Power Lunch - Power Lunch 3/16/23

Episode Date: March 16, 2023

CNBC’sTyler MathisenandKelly Evanstake 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 newscoverage, 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 pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch, everybody. I'm Tyler Matheson, along with Kelly Evans. Coming up, the global market banking on aid. First Republic may receive support from big U.S. banks here. Credit Suisse, meantime, receiving aid after a troubling day for European banks. The ECB and U.S. Treasury Department both scrambling to reassure investors that the system is stable. So how will the Fed handle this constantly changing economic narrative? At the same time, the White House putting TikTok up against the clock demanding the bias. company split from its Chinese parent or face a nationwide ban.

Just like that, the most popular social media app could disappear faster than it takes to watch one of its videos. It's helping rival stocks, too, by the way. Speaking of helping stocks, the market up sharply in the NASDAQ by 2%. The Dow, by 316 points on these reports of a rescue plan, I guess we'll call it for the banks. We have more on that in a moment. But first, Christina Partsenevelas has the latest on this market action. Rescue Plan, Relief, Lifeline. This time the life fund from the Swiss National Bank did help,

concerns earlier this morning with Credit Suisse and that relief now trickling across the financial sector. Specifically, S&P Financials is the second best performing sector with First Republic up almost 11% right now, but still over 55% lower on the week. Several banks are in talks as our David Faber broke on the air to deposit funds into the regional name. So that's helping the name. And there's that relief theme. Regional banks in general, though, represented by the KREETF are on pace right now for their best days since January, 2020. You can see it's up about 4%. It's already more than doubled. It's 30-day average volume as well. So roughly, look at that, 49,000, a million shares trading when normally it's about 18, 19 million. The lower treasury yields that we're seeing today may not be helping the financial sector, but definitely helping big tech.

Lower yields directly impact buying for tech names. That's why mega-cap, big tech names like Apple, 1.4, Amazon almost 4%, Netflix, almost 3%. all of these names helping drive the NASDAQ hire, which is why it's the leading indecy right now, guys. All right, Christina, thank you very much. More details, meantime, emerging on First Republic. And for them, let's go to David Faber. Hi, David. Hey, Tyler, yeah, we've been working on the story,

well, obviously for many days now, including today, of course, when we came in, the stock of First Republic was down sharply on stories and other news organizations about a potential sale, it seemed, of the company. That is not the case at this point. What we have been talking about for the last, oh, couple of hours, not even, is a unusual plan that would involve the deposit of as much as $30 billion into the bank to essentially create more confidence amongst its current depositors, future depositors, and anybody else in the financial markets who has an interest in First Republic Bank. You can see, of course, the stock has had a dramatic change in its trajectory, having been down as much as 25, 30 percent earlier, and now up over 12 percent, again, on reports of this injection.

Don't have it yet. Can give you some sense here as to what it's looking like earlier. I left off Goldman Sachs. They are a part of this. Goldman and Morgan Stanley have committed to deposit $2.5 billion. The biggest banks there, B of A, Wells Fargo, JPM City, all in for five. and then some of the larger regionals and the like, and Capital One as well, in for a billion.

Add that up right now. It gets you to about $30 billion. The idea here is we don't need to buy this thing at some discounted, significantly discounted price or even after the FDIC sees that we don't need to try to negotiate a deal to take assets off their hand or anything else. We think just by putting in $30 billion and uninsured deposits,

unclear, by the way, how long it's going to stay there, whether there's a guaranteed timeline at which they will make sure to keep those deposits. But we think by doing this, it will engender enough confidence that we will get past this mini-crisis in the banking industry. So we'll see. We're going to wait for the fine print here, wait for press releases, but certainly given any number of people close to the situation, we can tell you those are the details as we have them right now, Tyler. Well, David, as usual, great reporting. Thank you very much.

We'll check back as needed. David Faber, thanks. Well, as more details emerge on the fallout from the Silicon Valley Bank's demise and the issues rippling around the banking sector, let's recap how exactly we got here. Last week, on Thursday, Silicon Valley Bank basically started to collapse. After much uncertainty, the Fed comes in and backstops SVP's deposits for a moment relieving the market. And then yesterday, Credit Suisse loses its chief backer, a Saudi investment. Fund, sending European banks plummeting along with fears of a total industry collapse.

Now, until the Swiss Bank announced that it would step in, the National Bank, announced that it would step in to aid Credit Suisse. All this growing instability and uncertainty in the global banking area comes on the 15th anniversary, ironically, of Bear Stearns agreeing to be bought out. And last night on Fast Money, one of the famed big, short investors weighed in on SVB and banking risk. Even if Silicon Valley had been in the stress test, given what the stress test says, I don't think the regulators would have caught it. They would have passed it. And the stress test is basically fighting the last battle.

That battle has been won in the large banks. They're better capitalized. Their risk, even with that capital, is much narrower. You know, as Warren Buffett says, when the tide goes out, you see who's naked? This is a different tide. And Treasury Secretary Janet Yellen telling Congress she first found about SVB's trouble. just a week ago last Thursday. Joining us now is one investor who actually raised red flags around SVB before the collapse,

much like Eisman did so many years ago. Bill Martin, founder of the family office raging capital ventures, and he joins us now. Bill, welcome. Good to have you with us. What did you see? When did you see it? And how? Well, I followed the company closely for some time.

What really intrigued me last year was the issues that venture companies were having. I was concerned that that would translate into credit losses on their venture loan portfolio. And as I started digging in, what I soon learned, however, though, was that they had bought a significant amount of long duration, low interest rate mortgages at the peak of the market in 2021, and we're facing a significant poll around that. And I shared that with my Twitter followers in late January. So it was really the question of where they were deploying some of the excess cash that they had. It was in those long-dated mortgage-backed securities and treasuries, and the losses,

the unrealized losses on them were blowing a hole in their balance sheet. Yeah, correct. I mean, we had a venture bubble, and literally $100 billion plus flowed into Silicon Valley Bank over about an 18-month time frame. And they needed to put the money somewhere, and we'd had low interest rates for so long. I think management got greedy and complacent, and then they bought long-duration, low-interest-state mortgages, which was kind of the wrong thing to do at that time. I have kind of a basic question, Bill. Why didn't they get out of those positions? In other words, once they bought them, were they stuck?

Because when they started to experience losses, if they didn't. I don't know if they could sell them. I don't know exactly how it would have worked against the size of the banks and so forth. But they would have realized one or the other they had to avoid realizing the losses. Is that basically right? Yeah, I mean, on one hand, the change in interest. rates over the last year was so rapid that I think it caught a lot of folks flat-footed. And Silicon Valley Bank, while an extreme example, is just one of many banks that's sitting with mortgages

and loans that below market interest rates. But in their particular instance, they chose to hold a lot of those mortgages in the held-to-matured category of their balance sheet, which is an accounting machination, which allows them to avoid running those near-term mark-to-market losses through their balance sheet and their book value. Bill, the most important question for people now, and again, major hat tip. I don't know if there's going to be a movie, but obviously you've got a starring role here. Are there next choose to fall? Because when I look back through your analysis and the way you've described it, it feels a little bit like this was an obvious problem out there.

But I'd like to know now, based on the deposit flight that we're seeing, if you would screen other banks as being in kind of similarly vulnerable positions or if you think this was idiosyncratic. Great question. I mean, obviously the markets are nervous, and we're seeing every single day the news flow. And the psychology is stressed at the moment. There are a lot of banks that have these type of loans and mortgages, but not in the significant position that Silicon Valley Bank had. So I think for the industry as a whole, a lot of banks face a period of de-risking, having to raise equity capital, which ultimately just translates into lower earnings and lower profits, but not kind of the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the. type of events we've seen over the last week. What do you think explains the error that was made here? Was it taking the eye off the ball? Was it a rookie mistake? Was it hubris? What?

Great question. I mean, you did have a five or ten-year period of rates were very low, and I think management got greedy and complacent. On top of that, investors weren't asking the tough questions. Sell side analysts weren't asking the tough questions. You actually look at the top three holders. They're all passive holders. So they were focused on other initiatives, not necessarily going through filings and, you know, digging into the numbers. There must be so many other shorts or investors or hedge funds bill who are kicking themselves and saying, you literally tweeted about this. Are the markets really efficient?

I don't know. I mean, we had Martin Gruenberg warning about this problem. We had people starting to tally the size of the losses across the banking system. You've singled out the player most at risk. And yet nothing happened. I mean, are you aware? Are there any other players who made big gains on this? one or were you kind of out there all by yourself?

Being a short seller can be a lonely business at times. And ironically, for all the kudos on the great call, you know, I was down a quick 20% in late January when management came out and said everything was hunky-dory. So, you know, it's never easy. And, you know, I never could have foreseen it playing out quite like this, right? I think the good news is, you know, a lot of folks I knew on the West Coast were able to avoid the issue directly and kind of make backup plans. And I know of some other investors who did capitalize on it, yes. How did your short play out? Make a lot of money? Well, ironically,

I had puts for February that expired worthless. I thought management was going to have to come clean at the end of January when they reported earnings and they kicked the can. So I had a large individual short position. I did cover a chunk of that in that wild trading last Thursday. And then I'm still short sum, which is at the moment frozen for trading. So we'll see how that plays out. Wow. All right, Bill. Thank you very much.

Good to hear from someone who has been in the stock and has clearly done the homework on the numbers. Thank you very much. We appreciate your time. And I'm going to use this, Bill. Thank you. I'm just going to directly introduce our next guest who knows a thing or two about what it's like to try and short stocks like this.

Jim Grant is founder and editor of Grant's Interest Rate Observer. You bless us with your presence, Jim, not only so we can talk. But, I mean, just a quick response, if you will, after hearing Bill's discussion about Silicon Valley Bank. Yes, well done, Bill. Oh, my gosh. Everyone in the community, this is where everyone's being down to the regulators. If people and Wall Street had gotten a better whiff of this, the gains that could have been made. It's just, it's a huge mystery.

Well, it's ever thus. Yeah. I mean, everyone's on the side of up and to the right. And bad news is rarely greeted with open arms by anyone. And, you know, Silicon Valley was this big rock candy mountain. We had a bearish piece on it in 2019, and Bill said that it was down a quick 20%. Yeah, ours, we stock tripled after we wrote about it the next couple of years. Deposits, as he said, doubled over the course of like 18 months or even less.

What I would add to Bill's analysis is that there was a big loan portfolio as well. It's not just securities. And these were, I think, in good part, loans to venture capital and startups and founders, as that word, is now thrown around. And the $70 billion, $73 billion, I guess, is much, much larger than book equity. And, you know, what 0% interest rates do is bring on the phenomenon of zero gravity finance. imagination displaces analysis. And if you're in the business projecting technology out into the wonderful 10 or 20-year realm, there is nothing like 0% rates to facilitate that exercise and imagination.

And that's what Silicon Valley Bank had going for. So this portfolio, $73 billion loan portfolio, I think, might also have been problematic. So quickly then before we, I know we want to broaden this out, but when, you look at the response and the rhetoric. Are we understanding the vulnerabilities in other banks and the rest of the banking system or not here? Yes. Well, here is, here is I think is a plain vanilla worry about the banking system. As every depositor knows, what has not happened in the past year or so is a big uplift in the rates one earns on savings balances or checking balance. It's still like 88 basis points or something. So imagine what would happen to net interest margins on banks

if that 88 basis point suddenly were translated into a 4% money market rates, which one can get in government guaranteed obligations. Right. And so I think what is happening, for example, First Republic is people are mentally marking to market the net interest margin on that bank. It's not just the credit risk, not just the risk of combustion in the midst of a panic, but rather than reimagining the business model in the context of very much higher deposit rates and very much lower net interest margins.

Let me see if I can turn the conversation in the way that I think Kelly was anticipating, and that is this. One of the things that Bill just mentioned was the idea that we had had very low interest rates for a very long time. And you point out correctly, having been an interest rate observer,

you've observed a lot, man. I was actually at the president at the invention of interest rates. At the invention of interest rate. The point here is that he was making the point that maybe the management got complacent because interest rate had been so low for so long, they couldn't wrap their head around the idea of them not being that way. You point out that now we may be in a scenario where higher interest rates become the new norm,

not just for a little while, but for a long while. And what might that mean? Well, the curious thing about interest rates, unlike almost any other financial variable or price we could think of or market, is they tend to trend over generation long phases, right? So interest rates fell for the final quarter or so of the 19th century. They rose to the first 20 years of the 20th. They fell until 1946. And from 1946 to 1981, they rose persistently, not invariably.

But that was when, in 1981, Kelly, you won't remember this. But 1981, the long bond got to 15%. and mortgages knocking on the door of 20. And for the past 40-odd years, rates have persistently fallen. So that's a lot of muscle memory. So you asked Bill the prescient, Bill, what were the component factors of the error? And so I would say that muscle memory is one of them,

conditioned expectations of falling rates, and also the well-observed pattern of the Federal Reserve to buckle in the face of the difficulties that rising rates brought on at intervals. For example, in 2018-19, you remember recall the stock market was down almost 20% around Christmas Eve that year,

and suddenly Chairman Powell was not going to raise, you know, and then 2019 in September, there was this repo thing, this inside baseball. But you wonder if we're running through that again. That was the first time we tried to do quantitative tightening.

We barely shrank the balance sheet and we ran into a bank reserve crisis. What are we doing now? We're trying to shrink the balance sheet. What are we get? I don't know if it's exactly the same, but it just doesn't feel like an accident to me. I know. I would say that it is part and parcel of that. One of the things I've observed over so many years is that credit seems always want to be more prolific. Credit wants to be more prolific. Money wants to be looser. And, you know, people kind of elect inflation. They choose it. They choose it by the government they put in place that spends. And I think there's a, there's a, there's a persistent inflationary undertoe to things that is now coming to the fore. Let me, I don't know whether this is our last question, but let me ask it nonetheless.

Can the Fed fight inflation and manage a banking crisis at the same time? No. Chairman Powell will tell you that they are doing just that next Wednesday, I think it is, but no, they cannot do that. You know, here already they're saying this was a costless intervention. There's no... But notice, and then somebody who's coming in saying, Walter Badgett himself would have approved of this because they're lending it as... No, they are lending at par against securities that are trading well under par.

And they are delaying, we suspect, the rate rises that are necessary, we think, to stop inflation or at least diminish it. So that is a form of a tax, right? Everyone's going to pay for higher with inflation tax. No, inflation, yeah. Yeah. So this is another... to me, highly unwelcome intervention to forestall markets doing their thing. Why don't you think we'll end up in a deeper session because of this, the way that the yield

curves and the leading indicators? I mean, it all kind of points to that. I'm in that counterture about deep. I said, well, you know, money supply, which was up with like a tornado is now reversed all that. So we have a negatively slope yield curve, and we have money supply growth falling off the table. Those are two very potent. historically very potent indicators of trouble ahead. And so I am expecting opportunity for value-seeking people come the value... In stock still? Or... Well, yes, there'll be a value reclamation project, otherwise known as a bare mark, I think, but make no mistake. Nobody knows less about the future. That's someone who's been through a lot of them. Yeah. Jim, thank you so much. Oh, you're welcome.

Nice to be here. It's a very good. Thank you. All right, coming up, a ticking clock for TikTok and some AI chit-chat. Two big stories in the Chinese tech space. We'll break them both down in today's tech check. Plus, oil's slow drip down continues. Brent, today higher, however, but down 9% in a week.

We'll talk about that and more when Power Lunch continued. We'll be right back. All right, time for today's Tech Check. Two big stories in the Chinese tech space. Deer Bosa is here, yes, here, to help us. break them down. Welcome, first off. I love the new studio, and I'm so happy to be here. It's nice to have you here on the East Coast. Let's start with TikTok. Biden administration demanding that the social media platforms Chinese owners spin off their shares or face a nationwide ban. This is the

UK bans the app on all government devices. The head, I believe it was of TikTok US, said that spinning off would not solve the problem any better than their plan to ring fence U.S. data with Oracle? It won't. And let me say, I feel like we've seen this movie before. Remember Huawei? We were searching and it felt like every country in the world in the Western economy was trying to search for a way that they could have the affordable, cheap telecommunications equipment that Huawei provided, but nobody could get comfortable with the Chinese ownership. TikTok and bite dance, they're more transparent, but I think the point is that it's so hard to repair that trust or have that trust and with bilateral tensions rising and rising.

there probably is no way to know for sure. So divestiture does not solve the problem, and I'm skeptical whether there actually is a solution short of banning the app, which lawmakers are talking about. What would that mean if the app was banned? Were there be workarounds, or you just wouldn't be able to get it?

So I lived in China, and I couldn't get access to my Gmail or Google search or Twitter, any of the apps that were so reliant on here. So everybody, including the Chinese, at least in the cities, right, had VPNs to get past the Google. great firewall of China. So are we building up a great firewall of the U.S. that we know that

youth are going to want to access their TikTok? Are they going to go through that trouble to get a VPN? Or are they going to turn to Rails and other apps that might come in to fill this gap? I don't know. I mean, personally using a VPN was not that difficult if the product was good enough. Well, so we have this looming on the one hand. On the other hand, any big existential fight over AI, my personal favorite topic, Bidu's rollout. seems to have gone about as well as Googles did. And if I were, I mean, I'm going like, are these guys going to be disappeared?

Like, what did China? Yeah, to walk us through it. If we have learned one thing in 2023, do not roll out your AI chatbot until you are ready. And even if you are ready, like Microsoft was, I mean, you have to go back and find all the problems with that presentation. It was so interesting what the CEO of Baidu, which is known as, you know, China's Google.

They did a search engine. and they've increasingly been doing artificial intelligence. He said, are we ready? No. Did the market demand it? Yes. Wow. I think he said the quiet part out loud there.

Yeah, exactly. So he spent the whole presentation, it was recorded, by the way. It wasn't interactive, like some of the ones that we've seen from our Western companies. So it was just so disappointing. And he kept, you know, hedging it the entire time, saying it's not ready. It's not perfect. And it raises an interesting prospect, though, right? If you step back and say, okay, is China's generative AI going to be as good or better,

than ours. What's been happening in the backdrop over the last few years, the chips export ban. Of course. That relates directly to this. We're trying to stop our most advanced chips that are used in artificial intelligence from going to Chinese companies like Bidu. So I don't know what the answer is if that has affected the rollout and maybe the quality of its generative chatbot. But it is something to look at going forward. Very quickly, they're telling us to wrap, but I can't help but ask. What is the sense the feel on the West Coast about Silicon Valley Bank in your world? Oh, so this may not be the popular opinion, but people still really like Silicon Valley Bank.

They get products and services and a flexibility that none of the bigger banks were able to. Is that because they were the easy teacher? The easy grader? I would say, I think a lot of the VCs that I talked to would say no. They were just more flexible and more understanding. They did banking things, products that maybe now in retrospect, like, you know, deals to give a venture capitalist a mortgage, right, because they had money. But they were serving an ecosystem there.

And they had the data. They didn't use the data like they should have in terms of that back end risk management. But I've talked to a ton of people who are putting money back with Silicon Valley Bank. Definitely not all of it. Nobody wants to make that same mistake. They're diversifying. But almost everyone I've talked to is putting money back with. Great to have you with us.

Thanks for coming. Thank you, dear Joe. Speaking of AI, the former Yahoo CEO, Marissa Mayer, will join close. Closing bell overtime today at 4 p.m. Eastern since she left the company, she's remained a player in tech and now the AI space. Look forward to hearing from her in just a couple hours' time. Further ahead on the show, we'll have more on this market reversal. Douth up 271 points or about 100 points off the highs, but a very different picture from this morning prior to the details about the support of First Republic potentially. And we are going to speak with Richard Bernstein about where investors should find safety and maybe even opportunity.

That's coming up on Powerline. Welcome back, folks. Let's get over to Bob Pisani at the New York Stock Exchange for a check on the markets. Hi, Bob. Two things very interesting today. First is regional banks. They went positive late in the morning. But David Favor's report an hour ago about capital infusions into Republic Bank by some of the other big banks is really moving these regional banks to the upside. But most interesting is what's going on in technology. Look at these big cap tech stocks again today. This has been a rolling rally all week. The big names here. Google, Amazon, Microsoft, NVIDIA, all up rather dramatically over on the week here. And some of these are up 10% on the week. Look at that moves here. 11%, 10.5, 10%. This is quite remarkable.

Remember, the risk is tightening in Fed rate hikes? They're acting like they're not worried about them at this point. Sectors this week, let me just show you some of these big moves. Banks down, energy's down big, oil's collapsing, industrial's down, and yet techs up big and communication services. These last two sectors, they're 35% of the S&P 500. When these two sectors alone get rolling on a big way, every other sector can be down, but the S&P can be up.

And that is exactly what is happening. Take a look at the S&P 500. I know it sounds crazy. We're up 2.2% this week. And, guys, it's because, Kelly, it's because what's been going on with the big rally in technology. It's quite remarkable. Most of those names up four days in a row now.

Back to you. Up 2% this week is quite a stat. Thank you, Bob. Let's get to the bond market now. After all the volatility, where is that one shaking out? Rick Santelli. Well, after all the volatility, what's shaking out is that many, including myself, were pretty surprised at Christine in the Guard and the ECB were pretty brave.

They raised rates. Pretty much cementing an ocean. We're going to see a similar move by our Fed next week if we don't have any bigger bouts of banking volatility. Let's look at an intraday of two-year note yields. And you see a couple of spikes there, whether it was when the ECB and Christine Lagarde was talking, or, of course, when this wonderful deal to say Republic Bank by other banks giving them deposits and then those banks borrowing from the Fed. Boy, wish everybody could do something like that. And if you look at 10-year-no yields, you can see they're steadily rising, but they can't keep up with short yields.

To come back here, which is fueled rate increases, gotten Fed funds back on track for possibilities of tightening next week. Well, we're up 26 basis points in a two year, which means the spread re-inverted 16 basis points because it ran ahead of tens. Two's ran ahead of tens. If you look at the dollar index, it's actually holding up pretty well considering the ECB Titan. And maybe the best trade traders are looking at is the dollar yen. Why? Because the Bank of Japan's odd man out sooner or later, they have to remove stimulus. At least that's the way the story goes.

Kelly, back to you. Thank you, Rick. Let's get to Bertha Coombs now for the CNBC. news update. Hi, Bertha. Hi, Kelly. Here's what's happening at this hour. Police used tear gas on a small group of protesters who were throwing stones and fire bombs during larger demonstrations in Greece the state of the country's railway system. 57 people died when two trains collided last month. Union staged a general strike today, shutting down ports, airports, and rail transportation. In meantime, in France, President Macron's move to impose an increase in the country's

retirement age without approval from lawmakers is prompting new protests in Paris. Opposition lawmakers are planning a no-confidence motion that would force the government to resign if it is passed by the National Assembly. And after months of strikes by nurses and ambulance workers in the UK's state-run health service, union leaders have reached a wage agreement with the government. The deal still has to be approved by union members. A lot of unrest in Europe, guys. Back to you. Certainly is. Yeah, a lot of trash in France. Bertha, thank you. A head on Power Lunch, a deluxe three-stock lunch. Some other key stocks to watch outside the struggling financials. We've got the details and the trades right after this. Welcome back. Time for Three-Stock lunch. FedEx reporting after the bell today, Intel getting an upgrade,

and a bullish call on Nike. Our team of reporters has the news and moves today. Then we'll trade them with Danielle Shay, VP of Options at Simpler Trading. Welcome, everybody. Let's start with FedEx. Hi, Frank Holland. What's the story? Hey there, Kelly. Let's look at FedEx right now. FedEx share is moving higher today after a Stiefel upgrade. It's also outperforming rivals, its rival UPS, as well as the Dow transports year to date, as the delivery giant undergoes a massive cost-cutting effort. Investors and analysts are listening for any updates on the $3.7 billion. FedEx guided. It will cut this fiscal year, and this all comes ahead of an event on April 5th in New York City on what it calls its drive transformation initiative. Well, here's what you got to know. FedEx is a fixed asset network. So the question will be if the cut to flights for its express air delivery, worker hours, and more will be enough to achieve this goal of cost cutting of $3.7 billion.

FedEx estimates have revenue declines in the low single digits, EPS falling by about 40%, but that's already priced into the stock. This stock often trades on margin. Estimates are for a major margin contraction for its express division, where it gets about half of revenue. But if FedEx can cross that very much lowered bar, it will be an encouraging sign that their transformation plan is on track. Kelly, back over you. Okay, thank you, Frank.

Danielle Shea, you go in with FedEx here. You think they'll deliver? Yes, Kelly, I do. I'm bullish FedEx, and I agree with everything that he said. I think that looking at the chart right here, traders could do something like sell premium prior to earnings to take advantage

of implied volatility crush, or they could trade it to the upside. I'm targeting 220, 2. 230 on FedEx, and I think it's a turnaround story. All right, let's go on to Intel and Christina Ports and Hevelas. Christina. Well, this Susquehanna upgrade for Intel is really a bet on the strength of the U.S. economy. They're calling for bottom, or the bottom for smartphones, PCs, and other consumer-related

products citing improved inventory levels and improved early demand. But Intel and other PC-exposed chip names are the economically sensitive part of the tech universe. You need to be really optimistic about global growth if you believe this call. The panelists argue that AMD isn't stealing as much market share from Intel, but keep in mind you got Intel's dismal, but reaffirmed first quarter guidance of 10.5 to 11.5 billion in revenue. That's a 40% decline year every year expected in this current present quarter. Yes, the dividend was recently slashed almost 66% and the job cuts keep growing, so costs are coming down. But the upfront cost to build up fabs and the prolonged cyclical weakness should interest rates keep climbing could remain an overhang in this name.

Nonetheless, the stock is up over 5%. All right, Christina. Thank you, Danielle. What's the trade here? So I'm bearish on Intel, but I will point out that it does typically trade higher prior to earnings. So I wouldn't want to short it right here. And I actually think that if it traded a little bit higher, another dollar or so, it would be an even better spot to short it.

This is because after earnings, historically, it falls the last seven out of eight quarters. That's exactly what it's done, last quarter falling 10%. So I think that it makes sense to short it around $31 a share. and trade the longer term trend to the downside. To the downside. All right, so that's one up, one down. Let's see how we go on Nike. First, let's get the details from Melissa Repco.

Melissa. Hey, Kelly. So ahead of Nike reporting next week, there are some clues that active wear may actually be a more resilient category than expected. The question is, does that carry over for Nike too? Dick's sporting goods, which carries Nike, posted a big beat on its holiday quarter,

and Lulu Lemon, a competitor, had raised its sales forecast for the fourth quarter. So it may indicate some of those pandemic patterns may be stickier and lifting Nike sales. On the other hand, Nike faces some heightened markdown risk. One factor is Nike's inventory was up 43% year over year at the end of the last quarter. Nike said that was its inventory peak, but still lots of excess merchandise floating around and that does make it a more promotional environment. And then last but not least, there's a geographic dynamic at play here.

In the U.S., we've heard a lot about a slowdown of the consumer. In China, another big market for Nike, they could have a recovering consumer that's more out and about and revenge spending as the country opens back up again. So it will be interesting to see how those two dynamics shake out with its earnings. All right. Let's see what Danielle thinks. Melissa, thank you. What's the trade here? Kelly, I'm bearish Nike. I think that overall the consumer discretionary sector is in a downward trend. If you look at the weekly charts, it's just not looking good for XLY or Nike in June. general. So with Nike, what I would like to do is I'd like to short it right around the 125, 128 price point. But I will tell you that I'm wrong if it breaks up above 130. So that's where

I'd have my stop. Interesting. All right. And I don't like that warning for the rest of the consumer. Danielle, thank you. Thanks to all of our reporters, Danielle Shea. All righty, coming up, oil prices hovering near their lowest level since 2021. That is dragging down some of the big energy names. The latest on crudes crumble or crisis of confidence. That's next. Oil prices, what are they doing? We say they're continuing to slide. Let's find out from Pippa Stevens. Well, they were sliding earlier.

That's what I thought. But they turned around during mid-afternoon trading, and that was because we got a report that top officials from Saudi Arabia and Russia held a meeting where they reiterated OPEX and its allies agreement to try to keep the market balanced and steady. That's according to Saudi Arabia's state news agency. They also reiterated that commitment

of their two million barrel per day cut through the end of this year. Now, we've been focusing so much on those day-to-day moves, but I did want to take a look at where traders think the market's going longer term. And Michael Tran over at RBC crunched the numbers. And he took a look at how December 2023 options activity is shaping up. And as you can see on that chart, there are quite a few call options at the $100 and up to the $120 level on WTI. Also, of course, some put options there as well. But this is an inexpensive way for traders to express optimism on WTI longer term. And of course, it doesn't actually have to get to that level for the contract to still be profitable.

So all of that means that there is this demand rebound optimism still in the second half of the year, the elusive demand rebound. Although you point out, steel is not participating in the turnaround today. So steel's up 60% this year. So it's down three and a half percent today. But it's really had this stealth rally where it's just shot up. I mean, this has been pretty a wild ride for steel. If you show like a five-year chart, it almost looks like the Matterhorn because it's spiked so sharply out of COVID. Then it came down, and now it's going back up.

It's still over $1,000 per short ton. And so we have seen steel mills are cutting prices, and then producers are cutting production. And so we're at right around 75% right now, according to Blake Hurtick over at Argus. That's down from 80% last year. What about the other metals? So copper, that fell to a two-month low yesterday,

but that's rebounding today. And this has been an interesting one because it's both on the demand and the supply side. So once again, China and then global macro concerns hitting the demand on the supply. we've had a lot of disruptions from key producers, including Peru. They're the second largest producer. They had production cuts after widespread anti-widespreadspread protests over their government changing over.

And so that curtailed production. Now, that is back online. So both production out of Peru and Indonesia has come back online, just as demand is projected to slow. So both of those together means some weakness for copper. Wow. All right, Pippa, thanks very much. Appreciate it. Coming up, we'll take a look at this macro mystery chart on track to snap a five-day losing streak.

Could it be a bullish signal for the rest of the market? Think you know what it is? Tweet us at Power Lunch and we'll reveal it next. Welcome back to Power Lunch. Markets right now are about 100 points off the highs for the Dow. The NASDAX still leading the way with a 2% gain. The Dow, by the way, now turning positive on the week, believe it or not, even though it's still the only major index that's negative for the year. Let's get technical for a second.

The S&P 500 had a lot of buzz about this 200 day. It's back above that after breaking below that level exactly a week ago. I think we closed below it yesterday. The next number to watch, 40, 14. That's the 50-day average. That's the white line here. So we're back above the orange 200-day trying to get back above the 50-day as well for some support. That mystery chart before the break, Dow Transports.

The group on track to snap its first five-day losing streak since December. So this might be a nice move to the upside. It closed below the 200-day yesterday, and it wants to provide now a bit of support. for that group. We always follow the transports for the broader market. Speaking of groups needing support, UVA alums are going to be one of them, Tyler. Yes, I'm afraid so. Virginia just lost 6867 to a game firm and team. Too bad for the Cavaliers. Still ahead. Hair on fire event. That sort of describes how I feel right now. That's what some banks in the tech sector are facing according to our next guest. But how far can it go and how can investors avoid getting burned? Richard

Bernstein is here to explain. We'll be right. Stocks trading higher today as regional banks make a comeback. Big tech, also a key driver today as investors hope for a change in monetary policy. Let's bring in Richard Bernstein, CEO and chief investment officer of Richard Bernstein advisors. Richard, you point out, I think, accurately, welcome, first of all. You point out accurately that there are two things that really drive valuations. One is profits and the other is interest rates, and both are moving in the wrong direction for equities. Right. So, Tyler, first condolences about UVA. Yeah. I know you're crushed, but life goes on, bud. Anyhow, yes, earnings and interest rates. So, you know, I'm not quite sure what people would have expected to happen in the market and to happen to the banking sector. When we're in an environment where the Fed is raising rates and profits are decelerating, right?

I think if you had to choose, Tyler, between the Fed raising or lowering rates, profits accelerating or decelerating, I strongly doubt you would choose the combination of the Fed tightening and profits decelerating. That's what we have had. That's the environment where you get the most volatility in the equity market. That's when defaults start going up in the bond market. It's when banks start having trouble, and we're seeing all the above. Can the Fed effectively, I asked Jim Grant a few minutes ago, can the Fed affect

fight inflation and a banking debacle at the same time? Well, normally it'd be very difficult. You know, I think the Fed has a dilemma right now. Do they want to fight or fuel inflation? What's going to help them in their fight against inflation is that the FDIC and the Treasury have decided to ride in as the hero on the white horse and have made it very clear that they will support any bank failure. So the Fed can still fight inflation.

of people have missed that point. The Fed is not the only game in town. And, you know, they have some good players on their team, Tyler. Say that again, Richard. I'm sorry. They have some good players on their team. Yes, they have some good players on their team. Yes. Just rubbing it in. What are you, like, an anti-UVA guy? Tell them to get over it. What would you tell the investors right now, they feel like Tyler does? They don't know what to do in this market. Yeah, so, Kelly, I think, I think, honestly, this is a very unsettling, but not unusual situation. Right. So what works normally in this environment?

Defense of things, right? It's time to hunker down. It's time to look at necessities, staples, health care, utilities, things like that. The oddity in this market right now is that despite everything that's going on, we have not killed the speculative fervor. Notice that cryptocurrencies are up. Notice that tech is up.

We can't kill that. that's a bad sign for the Fed. Fed has to be very concerned that despite all their efforts, we're still seeing misallocations of capital in the economy, which are ultimately quite inflationary, and we're not seeing a more normal response in the financial markets. They have to be very concerned about that. Rich, you know, I always like to ask you about kind of where are we in the cycle? I saw Subrida Submadian over Bank of America saying, you know, we're definitely in the downtrend now. where does that favor in terms of sectors here?

What would your advice be? So, Kelly, I'm going to make a subtle distinction. The profit cycle is definitely decelerating. We are entering a profits recession. That's pretty clear. You're seeing a lot of that in the market, a lot of response in terms of corporate cash flows, and all the risks that go along with that.

However, the economy overall is actually remarkably healthy. I'm very surprised that people have been coming on your show, today or this week, talking about the weakness in the economy. We just had building permits, which is a leading indicator, post its biggest number in almost two years. We have jobless claims, another leading indicator that's remarkably strong. GDP now from the Atlanta Fed is tracking it about roughly through a little above 3% right now. So I don't get why people say the economy is so weak. Yes, corporate profits are, but I don't think the overall economy is. So you're not in the recession camp? Oh, I don't think we're even close to one, Tyler. I mean, as I said, GDP now,

which is a real-time tracker of the economy, is it about 3%. That's not even close to even a weak scenario by U.S. standards. What about the back half of the year, though? Back half of the year, you know, what could happen is that as the profit cycle deteriorates further, and let's say we have a deeper profits recession than people are anticipating, that will, of course, end up in layoffs and a weaker economy, but that's a far cry from saying we're already in a recession. Who do you have winning your bracket, Rich? I have Houston winning the whole thing. We'll see how that turns out. Is that a Rangers jersey jersey behind you, Rich?

It is a Rangers jersey. They're playing the penguins tonight, yes. Well, you know, just you wait. You'll get yours. As you have for the last 40 years, you will get yours. Right. Well, I will tell you, my alma mater, Hamilton College, the women's hockey team is in the Frozen Four for Division III this weekend. Oh, that's good? Which is pretty cool, actually. I didn't see it in an NCAA bat. I didn't see even my bracket. Hamilton was not in my bracket.

No, Hamilton's D3, the men's basketball team, I think, crashed out already. But women's hockey's in the Frozen Four. Good stuff. Rich, thanks for playing ball. We appreciate it. Yeah. Richard Bernstein. All right. I'm just going to go away now. Thanks for watching, Power Lunch, everybody.