Power Lunch - Musk Watch, Refusing To Yield 10/2/23

Episode Date: October 2, 2023

Tesla delivery numbers fell in the third quarter, as the company gets ready to launch the Cybertruck. We’ll explain why Elon Musk should be watching the UAW negotiations carefully. Plus, the 10-year yield just hit a new high we haven’t seen since 2007. How much higher can it go? And what’s the impact on stocks? We’ll discuss. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody. Welcome to October and welcome to Power Lunch alongside Kelly Evans. I'm Tyler Matheson. Coming up, Tesla delivery numbers falling in the third quarter as the company gets ready to launch the cyber truck and why Elon Musk and companies should be watching very carefully what happens in Detroit. What if the UAW tries to unionize Tesla? We'll discuss that one next. Plus, the 10-year yield again rising to new highs we haven't seen since back in 2007. How much higher can it go? And what will the impact? B on equities. Today is the perfect day to discuss it because Rick Santelli's in the house. Kelly? Looking forward to that, Tyler. Thanks. Let's get a check on the markets. We're just off session lows really turned lower when the 10-year cross above 4.7 percent today. Dows down half a percent right now, similar for the S&P. Nasdaq's up 19 points and the Russell 2000s are the worst performer. Tyler mentioned those rising yields. That's especially hurting the utilities today. That's one place investors often go for yields. It's pressuring the business model there. The whole sector is down 5% bringing its year-to-date drop to a 21% decline. Poster Child seems to be Next Era,

in particular, getting hammered. It's now lost nearly a quarter of its value in a week after lowering growth expectations. There's Next Era Energy Partners, both NEP and NEE are under pressure today, Ty. All righty, we start today with Tesla, which traded down initially after reporting delivery numbers, but the stock is flat right now, and let's go to Phil LeBoe for the details. Hi, Phil. Tyler, not a huge reaction to these numbers from Tesla. I think in part because people knew that these were going to be numbers that were lower than the previous quarter. They were readjusting production in Shanghai and in Texas. Nonetheless, they did come in below expectations.

Delivery numbers of 435,000, just over 435,000 for the quarter. The street was expecting 448,000 for the quarter. Q3 production of just over 430,000 vehicles. It brings in the question, what do we expect for the? the full year. Tesla has reaffirmed that it expects to deliver 1.8 million vehicles for the full year. Right now, they're at about 1.32. Somewhere in that range is where they are. So they're going to have to come up with about 460,000 and 65,000 for the remainder this year to hit that 1.8 million guidance that they've already given. Meanwhile, Rivian also out today with its

Q3 deliveries. And these were better than expected, coming in at 15,564 vehicles. The street was expecting 14,000. By the way, it was 15,000, was the consensus, came down about three or four weeks ago to 14,000. So again, these were better than expected. And the company has reaffirmed its full year delivery guidance of 52,000 vehicles. What's in store for the fourth quarter as we head into 2024? Lots to discuss with RJ Scouridge, founder and CEO of Rivian. We'll be down on the line in normal Illinois tomorrow where they build the R1T, the R1S, as well as the Amazon electric delivery van. Looking forward to our conversation with RJ tomorrow morning on Squawk Box. All right, Phil, bring us up to date if you wouldn't mind on where the UAW strike is right now. Not much changing. There are conversations that continue between GM Ford, Stalantis, as well as the UAW. Probably a little more formal discussions between Stalantis and General Motors today, but we're not expecting any breakthrough anytime soon. All right, Phil. Thank you very much.

Phil Abbeau reporting. Our next guest says those Tesla delivery numbers were nothing to write home about and Wall Street will be left wanting more. Still, he remains bullish on Tesla with an outperform and a $350 price target. Let's bring in Dan Ives, managing director of equity research with Wed Bush Securities. Great to see you. Great to be here. Very, very busy times. I mean, you don't even know which piece of this to start with.

And you've been quite clear about how bad you think this strike is going to be for the big three if they get what they're demanding. Is there any way in which Tesla also comes out a loser here? because its workers demand more. It tries to unionize them or something to that effect. Sure. I mean, there's always been a fear of unions of Tesla. I just see that as basically minimal probability that's going to ever happen. I think Tesla, it's a win-win situation because when you look at the big three, what's happening here,

it's a debacle in Detroit because ultimately this is going to be passed to the consumer when eventually they do get a deal. And the EV strategy, I mean, this is a gut punch to bar, Farley, what they've done, built over the years. And I think that's really the frustration right now in this Rubik's Cube, where I believe the UAW deal, if they took that, it would essentially impair the business models for the, for all of the next decade. For the big three, that is. It will impair the business models because it'll be forced to pay so much more to the workforce that they will not be able to invest in the conversion to electric vehicles. Exactly. I mean, if I look, if they actually

sign this deal, I mean, these business models, the street would basically view it as or ever like uphill battle to ever be successful because it's only one hand tie by on their back. They're going against non-union Tesla, non-union Rivian, foreign automakers. And that's right now, champagne on ice has been for Tesla in terms of the pending competition that's coming at Detroit. And that's why this UAW, it's a nightmare on Elm Street in terms of what's happened in Detroit. Why is it that Tesla's demand has been so soft? Is it simply that they've overproduced and they can't cut prices enough because there's just a lot? Because there's just just no pent-up demand additionally for EVs.

And there's nothing and another. But why is it that those delivery numbers and that they have so much excess inventory right now? How long is it going to take for that to be absorbed? So we think it's really fourth quarter. I mean, if I look overall, take a step back. If you look at $1.8 million where I believe is going to be deliveries for the year, that's a super strong number relative to the environment. I think margins, Trough, and Phil has talked about that as well.

Q4. I think you have a cyber truck that starts production, a refresh a model three. And I think in China, they actually start to gain more share. That's why, in our view, this is more of what I've used to pause into the next phase of the Tesla growth story, which is why we've been telling our investors here you continue to own this name. How did they go from not being able, a year ago, not being able to meet demand to the situation where they are right now? Yeah, I mean, look, demand definitely soft. We've seen that in China in terms of century price war that's happened in China.

but I believe the poker move of cutting prices, that was the right thing. I think we've seen it in the stock in terms of stimulating demand for Tesla. But no doubt, they are definitely going through a transition in terms of what we're seeing with demand in the U.S. globally. But if you look at scale

and where we believe they could get to production, we're going to be looking at next year or two or coming as going to be $2.5 million, ultimately in the $3 million, what they're going to see from a delivery as well as a production. I think this is just how, In my opinion, this is just what I'll call the middle phases of the next phase of the Tesla growth story taking place.

I wonder, though, about competing with BYD. I mean, they have more models. They have, they update them more quickly. They have more colors. You know, it's already Chinese models are like some of the top selling vehicles in Europe already. They also have, what's the smaller one, the four letters. Anyway, it's not just BYD, which is formidable, but there's other Chinese automakers as well. And you read about these, these are not like, you know, low-cost, cheap businesses.

BYD is like, it's like the Japan of the 2020s in terms of the impact that Japanese automakers had on the market back then. So you do wonder if Tesla, even having an advantage to the big three, how does it not get undercut? And if they keep the Chinese cars out of this market, maybe it'll be fine, but how does it not get undercut? Look, this is an arms race. I mean, this is a game of throwing that's going on. And you see what happened in China. I've seen it firsthand. B-YD, Neo, X-Ping, and other.

I mean, some of the best EVs out there. I think where Tesla has been so successful because of their ability to expand gig in terms of Shanghai, what they've been able to do from a price perspective, and the Chinese consumers, especially on the high end or rise in middle class, they do want Tesla's. But to your point, do Chinese EV vehicles come here into the U.S.? Ultimately, that actually becomes the issue because that's going to be... What do you think will happen? I mean, if you have a second Trump administration, there will be presumably tariffs,

protections against the importation of Chinese vehicles. I would guess. They're still on them from his first administration. Well, yeah, they're still on it. I think what's happened right now, look what's happening out of the Beltway, Detroit Big 3. I mean, it's been gut punches from UAW, but now you ultimately have Chinese EVs come in. That would just add to the worst.

I continue to see that as a cement wall that does benefit Tesla, benefits to Big 3. But right now, they're in that cage match with the UAW, where, in my opinion, That's really the frustration that's building, not just in Detroit, but across the industry. It seems the one missing plank for Tesla would be if they had a Model 2 or some kind of lower cost mass market car that could compete against the Chinese or just make it more affordable for a lot of Americans who might be tempted to switch. But that feels like it's just way off in the distance at this point. But I believe by the end of next year, a sub 30K vehicle is introduced by Musk plus with cyber truck. And that's why I just view this is in the early days. Even with supercharger and the sum of the parts, this is not an auto.

company. This is disruptive technology company. That's why we're buying here, despite what I'll call definitely nothing right home about, type of three-que do every number. All right. Dan, thanks. For now. We appreciate it. Dan Ives. All righty, turning now to Washington to the extent that our preceding conversation wasn't at least tangentially related to Washington. Down there, the government shutdown was averted, at least for now. We could be right back in this position, six weeks from now, of course. And the bipartisan deal could lead, could lead to the ouster of House Speaker Kevin McCarthy here with more on what's next in D.C. And McCarthy's future is Libby Cantrell, head of public policy at Pimco. Libby, welcome. Always good to see you. I'm curious, so I want to

begin not with Speaker McCarthy, not with the deal particularly that was struck on Saturday, but on the question of Ukraine, conspicuously absent from this continuing resolution was any more funding for Ukraine? Does that persist? And do we, not continue to fund Ukraine's resistance against Putin and the Kremlin. And isn't this exactly what Putin wants and expected from U.S. politics? Yeah, well, good afternoon, Tyler. I think that's exactly right in that, just sort of highlighting how much of a lightning rod Ukraine funding has become, particularly for the House Republican Conference.

There was a vote last week that indicated that only, you know, a little more than half of the Republican conference was opposed to Ukraine funding. This is, of course, after, you know, both sides of the aisle has been mostly supportive of, you know, funding the continuing effort in Ukraine. It just shows you that there are some cracks. Now, however, the center on Ukraine still holds, and both parties, and both parties still want to continue to fund the effort. But I think it does show kind of trouble ahead here in terms of Ukraine funding, particularly if there is a regime change in Washington, you know, after the next election.

For the foreseeable future, I think what is most likely, and Representative Gates was referring to this, I believe, on the House floor today, is that there will probably be just one big vote on Ukraine funding that prevents then folks from having to vote over and over again, taking painful votes over and over again. So I think they're going to try to clear the decks before the election. In other words, Ukraine funding will move on a separate track from the rest of the funding of the government. It looks like it.

Now, was this part of the deal, you know, or the secret deal that Representative Gates was referring to earlier today? You know, that's open question. But I do think that Speaker McCarthy and Majority Leader Schumer are committed to bringing this up in some sort of standalone vehicle. some other vehicle outside of the appropriations process, just given, you know, how, what a lightning rod that has been. All right. So what happened here, Odell on Saturday? What did happen? I mean, Friday, it was all over. And there was going to be a shutdown and everything seemed set that way.

And then, and then Representative McCarthy, Speaker McCarthy, I should say, sort of threw a Hail Mary pass. And he relied on a lot of Democratic support and a modicum of Republican support to get this continuing resolution through the house. How did it come about, number one, and number two, what are the consequences for McCarthy going forward? Yeah, so, I mean, you know, we were of the consensus view as of, you know, Friday, Friday afternoon that a shutdown was very likely. I wrote on a client note saying that it was near 100 percent odds. You know, never, never do that, apparently. That's, you know, just karma. But it did seem like we were kind of barreling towards a down and the Speaker McCarthy had a choice to fund the government and potentially lose his

speakership or work with the Republicans on a Republican-only bill, not fund the government but not lose his speakership. You know, I think interestingly, he pivoted to working with Democrats, but his speakership is in jeopardy. I do think, though, kind of from a markets and economic perspective, Tyler, is just important to remember, though, that this is just a reprieve, not a resolution. We are going to be, you know, revisiting this issue in 45 days. I think the big question is can the House pass these appropriations bills?

Can the Senate pass their own versions of bills? And can they conference them in time to avoid a shutdown in 45 days? You know, we'll see. I'm not going to make any projections here. But, you know, we'll see. That's an open question. So in some ways, this didn't really solve any problems. This just, you know, simply kicked the can down the road.

But it did present a potential issue for the speaker, as you alluded to, Representative Gates again is likely to bring a motion to vacate to the House floor. Now, there are lots of ways that that can go, but likely Speaker McCarthy will need some Democrats to at least vote president or not show up in order to help him, you know, retain his speakership. I think that's an open question. I will just say it's important, important to know. I don't think Democrats really necessarily want to help the speaker here unless there are going to be some explicit concessions. And that may then sacrifice Republican support for Speaker McCarthy. So he is a bit in a pretzel here.

But I think from kind of a markets and from an economic perspective, the big takeaway here is, yes, we've kind of kicked the can down the road. An economic headwind for now is off the table. But nothing's been really resolved here. It's really, we've just really seen a respite, not a resolution again. Libby, are the rising bond yields getting any attention in Washington? For sure. And, you know, Kelly, I do think I watched Dan's segment. I couldn't agree with him more. I mean, I do think that, you know, in some ways, you know, folks are kind of out of their side eye looking at these with some weariness.

And I think also interesting, the electorate is also, you know, starting to worry about deficits again. You know, the sort of politics of austerity that we've seen cycle through Washington. I do believe is coming back. I think this is going to be a big issue, you know, going into the election and sort of post-election, of course, those tax cuts, the Trump tax cuts are going to be expiring at the end of 2025. That will be an important inflection point. But the big point here, though, is in terms of government spending, the discretionary part of the budget, which we are all focused on and which we're about, you know, about to see a shutdown over and what have you,

is only a quarter of all spending. So to really tackle things, you really do need to look at that kind of, mandatory side, whether it's Social Security or Medicare or what have you. This is just nibbling around the edges. We're not really getting into sort of the substance of the actual spending problem in Washington. Maybe a Greenspan Commission Redux, exactly. Something of that size. I know we all get excited about commissions, but that may be the way out.

Libby, thank you very much for joining us. We appreciate it. Thanks so much. Appreciate it. Libby Cantrill with Pimco. Coming up, Tech Clash, Microsoft CEO, Saty Nadela, testifying against Google. those details in tech check next. Plus thinking outside the box.

E-commerce delivery is essential to our economy and society, but all those packages ain't great for the planet. We'll take a look at one company offering a solution. And as we had to break a quick power check on the negative side of the S&P, Kellanova, Kellogg's cereal business recently renamed. Trading lower amid its premiere as a standalone company. More on that later, down 6%. On the positive side, discover financial hire. after agreeing with the FDIC to approve consumer compliance, those shares up 6%. Welcome back to Power Lunch. Microsoft CEO, Sauti Nadela, today testifying in Google's antitrust trial explaining why it's so hard to compete against Google. Let's bring in

Amon Javers and Dear Jabosin now. Welcome to both of you. Amen, you're there. Can you update us on what Nadella said? Yeah, Kelly, look, his testimony has been helpful for the U.S. government's side, which is arguing that Google is a monopoly. Nadella here talking about just how important those defaults are, like the default search engine position on Apple devices. Nadella is saying, you know, it's really bogus to argue that customers can change their default setting and switch to another search engine. He said, sure, they can do that in theory, but they don't actually do that in real life. So those defaults are vitally important. And he said that Microsoft has gone after Apple to try to get that search engine default for their Bing search engine for years. They've been willing to

willing to pay billions of dollars for it. They've been willing to lose money in the short term to get that position. They've never been able to outbid Google. He said that he estimates, this is just a guess now, that Google's payments to Apple or something on the order of $10 to $15 billion a year for that search engine position. And he's talking about just how important that is. On the other side, though, Google's attorneys have been hammering him with questions about, well, why was Microsoft so late to the search game? Did Microsoft invest enough in its search product? Is Microsoft's search product nearly as good as Google's search products. So there's some pushback here from the Google attorneys as well, Kelly. So Amin, and I understand we might be able to hear more from Nadella,

but how much do you think they see through this and say, well, you know, it serves him well to make this case in the courtroom, but maybe outside he's got very different plans and intentions. Well, I mean, one of the key things here is the future of all this, right? So a lot of this testimony today has been backward looking, going back to emails from 2005, 2007, you know, sort of the early days of this search battle. But now a lot of the questioning is focusing on AI and chat GPT, of course, where Microsoft has had a big success and is looking to change the search engine game. And the question there for Microsoft is, you know, to what extent does chat GPT change the game? And does that give Microsoft now an entry point into the

search business, which is extraordinarily lucrative that it just hasn't had in the past? Nadella not really saying that. And he says some of his emails around this. capture the optimism of somebody with 3% market share that he might get to 3.5. So he's trying to downplay it a little bit here as he's testifying in court. Dear Joe, what would you add? I would say this is a very good point. I mean, they crack 3%. And if you take his comments earlier on in the year, who can forget when Satya Nadella said

that he wants to make Google and Senator Pachai dance? He thinks that there really is an opening for ChatGPT, which, by the way, Microsoft has the exclusive partnership with. So if that really is a threat to Google search, it kind of undermines his arguments that he's making in court today because, as Eamon says, they're backwards looking. But in the longer term, I mean, it is so interesting and it's ironic that Microsoft was targeted by antitrust regulators in the 90s for something very similar, right? Putting its Internet Explorer as the default on many of its devices, that's what it's complaining about now for Google. But, you know, over time, the effect was damaging for Microsoft. It really opened the door for Google.

So I think that's something that investors need to ask themselves now. They've been quite complacent. Whenever we get these regulatory antitrust headlines, it doesn't move the stock. But could this essentially create an opening? I mean, this is a major lawsuit that's been brought against Alphabet. And while our regulators here in America haven't been seen to be as tough as, say, the regulators in Europe, this could be a real chance for them to change things and change the dynamic that's going. on in search, which, as Amon said, has been so incredibly lucrative. That is something that

sort of I take away from the testimony today is just how great a business this is, and that's what makes the stakes so high. Yeah, one of the greatest businesses ever created, in fact. Dear Drewbosa, Aymann Jabbers, thank you both. We appreciate it. All righty, up next, crude awakening, big oil CEOs defending themselves against climate criticism. That story when Power Lunch returns. Oil company executives today defending their companies and their industry after we've recently seen protests in hundreds of cities around the world calling for an end and end to fossil fuels. Pipp Stevens joins us now. Pippa. So these comments came from a major oil and gas industry conference at Apec in Abu Dhabi. And we heard from executives from Shell, BP, Total, Axy and others essentially saying they are providing a vital resource while at the same time investing in low energy solutions. And it does come at a seemingly difficult time for the industry because they are competing with these different headwinds.

On one hand, you have consumers and politicians saying we want more of this now and at cheaper prices. On the other hand, you have calls for peak fossil fuel demand, which is essentially saying that there is no long-term viability for your infrastructure. And so I think that what we've seen over the last year is that the energy transition is definitely not going to happen overnight. And right now we need both old and new energy. It's not an either-or question. But one thing looking forward that is interesting and that is really dividing the climate community especially is the extent to which oil and gas companies should play a part in the transition. They are, of course, the biggest emitters, the biggest contributors to climate change.

But on the other hand, they have the biggest balance sheets. They have the biggest CAPEX budgets. And so, you know, they're emphasizing these lower energy solutions, these lower carbon, I should say, solutions. Still a sliver of their overall spending, but certainly a very hot topic right now. And they would have as well the sort of internal infrastructure, the talent, the engineering, presumably, that would give them at least a head start in some of the conversion, I would assume. Exactly. And we have to work within the confines of the existing infrastructure. And right now, that is oil and gas, that is utilities. They are the ones that have the geological knowledge. They have the big spending. They have the big R&D. And so there's a lot of people out there that say they really should be part of this conversation. They should be leading this conversation. Of course, right now, they're not. They've taken out huge advertising campaigns to emphasize their low carbon solutions, but it is still a fraction of their spending. A few notable exceptions, including Total, which has been a leader on that front. But to your point, they have the people. they have the know-how, and it's, you know, pushing them. And they want to be in the energy business, one way or the other.

And it's profitable. At the end of the day, that's the future. They want to invest for both today, which is oil and gas, as well as the future, which is lower carbon. I have to leave it there. Pippa, thank you very much. Let's go to Bertha Coombs now for an CNBC News Update. Hey, Tyler. Kevin Porter, Jr. has been told to stay away from the Houston Rockets following his domestic violence arrest last month. The team's general manager called the allegations against him deeply troubling today. prosecutors say Porter Jr. attacked his girlfriend in a New York City hotel room that he left her with a broken bone in her neck and other injuries. 23-year-old has pleaded not guilty in the case and is due back in court later this month.

Montana is appealing a landmark climate change ruling won by 16 young plaintiffs in August. The young people blamed the state for not doing enough to prevent the climate crisis. and argue that the state violated their constitutional right to a clean and helpful environment. The state gave notice of an appeal on Friday, though it could take months before the actual appeal brief is filed. And the powerball jackpot is now over $1 billion for tonight's drawing. It marks the first time in the history of the game that back-to-back jackpot cycles have cracked $1 billion prizes. Tonight's jackpot is the fourth largest powerball prize. ever.

I guess there's inflation in everything, including jackpot prices. Because my understanding is they made it so much harder to win that everyone knows it's like not even worth playing anymore. Yeah, yeah, because, you know, if you happen to win. Who needs a billion dollars anyway? Yeah, a few hundred million dollars. You know, I think I could figure out what to do with it. Bertha, thank you.

Bertha Coombe. I'll split some prob. We'll get it. No, you know I'm anti-lotto. Anyway, ahead on Power Lunch, the Dow is currently lower by 170 points, as yields have been rising today to 16-year highs. Ten-year was briefly above 470. We'll talk more about the impact that's having on stocks next on Power Lunch. Welcome back to Power Lunch. Stocks starting the new month off with the Dow down about 200 points right now. Investors again focusing on surging interest

rates, the yield on the 10-year Treasury hitting a fresh high of 4.7 percent highest level since 20-07. Let's bring back Rick Santelli, who's here with us in studio, along with Chad Morganlander, senior portfolio manager with Washington Crossing Advisors. Gentlemen, good to have you both here. A couple of things struck me over the weekend. One was a very interesting article in the Wall Street Journal that compared the performance of the S&P 500 cap-weighted versus the unweighted S&P 500.

And it was shocking. The only way you make money this year in the S&P is if you're in that cap-weighted index, not in anything else. Number two is the rise in interest rates to where they are right now. reminds me spookily, eerily of 1987. I can't disagree. And there's some of the similarities are the speed at which markets are moving. I always like to look at the slope of the increase on

rates. And they're guns hot right now. So we're almost getting what I call the staircase, where you're looking at higher closes all along. Now the previous high yield close, I believe, is the 27th of September, 461. So we're going to have a new high yield close for this cycle. And I concentrate most on the closes. I think the other similarity is with the crash that the equity markets, you need to view those in the context of interest rates. And the one big difference is is that we condition people in the crash. I was trading in the pits in Chicago during 87 is that the minute the stock market started to go down, of course, interest rates started to go down as well. And Kelly's pointing this out a number of times that what we have now is almost the

worst of both worlds. You have a squeamish stock market and you have rates climbing aggressively. Now, granted rates ultimately did have a move that appeased the conditions of the day. But I think with the debt level rising the way it is, I think this one is going to be higher for longer, meaning Fed and the market-driven rates are going to share that similarity. I really do think there's a chance rates at these levels are going to balance out, but I wouldn't look for a huge correction. A huge correction in rates or in rates? In rates, a huge return down.

What is your you just heard what Rick said you heard what I said what do you think of equities right now here between now and let's say the spring So it could be a bit challenging because the risk-free rate is around 470 and then you have the T-Bill rate at five and a quarter You have a PE multiple forward looking around 1819 so you reverse that make that into an earnings yield and it becomes a little less compelling that Tina trade is gone stick a fork in it and I agree with Rick higher for longer is certainly going to happen. But overall, we do think inflation trends are starting to moderate. There are seams of opportunity now, in particular, because of this concentration of the big tech stocks moving higher, distorting the overall markets. It's funny you say inflation because that feels like an easier concern than what we're up against now. I can't even believe I'm saying that, but it feels a little easier to solve inflation because at least the Fed can act.

trying to now solve these yawning deficits, which the government has to solve. And the only thing that could bail them out of this is literally a financial crisis where rates crash or the Fed starts buying bonds again. This feels like even more challenging. Without a doubt, you're going to have a deficit that's going to be continuing to be historically high with the Chips Act, the Infrastructure Act and whatnot overall. But we think that right now that if you just prepare your portfolio with good quality companies, that are not over excessive in regard to valuations, have very little debt that are very consistent. So look at consumer staple companies, Colgate, Clorox, for example.

You can look at Accenture. Are these, it's funny you say this about staples, because one of the debates going around in the market is whether the Mag 7, to Tyler's point, are the new staples, right? Like, I would rather cut back on my toothpaste than what I'm spending on Google every year because of my photo collection of the kids, right? Like, which one is really stickier? Which one is really a staple?

And does big tech represent those new staples? Is that why you could have exposure here to make the argument? I think big tech is reasonably valued certain parts of big tech. I would not go and stick my neck into Nvidia and whatnot. But you can look at big tech like Microsoft, Google, as well as Accenture for reasonable valuations. But I will also suggest that looking at a Hershey's, a Clorox, or a Colgate, they're now reasonably priced, and they have very little debt, and they have lower beta, lower volatility. So, Rick, let me toss one out here that may be red meat throwing it into the lion's den here.

Over the weekend on the Instagram, I was looking at a long-ago speech by a very young Milton Friedman. And he said, watch one thing, watch one thing only. And that one thing is how much the government spends. Because one way or another, you are going to pay for it. You're going to pay for it in the form of higher taxes. We know nobody's going to be raising taxes next year. Or you're going to pay for it in the form of a devalued currency or higher interest rates, and you're going to pay that debt back anyway.

Absolutely. And so this is exactly where we are, isn't it? Yes, it's all of the above. As a matter of fact, Art Lafra always used to have this analogy. Just imagine the world's two farmers, okay? One farmer has to pay for the other farmer. If the farmer has needs, I mean, it's a basically closed system. Okay. So what we do have is areas of the economy that need help, and that help is going to come from other areas of the economy that are already under pressure.

And in terms of inflation, you may think that that's easier to control, but I completely disagree because I think inflation that the Fed can control fine. But the inflation I'm worried about is going to come from the horrible transition going to the EVs. I know a broken CD on this. But believe me, any mandate by the government that has literally dozens of millions of cars that don't have enough charging stations are too expensive. This is going to come up with higher costs throughout a system that the Fed is not going to be able to address and even X food and energy. And you've pointed this out dozens of times on the earth. Thank you. It's going to metastasize in areas we have no idea about because of the logistics. A diesel truck that delivers things, the truck's going to cost more. Certain states aren't going to even allow diesel trucks.

that is going to get ugly, and the Fed better come up with the way to figure out how to do this. And like in the UK, my guess is all these hard dates in the future are going to get pushed back. And it's going to be even worse. They're going to be half in on both venues. Gentlemen, thank you very much. Rick Santell, Chad Morgan-Lander, appreciate it. Coming up, Rick, don't worry, we have a shellfish solution to a whale of a problem. The e-commerce boom is leading to tons of packaging waste,

and we'll hear from a company, using shrimp to create more sustainable packaging products. Our problems are all solved, guys. And as we had to break, CNBC is celebrating Hispanic heritage, sharing stories of influential business leaders. Here is Beatrice Perez, Senior Vice President at Coca-Cola. I proudly embrace my Hispanic heritage because my heritage is deeply rooted in family values,

and at the same time, Hispanics boost economies through the millions of small businesses they own. Innovate in science and tech, holding patents in space technology, technology or winning Nobel prizes in chemistry and play critical roles in public service, from Congress to the U.S. Supreme Court to many other areas. Hispanic Americans are and will continue to be a driving force for progress. Welcome back. We all love getting packages delivered. Well, I don't know if I don't know if I love the boxes. Anyway, while e-commerce is great for consumers, it's not so great for the planet.

So firms are creating solutions to cut waste and finding them in some unexpected places. Diana Oleg joins us to explain. Diana? Well, Kelly, like you said, we love the packages, we hate the packaging. And this is especially true for all of those frozen food deliveries that are getting more and more popular. So what if I told you that at least one of the remedies could be found in your shrimp cocktail? Major companies like Amazon say they are trying to reduce packaging. But of the 380 million tons of plastic produced every. every year, about half of it is for single use purposes, including product packaging and styrofoam.

Now, companies like Temper Pack, Green Cell, and a Santa Cruz, California-based startup called Cruz Foam, are making better packaging. Cruise foam is making it out of shrimp shells. What we've done is really built a process which allows us to take this waste and essentially manufacture and turn it into large-scale replacements for plastic. Cruise foam is made from chitin, a material found in shrimp shells, insects and fungi. It is biodegradable, so you can either compost it or it'll just degrade quickly itself in a landfill. Since it's made from waste, costs are lower than other biomaterials. And cruise foam doesn't make the packages itself, it provides packages with the material. We scale with existing manufacturing, and that has allowed us to reach economies of scale and cost very quickly.

The company is already working with Rivian and Whirlpool, and investors see big opportunities. It's a huge space, the total addressful market here, between the municipalities in the states and the countries that are banning polystyrene and single-use plastic. Corporates are making these pledges as well. There's a huge business here. In addition to regeneration.vc, cruise foam is backed by Helena, soundwaves at one ventures and one small planet. Total funding so far, $18 million. And Crusefoam has several products from cold packaging for foods to protective wrap for substitute for bubble wrap. But this is a big field with other companies producing packaging from natural materials like seaweed, mushrooms, wasted wool, and recycled pump.

Pulp, so there's a lot out there, Tyler. All right, Diana, thank you very much. And coming up a new name, but with the same great taste, Kellogg's spinning off its cereal business. What? into a new publicly traded company while rebranding its remaining snacks business as Kelanova. It could be here. I should have trademarked.

Yeah. Under the original ticker K, we'll trade it in three-stock next, lunch next. All right, welcome back. Time now for three-stock launch. Up first is Kellanova, formerly known as Kellogg, the rebranded snack business trading under the ticker K as of today and now trade separately from the iconic cereal brands. and it's one of the biggest laggards of the day, down more than 6%. Here with our trades, Sylvia Jablonsky, CEO of Defiance ETF.

Sylvia, what do you think of Kelanova? Hi, Tyler, great to be here with you. Well, I think Kelanova's got a little bit of trouble on their hands. You know, they're trying to slip a bowl between cereal and snacks. You know, I think part of this is that it's certainly their strongest growing potential business. They're talking about growth in EM. They're talking about 13.4. to 13.6 billion in revenues, but 50% of their sales are still in the U.S.

The particular sector that they're in is down about 9% at the moment. Their prices are too high. You know, inflation has given consumers fatigue. And I just don't know that the hype is there right now. So this is a sell for me. I'm not interested in buying on this one. And the other end up and the old parent, Kellogg is down as well, I believe, today. Second biggest loser.

Yeah, almost 20% year to date on that one too. Wow. Real quickly on that, Sylvia, is everyone keeps saying to buy staples and all, why is that performing so poorly? Is it company specific? Yeah, you know, I thought about that too in terms of, you know, defensive plays and staples and such. But I don't know that, you know, necessarily cheeses and pop tarts, that snack segment is necessarily a staple. They might actually have more luck on kind of the serial side, the classic, you know, W.H. Kellogg side there. So I just don't think they're going to get that tailwind.

And again, you know, prices seem to be a little bit higher for the. them than for others, so they might not end up being the first choice. I think their only chance here of the growth that they want is to expand into EM, but actually, you know, kind of get that to work out. It hasn't played out yet. Very interesting. Okay, let's quickly talk, Formula One owned by Liberty Media. Stock's higher on news that Apple is reportedly interested in buying streaming rates for $2 billion a year. You like it? Yeah, so interestingly enough, I was sort of neutral on this one, but this Apple news got me a little bit more excited. So the good thing that they have going for them is, you know, sort of full commoditization of sponsorship, you know, commercial ownership, brands, media,

everything that has to do with Formula One. The amount of revenue that they generate on those media rights right now is about half of what Apple is supposedly in talks to offer them. So, you know, if that deal goes through, I think that there's a lot of hype that gets picked up there and then, you know, potentially you see a surge in sort of sponsorship media, everything that is Apple. We sort of saw what happened when they, they did the deal with MLS on the soccer side. But the company is also financially stable, you know, they're doing better than 85% of their peers in the media-related space. Again, 1.5 billion viewers is a captive audience, and people seem to love Formula One. So I'm going to keep an eye on this one. Yeah, people do love Formula One. They are really crazy

for it. Final name is Z-scaler, a cloud security firm, 3% higher, upgrade. Piper Sandler. Going to benefit, says Piper from strong trends in cyber spending. It's the top gainer in the NASDAQ 100 today. What do you think of this one? Yeah, this one is a strong. I love it. I'm going to buy it, type of name. So up more than 40% year-to-date. It's got the upgrades from, you know, Morgan Paper Sandler, as you said. Interestingly enough, you see a lot of hedge funds scooping it up as well. So the compounded annual growth rate for network security is projected to be about 14% through 2030.

It's about a $172 billion market cap looking at over $400 billion in coming years. You know, everything today is about AI, you know, network security, quantum computing, super computing. And you essentially need safety in all of this. have to have that motor for it to grow. So the companies like Z-scale or Palo Alto, I just think that they're going to have a massive tailwind for the next five to 10 years is, you know, AI and supercomputing or the future of technology. And 14% projected Kager is not so bad. Not in the kind of environment we could be facing. Sylvia, thank you very much. We appreciate it today. Thank you. Sylvia Jablonski. Up next, the case of the IRS leaker. It's closing time after this break.

Welcome back. Former IRS official has been charged with leaking tax returns of thousands of wealthy tax players, including former President Trump. Our own Robert Frank has the details. Robert? Kelly, this was the biggest tax leak in recent history, as you mentioned. The returns of thousands of the wealthiest taxpayers leaked to the media, including Elon Musk, Jeff Bezos, George Soros, Michael Bloomberg. All those returns wound up in those articles in ProPublica, which showed that in certain years, billionaires pay no taxes. And then, of course, Donald Trump's returns were leaked to the New York Times in 2020. The hunt for that leaker became very high drama in Washington, D.C., as well as very heated politics. Republicans on the House ways and means were saying for years that this investigation, or lack thereof, was dragging on and therefore prove the IRS shouldn't get more money.

Well, they found their suspect they have charged a man named Charles Littlejohn. He's a 38-year-old man who lives in Washington, D.C. We don't know much about him. He worked for a private company that had a contract with the IRS, so he wasn't an IRS staffer. We don't know why he did what he did or how he got the returns and then leaked him, but he could face up to five years in prison, Kelly. Do we not know anything more about him or his political leanings?

Well, we can guess, Tyler, because those returns showed and made this big case in ProPublica as the Biden administration was trying to raise. taxes on the wealthy, that the wealthy, at least some of them in certain years, didn't pay any taxes. But the filing was very vague about any kind of biographical details, any kind of motive. Remember, PauPublica said they didn't even know who the leaker was, so there was no agenda when this material was handed over to ProPublica or the New York Times. So we just have to guess, Tyler, based on what returns he leaked and what they then reveal. So ProPublica says we don't know who the leaker was.

and the New York Times declined to comment, so that is not helpful. But I'm sure people will find out a little bit more pretty quickly about Charles, little John. Robert, thank you. That was fantastic. Appreciate it. Thank you, guys. All right, very interesting.

I spent most of my evening last night watching Taylor Swift watch Travis Kelsey. I thought that's what I would be doing until the New York Jets put on quite a nice show, I thought. But I'll tell you who I was really watching was Ryan Reynolds of our stock draft. He was in the box, too. That's who I wanted to see. Talking some Netflix, no doubt. Thanks for watching, Power Lunch.