the best performing groups in the S&P 500, even though it's down about three-quarters of a percent with virtually every stock in the group, trading in the red. But never matter. Pippa Stevens is here now with more.

Explain it. So there is one notable exception, and that's the refiners, both Marathon, Petroleum and Valero, hit record highest today. And that is on the heels of big news out of Russia, which is that they are banning diesel and gasoline, And definitely, they announced that today. The ban goes into effect today, and they didn't put an end date on this. Wow. Now, they are a major player in the global energy market here. So before the invasion, they exported about 2.8 million barrels per day of petroleum products.

That has fallen off to about 1 million barrels per day, but that still is sizable. And, of course, they are a key supplier to Europe. So over in Europe, we saw gas oil futures, which is a proxy for middle distillates, jump above that $1,000 per ton level here in the U.S. heating oil futures are higher. And so Russia says that this is. all about stabilizing prices domestically. But, you know, we have to look at the country's prior actions, and it was just about a year ago when they started slowly cutting off supplies of

Nat gas via Nord Stream 1 before that pipeline was then, you know, blown up. And so as one person at Eurasia said, it's naive to think that Putin wouldn't be trying to inflict pain on the West ahead of winter. And so this is one of the levers they still have to pull, since they are still a global player in diesel, less so Nat Gas, but diesel is one of their options. So they are stopping these exports, but let's talk about the U.S. production and where it stands today. As I understand it, we are at as high a point in U.S. petroleum production as maybe we've ever been, and that our imports of foreign sourced oil are low. Yeah, so we're approaching that 13 million barrel per day level, and it's a little bit deceiving to look at just the rig count,

because that's still down, but our production is up, because you have to look at the decline rates in different basins. But I think what's sometimes lost on the market is that refining capacity is very strained. And you cannot just bring a new refiner online. I mean, these are billions of dollars in CAPEX spending. We are not going to get a meaningful new project in the U.S. Some global projects are coming online, but they face delays. And so right now we produce about 5 million barrels per day of distillates, export, and our demand is about 4 million barrels per day.

So we do export 1 million barrels per day. And the fear is that if there are higher prices abroad, then we could start exporting more of our products, which we have in the past. All right. Pippa, thank you very much. Appreciate it. Let's get over to Contessa Brewer. We're now for the CNBC News Update, Contessa. Hi, Kelly, hi, Tyler.

We're getting an update on that fighter plane that went missing before its wreckage was found. The F-35 crashed in South Carolina after the pilot ejected. And now a new report from the government accountability office says maintenance issues with the fighter jet mean the planes are only mission-capable 55% of the time. TikTok is reportedly teaming up with. Google for a partnership on search. Insider reports TikTok and Google confirmed that they're testing the integration, but would not comment further. Taylor Swift is turning her Midas touch to the democratic process, according to Axios and Instagram posts from the pop star,

helps vote.org register more than 35,000 new voters on national voter registration day. That's a 23% increase over last year. Now, Kelly, if all of these new voters, actually show up on election day. Maybe they put their hands on their hips and say, look what you made me do. Look what you made me do. Wait, so why is she on the ballot? What was the?

No, no, no. She went out. She did a post saying, hey, you should register to vote. You know, she was promoting registering to vote. And she's got a lot of young, previously unregistered people who went and apparently listened to what she had to say. And in an off election here, to the only signs I, I've seen her for the Board of Ed.

Not that that's not consequential in some way. It's a fun election to be part of it. Go register to vote for your local board of that. Condessa, thank you very much and Condessa Brewer. And ahead on Power Lunch, that nearly 8% 30-year fixed mortgage continues to wreak havoc on the housing market. Existing home sales falling to a seven-month low. More on that when Power Lunch returns. Welcome back to Power Lunch, everybody.

We've talked about rising interest rates after yesterday's Fed meeting. Mortgage rates also heading a little bit higher. having a big impact on the housing market, of course. And Diana Oleg joins us now with the latest numbers. Hi, Dai. Hey, Ty. Yeah, rates have been on a tear following the Fed meeting yesterday. The average rate on the 30-year fixed mortgage shot higher this morning,

hitting 7.47 percent, that according to Mortgage News Daily. And that's up from 6.85 percent on June 1. And I'm using June 1 because we got the read on existing home sales in August this morning, which is based on closings. So those were contracts signed in June and July. sales missed expectations, and we're actually the second slowest sales pace for August on record, second only to August 2010 during the financial crisis. But prices are now gaining again up nearly 4% from a year ago to $407,100, the highest August price on record.

So if you're buying a $400,000 house today, it'll cost you $134 a month more than it would have on June 1st. Now, the Realtors' Chief Economist Lawrence Yun said on a reporter call, this. morning that we could see 8% on the 30-year fix before rates potentially start to come down next spring. And he said, if that happens, we will see another leg down on existing home sales. New construction seems to be faring better, but only because builders are helping to buy down those high mortgage rates. Back to you guys. Diana, thank you on that note. With mortgage rates soaring past seven and after today, maybe near 8%, seven and a half about, as you can see there, Homeownership has become even more difficult for many.

But real estate startup, Rome is trying to change that with Assumable. Didn't Tyler Matheson just tell me about this yesterday? We were asking about this yesterday. Assumable mortgages. That means when you buy the house, you get to take over the mortgage from the sellers as well. Now, their interest rate might be anywhere as low as four, three, maybe two percent. Now, you as the buyer still have to cover the rest of the purchase price, of course. But here to talk about it is Ronox Singh.

He is the founder and CEO of Rome. Thank you for joining us. Thank you so much for having me. It's a pleasure to be here. So Tyler brought this up because this used to be much more common, as I understand it, but has gone by the wayside? Yeah. So, you know, right now we're focused on loans that are fully assumeable. So those are government-backed loans. Now, you know, Rome helps buyers wind back the clock on mortgage rates and purchase a home with that low rate, fully assumedable mortgage included. And the benefit is for buyers, they get to reduce their monthly mortgage payment by up to half compared to purchasing home at today's prevailing rates.

Ironically, they would benefit the most if the mortgage that they're buying is very large, right? So, like, if someone only has 300K left on the mortgage and you need to take out a new mortgage for the other 300, you know, I mean, it still helps, but, you know. Yeah. So right now we actually focus on the homes where you see the mortgage was originated, say, in 20 or 21. So the loan to value ratio is often, you know, above 75%, which means that the down payment the buyer would need to make. It's very similar to that of a conventional mortgage, say 20% or 25%. But the value is that their monthly payment would be about half of what it would be at today's prevailing. It's loan to value based on current value or the value of the property when the loan was originally taken out? Because houses have actually gone up quite considerably, sometimes 30, 20, 30 percent since then.

So I may have an outstanding mortgage of 300,000 on a house that I paid $380,000 for, but now that house is worth $500,000. Yep. And so I've got to come up with 200,000 in cash. Where do I do that? So what would happen is we work with you as a buyer around what your preferences are. So if you're able to come up with the full amount in cash, we'll help you with that. But if you need some support, we actually can refer you to a second lien lender. And these preferred providers will help you calculate the savings and ensure that your blended rate is still way below the market rate. Okay, so I'm reading in a Wall Street Journal article that the FHA has probably, processed 3,349 assumptions in the fiscal year that ends September 30th.

There must be tens of millions of mortgages that would qualify for assumption. Why have only 3,400 of them been done? Yeah. So this is actually a large part of the problem we set out to solve with Rome. We found that most consumers actually don't know this is a benefit that is given to them by law. Really? So, yes. In fact, I watched this segment yesterday.

I think you had a guest on who had mentioned only certain kinds of FHA and VA loans might be eligible or it might be an isolated incidence. And so this is a large part of what we're trying to correct the record on. You know, it's actually all government-backed loans are fully eligible for the assumption. And this is an opportunity for most concerned. So is it a question of people just not asking? Is your loan an FHA or VA-back loan? The buyer not asking or the real estate agent not asking so that that can be listed on the on the, the right up of the property so that I can immediately see that this has a 3% loan

assumable. I entirely agree. So there's two key issues I think that prevent there from being more attraction that we solve with our product. The first is it's been pretty difficult thus far to be able to discover these homes. Let's say you were shopping for a home in Atlanta. You would probably go to Zillow and use the keyword search function to try to find an Asimble mortgage. And if you did, you'd find maybe three or four results. But if you hop on over to Withrom.com. Because it's not on there. Exactly. Nobody's thought to put that as a data point. Because of the lack of awareness, people don't know they should be advertising the affordability benefit of their assumed mortgage. So when you're a seller or a listing agent and you hop on over to

Withrom.com, we help work with you. We understand your interest rate, your remaining mortgage balance. We help frame it in the right way to the buyers. So they know that your home is the only one in the neighborhood they can afford because it comes with that 2% mortgage included. And you get paid what to do this? So we charge 1% of the sales price and the way we represent this to the buyer is we say, look, our incentives are aligned with yours, right? If you save money, we help you make money. And so the way we think of this is for them, the closing costs are going to be still much lower than a traditional mortgage. There's actually no appraisal required in an assumption because the loan has already been originated. Unless they need a new loan, which would maybe require a new.

If they need that second lien. I think the sellers wish they could take these mortgages with them. How hard are those second liens? You've got a first lien. How hard are those second liens to acquire and what are the rates on them? Are they higher even than the 7 and 3 quarter percent that Diana just cited? They will be a bit higher, but we would only encourage you to use a second lien if it's still significantly going to save you as a blended basis compared to the market. Right.

Okay. Roneck, thank you very much. We appreciate it. Thank you so much. Do you think this would ever be extended to Fannie Freddie, kind of the more mainstream loan? You think it's, you know what I mean? Yeah. Because there's still the bulk of the houses, aren't they?

So right now, job number one is to increase awareness of the loans that are fully assumed both today. And then we'd love to bring this benefit to every American and every home. All right. We'll see. Thank you so much, Ronak for joining us today. Ronuk sing with Rome. And coming up, shares of Broadcom following on reports that Google could drop it as its AI chip supplier.

We will get the latest details on that. And as we head to break, CNBC is celebrating Hispanic Heritage Month, sharing stories of influential business leaders. Here is All Minds Count founder, Rosanna Figuera. I find that many Latinx grow up in America trying to fit in. And feeding in is very different from having a sense of belonging. This country is what it is, in big part of,

because of our contributions. So owning that, the impression of that and then looking up to those who have achieved their dreams. It is a big part of leveraging our Hispanic heritage. Breaking news out of Washington and Emily Wilkins joins us now with the story. Emily. Hi, Tyler. Well, initially, Huff speaker Kevin McCarthy said that lawmakers were going to be staying in D.C. until they got that continuing stopgap funding done. But at this point, It sounds like members are actually going to be a heading home. This comes after a number of very difficult votes this week, including one today,

where Republicans for the second time tried to pass a procedural motion to get to a funding bill for the Department of Defense. And again, that bill failed to pass on the floor. A small group of Republicans holding it back over really a wide variety of concerns about the process for government being funded, about potential funding for Ukraine. And at this point, it's just very difficult to see. what a potential path forward in the House would be. Now, there are bipartisan bills that were put forward last night. You have about 60 Republicans and Democratic members endorsing that proposal.

And, of course, you have the Senate. Funding bills have to originate in the House, but there are different loopholes and things that the Senate could do to move. But at this point, it's just not clear what Congress's next step is here. And with less than 10 days before government funding runs out, as shutdown seems more likely than ever before. Absolutely. All right, Emily, thank you very much.

The latest news from Washington, Emily Wilkins. Appreciate it. Evercore is bullish on Costco, despite it being in the thick of its worst sales slump since 2017. We will speak to the analyst behind that call when Power Lunch returns. Welcome back. Shares of Splunk are soaring today after the company is selling itself to Cisco and a cash deal worth $28 billion. Dom Chu is here with more on this deal for us, and Cisco shares are selling off. They are.

I mean, it's a big deal. the biggest one in their history. So if you take a look at this tech sector deal overall, computer networking equipment giant Cisco, inking this deal to go take over a cloud computing and cybersecurity firm in Splunk for that $28 billion that Kelly mentioned. That's, by the way, $157 bucks a share in cash.

So you can kind of see where the deal arbitrage is currently with Splunk shares $185. Now, Cisco wants Splunk to help it expand its product suite of offerings for big business or enterprise customers. customers, and this deal will help give Cisco another stream of recurring revenues in the coming years. Now, Cisco CEO, Chuck Robbins, joined Squawk on the street earlier this morning in a CNBC exclusive interview alongside Splunk CEO Gary Steele, and he spoke a little bit more about demand for protection

against those growing cyber threats. Customers today, they're rebuilding their entire IT infrastructure to deal with the multi-cloud environment they're operating in. They're dealing with hybrid work. They're dealing with the home office has become a branch now. They're rebuilding all their applications. They're running them in a very distributed way. You've got data distributed at the edge.

You have workers everywhere. And so the threats and the dynamic nature of the technology architecture has changed significantly. So we mentioned the biggest deal in this history of Cisco guys. The previous one, got to go all the way back to 2006 when they paid roughly $7 billion for a firm, you guys, called Scientific Atlanta. I mean, Cisco's done hundreds and hundreds of deals over its lifetime. But not of this kind of size, right? And remember, scientific Atlanta was... How rich a premium is this?

It's a huge premium. You're talking about seven times forward sales at this point. So they're paying a lot of money for this company. And by the way, we remember the flip cams, remember those things. And then... But Scientific Atlanta, that was a preeminent company back in the day. Every set-top box for cable TV in America was pretty much scientific Atlanta. So it's a big deal.

Wow. All righty, Dom, stick around. because we know you have a special expertise to aid us in this next topic. It is Costco, the store. We know you're a fan, shares up 3% for the quarter, 22% for the year, as it is set to report its latest earnings results next week. Our next guest sees even more upside, naming two catalysts that could lift the shares to $600 from $5.56 today. Let's bring in Greg Malick.

He covers broadline and hardline retail for Evercore ISI. Why do you like Costco so much? Not that we don't all. Well, look, it's a great business, and it's been that way for a while. I think what makes it interesting now is even though it's done well this year, there are a couple things in the plate in the next year that we think could be catalyst. One is the fee hike, which they haven't done now for well over five years. We think it will come by the end of this calendar year, probably in December.

And then another thing is that they're generally enough cash flow that despite all the investments they're making to grow clubs and then the member value proposition. We think they're going to be up to probably close to 14 billion of cash in the next four quarters. And the last time they got above 13, they did a special dividend of $10 a share. That was back in 2020. So we think there's two things out there that the market might not fully appreciate about Costco, the stock rather than just the retailer. So is Costco in part compensating for sales that same source sales that are slowing by increasing the membership fee?

And what is it masking? if anything well i think they're look there's a lot of costs up for all retailers including cost on distributors so i think they've they've held off on on hiking the fee because they've been able to still grow traffic very nice consistent three four percent uh they're still gaining plenty of share so they've they've got through the disinflation of twenty twenty three we actually get disinflation is going to start to ebb and you'll probably see it settle out in low single digits but as long as they can keep traffic growing three or four percent and membership renewals up above 92, we think it's getting

to the point now where they can do it. They can hike the fee, and it's what they can do to really, you know, to keep building on the business and the value proposition. You know what's interesting, Tyler Kelly, there are about, there are two Costcos that are roughly equidistant from where I live. I go to one more than I go to the other. Viewers who see me at this Costco know where it is. I'm not going to divulge where it is. One of the things. It's a secret Costco. It's a secret Costco. One of the things that's interesting to me, and this is something I'm sure Greg has kind of seen in this channel checks, talking about this membership fee hike, right? They have now started to check membership cards. They check them when you go in, kind of cursory, right?

But now when you're waiting in line, they're actually coming through and checking to see if you are the person on that card that is buying the stuff, implying perhaps, that there's been this kind of shared membership. Yeah, there's a Netflix phenomenon happening at Costco. So when I was asked for that, I was surprised. I was like, okay, well, maybe that many people really are just kind of sharing each other's memberships and whatnot. It also implies that there is a demand factor there for Costco and even a cult-like following, where if you're a member there, you go there pretty consistently. So maybe this is the time perhaps when Costco can actually do this membership hike and not have a lot

of pushback. I think that's a great point. And I think, Greg, there's also a channel of demand through Instacart where you don't need to be a member at all. and I'm not sure if they would feel any need to turn that off. No, I think the Esdacarp partnerships work well for them. We think it's maybe 2% of their sales at this point. But the key is it's giving another option to the member

to be able to access those products without having to go to the club. I think that's really worked for them. But at the end of the day, what makes Costco work as a membership model is that shocking value proposition. And to the point that just made there, I think it's a great one. The reality is it's we find in our survey work, there are some members, not a majority, but there are some that actually hope they hike the fee because they think it'll be less crowded when they go to their local Costco. I'm not so sure it's going to play out that way.

What's? But you actually get that from some of our surveys. What's your favorite thing about Costco, Greg, when you go there? I think as a consumer, it's knowing that they have already. self-selected for me 4,000 skews of the highest quality best

price product in the world. So I don't have to do the shop. And they've already decided, you know what? This is the best paper towel. This is the best pistachio. This is a great camera package with a couple lenses on it. And they have

effectively look at me as a really good point. And gone and bought that best thing. That's a really good point. Where are you going to finish it off? I was going to say to that point, and this is the final point I make, other than I like the $5 rotisserie chickens, is that the brands that I buy have now been dictated to me by Costco, meaning the laundry detergent that I use, I might have said one brand or the other before because it was a consumer preference.

But they've said... Now it's these are the items available at Costco, these are the items I will buy. You ever use your golf balls? What do you think of the golf balls? The Kirkland's signature golf balls I have played, and they are a pretty good quality golf ball, especially at the price point. My favorite thing is the trash bags. You get big boxes of 7,000 trash bags.

And you're done for two years, man. It's great. Or a week in some of our cases. Greg, thank you. Dom, thank you. We've learned a little bit right there. Many more stories to get to after the break. Stay with us.

All righty, folks. Let's give you a market check as we finish off our hour here. The Dow Industrial's down 200 points. NASDAQ off more than 1% as you see. they're really closing in on a one and a half percent decline down 190 points or thereabouts after yesterday's Fed message. Indeed, I'll give you a quote from Morgan Stanley. They say a hawkish Fed has shaken the market. And while not yet at the point of activating significant force selling, that point is getting much closer. Thanks for joining us today. Closing bell starts right now.