Power Lunch - Power Lunch 7/5/23

Episode Date: July 5, 2023

CNBC’s Tyler Mathisen 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 pcm.adswizz.com for information about our collection and use of personal data for advertising.

Hi, everybody. Good afternoon. Welcome to Power Lunch. Alongside Contessa Brewer, I'm Tyler Matheson. Glad you can be with us. We're about to get the minutes from the Fed's rather eventful last meeting on interest rates. And that was when the Fed chose to pause, but hint at the possibility of more hikes to come. We'll see about that as the end of July approach. First, we want to get a check on the markets here as stocks are lower across the board. Do you see the Dow Industrials off by a third of a percent? The S&P 500 is, down 0.17 percent and NASDA composite down about the same. Loss is not too big, less than a half a percent. Let's get to Steve Leesman now for the Fed minutes. Fet Steve. Minutes to the Fed meeting show that almost all saw future rate hikes as being appropriate and some even wanted to hike by 25 basis points at the June meeting. We don't know how many some is. We know it's less than many and it's more than a few. The reason they wanted to hike was because they saw the labor market as tight,

and they saw a few clear signs that inflation was returning to the 2% target. Most said, however, the Fed would benefit from taking a little more time, dealing with the high levels of uncertainty that were out there. Those uncertainties included the lagged effects of monetary policy, as well as tighter credit conditions from the banks, and what kind of effect that would have on the economy. Almost all saw inflation risks to the upside. inflation, they said, was unacceptably high and slowing less rapidly than expected.

And an interesting comment here in the minutes, some saw the effects of higher rates on housing bottoming out. In other words, they had already gotten as much tightening as they're going to get or easing in the housing market, and it was already had already bottomed out. We've seen that in some of the economic data. Some saw downside economic risk and upside risk to unemployment, so there is a doveish wing to the party there to the FMC. Real GDP was seen as resilient, but expected to slow. And just a couple more here. Consumer spending was stronger than expected. A few people were worried, though, in the committee that consumers are facing increasingly tighter budget constraints, including from less savings.

The labor market was seen as very tight, but payrolls were expected to slow. Finally, tighter credit conditions from the banks were likely to weigh on economic activity. And in fact, the staff is still forecasting, that's the Fed staff, still forecasting a mild recession in the second half because of those tighter credit conditions, but in general, they see the effects as uncertain. And some even said, you know what, it ain't coming. Back to you guys. All right, Steve, stick around as we welcome Daniel Morris to our conversation for more reaction on the Fed minutes and the impact on the markets. He is chief market strategist at B&P Paraba asset management. Joins us from London. You said you checked the accident at the custom.

So we're glad to have you, Daniel. Welcome. You say, among other things, that the Fed is more worried about avoiding a recession than getting inflation back to target quickly. What makes you feel that way? Well, look at what they did at the last meeting. I mean, we know going into the meeting that they were not on target for their inflation projection for this year, let alone when we get back to 2%. So there's one or two ways you can react, respond to that. Either you say, you know, we're going to make that target, we're going to hike rates now,

we're going to do what we said we do, or instead they say skip, pause, whatever you want to determine it. And then in addition to that, they just raise the inflation rates. target. So I think the signal to the market, despite what Powell may have said, despite what was even in the dot plot, is that they don't want to risk a recession. They do want that soft landing, and if that means inflation is still a lot? Do you think they'll get that? What is your base case assumption? Yeah, I think the key point is you need to get GDP growth below trend, so 1.75 in the long run. But below 1.75 can be anywhere between 0.1.75 or clearly it can be negative.

So it doesn't have to be a recession. It just needs to be below trend. And we think that's, the odds for us are higher than a recession. And so the inverted yield curve is a signal, but not necessarily a definitive signal that a recession has come. It's absolutely a signal that growth is going to slow. That's very clear. And it's just historically more often than not you've ended up in the recession. But there's no, in a sense, inherent economic reason that that has to be the case.

You heard Steve go through the bullet points there on labor, on housing. and inflation still being unacceptably high. How do you interpret what we learn from the Fed meetings with where they go from here about more hikes to come? Yeah. Well, I think I'm going to have to use a phrase that they've used, which is data-dependent, but we need to put that in context. Because, I mean, the reason, frankly,

we have all been so bad about predicting growth and about predicting inflation is because we are honestly in an unprecedented world. It's not just the pandemic. It's the global lockdowns, global reopenings, and trillions and trillions of dollars to stimulus. We've never had that before. So we don't have a model that can take them into account because it's all new.

So hence, we've been lousy at forecasting, and we can have all the predictions that we want to have, but it really is just going to see how does inflation evolve? What happens with the labor market, and the Fed is really going to have to react to that. Steve, let me bring you back into the conversation and ask whether there's anything in these minutes that we didn't know already. No, I might give you the experience of reading them, Tyler. I don't know if you've ever covered the courts or something like that, where you read a decision. decision by the judge and it reads as if they're going to find them guilty and at the very end they find them not guilty. These minutes read like the minutes of a committee that was about

to hike rates. Labor market's too tight. Inflation, no clear signs coming down. All of it amounted to or seemed to amount to the case for hiking and yet at the end of the day they decide to wait. I was hoping for some clarity on why they were waiting. I think Daniel has an interesting thesis here. I'm not sure I 100% buy it, but it's a good thesis that they don't that they're more worried about recession that perhaps they're letting on. But I do think they are going to hike in July. I think the groundwork has been laid for that hike. And I also think it's entirely possible they're going to move on to hike again in the next after one more skip.

I think they're in this, perhaps this pattern here of every other meeting. They want to get the rate back up. I don't see, by the way, much change at all in the probabilities for November is the meeting. We're looking at it's still about a 35%, 36% chance of a high. hike and there's still a strong, what is it, 85, a little bit higher now, percent probability of a hike in July. So I do think they are going to hike in July. I think they're going to hike again maybe later this year if they don't get a big change in the inflation and in the jobs numbers. So that being said, if there are more hikes to come, where do you see opportunities?

Do you still think that there's room in market equities or do you think that investors need to look elsewhere? Well, I guess thinking of other asset classes or geographies. I mean, certainly We're cautious on the outlook for the U.S. and for Europe. And in the U.S., certainly it's with the strong returns. We know we've had this year in particular. So we say unbalanced returns, so dependent on tech, we don't feel comfortable with that. So actually, we are underweight U.S. equities and look into emerging markets instead. Because even if I'm right that it is a slowdown and not a recession, I mean, it's still a slowdown.

So that's going to be a drag for equities. And so when you're looking at geographies, do you think of emerging markets as opportunities, China as an opportunity? Emerging EM Asia in general, and I think there's two distinct components in that, because I think we appreciate now we're not going to get the spillover that we hope through, hope to for China to the rest of the M Asia. But if you look at how EM has done overall so far this year, it's been very tech-led, so a lot like the U.S., so it's been Korea, it's been Taiwan, and we still think that's an opportunity.

China, we think clearly sentiment, not been very helpful so far this year, but the earnings projections at least are quite good. And if those earnings come through, the markets have got terrific. As you look ahead to 2024, what do you expect the interest rate picture to be? Lower or higher for longer? If the Fed is patient, shall we say, about getting inflation down quickly, that implies the higher for longer. You know, inflation is not going to fall quickly, so rates aren't going to fall quickly. But a year from now, I think one way or the other, you're going to have rates lower.

Either it's because inflation has fallen so the Fed can lower rates or you do get the recession and they cut. So in a sense, the fixed income call is a bit the easier one because you really should. have lower rates next year. Equity is a bit more challenging. On that note, Daniel, we shall leave it. Thank you very much for your insights. We appreciate it. Steve Leasman, thank you as well, my friend. Appreciate it. Let's take a look at how those bond yields are moving after the release of the Fed minutes. The 10-year yield rising throughout the day, 3.93 percent right now. You can see the yield on the 10-year note, and the two-year yield also rising higher for most of the day. but pulling back when the minutes came out right around 4.93%.

Coming up, America's chess match with China continues. She, meeting with Modi and Putin for a virtual summit. Not long after Biden met with India's leader himself and ahead of Treasury Secretary Janet Yellen's upcoming visit to China. And boy, that tech fight between China and the U.S. is ramping up with a massively important chip space acting as a key battleground. All that next. Welcome back, everybody. China ramping up export controls on the rare metals used in making semiconductors here in the U.S. and around the world.

And the country is warning these restrictions are just the beginning. Christina Parts in Evelas has more. Christina. Once again, semiconductors are caught in the middle of tense U.S.-China relations. The Chinese government has announced no export restrictions on two metals used for semiconductors and solar panels. As of August 1st, buyers of gallium and germanium will have to apply for permits with China. state media saying these controls are a practical way of telling the U.S. and its allies that it will not be squeezed out of the global chip supply chain. China dominates the gallium

market, and you can see just with 80% coming from there and 60% for germanium. But Citi noted that China's approach to export licensing, quote, remains to be seen with the impact unlikely to be immediate given inventory that's on hand. With also UBS, they pointed out today, it's not an outright ban. So we shouldn't have a huge impact. Nonetheless, shares of rare earth material producer MP, you could see are up about 5.7% since this is a U.S.-based firm that could stand to benefit. The measures, though, come as the Biden administration is reportedly preparing to expand its own restrictions, not only on the sale of advanced semiconductors to China, which would impact companies like Nvidia and AMD, which are both climb and higher today, but now to also include cloud

computing services that use AI chips. That means companies like Amazon, Microsoft would need to seek U.S. government permission to do business with China. China's domestic industry is not yet able to produce the most advanced semiconductors, which is why Chinese businesses and the military rely on U.S. imports and U.S. designs. But now the United States wants to cut that off. Guys? All right, Christina, thank you for that. Appreciate that. The new export control is just one of the many topics, Treasury Secretary Janet Yellen plans to discuss as she heads to China. She makes the trek a few weeks after Secretary of State Anthony Blinken did. Can Yellen help build a bridge across the wide gap we see between China and the United States?

Joining me now is Dennis Unkovic, partner at Meyer Unkovic and Scott, and Derek Sizer, senior fellow at the American Enterprise Institute. Dennis, let me begin with you. do you think that U.S.-China relationships can be improved with a trip by the Treasury Secretary? Let me say two things. I believe that the U.S.-China relationship is in a worse position today than it's been in 30 years. Secondly, does it help for Secretary Yellen to go over? Yes, but I'm not particularly optimistic that it's going to produce some serious positive changes. Okay, so Yellen had outlined three economic priorities for her trip. She said that she wants to secure national security interests, foster mutually beneficial growth

and cooperation on global challenges like climate change and debt distress. Do you think that those are what the key factors are for the United States-China relations, or do you think that there are others that she's going to have to tackle? I think there's a more serious issue. The Chinese military has refused to meet with Secretary Austin or to talk about the things that happen if there's a problem like in Taiwan where the Chinese jets came in front of a U.S. jet.

That, to me, is the most critical issue. And I really do believe that this is the real reason that Janet Yellen is there. She has long-term interests dealing with the U.S. economy. But the military relationship between China and the United States to me is number one. Well, how does the Treasury Secretary try to influence that? Well, you've got three people who are important in the government

other than the President, the Vice President. You've got state, you've got the military, and then you have Treasury. Well, they refused, the Chinese have refused to meet with Austin. Anthony Blinken was there two or two and a half weeks ago, didn't have a lot of success. So I think they're sending in the third team to say, we believe you China are important. Let's show you some face. but please, we need to discuss this issue. And I think that will be maybe not in the headlines, but really what is behind this trip.

You know, Dennis, let me ask you just to sort of analyze this sort of proposition. Is what we're talking about here hardball economic competition built around national self-interest on the part of the Chinese and on the part of the United States, or is it something much, much more than that? Tyler, I think we are at a stage where the U.S. and China recognize they are the two major powers in the world. And as a result, number one has to be the security for China for themselves and for us. And only second is going to be economics. For the last 30 years, Tyler, you've essentially had China growing again and again and again based upon economics. But now, Xi Jinping is obviously placing a higher priority on national security interest.

and if you see what Biden has done over the last year, he would agree. So let's talk about tariffs, which the Chinese would love to see loosened or taken away entirely the tariffs that were put in by the prior administration that the Biden administration has stuck with. Is that on the table or not on the table at all in these conversations? In my opinion, it's a secondary issue, Tyler, not a primary issue. The economics are simple. The Chinese sell us $535 billion worth of goods a year. We sell them about $176 billion a year.

So when Trump put on the tariffs, which were in some cases were very high, those tariffs there were reacted to by the Chinese, so they put on their own tariffs. But when you have $500 and some billion versus $150 billion, you can see who's hurting. And the Chinese really want this as a priority. What about the moves that the Biden White House has made to restrict technology heading to China? How does that factor into improving relations?

I don't think it can improve relations. I think the Biden administration is saying national security from the standpoint of the U.S. has to trump economics. Okay. And what about currency manipulation? Something else that you say has had a global impact? Well, currency manipulation. means the renminbi or the one is weakening, which means the Chinese can make it less weaker, which means in the last year, for example, 7% of Chinese goods have become that much cheaper

because the Chinese have manipulated their currency. That, to me, says the Chinese say, we really have a problem with our economy, but we as a country, like the Europeans and the Japanese, have floating currencies. The Chinese can fix the currency. wherever they want it. At this point, they're making it weaker so they can sell more goods to the U.S. Currency manipulation's been around for a long time, and I really don't think it's going to go away. We're raising interest rates, which, to all things being equal, improve the value of the dollar. The Chinese meantime are cutting interest rates to help their economy. How weak is the Chinese economy, and how troublesome is the idea that the Chinese are cutting rates,

which would weaken the remnant be even. further. Tyler, for almost 30 years, the Chinese economy 1%. Since Xi Jinping has come in, the Chinese economy has grown less and less. I think the last quarter, in Q1, it was about 4.1%. If you believe that figure, I'm not sure I do. But the Chinese have always said, we want to grow at least 6% per year. And over the last several years, that has not been the case. Dennis Unkovic, we appreciate you joining us for your perspective and your experience. Thanks for sharing it with us. And we want to apologize to Derek Scissors.

We did have some technical issues there that prevented his joining in the conversation. Tyler. We'll have Derek come back and join us and react to what Dennis said on a future occasion. Again, apologies to Mr. Scissors. Growing complaints from franchisees over practices of their owners setting off a chain reaction. The FTC now taking a look at the relationships between the two and the impact on workers. We'll give you the details when Power Lunch returns. Welcome back and let's get to Simomodi now for a CNBC news update.

Hi, CMA. Hi, Tyler, here's what's happening at this hour. Federal prosecutors say the man arrested near the Obama's Washington, D.C. home with 400 rounds of ammunition last week is a direct and serious threat to the public. Prosecutors gave the warning and a motion filed today asking a judge to keep Taylor Taranto in jail pending trial. They also alleged the FBI launched a search for... for Toronto after he said online he intended to blow up his vehicle at a federal building. Prosecutors say authorities found him later that day in Obama's neighborhood. Protesters interrupting play twice at Wimbledon today, the third day of tournament.

In the first incident, two people spread confetti and jigsaw puzzle pieces on the court. A similar incident took place later on in the day. The Just Stop Oil Group, which calls for the British government to halt new oil, gas and coal projects, has disrupted other sporting events as well. And food, Subway, hoping to win back customers with fresh-slice deli meat, the sandwich chain announcing the change today, saying it affects about 20,000 U.S. locations. Previously, Subway's deli meat was all pre-sliced and then delivered to stores, hoping to ramp up sales. Tyler?

All right, thanks very much, Seema. And I'm not sure that it would matter to me whether the meat was pre-slice. Matter to you? Would it matter to you if you were going through security at a sports? event and now they're going to search you for jigsaw puzzle pieces yeah that's right what are they get a big vacuum cleaner up uh to scoop it up it's a it's a huge room buck yeah who you all right on power lunch tesla's delivery numbers coming in above expectations good enough to fuel the bulls further but not enough to convince the bears to switch especially

since inventories grew at the same time maybe a little slower than expected but they still grew We'll speak to an analyst who says neither side can declare victory on Tesla. We'll be back in two. Welcome back to Power Lunch automakers reporting sales numbers, and Phil LeBoe has them. Hi, Phil. Contessa, these are strong numbers from GM and Toyota today. Let's start first off with General Motors reporting an increase in the second quarter of 18.8% in terms of their sales. And that was better than some analysts were expecting.

And there's a couple of numbers within the numbers that are important to point. Now, first of all, when it comes to average transaction price, up more than $1,400 compared to the first quarter. So they are continuing to see strong pricing with their vehicles. Also, their incentives and inventory, General Motors says they are flat, relatively speaking, compared to the first quarter. So that goes against the grain in terms of people saying, well, the market is going to be slowing down.

We're going to see a huge surge in inventory. Certainly not what we're seeing as you take a look at shares of General Motors. And then let's transition over to talk about Toyota. Toyota reporting it's June sales up 14.9% including truck sales up 17%. When you put all of this together and we'll get the final number either later today or tomorrow, the sales pace for the second quarter, GM thinks it's going to come in for the U.S. at 16 million. Now, if that's the case, you've got to go back at least a couple of years to see a sales pace for a quarter that was that high. Again, this goes against the grain in terms of what people were expecting earlier this year, guys.

and I know a lot of people want to talk about EVs, and they're important in terms of a growth area for the auto industry. Still a lot of people out there buying those internal combustion engine vehicles. I want to ask you a couple macro questions here. One, what does it indicate about auto buyers? I mean, you've got interest rates that are higher than they've been for the last couple years if you're trying to borrow for a car. What does it mean about the appetite? And then the other part of this, Phil, is that we're watching all of these labor disruptions at West Coast ports. What are you hearing from the manufacturers about how they're anticipating supply chain moving forward?

It might be great now. What happens in the next month or two? I think the supply chain issue is not a huge one that they're worried about. I mean, obviously they keep an eye on it. But keep in mind that most of the vehicles sold in this country, the supply chain is in this country. And while there may be some disruptions here or there, generally speaking, this is not a case where at this point it's going to slow down production. The bigger concern for automakers, especially the big three, it's the UAW contract that comes up in September. That's going to be an ugly negotiation. I wouldn't be surprised if we see a strike given the way the UAW is talking at this point.

With regard to demand and the consumer contessa, there's still a lot of pent-up demand out there. I mean, you can't deny that. When you look at the average transaction price, even with higher interest rates, it is not slowing down as many people expected it to. Phil, appreciate you bringing us the numbers and breaking out the bigger picture for us. All right. Thank you, Phil. And both Tesla and Rivian beating expectations. Tesla delivering a record number of cars in the latest quarter. Rivian, also a market mover after reporting deliveries were up nearly 60% from the prior quarter.

So is it time to get bullish on some of those auto stocks? Chris Pierce has some opinions. He's senior research analyst with Needham. And today he reiterated his buy rating on Rivian. hold on Tesla. Chris, why the hold on Tesla and the buy on Rivian? What's the distinction between the two? I look at Rivian and I see a stock that investors kind of bailed on throughout 2022 because of supply chain issues and they had to constantly revise production numbers lower. With Rivian, in my eyes, it's never been a demand question. It's about can they manufacture these vehicles and get them out to consumers

at an increasing pace. And they proved they could do that in Q1, beating consensus estimates for deliveries. Investors didn't really take notice. It's taken some time for investors to kind of take a to look at the stock with fresh eyes, but after a healthy beat in Q2, I think investors are starting to realize that this is a company that we feel comfortable about demand. Manufacturing is improving at accelerating rates, and they've detailed per unit costs downs on a, you know, per unit basis. So margins can improve from fixed cost absorption and margins can improve on a per unit basis. So you've got a stock with momentum behind it, a company with momentum behind it as far as manufacturing, and the numbers are heading in the right direction. Did I hear you say that people left for dead?

That investors had had taken it out, taken Rivian to the woodshed last year. If I did hear you correctly, can't the same be said for Tesla over the past 12? I mean, it's come back a lot this year to make the fair point. But last year was a very bad year for Tesla in the stock market. I would say with Rivian, you had an IPO that I peoed around, I think $78 was the price. The stock trended lower throughout the year on supply chain issues and manufacturing issues. And, you know, investors were just unwilling to – you had a stock that people were questioning the future of this company, three to five years from now, given capital need to be raised, investor appetite for growth stocks to lose money. And I think that longer-term estimates, at least I feel a lot more comfortable about it after the past two quarters in a stock, like you said, that had been, quote-unquote, taken to the woodshed.

So you've got an undrone asset, an underappreciated asset here where investors kind of have to do a 180. It's a negative feedback loop turns to a positive feedback loop. As far as Tesla, go ahead. I would say as far as Tesla, yes, there was a drawdown towards the end of last year, but it was more around a, I don't know that it was ever around the company fundamentals. It was around what's going on with Tesla's share price is, you know, is their CEO selling to fund Tesla, on Twitter. It wasn't really around the fundamentals.

And as Tesla's fundamentals have improved, I think that the stock has rallied. But it's a situation where you kind of, if you look at these two stocks, you've got one that's very, I don't want to say overowned, but one to own from a healthy perspective from a retail investment standpoint that drives a very high multiple where expectations are very high. You've got a stock in Rivian where expectations have gotten very low over time. And now those are just starting to increase, I think that's the time you want to buy a stock that's underperformed that can be turned into an outperformer. So you have a hold on Tesla, as we said.

I'm just curious, what role does competition for Tesla play in your skepticism? Minimal. I think Tesla has a great future. I just, from an institutional investor perspective, I look at the stock trading it 45 times my 25 numbers when I'm factoring in 20-ish percent EPS growth. I am willing to put a different, put it somewhat of a retail investor hat on and stretch the multiple because that's the type of investor base that's here. but 45 times for 20-percent-ish EPS growth, it just doesn't seem as great a fit for me at this point in time versus Ribian. What little I know about investing tells me that when you've got a P.E. that is more than double the growth rate, that is a very expensive stock.

Ideally, don't you want a P.E. that is either in line with or even below the growth rate of the stock, right, Chris? That's kind of – Tesla's never traded at a cheap piece. PE to growth, what they call a peg ratio. But that's kind of your, to me, you're pitching the case for Rivian back to me. You've got a stock where investor expectations are low. Things are turning around and investors aren't on the train yet versus Tesla. You've got a stock that the train is quite crowded. It's already left the station and it's trading at a very expensive multiple and expectations are high for cyber truck. Expectations are high around this charging standard in the United States. So the bar is just higher to own the stock in my eyes. Chris, thanks very much. We appreciate it.

Chris Pierce. What little you know about investing? What little I know. Call me skeptical. Watch my portfolio. Call me skeptical. Coming up, model behavior, the FTC taking a hard look at franchising, including whether it's fair to individual owners and their workers. Do parent companies hold too much power or explore? Plus, taking a walk, UPS in the Teamsters Union at a stalemating contract talks. Each side now accuses the other of walking away from the negotiating table.

UPS on track to snap a six-day winning street. Power lunch will be right. right back. The FTC is taking a deeper look at restaurant franchising and the impact current policies have on franchisees, on their workers, and the parent companies signaling the potential for more scrutiny. Kate Rogers is following the developments here and joins us now. Kate, what are you seeing? Hi, contested. The agency just wrapped up a public comment period in response to a request for information. It put out earlier this year saying it wanted to, quote, unravel how the unequal bargaining power inherent in these franchising contracts is impacting franchisees, workers, and consumers.

The FTC told me that it received 5,500 comments indicating broad interest in fairness in the industry, adding that all options are on the table as to what comes next. Now, the SEIU submission said, quote, workers ultimately bear the brunt of this exploitative system, given the power dynamics in franchising. Meanwhile, the International Franchise Association is warning against one-size-fits-all regulatory changes to an industry that represents so many different kinds of businesses from fast foods to hotels, gyms, and more. Now, McDonald's was among the major brands that has comments from both the corporation and

operators. The National Owners Association, which represents 1,000 operators submitted commentary saying that some of its examples show, quote, time has not made the franchisee franchisee-franchisor model stronger, but sadly more adversarial, less cooperative, and severely fractured. Meanwhile, McDonald's said that it does share the FTC's view that the model, model should benefit everyone, customers, franchisees, workers, suppliers, franchisors, and local communities, adding, quote, that's precisely what our franchise system has done for over six decades. Also warning against these one-size-fits-all regulatory changes,

because there, again, are so many different types of concepts that are under that franchising umbrella, guys. Back over to you. But, Kate, what are some of the changes that are being suggested? Like, in what way do the franchisees think this is how you could improve the relationship? So as far as potential changes, it all kind of depends on how the FTC reads into this. So updating the franchise disclosure documents that owners get, making them more searchable is something that even the IFA said it is open to. Non-compete clauses have the potential to be banned if the FTC decides to go there with

its request for information on that. That's separate but related to this. So this can wind up with less power and structure for parent companies over the operators. And some franchisee advocates say that's a less consistent. experience for the customer. Worker advocates say that that, though, could improve conditions for service employees. So a lot of back and forth here and a lot at stake, but certainly, you know, stands to impact a lot of different businesses. When you say a non-compete clause, would that mean that a person who was a McDonald's franchisee could then not go out and become a Dunkin' Donuts

franchisee? Yeah, I believe if your lease is up with McDonald's and your contract is up with McDonald's, I think it's about an 18-month period before you could go operate something similar. So that's been something that there's been some pushback on. And again, something the FTC is looking at, not just at McDonald's, but many of these different concepts. Okay, thank you very much. Appreciate it. Thank you. Good to see you. All righty, shares of Moderna are higher after striking an exclusive deal to develop and manufacture MRNA medicines in China. It is on pace for its best day in nearly a month. We'll trade it and other movers of the day in three stock on. A federal judge put limits on the Biden administration's contact with social media

companies after ruling that efforts to combat false or misleading information is a form of censorship. Meta, of course, is preparing to launch a new Twitter rival in the growingly complicated social media space. Julia Borson brings us more on this. Okay, so first off, what does this mean in effect for not only the Biden administration, but other leaders in government? Well, look, this is not a final ruling, but it definitely indicates where the judge is going with this. And it's very complicated. I mean, in the entirety of all my very long career covering social media platforms, we've seen this growing effort to combat misinformation and particularly to combat manipulation around elections. And if you go back through the years, you've seen meta, formerly called Facebook, implement all these different ways that they could help prevent the spread of misinformation, particularly around elections. and they worked very closely, not just with the U.S. government, but with other governments around the world to make sure that untruths were not being spread.

So the judge's concern is that if the Biden administration were to communicate with social media platforms, that that would be tantamount to censorship. And they want to avoid censorship. But I think there's a very important role to be played in terms of having a clear communication between government organizations and social media platforms. to make sure that they're all working together to prevent the spread of information that is either false or potentially dangerous. It's a tricky and slippery slope, isn't it, Julia, where a person, in this case, the government, may feel unfairly treated by a social media person. In other words, somebody who posts something that they think is wrong. so that the first person, the government, complains to Twitter, complains to Facebook, and says, you've got to shut that individual down

because what they are saying is patently false. And that's where it crosses the line. And if you don't, here are the potential consequences that we could take. That's where it crosses into, what seems to me, a very dangerous area of coercion and censorship. Certainly.

I mean, that is a perfect example of censorship. and it's also a threat saying if you do not do X, you will maybe face tougher regulation or the like. I think the challenge here is that the judge is recommending a move far beyond that and saying you can't have any communication with these social media platforms. Certainly an effort to avoid censorship makes sense, but it does seem like it could be really risky to ban all communication, especially at a time when the likes of AI is enabling deepfakes, and other content that could be very misleading. Well, this will continue, of course, because not only Twitter, but meta and other social media

platforms are under a lot of scrutiny for especially their impact on elections. Julia, turning the table a little bit, you've got meta deciding that it's going to give Twitter a run for its money. That's right. Meta's preparing to launch a new app called Threads. And this is all set to happen tomorrow. And you can go onto the app store and you could pre-sign up to download the app as soon as it becomes available, which is scheduled for tomorrow.

And here's the thing that I think is very savvy on meta's part. This is not launching as an entirely new standalone app, but rather as an extension of Instagram, it's considered sort of a spinoff of Instagram, which means that if you're an Instagram user, you could sign up to automatically follow people you already follow on Instagram and you'll have your same Instagram handle. So they are using that existing infrastructure to set themselves up to launch with a bigger user base than if they were just simply launching from scratch. And that's why a meta with this new app threads will have an advantage over entirely newcomers in this space. So the question is how quickly can they get real conversation happening on this platform?

Because that's when it could really become a threat to the conversation that's happening on Twitter. So as you're talking there about meta, What is their business emphasis going to be? I mean, it was going to be the year of efficiency. They're still in AI. They're in virtual reality devices and so on. And that was the big deal a couple of years ago. Where is their focus?

Well, I think that you're right. It is about the year of efficiency, but also if you're going to be experimenting and creating new products, doing it quickly, scrappily. And I think that's the idea here. This is something that seems like it was created, you know, rather, rather quickly, considering how long it can often take to create these apps with this idea they're trying to leverage the infrastructure already in place. Again, efficiency here. But look, if they can create a new growth driver, Tyler, that'll be a huge advantage for them as they look to grow revenue and grow profits. I love that word scrappily. That was good.

I don't know that that's ever been used on CNBC. But there it is. I don't even know it's a word. But you said it authoritatively, so I'm saying it is a word. It's a scrabble word for me. I'm good. Thanks, Julia. Time for three-stock lunch, folks.

I know you've been waiting. We've got some big movers on today's menu. First up, UPS, ups down nearly 2% today, as the union that reps more than 340,000 UPS workers said the delivery giant walked away from the bargaining table after making an unacceptable offer. Let's trade that name and more with Michael Landsberg. he's Chief Investment Officer at Landsberg Bennett,

private wealth management. What do you think of UPS, Michael? Welcome, first of all. But what do you think of UPS? Thanks, Tyler. Not a fan. You know, obviously the Teamsters Agreement, that's not a good thing to walk away. And as we closer to July 31st, it's going to be problematic for the company. But I think if we look back and say their fourth quarter earnings year over year, missed, you know, decline, first quarter decline, we're to slowing global economy. So I think the, this is,

certainly not going to help. Obviously, a labor and a teamsters issue is not going to help, but the business was slowing prior to this. So I think it's not a great name to be, and I think you've got to be out of it. Next up is Moderna. The pharmaceutical company struck a deal with Chinese officials to research, develop, and manufacture messenger RNA medicines in the country, despite rising tension between the U.S. and China. Now, shares are up 3% as a result. What do you make of Moderna, Michael? We like Moderna. We like the healthcare space, overall. But you've got to remember, Moderna, they've got one drug. They've been milking this drug. COVID vaccine, obviously, starting to slow down, but there's still a lot of money coming out of

out of this to be able to put towards R&D. A big deal today to manufacture MRNA for China, and it's for Chinese only. Remember, they didn't have Moderna. They didn't take any of our vaccines during COVID. So that's a billion plus new consumers for the product. That's obviously a real good win. But also today they announced, you know, they're applying for going through with RSV applications in Europe and Australia for the respiratory vaccine, which I think that's going to be a big play as well. So we like it. The stock still down a lot from kind of where it was kind of pre, you know, very early in COVID. But I think it's a good name and it still offers an attractive price. And finally, let's talk about Coinbase shares down

3%. Piper Sandler analyst Patrick Molley downgraded that stock saying there's just too much uncertainty. Do you agree with that, Michael? I would. I mean, And the stocks, they're also down about 80% from where they were. I typically don't like to invest in anything that's got an SEC overhang, so regulatory, not a great place to be. But also fundamentally, 2022 to now the revenue, the amount of volume in crypto trading has been down. And crypto's rebounded. There's no real volume.

That's not a good thing for Coinbase. I think you can wait it out, maybe six months, nine months, see what happens. The SEC moves at a glacial pace, so I'd probably not hold my breath here. but I'd wait until we got some more clarity. Michael, thank you very much for your insights today. Michael Lansberg, appreciate it. Tensions with China are nearing a peak, planet Earth, hitting peak temperatures and researchers

trying to pinpoint the age when human beings hit our mental and physical peak. We're going to take a peak at the limit when power length returns. You see what I did there? Yeah, I got it. Yeah, that was good. You may have to bring that camera closer. Yeah, come on, come on.

I can't read this little. This is not a lot. an eye chart test. We've only got, let's see, about three minutes, three minutes left in the show, and a bunch more stories you need to know about. So let's get right to it. The State Department issuing a travel warning for Americans considering trips to China. The reasons include a heightened possibility of being wrongfully detained, plus the, quote, arbitrary enforcement of laws there. Beijing passed a broad foreign relations law just last week, which threatens countermeasures against anyone seen as harming the nation's interests.

U.S. officials have designated both China and Macau as level three localities, recommending that travelers reconsider travel. That's a problem for the casinos in Macau, because, of course, they're trying to broaden the horizons and attract international visitors, not so much about U.S. travelers going to Macau, but certainly other Asian travelers, and you might think that that could have an impact. Meanwhile, Tyler, casinos are heading into the second half of the year. They've got some tough comps on the way. It's been month after month of gaming revenue growth nationally.

But the industry is bracing for more M&A, public listings and potential IPOs, and in Las Vegas. Look at this. This is the new sphere at the Venetian. The Venetian sphere is what it's called. It's a new kind of entertainment venue. Look at that. It launched its exterior yesterday, July 4th, biggest LED screen in the world, and a YouTube concert that launches the venue in September. Now, add that, and F1 coming for the first time to the Las Vegas strip,

expected to produce the best November ever. And international travel and convention business have yet to fully rebound in Las Vegas post-pandemic. So this means there could be fuel for this fire, even if there is a consumer spending pullback. That's just amazing. And Formula One, that's going to be fun out. It sure is. Are you going to go? I think you must get that assignment.

The business impact is incredible. It makes very popular sport. All right, planet Earth, so it's hottest day on record this past week. New highs expected within the next few weeks as well. The average global temperature, when you mush it all together, hit a record of 62.62 degrees Fahrenheit on Monday, only to shatter that by hitting 62.92 degrees yesterday. Experts warned the record could be broken several more times this year, in part because of both climate chains and the effect of El Nino. You know, temperature 62, it may not sound that hot, but when you take an average across all parts of the globe, northern, southern hemisphere, you get that.

And remember when the weather gets warmer, it melts more ice, which then warms the ocean. And it becomes a cycle that goes faster and faster. When do humans peak? Let's be honest. For some of you, you're probably like high school. But economists, the sports scientists and psychologists actually analyze when they peak mentally and physically. And they say that athletes tend to peak in their mid-20s. On endurance, they typically reach that by 40.

Low-impact sports like sailing has athletes competing at elite levels in their 50s. Mentally, economists who challenge conventional wisdom and think more abstractly, published their single most significant work at the age of 25. 25, it says right there. And why do so many musical artists peak in their 20s, early 30s? You don't see a lot of creativity from some of the... Especially not emerging. Not emerging.

Yeah, right. All right. We'll save the pickleball story for tomorrow. Thanks for watching Powerline.