Power Lunch - Nvidia’s Moment, and China Concerns 2/23/23

Episode Date: February 23, 2023

Shares of Nvidia are soaring after earnings, with the stock rising 60% this year. The company says AI will be a huge boost. We’ll discuss what it all means for $NVDA and the other chip names, as AI becomes the new battleground in tech.Plus, Hayman Capital’s Kyle Bass joins us live to discuss markets, the Fed and his take on China as its economy reopens. 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 Lunch alongside Kelly Evans. I'm Tyler Matheson. Coming up, we've got shares of Nvidia soaring today. The stock up 60% this year. The company says AI is going to be a huge boost. We'll talk about what it all means for Nvidia and the other chip names as AI becomes the new battleground. Plus, Kyle Bass is joining us live. We'll talk about the markets and the Fed and, of course, about China as its economy reopens. You just heard what Stephen Roach said. First, though, a check on the market. It's the Dow down a little more than 100 points, but off the session lows. Across the board, we're down about half a percent. All right, let's go over and check in with Dom Chu, who has a chip check of sorts for us. A chip check is exactly what I've got. The stock of the day, to your point, has to be Nvidia. The best performer, by the way, up 14 percent in the S&P and tech-heavyer NASDAQ 100,

after the chipmaker reported quarterly results at topped analyst forecasts for both profits and revenues. And as Tyler points out, a lot of optimism around artificial intelligence and machine learning applications in the future of this story. I know that you guys are going to be tackling it head on later on. But check out the moves in other semiconductor stocks. Caught up in that invidia excitement. The halo effect. Advanced Micro is up 3%.

Marvel Technology up 3%. Nearly 4% gains for Taiwan Semiconductor to watch those guys. Lots of electric vehicle headlines today, but a more dramatic move in shares of Lucid after the EZEV maker reported disappointing quarterly revenues, which led some analysts to downgrade that view of the stock with concerns about nearer term demand for some of Lucid's premium price EVs. Those shares down 15%.

And we'll end with a check on Domino's Pizza. Papa Johns, we'll throw them there in as well, both taking big hits, mixed results at both. Some investors really keying on Domino's missing revenue projections, as well as those for growth at established store locations, and Papa John's missing estimates on North American company-owned restaurant sales. So Domino's down 13%. Papa John's down eight.

Tie back over to you. Domino, thank you very much. much, Dom Chu. Let's get back to Invidia now. Our next guest says the earnings, the earnings report from Nvidia indicates that the worst has already passed. So how optimistic should investors be about the company and its AI future? Joining us now, senior analyst at Susquehanna Financial Group, Chris Rowland, and here in the studio is CNBC's Steve Kovac. Steve, let me begin with you. Take us through the earnings report. How have they managed to come back so far, so fast? Yeah, it's AI. AIs the buzzword. during this entire earnings call.

So CEO Jensen Wing, Tyler, really explaining that he thinks they can capitalize on this energy and investment that's already happening behind AI. Now look, I'm old enough to remember when Nvidia was a Metaverse company just a year ago. Everyone was talking about it in that context. And before that, it was a crypto company. Well, the key here, Tyler, is those chips are so good

that this company makes that it can be used for a variety of applications from AI to self-driving cars to regular old data centers. That's where, and now that this AI optimism there, CEO Jensen Wang saying over and over again on the call that they're ready to capitalize on it. He compared it to when the iPhone first came out with the app store and it enabled software development for millions of more developers than would have normally been available. He sees a future where every software company is going to need this technology. Chris, this was a company

that for several years up until 2022 was everybody's darling. It was a hot stock and a hot company. 2020, it was anything but, but it has come back, as we just mentioned, 60% so far this year. Can it keep it up? I don't know if it can keep it up. We do have a buy. We have a $265 price target on it. We think AI is the catalyst here, the primarily natural language transformer models for AI, a.k.a. chat GPT. We think chat GPT started an arms race here. The power of it, the likeability from

users. And all of this is generally powered by GPUs and primarily Invidia GPUs. So we are on the precipice of something very, very important here. And Chris, we're seeing, for instance, Goldman hiking its price target to, I think, 275 trying to catch up today. It had a neutral goes to outperform. What do you think the long-term earnings power is now? Well, Jensen's talked about just AI, for example, being 300 billion of hardware sales and another 300 billion of software sales. So if you apply that, you know, we're probably talking about hundreds of dollars of earnings, at least for NVIDIA. So I think the answer to that question is really very open-ended.

Chris, let me ask you a little bit different question. It can't be going better for NVIDIA and it really can't be going worse for Intel. I mean, let's not forget they just cut their dividend this week. And there's talk about whether NVIDIA should replace Intel and the Dow. As we lay out this scenario and the cash that's going to be pouring into NVIDIA, what does a company like Intel do? What do they do? Intel has some major problems, Kelly.

So, you know, Pat was put in a very difficult spot. They've continued with their own internal manufacturing instead of moving to TSM, and they're lagging. And if you are not on the precipice, on the very edge of Moore's law, then you have a real problem in the digital space. And so Intel has a very big problem in the digital space. Even Invidia has moved to TSM and leading edge because they understand the importance of that and the power that it brings their products. So I guess the point here is things are going well for Nvidia. This is the architecture of the future. And things are not going so well for Intel.

It is the process technology of the past. Steve, why don't you react to what Chris just said there specifically about Nvidia? and is everything flowing in Vidia's direction? Are they going to be the intel of the next generation? And that was the big question that kind of went unanswered on the call last night. So the CFO was talking a lot about Tyler, about, you know, we expect to see acceleration in our data center business, implying that it's going to be related to all this AI stuff.

They just didn't really say when and like what and to what degree. So this $300 million that, or billion dollars rather, that Chris was talking about, when does that come to? fruition? They don't even know, but they do see an acceleration. They're at least happening this year and how long that momentum can continue is the big question that went on to answer yesterday. So we'll have to see if this energy around AI keeps up and then if Nvidia capitalizes on it. But yes, they are embarrassing until a little bit as far as the chipmakers go. Chris, thank you very much. Steve Kovac, always good to hang you with us. We appreciate it.

It's turning out to Google where life is about to get a little less roomy and recent layoffs. Google announcing it'll ask some employees to death. desk share in an effort to cut costs and to continue to invest in cloud's growth. The new initiative is known among Google leadership as CLOE or cloud office evolution. CNBC.com tech report. Jennifer Elias is here now. She covers all things Google. You can read her story on CnBC.com. John Ford, joining us on set as well. Jennifer, let's start with you. Is this as strange as it sounds? Kelly, it is. It is strange. There's no going around that. You know, I think especially for for a workforce like Google's, which is used to, you know, this massive, consistent real estate

expansion and having sort of these endless perks and whatnot. To go from that to, you know, you need to only come in on these two days and that's when the team will be working together. And, you know, the logistics too, I think a lot of employees have some, are a little bit confused about how that will work out, who will decide which teams will be in on certain days. You know, I think it makes sense in some respects when we think about the hybrid. Let me ask you this, Jennifer. It's a little strange. Are times tight at Google?

I mean, you can't read a story like that. And as I was saying, maybe there's something we're missing. I mean, we're talking about sharing desks. And I don't know, do they not have the money? Or do they, are they just choosing not to spend it this way? Yeah, I think it's a little bit of both. They are definitely trying to, I think in this case, invest more in what they're doing around cloud and trying to grow that and cut losses.

that they still consistently have. They're not profitable, and they have a lot of pressure from Wall Street around that. But, you know, if they wanted to, there's always been enough space for everyone to have their own desks. And then I think also the behavioral patterns of people coming into the offices, not as much, and trying to figure out, well, when people come in, they should be around their teams. So I think they're kind of trying to roll it into a combination of that. But it doesn't look good either way. and employees are thinking this sounds a little bit desperate in some respects.

John, let's set aside AI and search for now and focus on the cloud. Is Google third in a two-horse race here? Well, there might be third in a three-horse race. Google's actually done pretty well in cloud under Thomas Currian. They're mentioned in the same breath as AWS and as Azure Amazon. They do. They do. But the challenge that they're having here, I think, is part of the downside of,

in effect having your own P&L, right? Google Cloud is trying to grow, but at the same time, they've got to be careful about their capital outlet. Ruth Porat, the CFO of Alphabet and Google, isn't messing around here, right? And it's not like flush. We're going to open up more office space,

build more buildings for Google Cloud. Hey, work with what you've got here. Figure out how to do that while the business is going through this transition, and that's really what's happening here. And you can't really separate out AI from this Because a lot of that AI work as customers want, it has to flow through Google Cloud and that foundational relationship that customers have with Cloud having their data in Google's

cloud before they start doing AI on top of it. What's your sense of the vibe at Google right now? Is this a place that is feeling heat or? Yes. Yeah. It is. I always like to be careful about the heat that companies are feeling. But this is a culture that was a very in-person culture, intention.

for a couple decades up to this point. They were very careful about structuring things where you get your dry cleaning taken care of on campus in Mountain View. We got the ping pong tables. We want you physically there. We're managing you there. And then the pandemic hit.

And they were like, we don't want you here. And they grew, right? So you've got people who are not a part of that closely managed in-person culture. And you've got this challenge now from Microsoft with, you know, armed with open AI, with Bing, at least calling out Google. We'll see how effectively

they're able to respond. That's their core business. So they've got a number of things to try to manage here while their culture as it existed in the past isn't working the way it used to. I guess just to put a point on it, what is the transition they're going through with Google Cloud right now? What is triggering all of these changes? Well, Google Cloud is the third horse in this race, and Google Cloud has had to stand up in enterprise culture inside Google, instead of an academic culture. Google had a very good academic technical culture of, hey, here's Kubernetes, here's why it's so great. You customers go figure out how to actually use it.

Enterprise culture is we'll actually figure out what your challenge is, how to solve your problem and help you do it. Curian coming over from Oracle was able to start instilling that culture. But now they've got the AI challenge on top of that. It's not just establishing enterprise, but also showing, hey, we can help you with this AI thing, even as Satina Della and Microsoft are a first mover, at least in the conversation.

Yeah, you have to wonder if maybe big acquisitions are next or something. They've already done some big acquisitions, and this isn't the environment where, again, Ruth Porat is going to say, here's the checkbook. Right. Jennifer, final quick thought? Yeah, everything John just said. I mean, we're seeing the continuation, I think, of Google's culture, internally looking a little bit more enterprise-like, and we'll be interested to see what happens going forward with their real estate. All right. Jennifer, thank you very much, John Ford. Good to see you. Good to see you. Thank you.

All right, coming up, the surprising reason many consumers have some extra. cash on hand and what it means for the feds fight against inflation. Plus, natural gas prices are down 75% over the past six months. We've gone from fears of a shortage to an oversupply issue. What happened to the energy crisis we were told to worry about? That's coming up next on Power Lunch. Welcome back to Power Lunch. Energy, actually the best performing S&P sector today, it's up about 1%. That brings us to what's been happening with natural gas PIPA and all the rest of it. Yeah, but first, a quick look at the energy sector because Cotter is leading those gains. The company reported fourth quarter results.

They did indicate higher than expected Cappex for 2023, but also announced a $2 billion share buyback program, which is about 11% of their market cap. Wow. And CEO, Thomas Jordan, gave a little bit of a mixed message. He said that the outlook is both guarded and optimistic. So some interesting messaging there. And then turning to Nat Gas, of course, the big talker this week and really this year. And so Paul Hickey over at bespoke crunch the numbers and found that that dip below $2 snapped a 607-day win streak of NACS trading above that level.

Wow. Now, this is just the fifth time where NACAS has traded above $2 for at least a year. So we don't have a very large sample set. But in all four of the prior instances, it was higher one year later with a median gain of 70%. So how much more expensive is, I think I asked you to see this the other days, forgive me, How much more expensive is natural gas in Europe right now than it is in the U.S.? So right now it's at about 50 euros per megawatt hour. So I don't have the numbers exactly in front of me on what that translates.

So but $2, we're looking at $2.29 there. Is that per megawatt hour or is that that's per billion cubic? No, that's per MMBTU. So there's different metrics of how we measure it. But over the summer, you know, they were paying equivalents of $50 per MMTU. So they're still much more elevated probably three or five times compared to what we're paying here. All right. Thank you for clearing that up partly.

All right, great. For more on the sharp decline in Nat gas prices. Let's bring in Jonathan Maxwell, CEO and founder of Sustainable Development Capital, Jonathan, welcome. Good to have you with us. Maybe I can ask you the same question. If you were to compare head-on-head prices for Nat Gas in the United States versus what Europeans have to pay right now, how would it compare? Yeah, multiples of the price. Multiple of the price in the era. Now, I mean, there are also another feature. of this is if you look back two or three years in Europe, although gas prices have fallen some 80% since they peaked last year, it's still multiples of what it was 2019, 2020 and 21.

So we have to put this into context. Energy is expensive since the Russian invasion of Ukraine. Energy diversifications also meant that Europe has had to look to other markets outside of Russia, for example, to the United States for LNG imports. So the energy markets changed completely, really, in the last two or three years here in Europe. And, you know, I think there's a big message here, which is that Europe and, I think, going forward to your point about how much more expensive gases in Europe, Europe and the United States needs to think about being more efficient with how they use it. In Europe and in the United States last year, prices were really astronauts were multiples of where they are today, 10 or 10?

or more times where they are today. What happened and or what didn't happen to cause those prices to come back down to today's levels, which you point out are still elevated in historic terms, but are much more moderate than they were last spring and summer. In other words, what happened and what didn't happen to put us price-wise where we are today? Yeah. So that's just wind the clock back a year. So by the way, yesterday was the second, sorry.

the first anniversary, the 22nd of February, of the mothballing of Nord Stream 2. So that was the Russian pipeline that was meant to bypass Ukraine, tomorrow obviously, sadly the first anniversary of the war. These things are linked. What happened was after the Russian invasion of Ukraine's supply dried up in Europe. Europe depended about 40% for its imports from Russia. By the summer and in autumn, that had disappeared. So Europe, if you look at the time,

chart for gas prices last year, you'll see suburb prices or summer-orotan prices spiking, you know, as you say, multiples of where they were today. In fact, the price has come down over 80% since then. But that was a scramble. There we go. There was a scramble for international supply. Now, that supply has been partly filled by LNG exports from the United States, from Qatar, from gas supplies, and from Norway. So diversification, incredible job actually done in Europe, the diverse advice applied. Also to build up storage. And then if you have a look at that winter price, you'll see a mild winter characteristic of what happened in Europe.

So we got through a relatively mild winter with rapid stores. The European Commission actually required the European storage system, which had just not been, frankly, caught off guard at the beginning of last year to fill up. So by November, the European markets, and they did it, were meant to get some. about 90% storage levels. They've done it. The reason why prices are sitting where they are is that storage levels are expected to be pretty much full again by September this year. So, Jonathan, let me ask you, as you guys, again, you deliver power and energy-efficient

solutions to end users internationally, all different kinds of sectors. Where are you seeing the biggest demand right now? I mean, how quickly, just talk sort of finally. Give us the lay of the land post-COVID here with the, you know, Inflation Reduction Act, all the rest of it that's happening. We're seeing the knock on effects. We talked to Pippa about this yesterday. We see higher cracks beds.

We see gasoline prices could end up being higher than oil prices because of this lack of refining capacity. You know, I'm just, I'm just curious about this energy transition here. Look, exactly what we've just been talking about is just a massive wake-up call for the energy sector. Energy prices have been high for ages. What's happened? It happened after in 2014 when Russia annexed Ukraine, the European Energy Commissioner, So for every unit of natural gas we don't use is 2.6 units we don't need to buy from Russia.

What this has done, the energy crisis, the gas catastrophe, as it was called last year, was expose how expensive energy is, how vulnerable whole regions like Europe can be to availability. And also the carbon problem, we are wasting about, in the United States, about 70%, pretty much the same number. We're losing about 70% of the primary energy in the US and the European economy. So the reason that Ertinger just said for every one unit we don't use in Europe is 2.6, we don't need to buy it from Russia, is that that was charting the amount of energy that gets lost through extracting, converting, generating, transmission and distributing energy. So the real big-up call of this price spike really means that Europe, the United States,

must, and it's a huge opportunity to be much more efficient. going forward. And if we do that, then that's the biggest bang for the buck from a carbon emission production perspective. It's the biggest impact it could have on energy security, huge competitiveness opportunity. Do you think there is the political and populist will to see this as the opportunity you see it as? Quickly, please. I think the original response was to double down on renewables. When it was calculated the time and cost in mineral extraction to do that, I think the answer to your question is, yes, I think European Commission, by the autumn last year, actually started to mandate reductions in gas use for reduction in energy use.

It's about 20% of the Inflation Reduction Act in the US. I think policymakers are starting to step up, but it should be 50 to 80% of the discussion, not in a very small minority. So we have a lot further to go. Jonathan, thank you very much. I appreciate your insights today. Thank you for having. Still ahead. Treasury is doing a 180. The 10-year pulling back from the three-month highs we hit yesterday. We didn't breach four yet either.

While we're going the other way, we'll check in with the bondmaster, Rick Santelli. And while the S&P is lower for a fifth straight session, we're also on pace for the worst week since early December. We're covering, though, as the Dow's making a run into positive territory, down one point right now. Power lunch back after a break. They see a window of opportunity for equity markets to rebound. Let's go to work. Countdown to the opening belt. The most important hour of trading starts right now, for cautious and uncertain environment. Welcome back to Power Lodge. You're not mistaken.

That's green on our screens for the first time since, oh, about 11 a.m. Eastern time. Dow's up nine points. S&P is up a third of a percent right now. NASDAQ is up half a percent. And if you're wondering, yes, bond yields have been on a bit of an ebb. Now, let's take a look at Moderna,

which is down 7 percent today after projecting a huge decline in revenue and profit this year as that COVID vaccine demand drops off. Moderna, down 7.5%. All right, let's check on the bond market. Bond yields lower right now after the 10-year got close to 4%. Rick Santelli joins us live now from Chicago. Rick.

Yes, Tyler, what a wild day. And let's start at the beginning, 8.30 Eastern, when everybody was looking at the second look of fourth quarter GDP. Remember, we get a first look, second look, and a third look. And each time more data comes in, it gets fine-tuned. And that's where the rub is. Look at the price index. Originally at 3.5, our first look, gets revised up to 3.9, but it follows a final read

in the third quarter of 4.4. Core PCE, well, 3.9, revised of 4.3, but it follows a final read of 4.7. You see what I'm saying? The revisions or what it actually follows. Look at the charts. And if we look at tenure, as everybody's been alluding to, right at 8.30 Eastern, you made your high yield. You just missed 4% and it's been moving lower ever since. The knob, notes over bonds. This particular yield curve spread has been bucking the trend. A lot of these spreads become less

inverted. But the knob today is the most inverted since mid-December. And it is different because the knob gives you special information. Always a favorite of mine. Why? Because it picks up cycle extremes. When you overlay the Dow Jones on top of it, you can see it calls the turns. So if we go more negative in the spread, maybe the stock market goes lower. But if it bottoms here and goes positive, maybe stocks reverse. Pay attention to the knob. Tyler, back to you. Thank you very much.

When Rick wags his finger, man, I pay attention. Thanks very much, Rick Santelli. All right, let's get to Bertha Coombs now for a CNBC News update. Lots happening, Bertha. Lots happening, and I always pay attention to Rick Santelli. In meantime, Alex Murdaugh is testifying today in his own defense at his widely followed murder trial. He admitted to lying about when he had last seen his wife and son alive, blaming his opioid addiction for clouding his thinking.

But in answers to his own attorney, he denied shooting and killing them. Did you shoot a 300 blackout into her head causing her death? Mr. Griffin, I didn't shoot my wife or my son any time, ever. I would never. intentionally do anything to hurt either one of them. It's snowing and 18 degrees in Minneapolis, and the National Weather Service says snow, strong winds, and an icy winter mix will continue to make travel treacherous

from the upper Midwest to the northeast. Snow is also forecast for many of California's mountain ranges. But in western Japan, residents are preparing for spring by setting large grass fires. It's a 600-year-old tradition. to make room for new grass and plants to grow. Hopefully not near any of the cherry blossoms, Kelly. Yes. I'm always terrified after hearing all these weather updates.

Bertha, thanks. Ahead on Power Lunch, the Fed is front of mind, but global risks still remain for the markets. From the war in Ukraine, tensions with China, we'll discuss it all with Hayman Capitals. Kyle Bass right after the break. Welcome back to Power Lunch, everybody. Big interview on CNBC today.

Jim Kramer sitting down with JP Moore. CEO Jamie Diamond. Here's what Diamond said when he was asked about U.S. relations with China. I think Russia showed the world that the world is not safe for Western, completely safe for Western democracy. And you need American leadership, you know, that can coalesce the Western world. But you have what's happening today is that a lot of countries around the world who are trying to pick and choose between who they're going to lie with, who they want to trade with. We've got to put trade back in the table. You know, I travel around the world and a lot of these countries are, hey, if you're not going to trade with us, and China's come and walk in here,

so we need diplomacy, economic strategy, trade, very thoughtfully done with allies, and then private negotiations with China. All right, you can see the full interview with Kramer and Diamond tonight at 6 p.m. Eastern. That is on Mad Money. Joining us now is a longtime observer and sometime critic of China, Kyle Bass, founder and chief investment officer at Hayman Capital Management. Kyle, what do you think of Diamond's strategy here with respect to China? And do you think that the U.S., in light of the fact that today we are warning them very resolutely against sending weapons to Russia? We are talking about putting more American forces in that part of the world.

Can we have a constructive diplomatic, let alone economic relationship with China? I mean, hi, Tyler. I think that, you know, what's happening with the union of strange bedfellows between Putin and Xi, which was first kind of publicly memorialized February 4th of last year, 20 days before the invasion, and since then, re-ratified and re-strengthened. And now the U.S. intelligence community getting word that China is about to supply lethal aid to Russia makes trading with the sovereign nation of China very difficult for anyone to swallow, Tyler. I mean, as an investor, I have no idea how you underwrite Xi Jinping risk after we've just

seen what Putin can do. And now Xi Jinping just a couple of days ago is rescinding, you know, the agreement between the SEC's PCAOB and the CSRC and China on audits, where he's telling the big companies in China to fire their Western auditors. I mean, I don't know how much more we need to see for the American public and the investing public to realize that China is not our friend while Xi Jinping is running the country. In fact, there are strategic competitors, some may say, and our worst adversary, others might say. I would be in that secondary camp. To you, Kyle, is China investable either as an economic proposition or as a moral? proposition. Is it a place where you would put money and feel comfortable about it? The stocks there

have gone up a lot over the past six months. You know, I understand that things trade around and things bounce. But when you think about the long-term viability of any investment you have in a Chinese entity, I can't imagine you running a risk model or anyone running a risk model today thinking that the that the rewards outpace the risks enough to make the investment. In fact, you know, investors and fiduciaries lost all of their money in Russia the day that Putin invaded Ukraine. And I say it's Russia today and it's China tomorrow. If you just listen to Xi Jinping's speech yesterday, he gave a speech in which he was commemorating the 100th anniversary of the of the Communist Party. And he said in the speech, resolving the Taiwan question and realizing

China's complete reunification is a historic mission and unshakable commitment of the Chinese Communist Party. He is telling you in no uncertain words that he will invade and take over Taiwan while he's alive. This is not going to be some other leader, a ruler, a decade down the road. This is happening. And if that happens, you've seen Janet Yellen and you've seen Blinken and Biden say, we will impose strict, harsh, and severe sanctions, and we'll see an exceptional accelerated decoupling. I think investors need to prepare for this eventuality. Fascinating. For an accelerated decoupling. Let me ask you kind of a proxy question, or maybe it's completely beside the point, Kyle. What about Europe? How do they, are they caught in the

middle here? I mean, I ask because we've seen a number of investors turn bullish lately on those markets. I mean, what would your reaction be? I mean, again, I don't mean to be too cynical, Kelly, but I think you have a scenario where if you just take 10 steps back and look at Europe, Europe has so poorly mismanaged their energy transition that we saw a glimpse of what can happen to European power and energy markets if there's either a severe cold spell or a heat wave. And they really fortified their purchasing and bought LNG and crude from all over the world, preparing for a cold winter, and they got a warm winter. So I think in the next two years, you're going to see countries like Germany that spend less than 1% a year on average, on energy, 1% of GDP.

That number could go to 8 or 9% of GDP. You have a scenario where Europe has never actually formed the union. They don't have a central taxing authority. We're still talking about a German army and an Italian Navy, and they don't have a real union. They never recapitalized their banks. And now they've mismanaged their energy situation so poorly that Europe is in a real union. for such dark times over the next 10 or 15 years, again, I can't imagine outside of a trade buying Europe and selling it quickly, picking up a dime in front of a bulldozer.

I would keep investing it in the U.S. I want to maybe turn to something that is a little lighter than what we've just talked about. When I think of Kyle Bass, I think of the ultimate contrarian. If you could give us right now your number one contrarian play, what might it be? Would it be to short Austin real estate? What would it be? Well, with U.S. rates where they are today, whether you're looking at one month, one year, two year, three year, or even 10-year rates, and you think about what I believe is an ultimate eventuality, meaning I think China will absolutely invade Taiwan in the coming years, then why should the Hong Kong dollar peg exist between the U.S. dollar and Hong Kong, given. the malign intent and the belligerence of the Chinese Communist Party. So when you think about

if you had money in a Hong Kong bank and it was freely convertible between a U.S. dollar where you could earn 4% on or a Hong Kong dollar you could earn 300 basis points less on and you have Xi Jinping risk, you'd actually be a fool to hold on to Hong Kong dollars. And I think that's coming. All right, Kyle. Thank you so much for your time today. Always a pleasure to have you with us. It's pleasure to be here. Kyle Bass. Don't wonder about U.S. real estate, to be honest. Coming up, it's a new kind of cash back.

Consumers are gaining financial fuel these days thanks to COVID-era state tax cuts. We'll explain why there could be more on the way and where. But first during February, we're celebrating Black Heritage through the stories of some of our teammates, contributors, and business leaders. Here's CNBC Events Senior Director, Sony, Osagia. My parents first inspired my interest in news.

As immigrants, they taught the importance of global awareness, education, and civic engagement. My parents left their home country of Liberia during a terrible civil war, to build a new life and careers, and to create opportunities for my brothers and me. Both of my parents, they're educators. My dad recently retired from a long career spanning academics, research, and public service. And during this time, he fulfilled a lifelong dream of running for president back in Liberia. I am inspired by their story. Welcome back to Power Lunch.

A lot of focus on the consumer and their durability. Can they keep supporting the economy these days? Robert Frank is here with a look at one reason why consumers have a little extra spending power right now. States are cutting taxes. And the Fed shouted it out yesterday. The Fed did. It was in their minutes. And they said the states have so much surplus money.

They're giving it back to consumers. And that has been a huge tail win and perhaps underappreciated for why the consumer is holding up so well. So 43 states have either passed income rate tax cuts or some form of tax relief in the form of a gas tax holiday, a grocery tax holiday. Now, some of those were one-offs, and they may not reappeated this year, but a lot of them were truly rate cuts. Some states are looking even to eliminate their entire income tax rates this year, Mississippi and Arkansas both looking to go the way of Florida and Texas and have zero. Permanently or just for the year. What? Yeah, phased in over time, but permanently.

So there's this race to the bottom. It is tax cut fever on the state side, and that has put tens of billions of dollars into the pockets of it. So it's kind of been this secret tailwind for consumers that may continue in part as long as the state fiscal situations hold up. And that's the big question. Does it make it harder for the Fed to do its job? A little bit. And it's harder for the Fed to do its job. It's also going to get that liquidity going in.

All that liquidity going in. It's going to some of that will be sustained. They're trying to take it out. It also will help that the states going into whatever this recession looks like if we have one will be in the best shape they've ever been in going into a recession. They have $130 billion in rainy day funds going into this slowdown. So even if we get a slowdown, they may not have to raise taxes again. They may be able to hold on to a lot of these tax cuts. So this could, to your point, not just hurt the Fed, but also go on longer than people might expect.

We got to go, why not New Jersey? Why? Where's the money? Every state of where we live. That's the problem. Robert, thanks. I'll take a state, a bag exemption, you know, a grocery bag. It doesn't have to be attacked.

Anyway, Robert, thank you. All righty. Still ahead, we're going to take a look at a couple of stocks that are getting clobbered today. Isn't an opportunity to buy some bargains? We'll ask our trader in a fresh three-stock lunch coming up. There are the companies, or at least a couple of them. Welcome back. It's time for today's three-stock lunch.

And we're looking at names that all reported quarterly results before the bell today. And guys, Wayfair is down nearly 30% after a wider expected loss and a drop in active customers. Domino's is down 12% after a mixed report on earnings and missing revenue in sales. Quanta, though, is up about 7% after topping expectations for their Q4 results. Let's bring in Victoria Green now. She's CIO of G-squared private wealth and a CNBC contributor. Victoria, Welcome, Wairfer, was already down on Home Depot's report. Now it's, you know, getting clobbered.

Would you be a buyer? No, I think your question will follow on. knife right here. I think you're going to be retesting those October lows around the 28-level, 28-35. It's just a bad, bad, bad miss for them. I know e-commerce is slowing down, but in a time of almost record retail spending, they still lost customers. They only have 22 million subscribers now, down 19%. Their ad spending as a percentage of sales is highest as it's been since 2016. So all that head cutting they did didn't really help. They ended up logging and lost, logging negative free cash flow versus expected profit. And their pathway to profit at this point,

I think the market's saying prove it to me. I don't care how much you talk about cutting. You're going to have to put more money into marketing to drum up sales. You're going to have to prove it to me. You can be profitable in 2023. So I'm not touching it even with the big moves today. All right. Let's talk about one. Another one you may not be touching. And that is Domino's Pizza. Revenue, a little light here. The EPS, a little higher than expected. What do you see in the future? It's all about the guidance. They guided down their expectations for two to three years. You only had 1% same store of comp growth. Like, that was just pitiful.

Come on, Domino's. And it's all about the story of the delivery versus carryout. And their delivery is such a struggle for them right now. They're really stubborn. They're not partying really well with third-party apps. Carryout is basically the only thing working for them. And it's very hard for them to grow that. They opened less stores than expected.

They lowered guidance. It's just like you need to give us a reason that you can actually grow. And if you are seeing slowing growth, I think you could see the stock retest the COVID lows around 286. Wow. We really need to see them get delivery profitable and they're struggling with us. They need to bring back Patrick Doyle. They take him from Burger King. I think the stock's like where it was when he left five years ago.

Anyway, let's get to Quanta Services. We don't talk about this one as much, Victoria. Would you be a buyer? Yes, I do. They had a wonderful beat, both top and bottom lines. They not only had record key four, but record full year, both top and bottom lines. But it's the runway for this stock. They're an infrastructure stock.

They do a lot with electrical power grids. But they also bought a renewable energy company last year. It's about 20% of revenue. revenues now. So you're just playing in this field that has a lot of government spending. Infrastructure has to get upgraded. We've always talked about the power grid is very inefficient. And they know how to set up for renewables, which is a big push in a lot of states. So I think their runway is clear. And they just have this most beautiful upward trend channel right now. How could you not like this stock? They're expecting double-digit EPS growth. They've got record backlog. Just a lot to like about

this stock in a good sector right now. Always love having you on, Victoria. Thanks very much. You bring game. Love it. Victoria Green. Appreciate it. All right. Still to come, 401K plans took it on the chin last year. There's a camera right. Quen approaching there. What's going on up here? New data shows that retirement savers will not be deterred. There's your nest egg in the nest. We'll talk about that when Power Lunch returns. All right, folks, welcome back to Power Lunch. We know 2022 was a rough year for the markets. Dom Chu now looking at just how hard it hit 401K balance. I know how hard it hit mine. It hit all of us.

And the reason why you heard a lot of color commentary about folks saying, joking, perhaps, in a very non, non-loving fashion that their 401ks have become 201Ks in this kind of environment. It's because not just stocks got hit, but of course bonds got hit as well as interest rates started to go higher. So new data is out from Fidelity. Fidelity runs a lot and manages a lot of administrators, a lot, millions of retirement accounts for Americans. and so they have a pretty good view of things. Well, their data shows that the average 401K balance in America at the end of last year was just around $104,000.

Now, that's a 23% decline over the same time last year, not unexpected given the route that we saw in bonds and stocks. But there is perhaps a little bit of a silver lining in this whole process. If you take a look at what's happening with the overall picture within those 401K balances, we still do have around 13.7% contribution rates, which means people, along with their company matches, are still saving around 13.7%. Now, that is just a hair below the 15%, 1,5%,

that Fidelity experts at least advise their clients to save in terms of their overall kind of 401K balances. And what's even perhaps a little bit more encouraging right now is that oftentimes people will take hardship withdrawals if they face a certain situation where they need to kind of bridge the gap in terms of their money. They take a loan from their 401K. Well, it turns out that about 16.7% of folks still have an outstanding balance on a loan against their 401K. That's a relatively lower amount than we would have seen at certain times, at least during the pandemic and whatnot.

So I guess the good news, guys, is that people are not having as much in terms of a balance in their loans from 401ks. I'm surprised that people are contributing 13.7% of their income. Is that right? Well, that's if you add the company match. Correct. And some people will match dollar for dollar or 50 cents on the dollar, up to a certain percentage they have. It's right. So the idea here is that whatever has been happening during the market downturn, it has not

affected people's propensity to want to save. To put money in. Right. To put money in. And by the way, it seems so rough to do so. But when the markets are down, that's when you want to put money into the marketplace. The 401K is the perfect dollar cost averaging vehicle. Absolutely.

That's exactly what it does. And by the way, the data from them also shows that individual retirement accounts, IRAs and 503Bs, which are tax exempt employees, teachers and whatnot, are showing similar types of trends. Yeah. But it was a wake-up call around January 1 to look and see where the balances were compared with a year ago. But I mean, always great to have here. DCA is always a big fan.

All right. Thanks for watching. All right. Everybody. Closing bell starts right now.