Power Lunch - Nvidia On Deck, and Mortgage Market Mayhem 8/23/23

Episode Date: August 23, 2023

It’s the day Wall Street has been waiting for: Nvidia earnings are here. The stock has already tripled so far this year. Can anything the company says help push the shares even higher? We’ll discuss. Plus, mortgage demand has dropped to a 28-year low, as rates jump above 7% -- their highest level in 2 decades. But are the high rates crippling homes sales, or is it just a lack of inventory? We’ll explore. 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, and welcome to power launch alongside Kelly Evans. I'm Tyler Matheson. We are monitoring the developing situation in Russia with the crash of a business jet that may, may have had among its passengers, the Evgeny Progossian of the Wagner Group. Also coming up, the day we have all been waiting for. InVIDIA earnings, they are finally here. The stock has already tripled so far this year. Can anything the company says help push the stock even higher? A lot of anticipation surrounding that one. Plus mortgage demand dropping to a 28-year low as rates jumped to a 23-year high. Of the high rates crippling home sales are just a lack of homes to buy, Kelly. Tyler, first let's get a check on the markets as stocks are higher,

and the S&P is trying for its first 1% gain in a couple of months. Dow's up 219. That's near its session high. And the NASDAQ is leading the way of 1.8% Nvidia. Some of the mega-caps are driving that. And we have some major retail movers today. Look at Full Locker, cutting its guidance after earnings and sales missed expectations. Again, the stock is down 30% today and 57% so far this year.

The CEO citing softening trends in July, although we just spoke with the CEO of Lazy Boy who said she didn't see the same thing. Now, this comes after a big drop in Dick's sporting goods yesterday. And if you're wondering about the fallout, Nike shares were down yesterday, along with Dick's sporting goods on its 25% decline. And interestingly enough, Nike, one of the strongest blue chip stocks in the market could potentially be down for the 10th session in a row if we continue this decline today. And that would be its longest losing streak ever.

It's not all pessimism in the retail space, though. Abercrombie and Fitch is popping 25% today and has more than doubled this year. It raised its sales forecast saying customers like the new collection, including the new styles of jeans. And you'd think if shrink were such a problem, wouldn't people steal the popular stuff, Tyler? but this stock only turning green today. All right, Kelly, thank you. Stock's moving higher today for the most part, however. August has been a forgettable month.

S&P and NASDAQ on pace for their worst month since December. The Dow down about 3%. Our next guess believes what he calls an overdue rebasing is either underway or soon to start. He's Dan Arbeth, CIO of Zirian Investments. Dan, good to have you back with us. Great to see you, my friend. Great to see you, Tyler.

You know, Dan, I want to set up this conversation correctly. It is sort of high concept. And let me see if I can do that and then let you make the argument. If I'm understanding you correctly, you see a variety of factors coalescing right now, fiscal, monetary, economic, political that you believe are going to lead to a great rebasing. What does that great rebasing mean? And what does or will it look like for stocks, for bonds, and for consumers, and how soon might this occur? So, okay, Ty, I think you know that I've been spending a lot of time in a completely different discipline, systems biology, understanding how diseases start, how the cascade of this regulation puts your immune system and your biological system out of homostasis. there are a lot of comparisons between that and what's going on in the political economy. The political economy has its own biological system, and I think the system is structurally out of balance. Now, on the face of it, it looks fantastic. The Fed funds rate is about 5.123% close to

its historical average. The 10-year is right on its historical average. It was 4.5% before the 08 crisis, 4.5% over the entire post-voker era. It's now 4.34%. You know, inflation is coming close to target. Everything looks really great, except investor sentiment is declining. It's gone down by a third this month, from 51% of investors are bullish to, you know, a significantly portion lower. The results, I think, are about to be revealed of 20 years of monetary policy and governmental dominance in the markets. Right now, we have a soft landing.

Fed funds rate back to pre-08 level. Economy is still strong. Markets are conditioned for higher interest rates for longer. That's all good. but what's about to happen has not to do so much with the national and household income statement as it does with balance sheets. And what we have accomplished here as a result of primarily poor policy, not monetary policy, but fiscal policy and dysfunction of Congress, is an uncontrolled decade, 15 years,

really of debt-financed spending that's driven our deficit nationally up to a hundred up 122 percent to 1.6 trillion dollars a year. The national debt is you there? Yeah, I'm here. I wanted to, I want, because this is an opportune moment. You've got debt at high levels. You've got a lot of debt maturing or coming due in the, next 90 days, it's more than a trillion dollars. You've got a lot of new issuance coming and you've got bidders sort of drying up. Is there any way then with what you've just laid out that we're not looking at level interest rates, but potentially on federal debt, much higher interest rates, not 4.5%, not 4.3%, but 6%, 7%, a level that would definitely impact consumers in consumption.

That's it. You're reading my thesis. You and I have been talking about this for a long time, actually for three years since the modern monetary policy started, of printing money and sending checks into the economy, which we know is inflationary. the inflation, I think, still think would have been transitory but for terrible policy decisions causing a supply chain restructuring in regard to making China our enemy and the Ukraine war and the like. I think right now, not only we're going to have higher policy rates for longer, but the reason we have rates where they are right now is because the Fed is giving itself room for what comes next. What comes next, which is quite remarkable, is that that the Fed's balance sheet is still over $8 trillion. Fifteen years ago, it was at $500 billion, less than a trillion. After the financial crisis in years of QE, it was $4 trillion. The pandemic

drove it up to $9 trillion, and people have been talking about quantitative tightening for a long time. But it hasn't happened, really. You point it hasn't happened. Basically what's been going on is trillions have been maturing and the Fed has been, you know, rolling them down the curve and buying them on balance sheet. Any day now, the Fed is going to be obliged to start to reduce the size of its balance sheet because it's just not credible for the Fed. It's a classic Ponzi scheme for the Fed to continue to buy all the Treasury's that it issues. And what's going to happen right now is a gigantic withdrawal of liquidity from the market as the Fed allows bonds to mature and be refinanced out in the private market without sovereign bids because of the

re-regionalization that our policy is created. So let me- Private markets that are going to set the rate. And like you said, I've suggested that the 10-year rate is probably going right past historical average where it is right now. We could wake up pretty abruptly when people connect these dots fully and see the 10-year at 7 or 8 percent, maybe even higher. So let's bring this kitty around third base and to home plate. What does this thesis hypothesis mean for stocks, for bonds, and for consumers?

Okay, so let's say the Fed wants to cut its balance sheet in half. That's $4 trillion of liquidity that needs to come from private markets, domestic and abroad, and those markets are going to set the price. That money is going to come from other. asset classes, I would think starting with equities, and it's already happening to some degree, but equities have remained a relatively strong bid. I'm not all gloom and doom here. I think this is a very necessary and normal reconciliation. And we've got everybody over leveraged. Household savings are depleted, credit card and mortgage debt at all time highs, corporate debt at all time

eyes. And as you said, federal debt. I mean, we're financing trillion plus deficits. The debt service on the federal debt alone right now is a greater expenditure than defense and Medicare combined. So that's just not good. We got to reduce the national debt. So to your point, it's all about politics. The last time anybody talks seriously about fiscal discipline was Paul Ryan when he said that the United States was insolvent when the Fed's balance sheet was a trillion dollars back in 2011. Whereas Paul Ryan right now, a former presidential candidate, he's running a SPAC. He's in the investment business in the private sector.

So what we need is real leadership that's going to have real discipline, not just to kick the can down the road. Well, that- tape and Band-Aid and continue to sort of live to be re-elected, but we need very serious leadership to make some very difficult decisions right now. From your lips, as they say, to God's ears on that one. So just to wrap this up, and then I want to ask you one more quick question. The rebasing that you're talking about may look or feel uncomfortable, but it is necessary,

and it ultimately will be a good thing. And you're not all doom and gloom, as you say. I want to pivot, though, for just a second to these reports that Yvgeny Progoshin of the Wagner group, And you, the first time you and I met years and years ago in Prague, when you were working on the restructuring of the former Soviet satellite states' economies, and you spent a lot of time in Moscow. You've spent a lot of, you are familiar with many of the so-called oligarchs. What do you make of the reports that Yevgeny Progogian's plane on which he was on the passenger manifest may have gone down with no survivors? It wouldn't surprise me one bit. There is a huge power struggle going on inside Russia right now.

We don't know who's going to be the future leadership. And we've learned a lot, enough in foreign policy over the past 20 years to understand that getting rid of the bad guy is not the hard part. It's figuring out what and who comes after. I have a lot of ideas about the relationship between Progouzhen and Putin, but I'm There are all kinds of people who would want to kill either one of them or both of them right now. It's just not clear what it is, who it is, and what's going on. It wouldn't surprise me one bit if somebody in the military establishment, not Putin,

somebody in the military establishment were behind this because I never believed that Progogian's sort of revolt was a real revolt against Putin. I think the Putin, Drogens, were in concert, and it was Scheujan and the defense establishment that was out to get both of them. All right, Dan, you know how much I enjoy our time together. We have to leave it there. Dan Arbus, thank you very much. Appreciate your time, Tyler. Thank you. And we're going to stay on that subject.

More breaking news on that plane crash out of Russia. Reports saying Russia, reports out of Russia saying eight bodies were found on site. The Russian news agency reporting the name of you of Jenny Progosion as a passenger listening. on that flight. Procosion, of course, is the head of the Wagner group, which engaged in that failed mutiny earlier this year. NBC News is working to confirm all of this. Joining us now is Michael O'Hanlon's senior fellow at Brookings. Michael, did you hear our previous guest? Do you want to pick up on that? Yeah, it was an interesting conversation. I would only differ on a slight point, although it may be an important one. I'm not sure there is that much

of a power struggle going on inside of Russia, especially not after what's happened in the last hour, apparently. I think that even though Shoygu, the defense minister and Gerasimov, the Chief of the General Staff were always controversial and not popular with Progoshin, Putin himself was always in charge. And Progogian thought that his friendship with Putin was so close and so good that he could do something crazy, like stage a half-mutiny and still get away with it, or be rewarded for it, or simply get attention and persuade Putin to get rid of Shogu and Garasimo. I think that was crazy, and Progoshin is now apparently meeting his predictable fate. Putin doesn't welcome any kind of dissent, even by people who have been his friends.

And so my best theory is that this was Putin exercising payback in a way that he can still deny, and it didn't require any more of a confrontation at the time when there was still danger that the Wagner group fighters might still mutiny. Putin handled it more gradually, deflated that immediate crisis, didn't amplify or publicize his public dispute with progosan, allowed his own forces to reassert full control and then settled his scores later with revenge being a dish, of course, that's always served well cold. That's my best guess, but we're all just guessing. So let's just talk for a moment about the future of the Wagner group. Who leads it now?

How vital is it to Russia? Is there a concern about a negative reaction amongst the troops who have been an important part of Russia's interests in many parts of the world? That last concern, I'm sure, is still there, which is part of why I'm speculating that Putin waited two months, essentially, to carry out this punishment. But one thing progoshin said in recent days, I think probably will be borne out by future events, which is that the Wagner Group will refocus again on Africa. And I think the Kremlin will be happy to see that happen, not just because it keeps them out of the mess and the trouble in Ukraine, but because the Wagner group serves the Kremlin's interest. in Africa. It exploits resources. It gains friends and footholds and political allies, and it does so all at very modest cost and with plausible deniability. So I think Wagner troops, if you want to call them that and dignify them with that term, will continue to be active in Africa, and Putin will try to make sure

he's got some kind of a loyalist who's carrying out that job, which frankly shouldn't be that hard for him to fine, because again, this group in Africa is highly effective in terms of financial recompense and in terms of political influence. Is it fair to say, Michael, that if Progoshan had his way, Russia would be even more hawkish in the war. And as we try to understand whether the Ukraine offensive is, I don't want to say fizzling out, but whether we're at some kind of stalemate, what is Russia's next move likely to be as we head into autumn, a wetter season, a season that probably doesn't face?

a lot more of gains on the Ukrainian front here? So on the first question, I think that progoshin was in some sense correct back in the spring to feel that he was being left out with his men on a branch with very little support. They were being asked, as you'll recall, to assault around the city of Bakhmut. And it was really just a human way of attack-style kind of thing, which left many, many of his forces dead or badly wounded. I think he was asked to do the impossible by Shogu and Gerasimov. anybody else in the military chain of command. And I think maybe Progoshin thought that by doing something so dramatic that it would catch Putin's attention that maybe he could finally persuade

his former friend that in fact, Shoygu and Garasimov and the military leadership were doing a very poor job provisioning his forces and giving them any kind of good sound tactical leadership. So I think there was, in other words, there was an element of correct analysis and understandable frustration on Progosian's part, but the idea that somehow a mutiny or almost a coup attempt could be the right answer, I think, you know, was always a delusion and now we've seen the likely consequence of that. So in regard to what's going to happen in Africa next going forward, again, I think that Russia's approach there is already pretty well established and as far as it goes, it's incredibly cynical, it's incredibly brutal, but it's

moderately effective. So I don't expect any dramatic change there. In terms of the Ukrainian offensive, I'm afraid that I don't see great prospects for any big change, even, frankly, next year, once Ukraine may have the F-16s and longer-range missiles they've been asking for. But again, we'll test that on the battlefield. Michael O'Hanlon, thanks for joining us to react today. We really appreciate your time. Thank you, kindly. Fascinating stuff there. As we mentioned, bond yields have fallen a little bit today ahead of Chair Powell's comments out in Jackson Hole end of the week.

Let's go to Rick Santelli at the CBO. For more on... the bond market moves. Hi, Rick. Hi, Tyler. Indeed, we've seen not only treasure rates fall, but maybe the catalyst for treasury rates falling actually started overseas. Whether it's the UK or the European Union, the PMIs were weak. And then coming into our time zone, we're already pressure. Look at a two-day-of-two-year. You can see we're under yesterday's lows. And if you look at a two-day-of-ten years, same dynamic. Two-week lows and boons down minus, they're down 14 basis points, pretty much the same as GILTS. And the big story today might have been

$306,000 on early benchmark revisions we'll know for sure in February next year on the job front. Maybe it's less than we expected, but it still draws attention in the fact we make a lot of assumptions on the labor market. But we don't want to make any assumptions about tomorrow. Let's talk to a trader. Mike Palmer. Hey, Rick. How you doing? Okay, bump, shake. This is the big guy, and what we want to ask, Mike is very easy. I see that rates are moving lower, which means treasury price will move it up. But more importantly, I see that the VIX is moving down and we're seeing very strong buying on lighter than expected volume and equities. Your thoughts?

Light volumes is very typical for what we usually see in August. This is a quiet listless market. I don't think anybody's really concerned about Jackson Hole. I don't think that that's looked at like a volatility event. We'll probably hear something akin to we're keeping a close eye on inflation. And also, we might have one more hike left in the cycle, and that's it. That's the message discipline we're used to. So it's very rare that we get a volatility event out of Jackson Hole. And that way it's probably similar to Davos in the winter where they're not big volatility events. That said, if we have a deviation off that, we could have a move in the market related on what happens there.

Now, as I look up and I see these moves, it certainly seems though there is some type of nervousness regarding what could potentially happen in Jackson Hole because it seems all the trends we had prior have been broken. Equities were in a soft mode moving lower and interest rates last week had breakouts to the upside. Do you think this is more of a reversal of those trends or potentially just a temporary hold? I think it's, I think it's a listless market. I think August is quiet. You know, we don't, everybody's on vacation. I think when we get back after Labor Day, when everybody's back in the office, there's no more vacations, people are going to reassess the numbers. They're going to look at where our interest rates are, where equities are, they're going to look at from sectors and reassess.

Now, I don't know if that means we go higher or lower. lower. But I think in the interim, we're going to see these low volume days where we move about a percent. With the VIX at 16, that's what do you expect. We move a percent. VIX is 16. We've moved exactly 1 percent today. So I don't think we're doing anything out of the usual in the moment. But, you know, we could have catalysts going forward that could create some volatility. Now, one of the catalysts that many talk about, and we only have a few seconds left, is whether it's today's PMIs, Europe and the UK all of a sudden seem to be either quickly going towards a recession or in one. Final answer, do you think that could,

have a negative effect on what seems to be a strong U.S. economy? There is a contagious effect around the world, whether we see things like interest rates spike higher, inflation spike higher, something happened abroad. There is a contagion effect that happens. They have a problem that volatility will drift into our markets. Whether that's a real event, we don't know yet, we don't know yet. We don't really kind of manifest itself in true volatility yet, but that is something to look at. Mike Palmer, thank you for joining me today. Kelly and the gang, back to you. Thank you both. Coming up, the moment of truth is here. Most anticipated earnings call of the season, NVIDIA, of course.

Shares are up a cool 200% this year as the stock embodies chips, artificial intelligence, and the tech space in general. But are the sky-high expectations impossible to meet? We'll dig into what investors should really expect. Plus primed to explode. Tensions between Amazon and its employees are mounting. Now some workers are quitting in response to the company's relocation mandate. Details when Power Lunch returns. Welcome back to Power Lunch.

All eyes are on Nvidia as the company is set to report earnings after the bell today. At the heart of the AI hype, the stock is up more than 200% this year. And the chipmaker is expected to report higher revenue in the second quarter than it forecasted even three months ago. But can it live up to these sky high expectations? For more, let's bring in CNBC's Christina Partsenevilla. She's here in the chairs with us. And Piper Sandler's Harsh Kumar senior analyst covering the semi-space. Christina, okay, the big numbers ever, they went, they're guys.

Biden's race went from $8 to $11 billion for this quarter last quarter. Where do you think the expectations really are? Well, we're seeing numbers $12 billion from City all the way to $14 billion, which is insane when you just think of the numbers just the previous quarter and the fact that they continue to rise. But can that momentum keep going? That is the big question for a lot of investors on this call, especially when you factor in possibly any supply chain weakness because great. Everybody wants to buy these GPUs, but TSM has to supply it. They have to ramp up their utilization rates, and then they've got to ship it out. So on the call, will there be any comments on the backlog?

That's what I'm going to be looking for. And making sure that that order flow into the next few quarters is going to continue, even if there's supply chain issues. When you look at the market value of this company, over a trillion dollars, and it's gotten there very, very quickly. Compared with all of the other chip companies, it's greater than them all combined or many of them. Right. Does it deserve it? Does it deserve it? First move or advantage, right?

When you think about the actual AI chip that is utilized in all of these AI infrastructures, Nvidia is the first player to come out with one that is capable of doing all of that compute. The next second best would be AMD if they come out with their chip by Q4. So it's a timing issue with them. They are a little bit later, but I had interviewed Lisa Sue in the past, and she had said, we worked 15 years on this. So it's not like we don't know what's going on. We're just a little bit later in executing.

Then you have a player like Intel, a company like Intel, that may not have that GPU chip, but wants to build those GPU chips and be part of that entire process. So is it warranted maybe for now? I think just in the future, is this all going to be an upfront cost? Is everyone going to put all this money into buying the chips? And then what happens a year from now? Will they keep buying chips? Are they going to buy the software that goes with it?

So how is that momentum going to continue to justify this high price, this high valuation, and market cap? Harsh, you're practically bearish. You only have a $500 price target. I'm sure you've seen your colleagues on the street. I think I saw 780 this week. So walk us through, what do you think they're going to do revenue? What do do you think they're going to do data center, you know, and valuation if you wanted to chime in on that too? Thanks for having me on your show, guys.

So I think the most important number is going to be the data center number. I have no doubt that Envidio will deliver on the data center number. When we talk to the by-siders are the people that actually buy the stock, they have a little bit of a longer-term view. A lot of them are looking at a $50 billion number at the end of next. fiscal year. Wow. That's the boldie that everybody wants to get to for data center business. So this is sort of a step along the way. Now, this quarter is particularly critical because NVIDIA has guided to something like a 78% sequential increase for the July quarter. And if we somehow stall, then getting to that 50 billion number becomes incredibly hard. So I think the importance

of today's number, the guide for October quarter, is that the momentum continues to occur. And for us, we're looking at a couple of things. First, inertia, you don't gross 78% in a quarter and then simply stop. I don't think the customers that are lined up at your door will simply have everything by the end of this quarter. I suspect that there will be a flurry of orders that extend into the future quarters. Second, we are seeing a tailwind from China. There is geopolitical, you know, headwinds for China associated with U.S. restrictions. And the Chinese companies, frankly, it's in their interest to buy as much as possible as quickly as possible. So we're seeing a tailwind there.

We are seeing a shift towards general purpose GPU, which is a trend back towards Nvidia. And then there's a new kind of a data center in play, a GPU-only data center. So there's these private companies like Corvevee and Lambda. I think you guys hosted Corvee CEO. That company is going to go from 30 million in revenues last year to 500 million in revenues this year

to 2 billion in committed revenue. revenues next year. And this is the NVIDIA GPU pure play from a data center angle. So that's where a lot of your demand is coming from. So let me, there is this thing called the law of large numbers, harsh. And I'm not exactly sure what the law of large numbers says, by the way. But it, but it seems to me that what it fundamentally says is that when you grow at this rate and you get to this scale, compounding growth at the current rates becomes more and more difficult as you move forward. So there is an argument, I suppose, that this is as good as it might get for Invidia. Talk to me about that and tell me I'm full of water.

I don't think you are. I think you're spot on. And I don't want to something very important from standpoint of how the stock will act. I do think that we're probably at peak growth rate. I mean, 78% sequential growth rate followed by 20% something sequential growth rate. These are astronomical numbers. So I do think with particularly Chad GPT opening up or Open AIs system opening up, there's been a flurry of activity towards NVIDE's GPU. And I think there's a lot of people start getting these chips and they start getting their systems in place.

And then AMD has alternatives and potentially Intel has alternatives. So does the AWS. I think you will see the growth rate start to slow down, not saying they'll go negative, but they won't stay at the sky high rate the barrage, which I think is healthy for NVIDIA. healthy to the market. Harsh, given the exposure that Envideo has to China, do you think that analysts across the border factoring in any type of weakness going forward or even double ordering that we've been rumored to hear about?

So I don't think the exposure is that tremendous. The U.S. government's taking care of that issue with the restrictions that it has in place. So China is allowed to buy basically a last year's version, a trim-down version of the A-100 chip called the A-800. And I believe the total exposure, maybe somewhere in the 15% range, but they cannot buy, to be clear, they cannot buy the latest, greatest chip that any media puts out.

So that's one thing. In terms of double ordering, I can certainly guarantee you there's double ordering. There's always double ordering in semiconductor business. It's just the beast. And the question becomes, is it enough to become a problem in the near term? So we do anticipate that somewhere in the 2024 year calendar, probably in the second half, we'll go through a digestion period. If you recall crypto, crypto went through a period of two-year growth before it finally caught up, the double ordering finally caught up and crypto crashed. Now, we do

think that generative AI is more real, more tangible than crypto, but I can assure you there's a small element of double ordering. No question about it. Well, I don't think that's the comparison they were looking for us to crypto, but it's warranted given the price action and the excitement, absolutely. Harsh, thank you so much for joining us today. Harsh Kumar, of course, in our Christina Parts the Nevelas. We'll look forward to those results with you after the bell in just a couple of hours time. Meantam, let's go to Bertha Combs for a CNBC News update. Bertha. Hi, Tyler. Here's what's happening at this hour. A surprise trip to Ukraine for a bipartisan group of senators today. President Volodymyr Zelensky just tweeted that he met with Republican Lindsey Graham and Democrats Elizabeth Warren and Richard Blumenthal.

The final number of candidates on tonight's debate stage still up in the air. North Dakota Governor Doug Bergam tort his Achilles heel in a pickup basketball game with staffers last night. He says he'll decide whether he can participate after doing a debate walkthrough this afternoon. The GOP candidate has to wear crutches. The debate is two hours long tonight with candidates standing throughout. And he's accused of walking into a Boulder supermarket in 2021 and killing. 10 people. Today, Colorado's Department of Human Services ruled the suspect in that mass murder is competent to stand trial. The suspect is accused of killing customers, workers, and a police

officer who tried to stop him. Tyler, back to him. All right. Thank you very much, Bertha. Ahead on Power Lunch, America's homewrecker, the 30-year mortgage with rates heading toward 8% mortgage demand from homebuyers dropping to near a 30-year low. More on that after the break. on a very busy newsday. Welcome back to Power on Lunch, everybody. New home sales for July, rising more than 4% to an annualized rate of 714,000. That was higher than forecast. Existing home sales, though, slipped 2% last month as mortgage rates top 7%.

That is the highest rates have been in more than 20 years. Our next guest thinks they won't drop until at least next year. Here with more in the health of housing is Best Friedman, CEO of Brown Harris-Stevens. Best welcome. Good to have you with us. What are you seeing on the ground right now? I mean, new home sales because basically people who own used homes aren't moving. Yeah, I mean, existing home sales are just stalled right now because sellers don't want to let go of great rates that they have. So the new home sales are moving, which is a good thing. We just saw that Warren Buffett invested something like a billion dollars into home builders. So there's a big bet there. But I think buyers are on the fence. right now because rates have gone up. They've doubled the highest they've been in nearly 20 years. So there's less affordability and there's less inventory. So it's a little bit of a sluggish housing

market right now. It's going to take some time to reconcile that. And so we're kind of waiting it out. We wish it was a little bit busier, but we have a challenge with inventory and with rates. And I think because inflation has come down and that's a good story. And we did not enter a recession. and that's another good story. People think rates may come down, but my guess is we won't see rates come down until maybe next year if we're lucky. Are you seeing more buyers coming to the table

or maybe the negotiation with all cash? That's number one. And number two, are you seeing among those people who are taking out mortgages, are you seeing a return to adjustables? Yeah, I mean, definitely a return to adjustables because there's more flexibility there. It's less money.

So people prefer that. And I think cash is always king, right? And so we're seeing a good amount of cash buyers. That's a good thing. But, you know, look, mostly probably 65% of homeowners have mortgages today in the United States. So when rates go up this much, it definitely has an impact. And so I've said it before, and it's true,

the market is now a disciplinarian. Things have changed. And so it's in a meaningful way. way and therefore the housing market has slowed down. It's not flat. There's good inventory in places like New York City, so that's a good thing. But places like Connecticut and Palm Beach are challenged. Look, I visited a friend over the weekend who has a place in Connecticut that he bought before the pandemic, before there was this sort of jolt of business in Connecticut, and he got a great deal. Today, that house would be worth so much more and it would have sold in a quicker period of time.

It's just this period of time in the market right now. Yeah, Bess, I don't know what realtors are going to do. I mean, nobody's going to move. I mean it. And we had so many people come in in the past couple of years. You guys are, you know, you've been there forever. You're well established. If anyone's going to make the sale, you are.

But who the turnover is so low. People are frozen in place. I mean, I just had some friends lose out again on a house. They've been trying for years to bid. There's like two properties for sale and people out bid them again. I mean, it's like winter in the housing market. Yeah. No, I agree. It is a slowdown. It's not that bad. I mean, we are still doing business in a decent amount. I think sales are down 17% year over year, which is not horrible. And again, circumstances dictate what people have to do, right? I mean, the market is there to serve you, not instruct you. Therefore, when people have to sell and buy, they will do so. It's just that people, when they're deciding buyers right now, many of them are opting to rent because they see less affordability and less options. And so, but there are people,

because of divorce or because of marriage or a baby or whatever it is, they have to buy and sell. So those things will continue. I call those cycle of life things that continue no matter what, good market, bad market, whatever. It's not as horrible as you think. It's just not the best. It's not 2021 where everybody was celebrating and the market was so fluid. Well, we'll leave it on that note, not as horrible as you think. Thanks, guys.

Best keep us posted, will you? Thank you. Best reading it. We appreciate it. Thank you. Bye, guys. Coming up, if you can't join them, leave them. Some Amazon employees would rather quit than relocate to a new state amid the company's back-to-office mandate. We'll bring you the latest details when Power Lunch returns.

Welcome back to Power Lunch, everybody. Amazon workers primed and ready for conflict. It is nothing new that Amazon has a sometimes volatile relationship with employees. But as the company tried to strong-arm workers back to the office, some are quitting rather than relocate. Annie Palmer, who is working remotely, has the details. Hi, Annie. How are you? Hi, I'm good. Give us the details here on what's going on with Amazon. Yeah, so the latest sort of tension between Amazon and some of its corporate employees is this policy where they're asking some folks who have been either, you know, working remotely or working out of a smaller office in the

U.S. to relocate to what he's calling these hubs in places like Seattle and New York. and Virginia. And some employees are basically saying, you know, this is too much of a, you know, uprooting my life. And I'd rather just leave the company as much as I like, you know, working for Amazon. Do we have any idea how many people are being affected by these requests to relocate? Yeah. So Amazon is saying that this is impacting, you know, a small portion of its corporate workforce, which is they employ hundreds of thousands of people globally in corporate roles. So they're saying this is a small amount of people. But the employees I talk to are saying, you know, they move during the pandemic to other areas to maybe cut down their cost of living or thought that remote work

would last longer than it ended up lasting. And so it's unclear how much this affects their workforce. So now what do they do? You know, if people are leaving and I don't know, if this came in a weaker labor market, we all know kind of what the answer would be. Maybe people would just move, but they feel as though they still have the wherewithal to push back. That's right. Yeah. So, you know, I did ask employees this question, you know, how do you feel about quitting just given the state of the labor market currently? And a lot of them are saying, you know, I might not be able to find a job in my area that pays at quite the level that Amazon does or even within the same skill set that I'm used to, but they find that it's the better choice for them to just

stay put where they are. Yeah, indeed. All right. Thank you very much. We appreciate your time today. Thanks so much. Coming up, the city of angels caught in labor hell. Los Angeles and the whole state of California have seen more worker strikes this summer than in the past two years combined.

From Hollywood to hospitality, workers are frustrated with lack of pay, lack of affordable housing, and much more. Could the unrest spread to other high-cost states as well? Our discussion on this continues when Power Lunch, turns. Welcome back. It's been a summer of strikes in the Golden State, particularly in Los Angeles, where the writers and actors guilds continue to strike, but so do hospitality workers and even city employees. With many of the same issues on the table across each picket line, let's get out to Kate Rogers, who has more for us. Kate? Hey, Kelly, some are calling it a hot lever summer out here in Los Angeles and across the state of California. As you mentioned, there have been ongoing strikes of writers and actors,

which you can see behind me here. But there's also been a weekly strike of hospitality workers in the city, as well as a one-day strike of 11,000 city workers across Los Angeles. Data from Cornell showed that there have been more than 55 strikes spanning 95 locations in the state since the start of the year. And a big reason for some of the workers to be on strike is housing inequality in the state. I would say that's the question of every single working person in Los Angeles. and it's frankly the reason why there's so many workers on strike is because we have to decide who is going to be able to live in the city? Is it going to be the few and the wealthy, or

are working people going to be able to find a home that they can live in with dignity respect and not have to worry about whether they're going to make the rent? And while housing and wealth inequality are longstanding issues in the state of California because of its high cost of living, UCLA economist Chris Tilley told us and warned California may be the first to see this type of massive labor uprising in the country, but it certainly won't be the last. Pointing to other states like Texas, where so many California residents fled during the pandemic,

also facing a lot of the same issues, high cost of living, rising rates of homelessness, maybe not to the extent the state of California has seen, and also unemployment rates on the way up. So again, California may be the first to see this kind of big uprising among so many different types of workers, but likely will not be the last guys.

Back over to you. What are you hearing about two things? Number one, is the potential for negotiations that might move toward some kind of settlement in the writers and the SAG after strike. But also the broader effects on the economy in California, where so many people are tied to the production business and related things, whether it's catering or restaurants or whatever, or tied to this sort of entertainment ecosystem, I guess I'd call it. Yeah, that's a great question. And I think the economists we spoke to said, you're going to start seeing this coming up in the data.

Again, though, Tyler, really unique to California, obviously, that this is happening all at once. But it's not the last we're going to see of this. Your question on the writer's strike, I believe that there was some meetings last night between some of the executives and the writers, but the Writers Guild saying they're still not there yet, keep striking, continue to strike. And one more kind of fascinating thing that we've seen between all of these different classes and groups and types of workers who were on Shrike. is a lot of solidarity, right? The city workers are supporting the hospitality workers. They're supporting the writers and actors. They're all saying enough is enough. It's too expensive here. We need pay increases. We need job protections. We need better working conditions. And that's something that a lot of the organizers that I've spoken to said, they've been doing this for years and

they have not seen that type of solidarity in other strikes and situations, which is really interesting. You mentioned things, working conditions among them, but doesn't it really all boil down to pay? When you look at the settlement between UPS and the Teamsters. As I read that, there was a very generous increase in pay that basically got the deal done. It's always going to come down, not only as you mentioned, to working conditions, some protections rather that are job-specific. Obviously, the writer's concern, for example, about the use of artificial intelligence to create scripts. But as you said, and as you heard in

the piece, who's going to live in the city, who can afford to it within the city, who's going to commute several hours to get to their job at a hotel or a restaurant or working for the city of Los Angeles here. It all comes down to who can afford to live here. And that's why you're seeing such a push for pay increases across the board. All right, Kate, thanks very much. Kate Rogers reporting from California. Still ahead. Back to School, Blues. Students are heading back to class, but there are no bus drivers to get them there. We'll discuss that and much more when Power Lunch returns. We will be right back.

Welcome back, everybody. Three minutes left in the show and several more stories to run through. So let's get right to it. And we've got to be. Tyler, did you see this? I've seen this, yes. Peloton shares are down sharply today. Can they go any lower? They can probably go lower than my output on the Peloton. But you know the speculation now about why?

No. Weight loss drugs. Oh. I don't know. Maybe it's market saturation. The company blamed a bike recall for this quarter. Drop in new subscribers. They said maybe it's summer and people are traveling and they're doing outdoor activities.

I like that theory that the weight loss drugs may have something to do with it. I like it too. You get on it because you're there to burn calories and it tells you how many calories. But you don't get the same endorphin hit, but are you still sticking with it? Oh, yeah. Oh, yeah, yeah, did this morning. I said they should have had you be their influencer a long time ago. Absolutely, absolutely.

Some of the playlists I find, I don't know, maybe I'm an old fuddy-duddy, a little too explicit for me. I'm trying to shield my three-year-old right now. Put on the headphones. All right, Goldman Sachs, reportedly pulling the plug on summer Fridays, according to the New York Post, The CEO David Solomon recently told staffers the bank is going to crack down on any employee who isn't at their desk five days a week after sources describe Goldman's Wall Street headquarters

as, quote, totally dead on Fridays recently. Well, that comes as a new survey from bank rate found that 81% of full-time workers say they prefer moving to a four-day work week. Disconnect. Yes. But Goldman has been pretty resolute about wanting their workers back.

And Steeful, a lot of these other banks, all I will say is they better walk the walk. If those bosses are, you know, working, they better not work one day a week from home than a lead by example in this case. Yeah, no, that's right. Or head to the Hamptons. The shore.

The shore or the Hamptons, wherever it is. Meanwhile, a shortage of bus drivers is causing some back-to-school chaos across the country. USA Today reporting all 50 states have at least one instance of a major shortage so far this year. A new survey from Kids' Ride Service Hop, Skip, Jump, found 92% of school leaders. reported a lack of bus drivers is straining their operations.

Yeah, no, these, we've seen it in our town, actually, where they've had a hard time recruiting bus drivers, getting them trained on it. It's not easy work. You have to have, I think, certain kind of license. And wasn't there that story about the kids on the first day of school who got home at 10 p.m.? Because I think a new bus driver didn't know the route or something.

I mean, that's people's worst nightmare. These are precious possessions on these buses. You want people who know what they're doing. And speaking of school, the Wall Street Journal highlighting one thing that parents will keep spending money on, and that is their kids' extracurricular activity, sports, music, other activities, always been key on college admissions with standardized test scores now carrying less weight, and the Supreme Court outlawing affirmative action, calling it a question,

legacy admissions. The process is growing even more competitive, and therefore parents are not stinting on those extracurriculars. It's not enough time. There's not enough time to do it all. Thanks for watching, Powell Rush.