Power Lunch - Power Lunch 12/29/22

Episode Date: December 29, 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.

And welcome to Power Lunch, everybody. I am Brian. And for Tyler once again, here's what's ahead of the 2 p.m. Eastern Time hour with just two days trading left in the year. Strategists are filling up their stockings with 2023 predictions. And this year, the only thing that's clear is uncertainty. Plus, Peacock, Disney Plus, HBO Max, Netflix, Paramount Plus, and more. Oh my, is a reckoning ahead for the streamers. And if so, who will come out on top? We'll have that and much, much more ahead on top. Power Lunch, Kelly. Thank you, Brian. Hi, everybody. Welcome to Power Lunch. I'm Kelly Evans. Stocks are attempting to make a comeback today with just two trading days left in 2022. Dow's up 400 points right now. We're pretty close to session highs. Look at the NASDAQ up two and three quarters of a percent just today. Tesla shares leading the S&P, big counter trend field today. They're up for the second straight day now adding 6 percent today to 119, but still on pace to close the year down 65 percent. Also a pretty good day for the financials. Payment names like a firm, Coin Basin Square. They're bouncing as well, a firm up 7%. And we have to get a check on the airlines as Southwest has canceled more flights overnight, but say they plan to return to normal operations with minimal disruptions tomorrow ahead of the new year. Love shares are up nearly 4%, smaller gains for the rest of the space. Speaking of the new year, with just two trading days left, strategists are filling up in boxes with their predictions for 2023.

And the only thing they seem to agree on is that no one has any idea. Crystal Paul is getting harder to read. Bob Bassani joins us with more. Bob? Kelly, it's that time of year. Everyone is making predictions about how everything's going to look one year from now. The problem is there's a lot of disagreement about what that's going to look like. Let me just show you.

Strategists like analysts tend to be a somewhat optimistic lot. Right now, the average strategist, 22 strategists surveyed expect earnings at the S&P at 4,078. At this time next year, that'd be up about 7% from where we are now. But the dispersion's very, very high here. The high is 4750. That would be up about, oh, 25%. That's what Fundstrat has. And the low is 3,400.

That'd be down 10%. That's what BMP Paribow has. It's unusual to have that wider dispersion, and it indicates how difficult it is to figure things out in the next year. We have an unusual series of problems to deal with. Obviously, we have the continuing effects of COVID, particularly in China. We've got the Russia invasion of Ukraine,

and most importantly, the Fed higher for longer. Nobody can agree on what kind of recession, if any, we're going to have. Any one of these alone would create a big, range of economic outcomes. You put them all three together, it's little wonder strategists have a wide range of opinions. Finally, folks, it's important to point out these estimates are nothing but guesses. They have very poor track records. In fact, everyone does. Analysts, strategist, economists, even the Federal Reserve has a very poor track record of predicting the economy a year out. Very little predictive value. And the reason, of course, guys, is, number one, people have

many biases that infect their ability to make accurate forecasts. And second, as we all know, there's so many variables that figuring out where things are a year from now is really hard. We create these stories. That's why we make these projections because it gives us some feeling that we have control over the future. We might have a lot of control over our personal futures, but not so much over predicting stock prices one year from now. Guys, back to you. I would second that, Bob, and I would say that the Federal Reserve, based on where they were last year with their predictions for rates, was, I would say, the wrongest prediction I've seen in years. That aside, it is kind of amazing how all the strategies, I think the low number on the

S&P was Mike Wilson at 43 or 4,400, somewhere above 5,000 for this year wildly wrong. Now they seem like they're kind of tripping over themselves to almost be the lowest or the most bearish. I mean, what a flip. Right. So if you work under this contraried indicator, then you want to definitely go wrong because go long. The average strategist actually predicts earnings are going to be down five to 10% next year. And yet they anticipate, the average strategist anticipates, price is going to be up slightly. So it's a very hard situation to figure out. But I'll tell you, Brian, even without the difficult situation with COVID and with what's going on with the Fed, strategists and analysts are wrong, even in flat years where nothing is going on. And this

makes you a lot more humble when you look at these numbers long term. I have gotten a lot more humble about making long-term predictions. It's just really difficult because the variables are so great that it makes forecasting particularly difficult. Certainly said and very, very well said. Bob, thank you. All right, so if strategies cannot come to any consensus on the direction of the macro market, the economy earnings, how are you supposed to invest? Joining us now is Keith Fitzgerald principal at the Fitzgerald Group. Keith, welcome back. What say you, are you making some bold predictions? for next year? Well, of course we are, but there's a big caveat. Opinions are like belly buttons. Everybody has one. I think the thing that investors need to concentrate on now is are they playing

for the short term? Are they playing for the long term? Because if you're playing for tomorrow, a week out, 12 months out, your 50-50 probability of getting it right with timing, intensity, and even the stock. But if you start looking 3-5, 10 years out, now you're talking 70, 80, 90-percent probability the markets close higher. So you want to go with what's probable, not what's possible. That's the great companies, the best in class names. That's where we're concentrating. Okay. So where is that?

Well, for example, right now you're seeing tech is being priced like it's going out of business. Two companies in particular, AMD and Intel, are being priced like they're going to vanish from the face of the earth. Yet, at the same time, very coincidentally, we live at a time where most of the data we've been created in the history of humanity needs chips to run. So I would submit that those companies are a great operational. perhaps entries like we haven't seen in a decade or more, but you've got to be patient. You've got to understand that volatility is your traveling companion, not a problem. Why are you so convinced that the worst may be over for those semiconductor and chip makers? Well, I'm not convinced the worst is over.

You know, selling is absolutely possible. Holiday weeks in particular, we got a glimpse of that yesterday. I personally happen to think that we're going to see a weaker market, generally speaking, into the first half of next year, at which point the Fed is going to have to acknowledge the inevitable that it's been as wrong as the day's been long about transitory, labor, and rates, and ultimately pivot or even tap on the brakes. So I want to get ahead of that because, historically speaking, prices tend to stabilize two to three quarters before the economic data does.

You know, I feel like the Fed, and forgive me for this, what is it, metaphor or analogy, I can never figure it out, is like a cheating ref, right? I mean, like the cheating ref can alter the outcome of the game. The Federal Reserve can make its terrible predictions. Last year, they didn't even see interest rates now at more than 1%. That was a year ago. They were below 1%. We're now at 5%.

But here's the thing. The Federal Reserve is the ref. They make the rules. They can change the outcome regardless of what their prediction is. Absolutely valid and super intelligent point. To which I would push back respectfully that if you don't like the game, change the game. Pick the battles that Wall Street has no interest in. fighting. When in doubt, zoom out. Look for the CEOs and companies that are still putting numbers

up because of longer-term structural changes impacting the world that we live in. Whether the Fed acts today or tomorrow is almost moot if you start looking at the history of how markets work. There are buyers and sellers. Capital wants to grow. As long as that argument is true, growth may slow, but it will never, ever in the history of the world, stop. And finally, Keith, like we said, you're joking about Fed follies and all the rest of it that could happen this year. What do you have to say about where we could be headed? Well, again, you know, I'm an optimist. I'm going to bet because the sun is coming up tomorrow, not because I think the sunset is going to be permanent. So I'm going to look at the Fed.

However jaundiced, I think their opinion is or their models are, they're not stupid. They're trying to do the best they can under extremely difficult circumstances. So I'm going to bet and hope that they succeed. I may not like it. I may not be comfortable with it. It might be scary as heck, but that's the way I'm going to play the game. All right. Well, you have to know which way the ref is going, and I guess bet accordingly. Keith Fitzgerald, have a happy new year.

Appreciate you joining us. Thank you. You too. Thank you. Coming up, savings rates are falling. Credit balances rising, and sales of big ticket items are down. Could it mean the consumer is tapped out?

Plus, from zero to hero. One top strategist says some of this year's biggest laggards are set to pop, including one heavy weight that's fallen hard from its huge pandemic run. Power Lodge, Guess that chart is back in two. Welcome back to Power Lunch. Heading into the holiday season, recession fears and overstocked inventory levels had a lot of investors a little wary about the retail space. But things seem to have turned out all right for now.

The fear has now turned to whether or not the consumer is now finally tapped out. CNBC.com's Melissa Repco joins us now with some details on this, Melissa. So what we're seeing so far is that MasterCard spending polls put up some numbers saying that spending during the holidays was up 7.6 percent, which was pretty decent. The question is how are consumers paying for their purchases? And are they going to run out of gas as the credit card bill comes due, as they see that credit card, you know, as they spend more and the checking account goes down? So that's really the factor to watch. And there are some concerning signs. One is that people are putting less money away as they're spending more. So the personal savings rate has gone down significantly, especially compared to pre-pandemic averages.

So it used to be 6.3%. Now it's down to 2.4% as of November. So that's one of the indicators that potentially people are not feeling comfortable putting money away because they're spending it instead. I'm not going to say I'm scared. I'm scared of a lot of things. Credit card debt overall is up 20% coming into the holidays. You wonder if there's some point at which the consumers is literally, you know, we all kind of went nuts when the pandemic sort of, you know, we reopened it, whatever that. I hate that term. Right. Everybody's, we're going to Vegas.

We don't care. You wonder when the consumer is going to get tapped out, credit-wise? Is it inflation, too? I mean, I'm curious just what is causing even that run-up that you're talking about. Everything is stupid expensive. Yeah, yeah. Yeah, the realities, I mean, we talked about it earlier on the air. Eggs are expensive.

Even the basics that people don't really want to spend more on. They're spending more on, and they're not willing to sacrifice. There's been almost like a yolo dynamic to the economy, right? And so people have been booking the vacation and getting the new wardrobe and spending more, but we are seeing some of these pain points where people are looking at the budget a little bit more closely. I'm going to make an omelet tomorrow morning. And when my wife's like, how did you afford those eggs? I'm going to say, Yolo. Let's make an omelet. Living large in the Sullivan. By the way, we've got a chicken segment coming up later in the show. Don't ruin it. Let's talk about

commuting. Yes. Now, we're in New Jersey, so we've got this turn pike and parkway thing. You've got to pay to drive on the Lincoln Tunnel. So we're a little weird. I get that. But it's expensive. $60 a day is what I'm a lot. I spend on commuting 60 a day. I know a lot of people are spending about that much taking the train to Manhattan. That's got to be eating in to discretionary income, the back to work. It definitely is. I mean, one of the major takeaways from the MasterCard spending pulse data was that even though spending overall looked pretty decent, jewelry was weaker. Electronics were weaker. These are big ticket items and they're ones that people cut out of the budget when they feel constrained. They might say,

hey, I'm not going to get my spouse a diamond bracelet or I'm not going to get a brand new TV. that's something I can put off because perhaps they're spending more on commuting again. And look at how the fact the return to work coincided with the spike in gasoline prices. Melissa has a good take on Instacart, not on Miracle Whip or any of the items. That generated some debate yesterday, by the way, on the Twitter. Still hearing about it. But delivery services, what do we see there in terms of the consumer? So, as you know, Instacart took down their valuation.

And the factor here is that, you know, people are again scrutinizing the budget. And so they may not want to pay that delivery fee anymore. We're seeing a bit of a reversion to pre-pandemic trends, including shopping for groceries yourself, getting curbside pickup. Walmart is offering that curbside pickup service for groceries instead of getting Instacart, which is going to charge you more, plus you have to tip the person. So, I mean, there's just more competition for people's wallets. And the heyday of free spending may be ending as we enter the first quarter.

That's really when reality may bite for some consumers and their budget. I made a, I think it was August. second, I made an Instacart basket in this area at a shop right of five items. I screenshot it was your first mistake an Instacart basket of five items. No, but eggs, bread, milk, the basics. And I need to go back and see

if any of those prices have changed. Oh, sure. If they've changed, they've probably gone up. Well, so like chicken prices have come down. Some of those, you know, but maybe eggs are still one of the higher ones. Wait, why is the chicken price down but the egg price up? Something's wrong there. For the most part, prices are down.

How can one be down and one be up? It's the same thing. I know. It's just an earlier version of the chicken. I can tell you for a fact, the chicken breast prices are down. They are down. We have heard that from Walmart. The chicken is on.

There are silver linings with groceries. But hey, if you're paying more for groceries, even if some items are coming down, you may say, I don't want to have Instacart deliver because I don't want to pay the fee. I don't want to pay the tip. And we're even seeing this dynamic with takeout. People are picking up their takeout. I do this in New York City sometimes. If you get a burrito delivered, it pretty much doubles the price.

You actually go out and get your own takeout? Yes. What's happened to you, Repco? It's a way to save money. You sat in your penthouse apartment and just ordered. Chipotle. Hey, it doubles. You kind of work out, work off the burrito before you eat it.

Exactly. But just got to order like 40 blocks away. I'm picking up on 11th Street. I live on 86. Perfect. Sometimes the best Mexicans further. That's it. That's it.

Melissa, thank you. Melissa. Thank you. We're going to get to the bottom of this chicken and egg argument. And I don't mean which came first. Why is one down and one up? All right. Speaking up, by the way, perfect segue. Have you been to the supermarket lately? Then you know, yes, egg prices continue to spike. Now, it's bad news for you, but it also may be bad news for America's largest egg producer. And we're not talking about one giant chicken. It's a company. Plus, Golden State worries. San Francisco's downtown, a nearly empty wasteland, empty buildings everywhere. So we'll tech come to the rescue by coming back to the office. We'll hit it for PowerLunch return. All right, welcome back to Power Lunch. We're having a great Thursday. Let's get a quick check on your markets because the markets are having a pretty good Thursday. We are higher across the

board. The NASDAQ is leading the gains. Nasdaq's up two and a half percent. NassDaks like Netflix and Meta. They're actually rallying. The names have been the worst lately are the best today. Now, an update equity is being helped by a move lower in yields. The 10-year yield back below 0.04%. Remember, we began the year, though, at 1.66%. And overall, the bond market, on a price basis, is now on pace for its worst year ever. The energy complex, move it a little bit lower in that gas, the worst performer oil is back below $80, a softer dollar offsetting concerns about China demand. And one of the reasons, Kelly, that natural gas has been down is not just the weather's been, aside from this terrible storm, which, by the way, you know, thank God is over.

Yeah. But with Freeport, LNG still offline. They were exporting a lot of gas. They were a huge buyer of gas. They're still offline. So a lot of gas is building up. Sure. When they reopen, we'll probably see that gas prices go back. Interesting. Let's get to Frank Holland for the CNBC News Update. Hi, Frank. Hey there, Kelly and Brian. Here's what's happening at this hour. A much way to recount has confirmed Democrat Chris Mays will be Arizona's next attorney general. Mays's margin of victory narrowed in the recount to just 280 boats out of roughly two and a half million ballots cast. In Jackson, Mississippi, residents are still suffering from another water crisis. People are waiting on long lines for bottled water.

This is after a huge winter storm burst dozens of water pipes. A citywide boil water notice remains in effect. A number of cities across the south are facing water issues, including Atlanta and Selma, Alabama. And Brazilian soccer legend Pele has died. He had been hospitalized the last month with multiple ailments, including colon cancer. Pele led Brazil to a record three World Cup championships. His magnificent Play and charisma made him one of the best known athletes of the 20th century. Pele has passed away at the age of 82. Brian, back over to you. Sad news there.

Global icon sports legend. All right, still ahead on Power Lunch, a special tech-themed power rundown. First, the Metaverse hype burning out. After years of buildup, are fans of the virtual world snapping back to reality? Plus a recession reckoning for streamers. Media giants betting big on cheaper ad-supported options. But will that be enough to keep these consumers hooked in the year ahead? We'll be right back.

Welcome back to Power Lunch. As we look ahead to a new year for tech, it's important to reflect back on what worked and what didn't this year. What did work, by the way? 2022 showed us that hype, sometimes it's never enough. The Metaverse bubble seemingly bursting after years of buildup, streaming, struggling to hold on to users amid competition, forcing platforms to make a major shift to cheaper ad-supported options in order to survive.

We're going to dive deeper into both of these stories and get reaction from Casey Newton, editor and platformer, Casey, welcome. Let's start with Steve Kovac first to get us through the Metaverse meltdown, Steve. Sure, let's break down the year on the Metaverse, Kelly. And you have to start with Meta, of course, the poster child of the Metaverse. Just a year ago, Mark Zuckerberg bet his entire company on the Metaverse concept. Well, today, shares are down about 65% on the year, in part because investors are unhappy with the tens of billions of dollars lost

trying to build an experiment that may or may not pay off for a decade if it ever pays off at all. This summer, the internet had a good chuckle. Remember this one over how bad meta's vision for the Metaverse looks? This is Zuckerberg's avatar selfie. Now, look, I played video games 20 years ago that looked better than what we're looking at right now. Look, there are signs consumer interest is falling too. NPD group tells CNBC spending on VR headsets fell 2% this year to a little over a billion dollars. Now, to put that in perspective, Apple sells about $200 billion worth of iPhones a year.

This, despite Meta's new Quest Pro headset, that debuted to poor reviews back in October, but we won't get any real insight into sales until Meta reports earnings, likely end of next month. Still, the industry is not giving up on the concept. In February, Sony will start selling its new VR rig for the PlayStation 5, and of course, Apple finally expected to enter the space with its long-rumored headset at the end of the year. Now, Apple's challenge, of course, will be showing a compelling use case for a technology that rivals haven't been able to prove so far, Kelly. Steve, stick around. Let's bring in Casey Newton.

Casey, this might surprise people, but I'm bullish on the Metaverse. Look at what we're doing right now. We've practically built a Metaverse to talk to you guys. This is the future. I just don't know how you monetize it right now. Yeah, look, I think it's fair to say that the Metaverse is at best under construction and sales were weak this year. But I think that's also a hardware story, right? The price of the main Oculus headset went up this year,

which is very rare for any kind of gaming console. And that MetaQuest Pro was just really, really expensive. So I think the real moment to judge the Metaverse is going to be at the end of next year, once those headsets from Sony and Apple have come out and Meta's had a little bit more time to do its thing. I do feel bad for our listeners, not viewers, because if you were viewing, you know that we're coming to you live from the set of Tron 3, apparently. which I just dated myself, but I'll date myself again, Casey. And I love Steve's reference about video games because the current Metaverse looks like

Tecmo Bowl, right? Blocky figures. It's like a real life, yeah. But I'm thinking, to your point, Kelly, in 10 years, 15 years, it might be Ready Player 1. It might look like this. For conference calls. Is it going to get like that?

And if so, when? Well, look, I think what we need to see is a lot of technological advancement on the hardware side. There is just a lot of tech that needs to be first built and then it needs to be miniaturized, right? It's hard to shrink those batteries down that much. It's hard to make a headset that won't overheat. And then once you've done all of that, you need to make it cheap enough to get into a consumer's hand. So, you know, if you believe in Moore's law and the basic idea of technological progress, I do think within 10 years, we're going to be a lot closer to that vision, but it's going to be a long wait. And I'm not sure how patient meta

investors in particular are going to be. And Steve, you know, we talk about meta because they called themselves that. But are there any more under the radar metaverse companies that you think could be the real players in this space, kind of the picks and shovels analogy to the Gold Rush type thing? Yeah, I mean, we've been talking about this, like, since this whole concept come out. Like, you know, Nvidia might be a beneficiary of the metaverse, you know, cloud companies, AWS and so on and so forth. But look, to Casey's point, what he was just saying, you know, the technology is not there yet. And that's true. None of these companies have really

invented it yet. But what we got to keep in mind is, as we keep talking about these 10-year, year horizons, these companies are selling this stuff now. Investors need to see results now and today, not in 10 years from now. People don't always have a 10 to 15 year investment horizon to wait for these bets that pay off, Kelly. Yeah, you know, everybody's been sort of dumping on Facebook and Zuckerberg this year for good reason. Stock's gotten crushed, Casey, but I do think about companies. It's a terrible analogy. I'm not saying Facebook's going away. But if global crossing, remember them, global crossing, if they never laid those transatlantic cables ahead of their time. So much of the growth of fiber and the internet, as we know today,

wouldn't have been done. Unfortunately, bankrupted to the company. Not saying Facebook's going bankrupt, but you have to make these big investments now for if we don't. Or should we all be grateful they're doing it so that we can benefit from it? That's right. Yeah, I think that's right. You know, I mean, a good exercise to ask yourself is what would meta be doing if it were trying to invent the metaverse, right? It would be trying to play catch up with TikTok. And that's about, it. We know that Zuckerberg is desperate to get out of his dependence on the Apple platform in particular. He really wants to own a hardware ecosystem himself so that he can play by his own rules and no one else's. And the only way to do that is to try to invent a new hardware

platform. So he was going to, I think, ultimately have to make an investment like this to build the kind of future he wants. All right. Well, Steve, thank you. We'll send you back to the real verse. Casey, stick around because next year could be a whole new ball game for the streaming space. Let's talk about this issue now. Wall Street warning subscriber growth is in danger. And consumers will begin dropping services, which means media players need a new strategy. Worth mentioning those names all hired today.

Warner Brothers Discovery, about 7%. Let's get out to Julia Borson. She's got more for us. Julia? Well, Kelly, the new focus in the streaming wars is profitability. Gone are the days when media giants chase subscriber growth at any cost. Now, this transformation comes in a year in which Netflix shares fell by about half. Disney and Paramount shares have both lost over 40% while Comcast shares have declined about 30%.

Morgan Stanley warning that streaming growth is slowing forecasting that 2023 industry net subscriber additions will be at roughly half the pace as in 2021, projecting consolidation of companies and services as well as some cost rationalization. Nita warns that Netflix's peak subscribers may be behind it because of churn. That's the amount that people are dropping their services saying that churn is rising for all streaming platforms. Media companies are hoping to stem that churn with new lower cost ad-supported options, such as those that Netflix and Disney Plus plus both recently launched. There are also some new and some old free ad-supported channels such as Pluto, TV, the Roku channel, Amazon's free V, and Fox's Tobey.

An original morning consult survey conducted for CNBC found that about half of Americans are interested in switching streaming subscriptions to lower cost-ad-supported options, with millennials even more interested in discounted options. Now, the other big question is how much this economic downturn could prompt cord-cutting and also could impact how much people go out to the movies. movies. Brian? Yeah, this, where does this go, Casey? I mean, we have ours. We got Peacock. It's great, by the way. I like it too. But I'm getting, I mean, how many can you have? When do they got, they got to start merging at some point, yes? That's exactly right. And I would expect we're going to see something in that direction in 2023, right? Look at some of the redundant streaming services we have out there, like, you know, Paramount Plus and Showtime, both owned by the same parent company. Why are those separate services?

Disney basically has control of everything in the Hulu catalog now. Shouldn't Hulu just be part of Disney? So I think we're going to see a big moves in that direction next year because as Julia just pointed out, consumers are getting really tired of this profusion of streaming services. And with the economy declining, I think consumers really are going to start watching their budgets a little more closely. That was one of the predictions, Julia, from Alex Sherman's executives as well, that Netflix, a couple of them thought Netflix in particular would, they described it more as a merger.

What are you hearing? Oh, yes. There's a lot of speculation about the need for M&A. And I have to say in terms of Warner Brothers Discovery, that more recently combined company will be launching the combined version of its app sometime this spring. So that combination of streaming services is coming.

But the question is whether we'll see real combination of media and streaming giants, whether Netflix could be up for merger. And I think the real challenge there, and this is something I've heard a lot about for my sources, is concerns about the regulatory environment. Netflix is still such a massive company, even with its stock down dramatically this year, that it would be hard to get that kind of deal approved. But I think that going forward over the next

couple of years, people are watching Paramount, people are watching to see whether Sherry Redstone, who controls that company might be willing to split up some of those assets and sell off some of those pieces or what does happen with Netflix. And then, of course, in terms of Hulu, that's an asset that is in motion that people are watching because it is still currently partially owned by CNBC's parent company Comcast in addition to partially owned by Disney. Any chance? I'm going to throw something wild out here. And if any of my bosses are listening, please mute the radio or the television right now. Any chance that NBC either buys or merges with Warner Brothers Discovery, they've got so much debt that you can you can dilute the debt with the deal,

spread the debt out on the Warner Brothers side. Julius shaking her head and smiling and she knows things. So Casey, first to you, Julia, what do you know? I don't know anything. There's nothing official, but this is definitely the type of deal that people have speculated about. The issue is that David Zaslov wants, and he would say needs more time to finish the transformation of the company that he has taken over. So I would say that is certainly a potential deal, but not one that is likely to happen in 2023. That kind of thing could potentially happen further out.

But the issue here is that we have watched the tech giants become media giants. Look, we just saw this mega deal that YouTube, which is owned by Alphabet, did for NFL right. So there has been this convergence between media and technology. The more we see the tech giants move into the media space, the more pressure is on the meat, there is on the media companies to combine. So I think you're smart to raise that. It's a potential deal, but I don't think that is something that could happen right now. Casey? Yeah.

And look, the other concern I would just throw in there is the regulatory one, right? So far, Lena Kahn's FTC isn't letting anybody buy anything. So the idea that she would let, you know, Comcast and Warner Brothers come together, I think at the very least, that deal is going to get a ton of scrutiny. Leave it there. I'm just, I'm just throwing it out there. You know, Julian knows things. I may or may not know people in the industry. But Warner Brothers Discovery, also, that stock is so incredibly challenged.

They have to be exploring. Well, the debt is the problem. But if you spin off NBC and merge, take 51% of Warner Brothers, it's a debt deal. It's a debt dilution deal. It's really technical in the financial side. But I may or may not have heard that bandied about. You heard it here first. Julia, Casey, thank you.

We really appreciate it, guys. Thank you very much from our Metaverse Power Lunch. Looks like the background of my school photos from 1980. By the way, I have an important update to earlier in the program. Oh, do we do it here or do we wait? Let's wait. Coming up, a growing real estate crisis in California, San Francisco commercial property seeing a surge of vacancies with no savior insight. Details when Power Lunch returns, plus some good news in the European energy market.

Yes, good news for us at home as well. We're back after this. Welcome back to Power Lunch. San Francisco is known as the Golden City, but it's not looking very bright right now. New exclusive data shows the city could be on the verge of a serious commercial real estate crisis. Our own Yasmin Kauram joins us now to discuss Yashire. I mean, it's great to see you. How high are the vacancy numbers we're talking about? A record high of 27.2 percent, and that's compared to 19 percent last year. This is the 12 straight quarter that it's shot up.

And just to put this into context for you, four years ago, San Francisco had one of the lowest vacancy rate at just under 4%. Today, it's the highest among major cities in the country. For example, preliminary numbers show Los Angeles is that 18 percent in Washington, D.C. is a lot of. around 20%. All right, why do you think, look, we can go into the social stuff. Yasmin all day long and twice on Sunday, but is anybody giving you a real reason? San Francisco is suffering more than other big cities. There's remote work in a lot of places, maybe not as much, but San Francisco's got a lot of issues.

Yeah, it's been hit hardest because of its reliance on tech. That sector was one of the first to really embrace the working from home culture. And with the tech layoffs that we've seen this year, it shouldn't really be surprising that those numbers are starting to turn into decreased office space. For example, the 43-story Salesforce Tower, just up the street from us, is sitting half empty right now at 55%. What's interesting here, though, is that despite all of this, and it looks grim, the tech industry is actually more than 10% larger than it was at the start of the pandemic. But most of those companies such as Salesforce, Airbnb Lyft, that have decreased their office space here just don't really need that office space anymore. They're laying people off and they're consolidating. Exactly.

They're the ones doing more work from home and it could come back to haunt them. It was interesting, though, because in our interview last hour with Duncan Davidson, the VC, I don't know if you caught it, Yasme, but he said he would bet on the Bay Area being resilient through this. he'd worry more about places like Austin and Boston that took a lot of Bay Area people and thinks that they will suffer more ironically than San Francisco itself. I mean, is there any sign of a recovery that you can foresee in the data right now? Yeah, the analysts that I spoke to were actually optimistic, but they said there is really no recovery anytime soon. It'll take about a year or two.

And it's definitely not about San Francisco being an unattractive place to be. this is more of a correction on tech and it's spending. They say maybe it grew too much and maybe it grew too fast. And they're scaling back now through the layoffs and through real estate. Economists tell me that once these tech companies kind of figure out and gain confidence on how to operate in this post-pandemic world, we'll start seeing tech being the economic driver out here in the Bay Area once again. Is anybody talking, I mean, Yasmin, is anybody talking about the social issues? I mean, I don't know if you're in San Francisco now.

I was there a few months ago. It's tough. It's hard to see people passed out in the middle of the sidewalk at one in the afternoon. I just don't know if people want to deal with that and go back to the office. It's a human tragedy what's happened. You don't need to comment on that. That's my comment. But is anybody talking about that fixing those problems, people being chased down the street?

They are. live and work down here, so I see it every single day. But I asked the mayor's office about this, and it's one of her biggest priorities. In terms of the economy here, she wants to rework and reinvent San Francisco. So maybe it's less reliant on tech in the future. I've heard people talk about maybe it's more relying on biotech, different sectors. So we'll see. What is clear is that there's no easy fix to this.

It's not just the working from home, as you mentioned. There's a lot of other issues out here, as many other cities are dealing with. But people are optimistic that it's going to turn around. With the mayor's talking about which sector of the economy, I don't care what sector you work in if you feel unsafe coming to work. I just don't know if you're going to go to work. It's one of the greatest American cities that needs to come back for all the reasons you mentioned and more. Yasmin Corum, thank you very much. I think that's part of the problem, Kelly, is they're talking about which sector of the economy to bring back.

Right, right. Like, oh, it's work from home. You know why? It's work from home? Because a lot of people don't want to deal with this. It can be scary. Yes, but the question is who is going to try to get in there, fix it, clean it up, make it better? How quickly can that turn around happen now? What's going to form the basis of the industry? Is it going to still be tech? Is it happened to be something else? What happens to those properties in the meantime to investors left holding the bag? You wonder. Yeah. All right. Counting down the final trading days and just also days of the year. We're going to trade some of the biggest dogs of the year, including two names that were former pandemic darling. Are there any worth buying with your hard-earned cash three-stock lunch is next? It's time for today's three-stock lunch, and we're taking a look at some of the worst performers of the year.

Plenty to pick from. PayPal's down 62% year-to-date. Amazon hitting the halfway mark down 50% losing all of its pandemic gains, and Tesla rebounding. today, but down more than 60% for the year. Here to trade them all is David Katz. He's chief investment officer at Matrix Asset Advisors. David, I always think of you as kind of a value guy. A lot of these are former growth high flyers, so I can't wait to see where you come down on them. Let's start with PayPal.

We're exactly right. We are a value guy. After the carnage and technology this year, there's a lot of technology stocks that are falling into the value camp that we're real excited about and like PayPal, first and foremost, one of our favorite stocks right now. They have a great long-term franchise management is finally getting it that they've got a control cost, yet it sells it 17 times this year's earnings, 15 times next year's earnings. We think the business is going to do well, great price. This is something we'd be buying pretty aggressively. We'd also be buying it before year end because we think it's under a lot of year at tax selling pressure and window dressing. So we think you're getting a great business at a great price. Wow, ringing endorsement for PayPal.

Oh, there you go. All right. What about Amazon, sort of PayPal-ish, David? Amazon's a little bit tougher to value, but we look at it on a price-to-sales basis, and on that basis, that also has gotten down to levels that are pretty attractive. It sells at about 1.65 times at sales. Over the last five and 10 years, it's sold between two to three and a half times sales at about an average of 2.8. So this is another one that we'd be pretty aggressively buying. We think it's under year-end tax selling pressure, so we'd be buying it here. We think it's probably got about 30 to 50 percent upside in the upcoming year. Same with PayPal. Wow, so a big fan of Amazon as well. And that's a lot of upside. David, just real quick on that in a year that people think we could be talking about recession. In a year that we, yeah, that's absolutely the case. We think that even though we might have a recession last year, stocks are going to be valued on the recovery as the year progresses.

And we think on a recovery, both the PayPal and Amazon, will be very significantly higher. All right. So what about Tesla? Okay, so we're less enthusiastic there. The stock has finally come down to levels where the valuation is no longer obscene, but we still think it's richly valued. We think that the CEO is definitely doing damage to its franchise with what he's doing at Twitter. It no longer is a great thing to own a Tesla car because a lot of people are less fond of must. We also think they have competition.

We think that relative to other automobile companies, it's still selling it a pretty rich valuation. We think it's going to have a bounce at the beginning of this. year so we would not be selling it right now. But into any sort of rally, we think there are a lot of other places that we like a lot better in technology. All right. Couldn't get them all. I had a feeling with that one as well, but I'm always curious. David, great stuff. Thanks for joining us.

We really appreciate it today. Absolutely. Happy and Happy New Year. You too. Happy New Year, Dave. Thank you. All right. And maybe some more bad news in your grocery aisle.

That is next. Welcome back to Power Lunch and I am not going to use an egg pun here. It is a bad day, not an excellent day for Cal Maine Foods. It's down 13 and a half percent for its worst day since 2008. Now, all of this is after reporting that the average selling price for a dozen eggs hit $2.71 this quarter. That's double the average price from last year. They got higher feed costs, bird flu, strong demand. It's all meant a lot of egg price inflation. It should be helping them, but again, not helping the stock today. Premium specialty egg sales, by the way, up 24% this quarter.

Conventional egg sales fell 2%. That's obviously the more price-sensitive part of the spectrum. Premium egg prices actually dipped below conventional egg prices, believe it or not, so that would also help account for the price boost. All right. So earlier in the show, we talked about chicken meat prices going down, but egg prices going up. I was mostly kidding when I asked how one goes up and the other goes down.

No, but you were right to point it out. They should move together. And egg is just an earlier version of a chicken. But we did have some very nice folks reach out with possible answers. and some of them basically laid this out, laid this out, which is that apparently egg-laying hens, as opposed to egg-laying roosters, okay, egg-laying hens are being hit by avian flu.

Okay. So it's like 60% of the avian flu is hitting egg layers. And the chickens we eat are not egg-laying hens. Oh. So they're like... Totally different. Apparently, again, I'm clucking through on the internet in the break. No, but thank you to the viewers pointing this out. Price for chicken breast in the U.S.

have plunged 70% since June. 70%. So you're right to point out how can chicken breast prices be down 70% and eggs are way up, but it turns out they're not even related whatsoever. And apparently also in the winter, chickens are just not as prolific laying eggs in the darkness. They prefer longer days. Okay, now I want to know who your followers are. It's more romantic, apparently. I don't know. By the way, it's not a good. great observation about the modern food industrial complex that egg and chicken prices are no longer related, by the way. Well, I guess the chickens themselves are not related, which somehow there's a lot of stuff in here that's just not good for TV. No, but there you have it.

If you were wondering, there's our answer. Will chicken breast prices stay down? We can only hope we showed some of the companies benefiting from it. Egg prices, maybe they'll go the same way. Wouldn't that be true? And by the way, I was just looking online and local store sold out of a lot of eggs. I guess the avian flu thing is a real thing in certain parts of the country. All right. Now to some positive news out of Europe. European natural gas prices falling this week to their lowest level since before Russia's invasion of Ukraine. The benchmark contract is the terribly named Dutch title transfer facility. We call it TTF plunged in recent weeks to below 77 euros per megawatt hour. I'll explain what that means in a moment. But that is the lowest level since

February. At their peak this summer, European gas prices were 345 euros per megawatt hour, sending energy bills soaring. The reason, all right, for the decline, well, you got storage levels are stable for now because the weather has been almost perfect for most of the past few months. It has been unseasonably warm. For example, it's going to be 55 degrees in Munich, Germany today. But Kelly, keep this in mind. Even though European gas prices are down, they are still, five to six times what we are paying right now. The 77 euros per megawatt hour, well, you're like, what does that mean? Right, right. It's about 26 U.S. dollars per contract. We're paying four and a half. So when I hear people say, everything's fine in Europe,

is it fine to have six X natural gas prices? No, not as bad as they were, but it's terrible. And like you said, a lot of our net gas is kind of trapped here right now because of that LNG export outage. Still, all the more impressive that European prices have come down. They've avoided the worst of the crisis that we could be facing, but it's still a huge pinch point for consumers. It's literally all about the weather. And as we reported from Europe a couple weeks ago, they've never refilled storage with no pipeline gas. They're going to try to do something next year that they have never done in the modern era. And so much of it is just going to come down to the weather.

Sure. And whether industries shut down. Carmakers say we can't afford to make a car in Germany. We're going to shut down for a couple months. That could happen. have a good taking stock tonight. We do. Be sure to tune in to taking stock our weekly themes. Tonight, we're going to focus on China. We got Kyle Bass on. He's obviously got a lot of opinions there. We'll talk about their energy needs. Taking stock, 2023, China. Join us. Nicklaus Lardie

was bearish on the Chinese consumer last hour. He said it wasn't that strong last year. It could be a warning spot for 2023. But you don't need any more warning spots. We've had enough. Thanks for watching, Power Lunch, everybody.