Power Lunch - Power Lunch 12/22/22

Episode Date: December 22, 2022

CNBC’s Tyler Mathisen, Melissa Lee and Kelly Evans take you through the heart of the business day bringing you the latest developments and instant analysis on the stocks and stories driving the day���s agenda. “Power Lunch” delves into the economy, markets, politics, real estate, media, technology and more. The show sits at the intersection of power and money. “Power Lunch” gives viewers a full plate of CNBC’s award-winning business news coverage, plus a healthy dose of personality from the show’s anchors and the network’s top-notch roster of reporters and digital journalists. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

It's cold, it's wet, the market is down. There's your forecast, folks. Welcome to Power Lunch, along with Kelly Evans. I'm Tyler Matheson. We are in the midst of a big sell-off on Wall Street. David Tepper's bearish right now, and he's right, at least for today, and Micron's result wreck the chip sector. Just wrecked it.

Took it way down. Plus, worries about the holiday season for retailers. We got it all covered. It's all contributing to this down day, and we have all of it and more for you in the next hour. over to Kelly, though, for a look at the number. Yes, and again, get your umbrellas out, or if you want some shield from this rain. The Dow's down 709 points. Actually, about 800 was the session low.

The SMPs down 102 right now. The NASDAQ has been the worst performer because of those chip stocks, Tyler mentioned, down 3.3% earlier, approaching a 4% loss. Now, let's look at the semiconductors. They are getting crushed after Micron's results. Micron itself is only down about 5%, but the materials makers lamb research down 10%. Vyedia down 9% in the SMHETF down 5 to 6%. As I mentioned, Microns decline doesn't seem so bad even in comparison to what some of its

peers are doing. They make the chip equipment. CarMax is also sinking today as they missed on earnings and revenue due to what they call vehicle affordability concerns. This is a huge watch point for the markets and the economy right now. CarMax, it's been a tough stock down 5% again today. And speaking of autos, got to look at Tesla down 10% earlier, just off those levels right now, it's $125 stock. Ford and GM, though, are also down about 10% in a week. GM's down 11%,

Tyler's down 15% and Tesla is down 20%. All right, Kelly, the big interview on CNBC this morning, Appaloosa's David Tepper, saying he is leaning short the equity markets right now. He expects more rate hikes and thinks you shouldn't fight the Fed. ECB and the Fed and the FOE have signal future tightings. So, yeah, we're going to have a lot more tightenings. Joe, as I told you once before, 10 years ago, sometimes they just tell you what they're going to do. And you got to believe them. I kind of believe them.

I kind of believe them. All right. Are the markets doubting the Fed or underestimating the impact of rate hikes? Well, it looks like today they're looking at it and maybe not underestimating. How can you make money in this environment? Let's bring in Jack Ablin. He's Crescent Capital founding partner and CIO. Hi, Jack.

Welcome. What do you think, how do you react to what David Tepper said? And are you similarly leaning short or negative on equities because of what you expect the Fed to do? Well, first of all, David Tepper and I worked together many years ago. And he was a smart guy then, and he's a smart guy now. And yeah, we are still cautious on the market. Our growth strategy, which is typically equities, we still have 10% allocated to gold and 10% allocated to non-correlated, we call it hedge funds. I'm looking for evidence that it's safe to get back into the equity markets.

And I'm actually shrugging off a lot of the data that we're looking, that we're wringing our hands over today. because if you think about the four possible combinations, I don't mind strong growth with higher than expected inflation, certainly better than weak growth with higher than expected inflation. So, yes, I do think that the Fed is going to continue to fire monetary policy at us. I also think they're going to flap their guns and really ramp up the rhetoric. But I also see evidence that economic activity and inflation pressure is slow. as we move into 2023. What about earnings? What do you see as you look ahead over the next six to 12 months with corporate earnings? And then I want to come back and talk about something a guess

yesterday said about PE multiples in relation to those earnings. Yeah. So, I mean, really, if you're looking to try to ascertain fair value in the market, it's simply a matter of what's earnings growth and what's the 10-year treasury or the triple-b bond, 10-year triple-b bond yield going to be. You get both of those, and you're going to come up with a pretty good number of what the market should be doing. Now, if I do expect we will have recession next year, probably Q1 and Q2, I also think it will be a mild recession. Right now, if you look at earnings growth estimates, we're looking around 4% for a lot of

next year. And if we do have a mild recession, that probably, is a negative 10% or so on the earnings front. So we have a long way to go on the earnings side. So you think that the, let me just stop you if I might, Jack, because I want to make sure I'm understanding. The consensus is that earnings growth may be 4%, but you are saying that if there is a recession, albeit potentially a mild one, that those are, that that is way too high, the 4% consensus. Yeah. In fact, typical recessions, Tyler, are somewhere between 15 and 20% year-over-year declines in earnings. So we're calling for, like I said, Q1, Q2, mild recession,

perhaps a 10-percent decline in year-over-year earnings. And if you think about just changes in earnings growth, all other things being equal, it's essentially one-for-one. So a 15% decline from current expectations, all other things being equal, the 10-year Treasury yield doesn't move, that would equate to roughly a 15% decline in the S&P. from where we are right now. That said, though, I also think that the 10-year treasury yield will decline. In fact, a number of tools that we look at, most notably copper gold, suggests that the 10-year treasury yield should be a lot lower than where it is today. So if we can get that 10-year treasury yield down to, say, close to 3 percent rather than call it 3.6, that means that maybe

the market's off, you know, low single digits. So within what I, what I, what I, call kind of the wiggle zone of where we currently are. You've got the earnings multiple, the PE ratio, and that is sort of the speculative part, what people are willing to pay for each dollar's worth of earnings. You've got, and we had a guest on yesterday who said, I believe she said that she was looking for the PE multiple to expand next year as investors look beyond falling earnings, look beyond recession and look to the next expansion and start to pay up for stocks. Do you see that as a possible?

And therefore, she thought that the market might have a positive year in 2023. How does that strike you? That's plausible because really P.E. Multiple is really just the reciprocal of the earnings yield, right? It's just price over earnings instead of earnings over price. but earnings over price is perfectly moves in lockstep with the 10-year triple B bond yield. I mean, if you told me what the 10-year triple B bond yield is, at any time, I could tell you what the P.E ratio is likely to be. So what I'm inferring from what she's saying is in order to get a P.E. expansion,

we're needing to have the 10-year yields come down, and that's certainly plausible. Jack Ablin, thanks very much. Have a good holiday season. We'll see you next year, my friend. All right. Thank you, sir. Thank you. Now let's dive in a little on the chip stocks, getting crushed after Micron reported weaker than expected earnings last night and warned that chip demand is softening. And they're laying off 10% of the workforce and suspending bonuses. Micron, AMD, Qualcomm, down 5% or more. Lamb Research, down 10%.

Joining us with more is Chris Sankar. He's senior research analyst at Cowan. Chris, it's great to see you. And why did this take the market by such surprise? Yeah, sure. Kelly, thanks for having me. I would probably say that what Micron is going through is a typical memory down cycle, but I think what is different is just the pace of the collapse in demand, increase in supply, flooding of inventories actually very different from prior cycles. You've seen the demand slow down one by one. First you saw PCs roll over, then smartphones.

You're seeing like slow down in data center, hyperscale, auto streams to be still holding up, but a lot of the end markets are slowing down. And on top of video, like I said, you have excess inventory. I think with Micron specifically, you know, they've been kind of telegraphing or signaling the weakness pretty much on a consistent basis. I think that's one of the reasons why it's obviously down 5%. But if you look at some of the derivative names like semi-equipment names, they're down much higher because what Micron kind of implied is that the weakness in capital spending

could last into calendar 24, which the market is not really expecting. So in other words, Chris, it's not that people didn't anticipate some weakness, but that it could go on for all of next year and that was worse than anticipated? Yeah, exactly. I would probably say that, you know, the magnitude of the down cycle was worse than what people expected. The reality is that no one really has, you know, clarity or visibility into demand beyond, you know, I would say several weeks or even a quarter. But the expectation is that things could improve the second half of calendar 23. What I would say is that clearly we do not have the visibility, but over the next six months, the customer inventory could get worked down. And that actually is a positive in terms of pricing. But today we have excess inventory with the suppliers like Micron, excess inventory with the customers who are hypers, slowing demand, massive supply.

And one additional question. When we see names like AMD and V-VITA, which were some of the top performers last decade, and we see them down, you know, 9% today. Does that seem justified to you? I mean, are they more exposed here than even the likes of Micron? No, I mean, it definitely seems a little bit of a stretch, I would say, to be completely honest. I think the read-through people are using is that the demand scenario is really weak. It's going to take a while to recover. I think one way to think about it is if you look at the end market for chips in an AMD,

it's a CPU, GPU company, NVIDIA's GPU. Micron is a memory company. And Micron was one of the first ones actually in early June to report weakness and demands. So memory actually has been leading us into the downturn. So there is a view that memory would lead us out of this downturn. And if that downturn is getting prolonged, that could mean the read-through would be like the other guys were going to take a longer time to recover. So memory needs to recover first before all the other semis would recover. Am I wrong or have we gone very in lightning speed from chip shortage?

to chip surplus? Is it as simple as that? Definitely. I mean, you're seeing pockets of it. I think there's still some parts of chips which are actually still in short supply. There are some high profile, I would say, like specific analog components, et cetera. And then some trailing edge is definitely in short supply. But memory, you know, I don't want to use the term commodity, but it is viewed as a commodity, kind of fungible. So if you have multiple suppliers, the customers tend to, you know, kind of use them.

or mix and match them. So I think that's one of the reasons why memory went into a oversupply situation faster than many of the other, you know, specific analog specific chips. But yeah, clearly you're definitely seen what was the under supply last year massively turned into short supply, especially for specific chips like memory and hard drives. Chris, where do we go from here? So the market has taken Micron's comment now adjusted what it thinks is, I guess, in store for earnings next year for the entire second. could there be more downside still? Yeah, I think at this point,

you know, a lot of the weaknesses that are understood by the market. To me, it's more of a macro call. I think if you end up into going into a deep recession, then any kind of demand recovery potential in second app is going to get delayed. So I think it's more of a macro call where, you know, if things hold up in a modest recession scenario,

like I said, you've seen the inventory get worked on. Again, it's going to take a good six months before the inventory goes through the system. then we can at least say that even if demand remains stable, inventory is low, so things could start coming back up. But if you end up in a recession, that demand outlook might get pushed beyond second half of 2023. And in that case, there's probably more downside. Wow. All right. Chris, we'll leave it there for now. Thank you very much for your time. Chris Sanker with Cowan.

All right, coming up, it has already been a rough year for many retail stocks. Will the holiday season save them? Or will a cautious consumer and an inventory overload make things, even more challenging. That's coming up. And as we head to the break, take a look at some of the stocks hitting new 52-week lows today. Amazon, Expedia, match for Amazon, it's the lowest level since March of 2020. We'll be back with more on this market sell-off. Stay with us. Welcome back to Power Lunch, everybody. Retail under pressure along with the rest of the market today. High inflation combined with recession fears weighing on consumers with Christmas just a couple

of days away. Earlier on Squawk Box, the retail legend and former Jay Cruz CEO, Mickey Drexler, weighed in on some of the challenges facing retailers right now. I'm not very optimistic, and I think that discounts are rampant, starting with pre-Black Friday. Some outliers are doing quite well, but the margins will have to get hit. Let's get some insight now from Connor Flynn. CEO of Kimco Realty. It owns and operates more than 500 U.S. shopping centers. Connor, welcome back. Good to see you as always. What are your tenants telling you about sales? And there we look at some of your top tenants, which include PetSmart, Home Depot, TjX, Ross, and so forth. And Walmart.

Yeah, pleasure to see you. The environment right now is a bit mixed. You look at the consumer today. And obviously, you're seeing some pockets of strength and some pockets of weakness. You saw Nike's results, and obviously footwear has done phenomenally well. We're seeing the same in categories like beauty, fitness, and services as well, as well as food and grocery. So it really depends on the demographic that you're talking about and the location specific. But the consumer itself is obviously still a question mark on the strength of the consumer. But what hasn't changed is the retailer demand. That still is quite robust across the entire portfolio here at Kimco.

What do you mean retailer demand? In other words, the retailer's wanting space? Exactly. The net new store openings far outweigh store closures today. And there's virtually no new supply. We're at a decade low of any new retail supply, especially in the markets where Kimco is positioned, where we have high barriers to entry. We're in that first string summer of the top 20 major metro markets. And so the net demand is quite, quite strong for our product today. Where are things a little bit more weak, Connor? And what are your concerns about 2023? What we're watching closely is really the small shop. So typically a Kimco Anchored Center is a grocery anchored shopping center with some small shops surrounding it and maybe an off-price retailer like a TJ Max or one of their concepts. The small shops is really where we're watching closely.

The pizza place, the salad bar, the nail salon, the hair salon. We feel like that will be really the indicator of where cracks may occur in this economy. We haven't seen it yet as, you know, the collections are quite. strong and demand for small shop space is robust. But we feel like that's where probably the first crack will really occur and we're watching that closely. That's really interesting. You know, we're always kind of looking for those anecdotes. So in a way to you, this could be the eye of the storm. You know, we've, as we've mentioned, the past couple months have been a pretty good setup. We've had finally real wages outpaced inflation, gasoline prices coming way down. It's surprising then

that we're not seeing more upbeat holiday sales. You know, just yesterday we spoke with an analyst who said his numbers indicate, especially for lower income consumers, that their spending is going to be way down year on year. Why is that? And is that itself a red flag that there's not a better response to the improving conditions of the past few months? The lower income consumer, I think, is really being pinched by the inflationary environment.

And when you look at the holiday season, National Retail Federation has a 6 to 8% retail sales growth for the projection. ICSE has 6.7% retail sales growth projected. So there's a lot of different data points out there. Ecommerce seems to be pulled. One second. I'm so sorry to interrupt. Sam McMahon-Fried is walking out of the courthouse in lower Manhattan, Tyler, where he just

posted a $250 million bail. Now, that number is raising tons of eyebrows over the size of it. It's one of the biggest we've seen for a situation like this. Where the funds came from is McKenzie Segalos reported last hour. They are in part secured by real estate owned by his parents. His parents also had to co-sign. for this bail. This is the blue suit he's been wearing as by all reports in so many of these appearances lately. But here we seem to be getting some of the first pictures of him back on

U.S. So. And the terms of his bail, as I saw in the last hour, include a tracking device, a forfeiture of his passport and other location monitoring, home detection, so on and so forth. That could, and I assume he would be restricted to probably the tri-state area. Who knows? I think she said Northern California. Was that right? And the understanding is, I believe he's been living with his parents in the near term. But again, it is a very, very large bail. Huge.

He has just posted. And now we're able to finally get a look at him after only seeing and hearing reports about his demeanor throughout the course of this extradition period in the previous days. Yeah. Okay. All right. Shall we go back to Connor Flynn? Why don't we go back to Connor?

I was going to ask you a question. A lot of your big tenants are growth. And Walmart is certainly a grocer, but that's not really what we think of them. We think of them as general merchandise and groceries. What is the Kroger deal, the acquisition deal likely to do in terms, are there going to be store closings or what? What are you anticipating there? Or is it a non-event for you? It's actually a net positive for Kempco. If you think about the combination of Kroger and Albertsons, if it were to be approved, now that has to go through a litany of different hurdles to get approved. It's a credit upgrade for Kimco. So Albertsons and

Kroger are both top 10 tenants for Kimco, but Kroger being a better credit, investment great credit would be the surviving entity. So therefore, the combination would help us. There are no store closures tied to that merger. What they're doing is it's an interesting structure. They're doing a spinco where the overlapping stores or the ones where they feel like they have too much concentration or too much dominant in a trade area would be spun off into a separate public company that would be low levered and be in a position hopefully to compete. So that that's an interesting structure that I think is unique to that deal. So we're watching it closely. We think it'll take some time to go through the review process. Would those spun stores continue to operate under their familiar

brands or would they change brands? It's likely they would probably remain the same brands. And it depends. It's likely they'll remain the same brands. But the key is that it'll still be guaranteed by the parent. So the credit behind that lease is not the spin. it's still the parent Kroger that would be behind that lease. So it's still a very strong credit behind the spin co, even if it's rebranded. Thanks for answering. Connor Flynn, have a good holiday, my friend. Happy holidays. Appreciate it. We have some more breaking news this time in Washington. It's on that omnibus spending bill. Let's get to Elon Moy. Elon? Kelly, the Senate has just passed that $1.7 trillion deal to fund the government through the end

of the fiscal year. Now, this bill passed with strong bipartisan support. The final tally was 68 for 29 against. Remember, in addition to funding the government, this bill would also provide $45 billion in aid to Ukraine. That has been a priority for lawmakers, especially following the addressed by President Zelensky before both chambers of Congress yesterday. The Senate also added two amendments to this bill, including the Pregnant Workers' Fairness Act and an increase in FTC merger filing fees for the largest transactions. Now that the Senate has passed the omnibus bill, it will go over to the bill.

to the House. Leadership in that chamber has said they plan to stay in session until this gets passed so they can send it to the president's desk. Remember, the deadline for funding the government is tomorrow at midnight. So the Senate now taking that first step to funding the government for the full fiscal year. Guys, all right, Elon Moy reporting. Thank you, Elon and the Dow. Office slows down just 663 points. Coming up, Home Fried. We just saw Sam Bankman-Fried, posting bail exiting the courthouse as two high-ranking Alameda executives plead guilty. We'll discuss more next here on Power Lunch. Sam Bankman-Fried appearing in court in New York City just moments ago.

This comes as two key people in the case plead guilty. Let's bring in our CNBC.com reporter McKenzie Seagallos for the latest. McKenzie, what is the latest here? We just saw him leave the courthouse after posting a colossally sized bond. Yeah, so Bankman-Fried just left moments ago. He's got an ankle bracelet on what we know about the terms of his release. He had to put up a $250 million reconnaissance bond. Now, what that means in practice is that his parents had to co-sign on it with him.

They also had to put up equity in their family home in Palo Alto as collateral. Now, it is worth noting here. He's not putting down that entire amount. He's putting down a percentage here that sometimes that's around 10%, but we won't know that for sure until we see the filing. Other terms of his release, he had to surrender his passport, and he will live with his parents in their home in Palo Alto. His travel within the United States also limited to the Northern District of California.

He's got to stay in his parents' house. He also has other terms of his release. He can't open any new lines of credit. He has to submit to a mental health counselor. Now, in terms of the mood in the courtroom today, we had a producer there. Both his parents were in the room. They were nervous, but they seemed supportive. Begman-free, you know, Kelly, as you said, he was in that blue suit and top.

I have to think that it's the same one that he's been wearing all week as he showed up in court hearings in the Bahamas and now in the U.S. So part of the collateral was the parents' homes in Northern California. Where would the rest of the money have come from if he is bankrupt? Well, that's a thing. That's exactly what everybody is wondering, because one, he said in an interview that he was down to his last $100,000. But at the same time, a lot of his wealth was in this FTT token. It was in property, property that the Bahamian regular. say that they would like the government there would like to claw back to $256 million worth of FTX properties in the Bahamas.

So it's unclear how he's piecing all of this together right now. What do the guilty pleas of the associates mean for Bankman Fried and his and his defense that basically apparently as so far as we know it is I was just a dumb CEO. I wasn't a fraudster. Yeah, I mean it's not good for his defense. And it seems that prosecutors intentionally withheld the information. that two of his top deputies, Caroline Ellison of former love interest, also the CEO of Alameda Research, and Gary Wang, who was a co-founder of FTX. It wasn't until Bankman Fried was in the air that they actually released information about how they were cooperating with prosecutors. They had submitted these plea deals, so it's not looking good. There are also a lot of other top lieutenants in Sam Bankman-Fried's crypto empire who haven't been named yet.

There's a question as to whether conversations, their back channels going on at this moment, One thing that I want to note about the hearing today, we thought that there would be an arraignment that didn't happen because the presiding judge was out. So he is not put in a plea of guilty or not guilty to all those charges. That won't happen until January 3rd. So really the discussion of the day focused on bail and scheduling. The judge was out. Must have been something pretty important. Weather, COVID.

Who knows? Mackenzie, thank you very much for all your reporting. Mackenzie Sagalos. Let's get to Bertha Coombs now for the CNBC News Update. Bertha? Hey, Kelly, here's what's happening at this hour. Secretary of State Anthony Blinken is urging all countries, including China, to share information on COVID outbreaks. This is health experts become increasingly concerned about the lack of data new COVID infections in China. Lincoln says the U.S. stands ready to help other nations battle COVID, but Beijing has not asked for assistance.

And U.S. life expectancy fell to 76.4 years in 2021. It's slightly better than initial estimates, but the final numbers still mean Americans will only live as long as they did in 1996. Deaths related to COVID remained high and fatal drug overdoses surged as U.S. life expectancy fell further behind that in many other developed nations. Heart disease remained the number one cause of death in the U.S. And winter storm, Elliot, has caused temperatures to plunge as much as 50 degrees in just a few hours in parts of the North Plains. In much of the country, it could be the coldest Christmas weekend in decades. Snow and ice are hampering travel, tracking site flight aware. It says nearly 2,000 U.S. flights have been canceled today.

Parts of Iowa are like 50 below zero. Oh, my goodness. And put the wind chill on that? I mean, that is just. devastating. Wow. All right, ahead on power lunch, folks, a massive snowstorm on the way. We just heard about that. Investors and consumers alike bracing for travel issues and higher energy prices. We've got more next. Plus, we will continue to watch those markets. The Dow now down. Let's see. What is it there? Bring it in. 614 points. We will trade some of the biggest

movers in today's three-stock lunch, a negative day for equities. Welcome back, everybody. 90 minutes left in the trading day. And the picture's looking a little better than it was an hour ago. Dow's down less than 600 points. But let's get caught up across stocks, bonds, commodities. And we'll start with Bob Bassani at the New York Stock Exchange. Bob, what's the latest?

Well, that's where I am. We're coming off the lows, but don't kid yourself. Look, there was concerns about the economic numbers this morning. But what's happening today is a takedown of the tech earnings for 2023. The S&P's down 2.5%. Big tech names, though, we're down 5, 6, 7%. Micron's just the least of the problems. We've got a lot of names right at or new 52-week lows, Amazon, Salesforce, Apple's only 1% from the new low, and it's simple.

To the extent that Micron is a tech leader, because we have all of these DRAM chips that are in everything. They're in PCs, they're in cell phones, they're in data centers. So there's concern that that inventory glut is going to apply to the rest of the market. I'm just taking down estimates right across the board. speculative tech, same situation, a lot of Kathy Wood stuff, right, sitting at or near 52-week lows, Z-scaler, Roku, Zoom Video, Teledoc, either there or within 1% of a new low here. You want to look at some of the proxies for growth. It's interesting that oil is only down fractionally today, but the big oil names are down

5% or 6%. To me, that's a sign of growth concerns out there, overall concerns with what extent of any kind of recession we're going to get out there. Finally, S&P 500. Remember, everyone was expecting semiconductors. We're going to be bottom in October. We'd be coming off of those lows. Same with the overall stock market.

And now, of course, you see we're starting to move back towards those October lows. A long way from that right now, Kelly. But that's the concern now, retesting those laws. Exactly. Well said, Bob, thank you very much. Meanwhile, in the bond market yields down today, the yield curve a little better. We talked earlier about David Tepper's remarks about the Fed and they're tightening. Rick, what do you say?

You know, I say that we continue to see a softer equity. market, but what's interesting is the digestion process of that is being lost on the Treasury complex. Look at a one week of two-year notes. Okay, they settled at 418 last week. They're at 425. They're up seven basis points, but they are the leader today. They're up four and a half basis points today alone.

Much of the rest of the curves near unchanged. Look at 10 years. They closed under 350 last week, which means right now at 366, they're up 17. But on the day, they're nearly unchanged. What is that telling us? It tells us, as we talked about earlier, the yield curve spreads, twos to tens getting reversed a bit, and today's inflation data with respect to the GDP price index, it was as expected, basically, but it was still one-tenth higher in the rearview mirror,

as was core PCE quarter over quarter. So the fact that they're much lower is not necessarily the dynamic here. The dynamic is that they're sticky, and sticky isn't good when you add in all the other tech issues. One would have thought interest rates would be a little bit more self-serving with lower, but they're not. And if you look overseas, maybe one of the reasons is we're getting a much more hawkish guidance coming out of the ECB. They settled today at 236 in Boons. But if you look at a year-to-day chart, they're darn close to new highs for the year. And those new highs above 240 from October, those were the highest since 2011. Finally, Fed Fund Futures, the Folkrum, where they stopped going down

and start going up is June of 23. There's a two-week chart. It's basically sideways. That's important because none of this is really changing the market's view on Fed funds and what the central bank's going to do. Great point, Rick. Thank you, Rick Santelli. Now, most things are down this week, but oil up 5%.

And it's getting all the more wintry outside. Pippa Stevens with the latest. Pippa. Hey, Kelly, up on the week, but oil did reverse early gains today and turned lower alongside the broader market as traders focus on essential banks tightening. That's outweighing optimism from yesterday's bullish inventory report, as well as the potential rebound in Chinese demand. Now, the winter weather hitting much of the country, also having an impact here. More than 3,000 U.S. flights have been canceled ahead of the

holiday weekend due to the storm conditions. That's according to flight aware. And if people decide not to hit the road, that will cut into gasoline demand. Let's check on prices here. WTI is down 6 tenths of 1% at 7784, with brand crewed at 8,000. for a loss of 1%. Now, colder temperatures means higher heating demand, but natural gas is actually down today, and that's because the market is already looking ahead to a coming warm spell at the start of next year.

However, a trader telling me that some spot prices across the country are surging, especially out west and in the Rockies, where they've hit 50 bucks per MMBTU. But ultimately, again, Capitalist John Kildoff said this is a buy-the-forecast, sell the storm event. Kelly. Yeah, it is interesting.

regional jumps we are seeing PIPA. We'll leave it there for now. Thanks. As the broader market debates recession versus soft landing, oil's been kind of caught in between, but my next guest sees a Fed pivot and China being the catalyst for a jump from here. Let's bring in Francisco Blanche, B of A securities, head of global commodities research. Francisco, it's great to see you, and my bearishness on oil now must itself be a sign that prices are about to take off again. What do you see? Hey, Kelly. We agree. We think prices are going to be higher. We're still targeting $110 a barrel on Brent for next year, probably sometime in the third quarter of next year. But obviously, it's going to be a little challenging for oil over the course of the

next few months as hospitals in Shanghai and other parts of China essentially build up with a lot of COVID cases and likely pull back demand in the short run. We think that after the Chinese New Year, demand will start to pick up there. But it's been, and obviously, yeah. Francisco, the oil price collapse has been pretty spectacular. And we had Ed Morrison the other day who kind of called it and is still pretty bearish. What is the case for this not being a new normal? You know, why don't you think we could have prices stay down here around these levels into the first or second quarter of next year?

Well, I mean, these levels are generally elevated anyway, right? And compared to history, anyway. So I think 80-dollar oil is historically a relatively high price compared to the average of the last 10 years ago. But I do think that the upside is coming from the China factor, also from the fact that inventories are pretty low, generally, across the world. Also, we have OPEC cutting production to try to support prices. And remember that the U.S. government has committed to, or at least announced they're going to be buying oil if prices dip below $72 a barrel on WTI. And we've traded close to that level and bounced back up. So I think, you know, there's little downside, and yet you have all the China reopening ahead of you, which is likely going to add at least 7 to 800,000 to 8,000 barrels a day of fresh demand to the market. dial back the clock francisco to let's say april or may of this year would you have suspected then

that oil was going to close the year closer to 70 or 75 dollars a barrel or closer to 125 well i mean i i can tell you what our forecast was our forecast was oil was going to end the year at 95 i'm going to brand uh w t i a little lower um so you know it's definitely been a little more negative than we anticipated. And I think part of it has been that Russian flows have continued to have continued to hit the global markets despite the European sanctions. How is that? And why is that? Is that a failure of sanctions? What is it? Well, essentially, it's the price cap. I mean, the price cap was an instrument devised to keep Russian oil flowing into the market. Because European politicians have committed to stop buying Russian barrels.

And then the U.S. Treasury, I think Secretary of Yellen, came up with the idea, well, one with a price cap instead. So flows continue. And that's what we've achieved. We have more oil than we need. And at least from Russia and relative to our forward balances, there's more barrels. And we want that Russian oil to come to the market because, dot, dot, dot. Because if it doesn't come to the market, then we'll be in a very, very tight global oil

market because Russia is the number one exporter or used to be the number one exporter of oil in 2021 and number one exporter gas. So we want those supplies to come in order to prevent tightening of global energy markets. That's exactly what the price cap achieved. It avoided, in my view, a policy mistake in Europe to essentially limit those energy flows. Yeah. It's been, and Francisco, I don't know if you want to offer a part of parting word on natural gas, or maybe just the whole global energy picture, because on the one hand, it seems so much better than we ever could have thought a few months ago. Look at gas prices. On the other hand, we keep hearing about how Europe's running down at storage levels and just wait

until next winter, and it's going to get so much worse. What should we think? Well, so I think you were highlighting it earlier, and we've seen California prices hitting 50-plus dollars per MBTU in the last couple days. And part of it is that the global gas and power crisis This is coming into the U.S. Regions that are not well connected to the world, they are not well connected internally to the domestic pipeline system in the U.S. are now having to pay its world prices. And this world prices are 30, 40, 50 bucks in an MBTU.

You have to pull gas out of China or out of Korea or Japan at very, very high prices. So that's kind of what's going on there. I do think gas is going to be extremely volatile for where it's worth. I mean, we are looking at a commodity that's been exceptionally volatile all year. I'm talking about global gas price. crisis with a range of $20 to $99 per MVTU in European TTF spreads. Now, California, we're seeing the same thing. So I think the global gas and power crisis remains right for on center of the energy crisis.

Crude oil has never really been in a crisis. We've had ample supply. We have reasonable supplies throughout the year, including the release of the Strategic Reserve. But it's really gas and power have been the problem. And now it seems to me California consumers are facing the same problem that Europeans and northeast patient consumers are suffering from. Francisco, it's great to have you on today. Thanks so much. Thank you.

Francisco Blanche. All right. All right. Still to come, recapping what's dragging us lower today. Power lunch will be right back. All right, folks, the Dow down right now, about 600 points. The low of the day for the session for the Dow was down 80. 803, Boeing, the biggest drag on that index right now.

But it has been a hot stock up 55% in the fourth quarter, not so much today, down about 4%. Microsoft, a drag also combined with Boeing, those two taking more than 100 points off the index. And as we say, the Dow is down about 600. We're going to be right back with a look at more of the day's big movers. Stay with us on Power Lunch. Welcome back. It's time for today's three-stock lunch. with this sell-up, we're focusing on three big movers today. CarMax, whose results were hit by the used vehicle recession.

They're pausing hiring. They're even halting share buybacks. Shares are down 5%. Craft Hines is holding up only down half a percent today and still up on the year at AMC Entertainment. The stock plunging as they've announced a new $110 million capital raise and proposed a reverse stock split. It's down 11%. Let's trade these names with Scott Nations. He's president and CEO of Nations indexes. This is a, it's either a tough batch or an easy one. Scott, let's start with CarMax. What do you do? Yeah, this one's easy. It's a sell. As you pointed out, they just posted horrible results on every level. Earnings for share, revenues, same store sales. They're blaming inflation. Okay, welcome to the party, pal. And as you pointed out, they're pausing buybacks. The trader and me hates that. It hates that they're going to buy back a bunch of stock when it's expensive and stop buying it when it's cheaper. it's not too late to sell. It's about 58% year-to-date, but given

inflation as a problem, there's no reason it couldn't be down a similar amount next year. Do you have a question follow-up there? No, no, no. I was just, I mean, if you say down a similar amount next year, I mean, there's not that much there- Not that much there-there-there.

It's still like, what, $58 a share, so there's $58 bucks of there-there-there. All right, good enough. All right, let's move on to Kraft Heinz. Catch-up or not? This is a buy. This is consistent with the theme I've had of buying the names that make the stuff you have to buy. It's low beta, which is perfect for a volatile environment.

3.98% dividend yield, which is wonderful, and that's quite a bit higher than P&G's. Forward PE only 14 and a half, so it's still reasonably priced $10 below the 52-week high, so we're not paying the top. And if inflation is the problem, you know, and it ain't like Kraft Times could actually benefit a little bit from inflation. All right. In that case, what about AMC entertainment? It's a mess. It doesn't even deserve a regular buy, hold, or sell.

Be careful what you ask for when you want your stock to become a mean stock. They're now going to convert these ridiculous ape units into common shares. So everybody's going to get diluted. They're going to do a reverse split to avoid being delisted. The worst sort of financial engineering is down 13% today. And if that doesn't convince you, how about this? $2.3 billion market cap, but more than $10 billion worth of debt. I feel sorry for the movie theaters.

They all got crushed by the pandemic, but that doesn't mean that investors have to be along for the ride. Yeah, no, it's true. And, you know, we all like the world to go back to the way it was in some ways. It's very sad. Scott, thanks very much for your picks today. We appreciate it. Scott Nation.

Thank you. All right, coming up, the four Cs moving the market, cars, chips, casinos, and cruises. We'll talk more about that. after this. Welcome back, everybody. We talked about the four Cs that are dragging the market down a bit today. Let's recap what they are. The key drag is in the chip space. That's C number one, led by micron, but it's not the, it's not only leading semis that are leading us lower. Autos also cars, that's the second C, cars leading the S&P 500 down Tesla, down more than 9%. 17% this week. GM is off 6% CarMax, the one we just talked about in the prior segment, down 5% following weak results.

And finally, we got casinos and cruises to more seas. Carnival down 8%. Caesar's down 6% Royal Caribbean. There's another sea for you, if you want, down 5%. Caesar's is also a sea, and Carnivals, look at all the seas out there. And Norwegian, that one is down, Kelly, about 5.5%. So a rough day for the market after a couple of pretty good days earlier in the week. Yeah, and I think it goes back. to this question of leading, let's put it this way, we know what cars and chips are telling us

that shortage cycle, just like you said earlier, is turning into a glut. It means prices are coming down there, those stocks and sectors. This is what Brian Reynolds told us a couple weeks ago as well. Those are absolutely going to be under pressure. What does it mean for the rest of the economy? Do you extrapolate that and say, well, then we're all facing deflation and the Fed's going to about face and recession and all the rest of it? Or will it be contained? C, contained. See, contained. That's our fixed. Contained. Contained. And there you see the Dow right now as we wrap it and handed off to a closing bell, down 510 points. Was that the lows off about 800?

So some mitigating of the decline down just one and a half percent. But the NASDAQ is lower by a more substantial margin by almost 3%. Yeah, and we'll have to keep an eye see if that Santa Claus rally is still to come. But for now, we'll hand it over to the sixth C, right? Yeah, that would be the closing bell. Thanks for watching Power Lunch. Closing bell starts right now.