Power Lunch - Mortgage rates top 7%, the path to recession and UK’s economic turmoil. 9/27/22

Episode Date: September 27, 2022

A long-time market watcher says a recession is likely and he has some names to ride out the volatility. Plus, why former Treasury Secretary Larry Summers calls the U.K.’s fiscal policies “utterly irresponsible.” And, the Howard Hughes CEO on the state of the real estate market as the rate on the 30-year mortgage tops 7%. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome everybody to Power Lunch. Along with Contessa Brewer, I'm Tyler Matheson, and here's what's ahead this hour. The path to recession, a longtime market watcher says a sharp economic downturn is going to get harder and harder to avoid, but he's finding some safety and opportunities in a few names. We'll hear which and why. Plus, former Treasury Secretary Larry Summers calls the UK tax cuts utterly irresponsible. And he warns of a possible contagion. We're going to look at the potential global ripples in just a few minutes.

I'm Dessie. Hello, Tyler. Hello, everybody. A midday market reversal has sent stocks deeper into bear market territories. There, you're seeing the Dow Industrials off three quarters of 1%. The S&P 500, off half a percent hitting its lowest intraday level since November 2020. And the NASDAQ is off by a quarter percentage point, driving the action here, rising yields, the five-year yield, hitting its highest level since 2007. The 10-year hit its highest level since 2010, closing in on 4%.

And the 30-year yield, look at this, hitting its highest level since 2014. You've got the 5-year now at 4.2, the 10-year at 3.97, going up, and the third year at 3.8. With the bond market flashing warning signs, our next guest says, room needed to avoid recession has narrowed. Bob Dolis, CIO at Crossmark Global Investments. It's good to see you, Bob. You had the Chicago Fed president saying to CNBC Europe that he's cautiously optimistic that we can avoid recession. So why do you think that the path to do so has narrowed?

I think every month that goes by where the Fed says we're going to raise rates, we're going to raise rates, we're going to raise rates, we're going to raise rates. And the economy slows just narrows the window. I'd hope months ago that there was a chance we could have a soft landing. But we know they're few and far between, and I think it's going to be tougher. expect 2023 will experience a recession. And when you're looking at this, are you more concerned about recession or are you more concerned about inflation? That's a great question.

I think the stock market has actually begun to shift from a total transfixing on inflation, now worried about recession. There are a lot of signs that the inflation number is coming down. And now there's worries the Fed gone too far. Will they go too fast? and the meantime, those recession fears via earnings estimates are beginning to plague investors. So how about stagflation? Remember that, Bob? I mean, you and I are probably old enough to remember it from the 70s and 80s. And back then, we sort of thought, I guess maybe a little bit, that we were going to be able to grow our way out of it.

Sagflation to worry, and can we grow our way out of whatever it is? I don't think we can grow our way out of it. I do think inflation will come down some more, Tyler, We'll be looking at 4 to 5% on an annualized basis by the end of the year. But real growth will be almost non-existence. You know, corporate earnings have hung in there because of pricing power. Unit growth has fallen, but pricing has enabled revenue growth to remain more robust than many of us guests. You know, you have all these companies talking about how they are parking cash on the sidelines right now. Do you think that that's a good plan?

And at what point do you start to enter back in? Where do you see a bottom, Bob? So picking bottoms, we know, is impossible for most of us, mere mortals. But with the market, this oversold sentiment now so negative, I'm beginning to buy a few cyclicals, raise my beta a little bit, certainly still on the defensive side. So, for example, beta from 0.9 to 0.93, maybe I'll get to 0.95, because we'll get another bear market rally, but I don't think we've seen the bottom yet.

So when you say cyclicals, you're talking about companies that would benefit when the market turn, when, excuse me, when the economy turns up, right? And that could be a good long time away. That's probably right, Tyler. But if we get another bear market rally, you know they will be at the head of the pack. They always are because they're big, big bait is and big exposure to the market. And I hope I'm smart enough to buy them right and turn around and sell them right. going to rent these stocks, not own them. How much farther down do you think, I mean, where are we in this market correction or bare market?

So my view has been all along that we need to test the June lows. We obviously are in price, but we're not seeing the vengeance of selling that normally comes with that test. So we'll see. There's no playbook to say, these things have to happen. My view is absent a deep recession. and if we have one, I don't think it'll be deep. I don't think we have a lot lower to go on the stock market

among the reasons why I'm doing a little shopping. All right, so, Bob, you've got three stock picks here in front of you, Elevents Health, MasterCard, and General Mills. What do you like about them? So the trio has above average earnings growth and persistence, above average quality. I think that's still key in this environment. Elevants, I like the HMO.

This is the former anthem, obviously. And I think that the HMOs have high single-digit revenue growth, low double-digit earnings growth. We haven't had a cycle in that business in quite some time. It's a scale business. They're getting better premiums, better unit growth, better enrollment. So I think this is a pretty good story. It's not expensive. It's about the same multiple as the market.

MasterCard's another. I want to own names that can benefit from secular growth. pattern as well as the opening of the economy. Not expensive. The stock's down a lot, coming into 10 times earnings, believe it or not. The big problem with this one and Visa, which we also like is technically it looks horrible. And the third one is General Mills, as you know, they reported earnings not too many days ago. They were stellar. The stock is at an all-time high, so buyer beware on that standpoint. But I think people eat their Cheerios, even in a recession.

Yeah, although. These companies are putting up some good gains. We know that, you know, in some of the lower end of these markets, that they opt instead of Cheerios. They go for the store brand. And it'll be interesting to see whether General Mills holds out there. Bob Dahl, thank you so much. Appreciate your time.

Thank you. Former Treasury Secretary Larry Summers, warning that the UK is losing its credibility following the announcement of sweeping tax cuts last week. In a series of tweets, Summers said, quote, I was very pessimistic about the consequence. of utterly irresponsible UK policy on Friday, but I did not expect markets to get so bad so fast. He added that a currency crisis in a reserve currency, like the pound, could have global consequences.

The British Pround recovering a bit today after hitting an all-time low against the dollar yesterday, the 10-year UK guilt rising to its highest level since 2008, here to discuss the global ripples, Michelle Cruz-Gabrera, counsel on foreign relations member, CNBC contributor, and a dear friend. Michelle, welcome. Good to have you with us. Always a pleasure to be here, Tyler.

You bet. It's not often that you see a currency like the pound cratering and interest rates rising the way. It feels more like a not a reserve currency, but a third world currency. An emerging market currency, yeah. You absolutely see this frequently happen in emerging markets, right? It's recently happened in Turkey, for example. But Larry Summers is spot on. I mean, the reaction was quite dramatic. It's akin to what we used to call the bond vigilantes. You remember this is a phrase coined by Eddie Ardenny, a long-time guest here on CNBC, who talked about there was a moment in the 80s when it looked like the U.S.

was going to go on a very kind of inflationary path, and bond yield started to rise dramatically. The bond vigilantes today can't do that. It's going to be too expensive. So the market vigilantes have done the same thing to the U.K. in very rapid fashion, both with the sharp rise and interest rates and also, with their currency to say what you're doing is very inflationary. It's not just the tax cuts. Larry Summers is right. It's the tax cuts, but it's in addition to the tax cuts. It's that they're

going to cut taxes and then spend dramatically in order to subsidize energy costs, which are really hurting consumers there. So they announced last week that they're borrowing that the UK was going to do in one year alone was going to go up 44% in one year. That's a lot. That's why the markets reacted. What we're showing you there, the UK is spending 6.5% of GDP to subsidize and shield consumers and businesses from the cost of energy. By the way, the rest of Europe is going along, even though it's not so you've got the UK simultaneously cutting taxes, spending more to subsidize energy and help people get through a long winter. And borrowing to do both, right? They're borrowing to do both. So interest rates are going up.

And at the same time, you have the Bank of England tightening interest rates. So you've got two things that seem to be in exact opposition to one another, spending and tax cuts on the one hand and tightening monetary policy on the other. Where does this end up for the UK and for the rest of Europe? Well, I mean, yeah, absolutely, you're right. They're working at cross purposes. the Bank of England has had a very rough week, I think, as they see what's been happening, because what the government is trying to do is going to be very inflationary, the thing that the Bank of England is working against.

Look, at some point, the markets force you to cry uncle, right? That's why we're referring to them as vigilantes. At some point, if you're going to subsidize energy and you have to borrow to subsidize energy, your energy is getting more expensive because you pay for it in dollars, and the dollars getting more expensive every day. And then your interest rates are going up. So to finance that borrowing is even more costly, at some point you just can't do it and it breaks. Right. So they'll have to pull back on the program. They'll have to do something if we continue to see markets react as negatively as they are.

I think that there's a lot of speculation right now about what the new Italian prime minister is going to do. Of course, we've seen what a financial crisis looks like in Greece and Italy as well. Is there a contagion risk here from the UK? I mean, like the UK, which was a stalwart of Europe and Europe's economy, if they're heading down a path where there's speculation about an IMF bailout, what does that mean for the smaller economies? Yeah. So the Italian prime minister, even before she was elected on Sunday, had promised to show more

fiscal discipline than was originally what the markets were worried about. If she wasn't convinced of it then, she'd better be convinced of it now based on what she's seen happening in the United Kingdom. Because, by the way, the United Kingdom, they're to GDP ratios in the 70% roughly. In Italy, it's at roughly 125%. They have a lot less room to maneuver in Italy. At the same time, you know, I was just in Italy last week, speaking with a lot of executives there, how concerned are they about a debt crisis? And one executive said to me, it's like, listen, the Prime Minister of Italy is kind of like the government. governor of California. You know, not in charge of the currency, a lot of the spending and all

the decisions happen somewhere else on the other side of the continent or the other side of the country. We're a big country. We're really important. They're not going to let us fail. But at the same time, what she does is nearly as important as what the block decides to do as a whole and what they're going to do. All right, Michelle, Michelle, thank you very. So good to see you. Michelle Caruso-Cabrell. Good to see you guys. Always a pleasure. Thanks very much. Likewise. Thanks. All right, coming up, folks, shares of Howard Hughes, falling along with the S&P real estate sector this month.

The CEO of the real estate development firm will discuss the outlook for the industry and the impact of rapidly rising rates. Before the break, shares of Hertz trading higher on a partnership with BP's electric charging unit that will put thousands of charging stations at Hertz locations. More power lunch in two. Welcome back to Power Luntime, Dominic Chu, as the major. Average's remain in negative territory at this hour. There are a few bright spots out there. We're talking fertilizer. Those makers like CF Industries, also in the leadership position in the S&P 500.

Mosaic, by the way, not far behind, up about 3.5% percent compared to 6.5% for CF. Both of these names are rebounding after underperforming the broader markets and the material sector through the past month, each off around 20% or so in that time frame. But both stocks are firmly in positive territory on this year-to-date. after commodity shortages and the war in Ukraine between them and Russia sent them soaring in the first half of the year. So watch those materials companies and fertilizer makers can test. I'll send things back. All right, Dom, thank you for that. The 30-year mortgage rate breaking through 7% today, the rapid ascent, a major reason why the housing market is slowing. The broader real estate sector on pace to fall about 13% this month.

Shares of real estate development firm, Howard Hughes, down about the same as it deals with rising rates across its residential, commercial, and retail properties. Howard Hughes, CEO, David O'Reilly, joins us now. Because you have these mixed-use communities, David, you have a sense of what's happening in all sectors of real estate, really. Give me your sense of how rising rates are affecting your business. Well, rising rates are clearly slowing home sales. But I would tell you that this cycle and this downturn is so much different than the last. I mean, and despite the headlines, and I hear it all the time and listen to Diane on CNBC. It's why I carry my umbrella because I think the sky is falling. But it's yet to hit me on the head because this dynamic is so much different. The last down turn

at the global financial crisis, we had meaningful oversupply. We built more homes and household formation for 10 years. And that exact inverse is true today. We have 4 million less homes on the ground than we have of household formations over the past 10 years. And we're not close to meeting that demand. Couple that with the lack of land inventory that home builders own, Specifically in the warmer, less expensive markets like Houston, Phoenix, and Nevada, where we see either seven, nine, or 11 months of inventory on hand, about half of what I would say is equilibrium. Well, Houston says, look, we're going to build up, not out, so we don't need more land. We just need more skyscrapers, I guess. And they don't have zoning laws.

So you can build wherever you want. I was just at a conference last weekend, David, where they said these zoning laws are keeping us from thinking about how do we use, I don't know, decrepit malls that are. just sitting empty and we should be able to turn those into apartments and affordable housing for people. Are you finding yourself in a position where you need to innovate or think differently about how to use the property at your disposal? We're constantly thinking about what's next for the consumer and we're building within our communities to meet the demand of those consumers and whether that's higher density, multifamily apartments, smaller homes with home offices or any other innovation that's meeting those demands, we're moving forward on. I would argue that part of the

reason why these markets in the sunbelt are warmer and less expensive and remain affordable is that innovation has been forward and approvals have been easier to attain and municipal financing is easier to achieve. All the financing that we're seeing in terms of the water, sewer, and infrastructure we put in the ground are largely reimbursed through municipal bonds in these markets, which we don't see in some of the more expensive markets. Are you seeing, David, any change? Let me come at the different way. is rising interest rates making you think differently about the kinds of projects or the scale of projects that you will be undertaking over, say, the next five years because the cost of money is higher?

Right. It absolutely makes us rethink all of our new development decisions, making sure that we can maintain that premium on what we're earning on the capital invested above our cost of capital, which is clearly rising. What we've seen to date is increasing rental rates, specifically in multifamily apartment buildings that have more than justified that such that we're able to continue to invest and develop out these communities. We've always sold land to home builders just to keep up with underlying home sales. So as those home sales starts to slow with these higher rates, we'll sell less land to make sure we remain equilibrium within our markets. I want to mention you're coming to us today from the tin building by John George, which is in Pier 17. Yeah, this is a new concept market, bars, restaurants, built on Pier 17, which got wiped out during Hurricane Sandy. We're approaching the 10-year anniversary of that. I want to ask you two questions here.

You've invested nearly three-quarters of a billion dollars in this property. Are you starting to get concerned about whether you're going to be able to recoup a return on that investment? That's part one. No, not at all. In fact, we see the vibrancy and the foot traffic here at Pier 17, the Seaport hit record. levels, even that pre-pandemic levels. Our concert series, we've never seen more tickets sold or a greater number of shows. This food hall opening tomorrow night on a 10-year anniversary of Superstorm, Sandy, adding

what is, we think, a catalyst for all of lower Manhattan in terms of a culinary destination is going to continue to attract more and more traffic here. And traffic's the key to unlocking value in New York City. We've seen it time and time again. And when you have a world-class destination with great concerts, incredible restaurants, and a food hall that's never been built in Manhattan before. We'll definitely continue to see that foot traffic. Well, I guess if the big banks are ordering people back into the office,

it's icing on the cake for you down there in the seaport. Part two, because you've decided to rebuild right on the water, and it's a beautiful location, how do you factor in the risk of another hurricane coming through? We know that we're overdue for a category five. how do you manage and mitigate the risk to that particular property in your investment there? Sure, and it's a great question because we didn't invest three quarters of a billion dollars, as you said, contested without thinking through the resiliency here. The pier has been built up above the floodplain, completely rebuilt and raised above.

The bottom of Pier 17, where the utilities are stored, are inside a submarine hull, completely watertight. The tin building where I sit today, which is the John George Food Hall Marketplace, was moved further east towards the river just so that we could raise it up above the floodplain without hitting the FDR. So we think we've done everything imaginable to make sure that we have complete resiliency for that storm, which is inevitable and will come. If somebody would hit the FDR, it wouldn't be all bad, David, you know. It just wouldn't. I knew some great visibility. I drove down it today and seeing that tin building come to life is amazing. Yeah, and also I got a little inside look there. The kitchen staff is on the fourth floor.

They have an amazing view of the FDR. Wow, nice. David O'Reilly, thank you so much. Looking forward to coming down there. It's just a quick stroll for me. Yeah, you left downtown. Thank you for that. Appreciate it.

Can't wait to see you both. You know, the interesting thing, Tyler, is how many companies now, if they're going to make an investment in beautiful waterfront property, they have to consider what the insurance costs are going to be and how much they have to self-insure and how do they protect that investment? It's got to happen. Here it's by raising the property above the floodplain.

We saw the same thing with Wren Resorts in Boston having to put the casino floor up above the 100-year floodplain so that they could protect it. It doesn't, you know, is there a chance? Go out to some of the barrier islands on Long Island, and you see the same thing. I mean, the new houses are all being built 12 feet higher, 12 feet off the ground or thereabouts.

Anyhow, all right, further ahead. There you are. Return to office. The working lunch, no more virtual meetings. Today's working lunch is back in person. We're going to sit down with the CEO of a company taking on the buy now, pay later business. Plus, another update on the 2022 stock draft. Delano's dynasty has negative returns right now, but a lot of people do. Still in third place is David Robinson, the Admiral, remains the only positive portfolio. As we head to break, delivering alpha returns tomorrow in person.

You can scan the QR code. It's not too late on the screen or go to CNBCEvents.com to register. I'll be there. Love to see you there. Now that's the draw. That's the draw. That's a draw. Welcome back to Power Lunch, everybody.

Kathy Wood may not be having. There you are, a great year when it comes to her funds. But that isn't stopping her from starting a new one. Ark Invest to launch a new actively managed venture capital fund. It will invest 70% in private firms. 30% in public companies. The fund targets individual investors with a minimum investment of just $500. Kathy Woods told Squawk Box this morning that they are hoping to offer investors something

they've not been able to access before. Now, ARC's flagship innovation fund has been underwater all year. It is down 60% year-to-date as of now. Let's go to Bertha Coombs for a CNBC News update. Hi, Bertha. Hi, Carla. Here's what's happening at this hour. In Russia, Russian held parts of Ukraine. Counting of votes has begun in the referendums or so-called referendums on joining Russia. Kiev and the West

have condemned the referendums as shams. Initial results from Ukrainians in Russia show overwhelming support. President Putin is scheduled to address Russia's parliament on the referend on Friday. Those lawmakers may consider annexation legislation as soon as next Tuesday. Russians seeking to avoid fighting in Ukraine continue to flood out of the country. Georgian officials say tens of thousands of Russians have entered their country since Putin announced efforts to recruit more soldiers for the war in Ukraine. Kazakhstan says nearly 100,000 Russians have crossed the border in the last week. And the U.S. is seeking allies on a global plastic pollution treaty that would challenge existing efforts

to craft such an agreement is according to Reuters. The U.S. Treaty would focus on pledges by individual countries, a group of 20 countries, including Britain, Canada, and Germany, advocates global standards, restrictions, and bans on plastic. Back to you. Condessa, Tyler. Thank you, Bertha. Ahead on Power Lunch. Department of Justice Dogfight. The DOJ holding hearings on the JetBlue American Airlines partnership. I mean, growing concerns, it's hurting competition. What could this case mean for the industry and any future mergers or partnerships? That's still ahead on Power Lunch.

All right, folks, we got 90 minutes left in the trading day and a lot of action left to come. We want to get you caught up on the markets. That will be stocks. That will be bonds, commodities, and airline competition put to the test. Let's begin with Bob Pazani, who magically appears in the screen over my short. Hi, Bob. Isn't that amazing? Higher in the morning, lower in the afternoon, we saw this yesterday, yields up, dollar up. Only sector that's really up is energy. You remember these comments about the leaks in the Nord Stream 1 and 2 pipelines over in Europe, a little disconcerting this talk that it could be sabotaged. We really don't know what's going on, but remember it's highlighting that energy insecurity over in Europe.

You see these energy stocks moving up. Phillips 66, some of the refiners are also moving up on this news. We're watching that hurricane that is forming just outside of Florida. And believe it or not, there's exchange traded funds for that. Look at that. FEMA, the Procure Disaster Recovery ETF actually exists. It's a basket of stocks that might benefit from disaster relief programs. What would be in this basket? Well, obviously, like a Home Depot, for example, a Lowe's are in it.

Cummings is in it. Floor and Decor companies, companies that make flooring are in it. And you can see most of them are fracturally on the upside. I finally just want to note the VIX is starting to get very interesting. We're getting into quasi-panic territory. I'd say 35 and above is quasi-panic territory. That's where we were at the June lows. You can get up as high as 80 during the financial crisis and during COVID.

But generally, 35 or so, that starts getting interesting. And usually it's hard to stay up there for long periods of time. Again, we have no idea if it's a bottom, but at least short-term, a little more panicky is a good sign. Back to you. Cozy panic. All right. Bob. Now, of the bond market. It is digesting new housing and confidence data. And Rick Santelli is tracking the action. Hi, Rick. And new supply. Yesterday's two-year, $44 billion, today of fives,

and neither of the auctions have gone very well. And the consumer confidence data was definitely a bit better than expected. But over the last two weeks, let's keep the following charts all at two weeks. We've seen some huge yield gains, but yet investors aren't showing up. Look at a five-year over two weeks. increased yields from 360 to 420, around 60 base points, hovering in a 15-year high yield, and the auction was a D. It was not very good. And if we look at what's going on with the 10-year, a very similar structure, up 60 basis points in the last couple weeks, from 340, up to nearly 4 percent today, 15-year high. And if we look all around the globe, we see sovereign debt doing the same thing because central banks are all pretty much trying to remove stimulus,

interest rates, boon deals, hovering just under two and a quarter, they're up 55 basis points in the last two weeks. Guilds win. They're up about 115 base points this week, almost one and a quarter percent, 14-year high. And finally, who's the beneficiary of all this? The dollar index. It's gone from basically 109 plus to around 114, over 3 percent just in two weeks alone, 20 years since we've seen these levels.

and it looks like there's even bigger demand growing across the globe on a daily basis. Tyler, back to you. All right, Rick, thank you very much. We've got a big move in oil prices today. And a mysterious leak across the pond at that Nord Stream pipeline. And Pippa Stevens is at the commodity desk covering it all for us. Hi, Pippa. Hey, Tyler, a lot going on in the energy space today.

Let's begin here with oil. Seeing a slight rebound after yesterday falling to a nine-month low, the softening dollar and output cuts in the Gulf of Mexico are supporting. reporting prices, although crude is closing off its best levels of the session. WTI is up 2.7% at 78.73. Brand crude right around 86, 54, a gain of 3%. But Europe is the key focus after three separate leaks on the Nord Stream pipelines. The unexplained damages are raising questions around sabotage, with Nord Stream calling all of the leaks occurring at the same time unprecedented. There's no immediate impact on Europe's gas supply since nothing was flowing through the pipes. Remember, earlier this month, Russia's gas prom cuts supplies to Europe via the Nord Stream 1,

and the Nord Stream 2 has never carried any gas after production was halted earlier this year. But it's important because it raises questions about future flows. European natural gas jumping more than 20% at one point today. Reuters also reporting that gas prom could sanction Ukraine's NAFTA gas, jeopardizing gas flows, Tyler, that are still going through Ukraine. Back to you. All right. Thank you very much.

Pippa Stevens reporting. Now to the skies we go, or rather to the courtroom, the Department of Justice's anti-trust trial against JetBlue and American kicks off today. With the government arguing that the alliance between the two companies will stifle competition and lead to higher prices, the outcome of the trial could have big implications for JetBlue's proposed takeover of spirit. So what happens next with the companies and the stock? With us is Helene Baker, Becker, excuse me, senior research analyst at Cowan. Helene, welcome.

Good to have you with us. Take us through what is going on here. It is American and JetBlue combining to jointly, I guess, sell seats to compete in New York and Boston, most especially against United and Delta. Exactly. What you just said is true. It's an alliance similar to the alliances that the U.S. U.S. Airlines have with a lot of international carriers. The Sky Team or One World or Star

alliances as an example, and this is just more of that. Instead of international markets, though, it just covers specific markets in the northeast, and it enables American and JetBlue to cross sell on some flights that enhances competition in the markets because it gives customers choice. Neither airline could necessarily expand into those markets alone, but together they can offer more service. So what does the combination do to the competitive balance in, say, Boston, where I think Delta is dominant. United is not particularly a present player. Right, exactly. So JetBlue has, I think JetBlue and Delta are pretty much the same size in Boston. And a lot of that service goes to Florida.

For Jepleu goes to Florida. They've been growing that market for the past decade. And every time they at a city, they become more relevant. But between when they started and when they filled out the footprint, there's not a lot of choice, right? To your point, Delta is the biggest airline there. And then you have Jep Loo and United. did really what they're doing is either flowing over Chicago or over Newark. And then you have the international airlines, of course, doing that.

And then American was just not very big in Boston. So this gives American a presence in kind of the upper northeast. So think markets like Maine in upstate New York, Massachusetts, which would obviously cover Boston, Rhode Island, maybe what is that, eastern Connecticut? and then flow that traffic over JFK as well to give them exposure and to also give JetBlue customers more choice than just JetBlue domestically and then other international carriers. Because as you say, JetBlue is sort of concentrated on routes from the east down to Florida, down into the Caribbean, American, obviously, a more global airline. if you will. Helene, thank you very much. We appreciate your time today. Sure. Thanks, Tyler. Helene Becker. Well, when times grow tough, how about a change in strategy?

Why one startup is proposing Save Now, Buy Later for today's working lunch. We're sitting down with the CEO that's just flipping that buy now, pay later business right on its head. And as we head... Consumers are getting squeezed as inflation rages along. The economy slows. Credit gets more expensive. And as we prepare to enter the holiday quarter next week, John Fort brings us up close with a startup CEO CEO who is flipping the buy now pay later idea on its head, John. Yeah, Tyler Danieli Curente is co-founder and CEO of Real. It's a save now, buy later company that lets users earn rewards while saving up and budgeting for big purchases.

She grew up in Venezuela, the daughter and granddaughter of entrepreneurs. And when we first talked, she told me she believes the next wave of fintech apps will tap into consumer psychology, not to market to us, but to help us save. We see kids from really young age engaging in technology in ways that I would have never had imagined when I was a seven-year-old, right? And understanding that, especially in this space where I am, which is financial technology,

historically, financial technology was very functionality-driven, but that was for a different generation. I truly believe that the big winners right now and in the future are going to be the players that understand consumer psychology and are able to build products that deliver to a customer that it's constantly evolving. And Daniela joins us in studio today. It's our first in-person working lunch.

Welcome. You've got a seed stage startup that's really pretty countercultural in fintech right now, but at an important time because debt's becoming, more expensive. And you come at this from an interesting perspective. You started out in design and marketing, right? Yes, I started in marketing. But really, that background gave me the basis to focus on consumer psychology and understand consumer psychology, which is the angle that we're coming at. I'm curious. It sounds to me like your concept depends in part on delayed gratification. I don't think of Americans as particularly wanting to delay gratification. But maybe younger

people are more inclined to do that than us baby boomers. When we talk about instant gratification, there is also a price point associated with instant gratification. It's easy to have instant gratification for a $50 purchase, for a $60 Amazon purchase. But when it comes to larger purchases, which is really the space where we play at, which is aspirational purchases, then people tend to delay gratification already. So we're not shifting behavior. We're leveraging the behavior that it's out there where people are obviously spending hours on Instagram.

So larger purchases like what? Like. Give me some examples. I'll give you a couple. So furniture, right, like travel, like shoes, like if you are going to have kids, why are you going to pay for the stroller up front if you're not going to see the baby in a couple of months? So those are some examples of things that people say for. It's interesting that Robin Hood kind of used gamification in the app to get people to trade. You're trying in a way to use gamification on real to get people to save,

to feel good about building up to a purchase instead of doing it now when it might cost them more later. Yeah, if you go to checkout in any website, the two options that you have are either you have the cash, or is dead driven? And we know you were talking a couple of minutes ago about inflation being at 8.3%. Right? So if we look into the market, no one was really capturing the power of people's cash flow,

which is so important, especially at young ages, where people are looking to understand their finances, and we saw there was a massive business opportunity to come in and optimize cash flow towards purchases in a fun way. Alas, we have to leave it there, Danielle. Thank you very much for being with us. We appreciate it. Good luck with the venture. John, always good to see you. Always good to be with you.

Thank you very much. And over to you, Contessa. All right, Tyler's still to come. Today's stock draft edition of three stock lunch, Delano's Dynasty, Amazon and draft kings. Which do you think is holding the team together? The answer might surprise you. As we had to break throughout Hispanic Heritage Month, we are celebrating our CNBC teammates and contributors. Here is Lido Advisors' chief market strategist, Gina Sanchez. The benefits of being Hispanic is that it is a naturally inclusive culture. You can come from many different racial backgrounds and be classed as Hispanic. The challenge to that is that it can create divisions and a lack of cohesion within the community.

And so the Hispanic voice sometimes comes out fractured or doesn't come out as strong in one direction or another because it represents so many people. So I think as a culture and as a community, we have to think about how we're going to channel our voice and what we're going to channel it toward so that we can have the maximum impact. Welcome back. Day two of our week-long stock draft update. David Robinson still in first place. In fact, the only one in the green up more than 3%. Today we're looking at Delano's dynasty in third place with Amazon and Draft Kings his portfolio down 7%. Let's bring in Delano Soporo now to discuss his team's status. All right, so let's start here with Amazon. How are you feeling about it right now? Was that a good pick for you? I think it was a solid pick. I'm still feeling good, still bullish.

Main reason why I'm still bullish is the growth prospects, despite, you know, what's going on economically. So the beauty of why I picked Amazon is because you want that versatile company that actually, if you're seeing softness in the e-commerce business, is to have other business users that are growing as you look at what AWS did, second quarter, percent growth year over year. They had the advertising business also grow. If you're looking at the tech giants, it was pretty much Amazon and Google that really had strong advertising businesses. And they've tightened the belt as a company. And I think they're still looking for acquisition. So I'm still bullish on that one. I think we'll be all right.

Are you worried about the consumer, though? Are you worried that the consumer is going to pull back on their Amazon spend? Yes. And that could be a concern. And I think that that's where you're going to see a little bit more softness potentially. on the e-commerce side of the business. And as we go towards the holiday season, maybe there's a little bit of support there. But, you know, if you look at the others, the business, which are starting to be, you know,

bigger parts of their business, I think that's where you actually, you know, for investors, you get a little bit of juice. All right, let's move on, shall we, to Draft Kings. Yes. So, you know, Draft Kings is the one that I was really picking for being more of the surprise story. And I think they still have that strong. revenue growth story, obviously, as a growth company that's been hurt incredibly since we

started the year. But, you know, they've bounced back a little bit since mid-June. They've actually held a rather decent support level. I think if you look at, you know, the whole picture, the big picture is why I kind of like this company. If you look at their roughly, you know, let's say they have a 20% market share. And if you have optimistic projections on where the sports betting market goes in 2025, 2026, 25, you know, billion. Maybe we'll say that with 30% operating margin, they're at $1.5 billion in operating profit and maybe they're able to turn a profit there. So you're looking at the total addressable market with Drag Kings and the growth story,

and I think they still have a strong gorester as well as legality that's being brought into other states. Yeah, like if California legalizes it and voters will get their chance to look at that in November, maybe, well, it could push off profitability for a while because of the marketing spend. We'll wait and watch that. All right. Hypothetically, Delano, if you had a draft today, what additional stock would you pick?

Yes. Additional stock, third round, it'd probably be Walmart, as you were mentioning, just what consumers are doing and probably going to do to the end of the year is going to be a little bit, you know, the sentiment's changed. And so if you're looking for a company with still relatively strong demand because it's a staple, stable margins. They've done well on the margin side. And management's actually done well with cost control, even though inventory is a little bit. bloated. I would probably go with Walmart to add to round out the picks. All right. Sounds pretty good. Delano, thank you very much. Delano,

Sapporo continued good luck in the stock draft. Up next, the number of homebuyers backing out of contracts hitting a record in cities across the country. We are going to go under the Microsoft and we want to show you shares of rider

systems which are halted on reports that Apollo Global is exploring a takeover of the company. We'll keep an eye on that stock can bring you any developments. There you see rider systems moving higher on a moderately down day for the stock market. Welcome back to Power Lunch, 30-year mortgage rates breaking through 7% today. It comes as a record number of home buyers back out of their contracts. Dom 2, it rejoins us once again with a closer look at those numbers. Maybe it's not shocking, right, Contessa, Tyler. If the cost of home ownership is going higher, the cost of financing is going

higher, people might get some cold feet saying, maybe I don't want to make this kind of a lifetime commitment to what could amount to be the biggest purchase of my life. So data, according to Redfin, shows that at current levels in the month of August, we're talking about this kind of 15% cancellation rate. People wanting to back out of their agreements to buy a home. Now, just to put that in context, pre-pandemic, it was averaging roughly 12%. At one point in the months right after the depths of the pandemic back in 2020, it got north of 17%. So that was the record high in terms of cancellations. But in a more normal-ish type setting, 15 represents kind of like the record highs that we're seeing. Now, where are these cancellations happening?

The top 10 markets where people are canceling the most are in some of the hottest markets going into this real estate cycle. We're talking places in Florida like Jacksonville, Orlando, Fort Lauderdale, Tampa also places in the southwest like Arizona, Nevada, and Texas overall. Now, those are the highest cancellations. The lowest cancellation rates are in some of the places where the demand has been huge for a long time. We're talking markets in California like the Bay Area, San Francisco, Oakland, San Jose, and then the New York City metro area as well. So interesting data from Redfin on that.

Really fascinating. Thank you, Dom. Appreciate that. All right, folks. Be sure to check out delivering Alfa tomorrow. I'll be there. I won't be with you, sadly. You know what? Sometimes you got to ditch me for the big movers and shakers. Meantime, thanks for watching Power Lunch, everybody.

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