Power Lunch - Power Lunch 8/18/22

Episode Date: August 18, 2022

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

Welcome everybody to Power Lunch. I'm Tyler Matheson. Kelly will rejoin us here in just a few seconds. Here's what's ahead for a busy Thursday. Another bad housing number this morning, bad bunny. Existing home sales down 20% from last year. We're going to hear from the man, Robert Schiller, Kay Schiller. That's the guy on how bad the housing slowdown could get. Plus natural gas prices soaring again. Up 28% this by. It's the summer. 165% this year. and the Nat gas stocks have seen similar huge gains. Will prices head even higher heading into winter? Those stories, Kelly and Moore.

And everybody nervous about that, Tyler. Thanks. Mark it a little nervous today, too. Dow couldn't hold its gains. We're back down by 92 points. The S&P up two and the NASDAQ up 24. The chip names are the best performers in tech right now. On semi, again, a big gain.

This one's up 35% in the past month. And we're about to hear from applied materials as well. Tyler also mentioned Nat Gas Energy. is the best performing sector with APA and Devin among the names heading higher. APA up 7% today, strong performers across the board. Ty? All right, we start with pain in the housing market. This morning, July existing home sales, those are the ones previously owned,

dropped nearly 6%. This is the biggest place, biggest place in the market, and the slowest pace of sales since May of 2020. This comes after housing starts, fell by almost 10% last month. and earlier this week, home builder sentiment hit the lowest level since before the start of the pandemic. Our next guest sees more trouble ahead for housing. He's Robert Schiller, Professor of Economics at Yale. He is also the co-founder of the aforementioned Kay Schiller Index.

Professor, welcome. It is always great to see you. Hi, Tyler. I'm going to see you. I'm going to start with sort of the one that may be a little more technical, and that is home builders. If you've got housing starts declining. if you've got home builder sentiment dropping, doesn't that put a problem, a spanner in the gears for the future, especially when overall we don't have much inventory coming on the market.

Talk to me about that. Yeah, well, I teach economics, and one of the fundamental principles that when demand goes up, when prices go up, there's a supply response, but we're not seeing that. I think it may be at a point of uncertainty at this point. We should be seeing home prices going up in destination areas, and then there will be a supply response, and it will come back down. That's not a disaster. That's the way the economy is supposed to work. So why aren't builders building?

Yeah, you'd have to ask the builders. But my idea is that it takes time to change. you're living in a period when we've discovered that we can work remotely. And that means that we want to build houses in beautiful places. So like Miami or Tampa, which led our case Schiller price indexes when we announced them a couple weeks ago, those places are seeing a demand increase. It's quite strong. But how long does it take builders to start coming up with?

new projects to expand the supply there. So obviously it's not a turn on the switch kind of thing. Increase your production line, as you might at an automaker, from X units per hour to Y units per hour. These are longer term things. You look at Miami. You look at Tampa. You look at Montana.

You look at some of the areas that are, as you say, desirable. Now let's get to the question of home prices. They have risen dramatically over the process. past couple of years. That seems to be slowing down. It is very rare in the United States, isn't it, Professor, for home prices actually nationally to decline. And are we looking at that now? We might be. The Chicago Mercantile Exchange futures market, national home price index, based on our indexes, is in backwardation. So that's consistent with the idea that maybe people are expecting home prices to go down, or at least are sufficiently worried about

home prices going down so that they'd be willing to take that kind of futures price. Are we looking at something on the order potentially of 2008? I keep reading, hearing that consumers' balance sheets are so much better than they were back then. There is so much less leverage in the market. There is more caution, and so you might not expect to see the kind of foreclosure crisis that propelled or sunk prices the way they did in 2008? Well, yeah, although I don't forecast the recession of the century, as some people would call that.

Yep. But I think that it does happen that home prices fall below their, before the low, below the mortgage balance. And then that's when people have an incentive to default. Otherwise, he would really just sell the house and not default. How long are these housing cycles? I mean, I remember because it's Matheson's law that when Matheson buys real estate, you are within six months either side of the peak, okay? It's just that's the way it is.

I bought a house in 2004. I would say within six months, the market peaked. And then prices started to level. and decline and then came 207, 208, 2009, and they were down, down, down. It didn't come back until 2012. So if this cycle is like other real estate cycles, how long are we likely to see that plateau, that decline, that until you get to the basin, and then you start coming back? And then will you tell me because that's when Matheson wants to get in?

Yeah, if you look at a plot of the case show, index that you see that it's a rather smooth curve. It looks very different from the stock market. And that's because it's not professional. We're seeing professional investors coming in more, but still it's mostly an amateur market. And so you expect to see a smooth change. That means that it's growing up, I would expect it will continue to, home prices will to continue to go up for a while. It could be years, and then they'll start slowly fading down.

But this isn't 2004 again. I started to hear your story. I've gotten used to it, Professor. I remember 2004, and that was a year of great excitement about the home price increase. Yes. I don't feel the same vibes this time. And so I don't. I don't see it as falling as far. That's good news. I am worried about home prices. It could go down in nominal terms.

It has happened. As you know, recently, that sets an example that some people might repeat. Well, and again, for those trying to get into the market, this might be bad news as well. Professor Schilder, before we go, can you offer a sort of comparative remark about the stock market, which obviously is a lot chopier? but housing is a key part of the business cycle. So based on what you're observing there, what does it mean from where markets are going? Well, housing markets and stock markets are not very correlated.

You might think they would be, but over the last century not. So I think for portfolio investing, stocks, I have a ratio called the CAPE ratio, which is price divided by a 10-year average of real earnings. that ratio was really high at the beginning of this year. It's come down. So it's high, but it's not so high. I definitely think investing in the stock market, maybe not overdoing it, is a good idea.

All right, on that note, we shall leave it. Professor Schiller, great to have you with us. We got the Case Schiller Index, and then you have the Matheson indicator. Just remember that in your scholarship. hourly work, please. I want to be a footnote. That's all I ask. Thanks, Professor. All right. Let's turn to the markets. Our next guest called for a big summer rally on this show in June saying it would be led by big tech. And look, that's exactly what happened. So what does he see over the next few months?

Barry Bannister's Chief Equity Strategist at Steeful Barry. So what's next? Well, right now, I'm, Tyler, I'm seeing a lot of what I would call dogmatic bears, right? People clinging to their positions. You know, they can't talk themselves into a recession, only into a bad trade. You know, we've got the VIX index falling. If you look at long-term rate futures, we use 12th euro-dollar contract, 36-month rate futures. They overlay perfectly with the 10-year real yield, the tips yield. And that in turn describes or determines valuation for the market. So as that has begun to top out, PE ratios have gone up and earnings weren't as bad as expected. You've got somewhat better than expected economic growth, no recession, which was our call.

And you've got somewhat lower inflation on the horizon, which is our call. When you get that, you're going to go into big tech. You're going to go into growth stocks. And so that's who's led since June. And so if you were to look at the S&P at its current level and you look forward to the end of the year, do you think it closes higher than it is now? If so, how much? Yeah, that's a great question.

I mean, if you look at the Fed, they're obviously using what's called open mouth operations. They're jaw-boning because they would like to get that inflation rate coming down. But they'll be relieved. Our models are showing that headline CPI, currently eight and a half year of a year, it's going to be 3% by December. Okay, so that's a huge drop. That data would be reported in January for December. We've got five inflation prints through the end of the year coming up.

Energy, food, goods, all going down dramatically. Services, sticky, but that also shows signs of beginning to peek out. When you look at Core PCE, which the Fed talks about, obviously the headline leaks into the Corps. But we think the Fed will hit their 2.7% goals. So all of this really is supportive of choppy market waiting to see what the Fed does next. But I think a very strong finish to the year. I fully expect the Fed to pause on the December 14th meeting when the SEP or summary of economic projections comes out. And when that happens, I've been saying 44, but I could see 4,600 on the S&P very easily by year end.

and again, led by big tech growth. And part of that, Barry, is you do think energy prices are going to stay low. What if they don't and what gives you the confidence or the conviction to think that we won't see them rise again? I think the energy prices will converge on sort of what's implied by what's called 10-year break-even inflation. 10-year minus tips is break-even inflation. And when that happens, you're looking at about $85 for, for, for instance, Brent Oil, which is what we use, Brent Crude. That's also in line with the futures

as you get into late 22, early 23. But keep in mind that inflation is a flow variable in the sense that you're comparing it to a year-over-year number. You're going to be down dramatically at 85 against the invasion-type levels of 130. And that would be very disinflationary. In fact, deflationary as you look to year-end

beginning of next year. There's a lot of pieces going on moving around inside of inflation. But I think it's positive what's going on. And the Fed has been successful slowing the economy. And slower growth is not a bad thing for the stock market. It just depends on where real yields settle as to how much we pay for the market. And that's why we watch dips. All right. Barry, thanks for your time today and for your updated thoughts. Okay. Thank you. Barry Bannister with Steeful. Take a look now at the FXI. It's an ETF that tracks large-cap Chinese companies, and it's down 20% this year on worries about China's economy, which is now facing a new issue.

It's a familiar one to a lot of parts of the globe right now. It's the heat, and it could lead to even more supply chain problems. And growth or value. It's an age-old investing argument, but can one stock be both? Apple down 30% from January to June before rocketing back, so is it a value stock? Is it a growth stock? What is this trading performance? What is the company telling us at almost $3 trillion in size?

We'll be right back. Welcome back to Power Lunch. There's always a debate about whether a stock is a value name or a growth one. Sometimes it's pretty clear, though. So what happens when it's not so clear? Take a stock like Apple, for instance. Its services business is growing big while that legacy iPhone hardware business is pretty steady. So as an investor, is it a growth stock or a value name and how do you determine?

Let's ask Bill Smead. He is the chief investment officer at the Smead Value Fund, Bill. I would extend this question to basically all of Fang at this point. How would you categorize them? Well, it's a wonderful time to talk about this. And we've been talking a lot in the office about where we are in cycles and history. And you always prefer to buy a wonderful company that you have confidence, will grow over the next 20 years and do so when it's deeply out of favor for one reason or another.

They stumble or something goes against them in the world, and then their stock cheapens up dramatically giving you an entry point. You know, it's what Charlie Munger did for Warren Buffett. It got him thinking about, hey, it's better to own a wonderful company at a reasonable price than it is to try to buy the kind of Ben Graham deep value stuff that Warren was trained on it. Columbia. Absolutely. And we've seen how well that's paid off. So for you, that approach can apply to any quality stock and a name like Apple, you'd say, you know, basically anytime it sells off, if you think it's quality, you should be a buyer. So the reason why we ask the question is a lot of the rest of the investment world does this style type investing. They're either value investors

or their growth investors. A lot of, even the retail public, they're like, I don't want value, or some of them do want value stocks, maybe they want a dividend. Others say, no, I want the growth names. I want to see the performance that I saw the past decade. And I guess the point is, has a name like Apple matured beyond that point? Has the rest of Fang matured beyond that point? Or had they become less good stewards of sort of growth capital? And, you know, are they changing their stripes? Well, I never want to argue with the master. But we know that the companies that reach the largest capitalization and have pretty used. universal popularity among analysts are unlikely to offer above average returns over the following

10 years. We did a study recently. We looked at the 10 largest market cap companies at the end of each decade for the last five decades. And the prior four decades, those 10 companies underperformed the index, the S&P, every single time. And two of those 10, or two of those four decades, you lost money absolutely. So it, it, it, I, it, I, I've missed Apple four or five times over the last 15 years. But Kelly, go back to coming off the financial crisis and the bottom of the full market in 2009. Most of what we did was buying the Starbucks, the Home Depot, the Cabellas. We were buying growth stocks at 10 times earnings, which is hog heaven for a value guy like, a firm like us, to be able to buy.

So if you look and you say, well, Apple was trading it, I don't know, let's say it was trading it 22 times earnings when it bottomed recently. For a mature growth company, that's not a huge bargain. And it probably shouldn't be at a huge bargain because of what a wonderful company it is. However, if you want to make above average returns, you'd have to buy that below 20. Now let's pivot to Amazon that corrected, and it corrected all the way down to 60 times earnings. Now, AWS is a wonderful business, but I'd rather have Target or Walmart than have their retail delivery business. I think that is very difficult, and I can't imagine in the long

run that company maintaining a 60 multiple. So you mentioned the light went on when you mentioned way back in 2009, you were grabbing the Starbucks, the Cabellas, and others that were selling at discounts. Where are, which are today's Starbucks and Cabellas? Well, Kelly can probably answer this question since she knows what, we think over the next 10 years, the home builders are going to do quite well. So we like D.R. Horton. And, you know, you just had Barry Bannister on who we admire a great deal. He sent us a chart in April of 2020 because we use his firm's research. And it showed that commodities, the cheapest relative to stocks for 250 years. So what we've been trying to do is get growth

out of companies that normally don't grow, like Occidental Petroleum. Right. Like D.R. Horton is normally just a very cyclical company, but there's 92 million millennials that want to house. So whether we have a recession in the next 12 months doesn't matter much to us. We just want to build houses the next 10 years and let the chips fall as they may. So why have those homebuilder stocks I asked Schiller a couple of minutes ago, why are they, why are those stocks so hammered and why are those builders not building? I mean, they're selling it, what, four times earnings or something like, which is preposterous? Well, no, actually, it makes some sense because that horrible, ridiculous debacle in 02 to 06, you know, literally bludgeoned everybody in the industry,

our transmission system of our economy, et cetera, et cetera. And, and, and, and, and, and, and, and, and, and, And so people were afraid we were going to get a boom bust like that. So the analysts that follow the home builders and many people that work in the industry now cut their teeth in 0405-06 and they're scared to death. Remember, the three biggest home building peaks of the last 60 years were 1972, 1978, and 1984. and those were at mortgage rates dramatically higher than we had now. But there was an inflation zeitgeist. And the one thing in talking, I listened to Barry right before here, in the 70s, the Fed would attack the inflation, it would back off. And then as soon as they backed off, the inflation would take off again.

Too many people, baby boomers, with too much money chasing too few goods. We do not agree with them. We think that we are in an inflationary era. both mathematically and talk to all the people that wait on you in restaurants and ask them what they get paid compared to six months ago. Yeah. All right. We've got to leave it there. Bill, thank you very much. Your insights always appreciate it. Have a good rest of the day. Thank you. You bet. Further ahead, Cisco, the networking equipment maker, Cisco benefiting from easing supply chain struggles, delivering strong results. We'll hit that one in today's three. That's a blast from the past, Cisco. But first, up next, power saving mode.

China's worst heat wave in 60 years, forcing the president to close factories to save electricity, as well as maybe his own seat of power. Power lunch. We got power here. No cutting back on the energy. We'll be right back. Welcome back to Power Lunch, everybody. Goldman Sachs and Nomura this morning both lowering their forecast for China's GDP for a host of reasons,

now including a factory shutdown. But this time it's not because of COVID. It's because of heat. Eunice Yun is live in Beijing for us. Eunice, how hot is it? It's really hot, Tyler. In some parts of the country, 110 degrees. China's heat waves are some of the most severe since 1961,

drying up land along the country's longest river, the Yangtze. Those areas in central and southwestern China rely heavily on hydropower. So authorities have been manned. mandating power rationing for factories and supply chains. Factories are being told to suspend or reduce operations, cut working hours, grant high-temperature holidays for staff, and then all of that, of course, to limit electricity until August 24th. Now, the area is home to suppliers to Apple, Intel, Tesla, as well as Toyota,

and the power rationing is now extending beyond the factories, so to homes, offices, and to malls. Residents are being told that they should expect brownouts and then take part in a conservation, energy conservation campaign, which means setting your air conditioning at a max of 78.8 degrees and no elevators. Tyler, you got to take the stairs. Wow. And is that in high-rise buildings as well? That is in high-rise buildings as well. Oh, my goodness. Well, Eunice, stay as cool as you can at 78 degrees. All right. Thanks very much. Eunice Yunn reporting for us live in the middle of the night in what looks like a very hot and murky. A hot and murky Beijing. Let's go to Leslie Picker for the CNBC News Update. Leslie. Hey, Thai, the U.S. government will hold trade talks with Taiwan in a sign of support for the island democracy. In response, Beijing warns it will take action if necessary to safeguard its sovereignty.

The announcement of trade talks comes after Beijing fired missiles into the sea following House Speaker Nancy Pelosi's visit to Taiwan earlier this month. Rapper Aesap Rocky has pleaded not guilty to felony assault with a firearm over charges stemming from a 2021 confrontation in Hollywood. He is accused of drawing a gun and firing it twice in the direction of a former friend during an argument and will return to court on November 2nd. And streaming services drew more viewers than cable TV for the first time, according to a report released by the media firm, Nielsen.

Streaming represented a record record breaking 34.8. percent of total television consumption last month, just edging out cables total viewership over the same period. It's a new era. Back over to you. Wow, Leslie, thank you very much, our Leslie Picker. Ahead on Power Lunch, natural selection. While oil prices seem to be on the downturn from their highs, Nat gas is really still strong. So are there stocks worth buying, or is it time to take profits with these 60% plus rallies? We'll discuss that next. And Dears in the spotlight, the industrial giant set to report after the bell. What will its results say about the state of the economy?

Power lunch, we'll be right back. Welcome back, everybody. 90 minutes to go today, the Dow can't quite seem to get back above water. Let's get caught up across the markets on stocks, bonds, commodities, and that massive move in natural gas and the implications there. Bob, Fasani kicks it off for us. Bob, what do you make of these markets? A lot of divergence today.

Yes, flatish overall, about even on the advantage. the Kleinline, but energy is really moving and big tech is as well. Take a look at Cisco. This is one of the big leaderboards. Cisco's system, frankly, was not a particularly great earnings report, but the CEO, Chuck Robbins was talking about strong demand and that's had a nice day. On semi, great company, you know, they make chips for electric vehicles. That's the leader on the S&P 500 right now. And most of the other chip names are moving along to Micron, advanced micro. The chips haven't been a big factor in the last couple of weeks in the rally, but they're having a nice move up today. Now, she was mentioning natural gas. Kelly was mentioning

natural gas here. S&P energy sector, highest levels right now since the middle of June. Energy was kind of moribund for a while there, but it's having a big day, partly on that, those moves up in gas, and you see oil, what, we're at 91 now, 95, on oil. So there's Halliburton, Devin, Marathon, Schlumberjay. These are the usual, what we call high beta energy names. They tend to move a little more than the markets do when you get other factors like commodities moving. So where are we on the S&P? Well, frankly, we're nowhere on the S&P this week. We're exactly flat for the S&P 500. But remember, we've had a terrific one. In the two or three weeks prior to that, the S&P moved about 10%. So time for a pause here. I think that's perfectly

reasonable, and that's where most traders are at this point. The reason we're due for a pause is the S&P is expensive. We've talked about the multiple going up. It was 16. It's now 18, 18 and a half or so. There's a lot of assumptions built in here. There's an assumption of a soft landing slash mild recession. There's an assumption that inflation is going to be lower. There's an assumption about a Fed pivot in 2023. And the earnings growth still there. We were now at 5% for 2022 for the second half of the year, Q3 and Q4. We were at 8%. So yes, it's lower, but still positive. And the whole put this all together, Kelly, and the good news is it certainly does not suggest any particular recession right now, but the market is moved very, very fast in a very short period of time. Kelly.

It has, Bob. Thank you. And let's try. turn to the bond market now where Rick, to me, the yields, they're kind of a different story today than yesterday. And we see the Fed maybe changing its messaging tune a little bit, not wanting anyone out there to get too doveish. You know, what they want and what they get are two different things. And two-day charts will answer all our questions. Two-day chart of two-year, always the most aggressive maturity when it's delivering a message of a Fed that's in a high-intensity tightening mode. But look at it today. It's down four basis points and it's drifting lower and yield up in price.

Now look at a two day of 10 year further down the curve. We know that it's found buyers and we know that the recession story may be morphine. So it's virtually flat, although it's still actually down a basis point and a half or so, unlike what's going on in Europe. Boone yields closed at a fresh one month high yield. Guilt yields closed at a fresh one and a half month high yield. And guess what? Look at the dollar index. This is the big story. Look at a two-day. Now this comes at a time where the Fed talk tough, but yields are moving lower. So why is the two-day of dollar index look so aggressive? Matter of fact, at 107.5, it is only one cent away from its previous high close this year, which was a 20-year high close. And

here's the reason why. Two-day of the euro versus the dollar. Plummeding. Fresh one-month lows. Two day of the pound versus the dollar. Fresh one month lows. Greenback reigns king, not necessarily based on its own inherent fundamentals, but the weakening fundamentals in Europe. Kelly, back to you. But Rick, explain to me why we have weakening fundamentals, a weakening currency, and yet Europe's bond yields are moving higher. What does that tell us? It tells us that the times of managing and manipulating interest rates, keeping them negative, for years and years is over and to try to normalize those rates is going to be a very, very bumpy ride. That is a very worrisome mix, at least the way you laid it out, Rick. Thank you very much,

our Rick Santelli. Let's turn to the energy market, which is a big part of the story. As always, the culprit may be for some of those inflationary pressures and growth problems Europe is dealing with. Pippa Stevens here with the very latest. Pippa. Hey, Kelly. Oil is jumping more than 2% today with WTIR. reclaiming that $90 level after that bullish inventory report. RBC saying that the market remains in a multi-year tightening cycle, but that it's in search of near-term upside catalysts. Recession fears are well established,

but the bullish case, including a rebound in Chinese demand or fall off in Russian supply, remain unknown. UBS meantime, saying today that oil can hit 125 once again by the end of this year due to tight supply. Let's check on prices. WTI at 9044 gain of 2.6%. Brent crude advancing 3% to 9641. And this is lifting the energy sector, which is the top S&P group. Upstream players, APA, Marathon Oil, and Devin are leading those gains.

And finally, another volatile session for natural gas. U.S. prices were up more than 4% at one point, but now ending here in the red. Over in Europe on track for another record close. with the contract Kelly up 7%. Yeah, Pippa, thank you very much, our Pippa Stevens. Let's pick up that Nat Gas trade. As the commodity has soared this year, some of the biggest names in the space

have seen incredible moves in 2022. Look at these year-to-day changes. EQT has more than doubled. Southwestern up 62% Chesapeake, just trailing that. Sandridge has almost doubled as well. Just some very sharp moves. And Neil Dingman joins us now. He's managing Director of Energy Research at Truist Securities.

Neil, do you pocket these guys? gains or chase them from here? Not at all. We think that the best is just to just start it. You know, to me, based on continued demand, it doesn't have to be incrementally that much higher, but the story is capacity, capacity, capacity, and that's just lack thereof. You have limited LNG capacity heading out of U.S. We're about 90% full. And you have, as I think one of your frequent guests, Toby Rice at EQT, has said over and over

again, the limited capacity in the U.S. of natural gas midstream is limiting what these natural gas companies can produce. So as such, you know, you have the five-year natural gas inventory levels now almost down to their five-year historical lows. So the setup to me is for much higher. The setup is much higher, Neil. And yet we've seen the energy trade fall apart the last couple months. So what do you say to all the wounded bulls out there? You know, gas is held in. I think, I think, again, you know, oil is a little bit more difficult because being such an international commodity, you know, you can have a lot of other influences out there and what goes on. And, you know, unfortunately, a lot of times that even some of these pure gas companies I like, you mentioned

EQT, you know, other two favorites of ours, Antara or Katera, both sort of get swept in there and what investors need to remember. These are almost pure natural gas companies. Natural gas prices have held in. Natural gas prices this year have hit 14-year highs, and we don't think that's the of it. We think we could even see a super spike, potentially this winter, that we would put them back to 20 or 25-year highs. So again, I get that gas price, you know, gas stocks, as you said, have even gotten kind of swept in with the oil trade. I think investors need to sort of pull these out and look at these separately. If we get a super spike in price of the sort you describe, where does that take the U.S. price of natural gas and how does it lever through to the European price? Where

it's going to be a very hard winter. It's already difficult. Tyler, it's a great question. I think, you know, look, the equivalent right now in Europe is almost $70. So they're beyond what I. It's crazy. I mean, to say a super spike in the U.S., I would tell you, I'm, you know, I put it at somewhere around $12 to $15, which still sounds to me after doing this for over 20 years,

sounds crazy. But then you put that again, side by side of Europe, and it's nothing. And so even when U.S. prices at $9 are hitting 14-year, highs, you could tell the price, you know, again, Europe is, to say U.S. is constrained, I mean, Europe is just in a whole other level beyond that. But the problem we have is the U.S. LNG right now is already at 90% capacity. It is going to expand, but it's going to expand at just a slow process as they can build these facilities. So, you know, unless Russia somehow changes past, you know, again, Europe is going to stay high and they're going to take any LNG production that we can ship them.

All right. Well, we're dumbstruck here, I guess. We're silent. You have silenced us, Neil. And I know we'll see. That's a compliment. I know we will see you again soon. Thank you for your insight today.

Thank you. Thank you. All right, do investors dream of electric deer? How far away is the company from making electric? tractors and how important might they be to its future. We will discuss that one next. Shares of deer have been on fire over the past month up 23% leading into the company's earnings. Sima Modi joins us now with a look at what deer has to deliver to keep that run going. Hi, Sima. Hey, Tyler, with the latest channel checks conducted by Evercore ISI and DA Davidson suggests that

farmer confidence has recovered in the last month as wheat and corn prices stabilized, plus those tax deductions, incentivizing farmers to buy more agriculture equipment. And that's probably why Deer shares have rallied about 25% from its recent low. However, the CEO of Agco, that's its key competitor, recently said that supply chain issues are making it difficult to schedule delivery. So the key number to watch when Deer reports tomorrow will be cancellations. Are farmers willing to wait it out, or are they giving up their place in line? As always, its investments in technology will be key.

Deere does outspend its peers, Agco and C&H Industrial by one to two times on research and development. That's one of the reasons the stock is listed in Kathywood's ARC autonomous tech and robotics ETF with about a 4.5% waiting. But Wall Street wants to know when will the tech bets on drones and AI start to pay off. That will be a key point of discussion with CEO John Maykell. And the idea of going electric. And I thought it was interesting what we heard last hour about concern over their debt levels. if they make a big transition like two EVs,

could that worsen a problem that keeps some investors away? Yeah, it's interesting because they are outspending their peers on research and develop, and that's perhaps why their debt levels a little bit higher than some of their peers. But at the same time, making electric tractors a reality would be a huge boon for farmers who oil prices are going up. That's a big input cost for them. So if they can actually rely on a battery-fueled electric tractor, which is something they're hoping to get to market by 2026,

now with that inflation reduction act, which gives them an extra incentive, it could be a whole new market for the ag industry. But again, time will tell. If they can demonstrate it's worth it for the long run, maybe they'll be forgiven for the debt in the meantime. That's what we all try to do, right? Seema, thank you very much. Seema Modi.

Still to come, tracking today's biggest movers in the Dow, one on earnings, one on a settlement, and one on a downgrade. Three-stock lunch is next. Welcome back. Time for today's three-stock lunch, looking at three big downmovers in the news. Downmovers, I should say.

Cisco is higher after reporting better than expected fourth quarter earnings. Walgreens falling on a ruling in an opioid case and Verizon down after a Moffat Nathanson downgrade to underperform. They slash the price target to $41. David Wagner is equity analyst and portfolio manager at Aptus Capital Advisors. He is here with our trades. David, good to see you. What do you do with Cisco?

I'm saying again. You know, Kelly, Cisco is a very difficult name. really to analyze. I mean, on one hand, you got the stock trade to say 14 times earnings. On the other hand, the company is going to be facing some very difficult comps moving forward, especially within their order cadence. I mean, in a nutshell, you know, yes, the company beat on a lowered bar as expectations were really reset last quarter. The street was calling this quarter for like negative 3% growth, you know, ended up coming in at flat. So, you know, as an investor, you'd say, all right, okay, you know, flat growth. I guess that's better than, you know, down 3%. But, you know, that doesn't really

get me too excited. I went to a kid rock concert last night. That gets me excited. This does not. You know, I understand that these numbers that are in the past and you really got to start focusing on the future. I mean, but you just have to look at order growth. It was negative 6% year over year, but the company goes, no, wait, wait, wait. You know, it was actually up 15% sequentially. You don't want to look at that year over year number. But we know as analysts at the fourth quarter, well, that tends to be one of the feasely strong quarters where you get an average growth of like 14%. So that makes me very worried in the future and look at the next quarter when you can get negative year-over-year growth and negative sequential growth.

So, you know, ultimately, we've seen some downgrades in this space on macro concerns. I just think that there's a lot of negative sentiment out there in this name due to really innovation issues. I mean, they're losing market share in almost every single segment of their business from networking to security. So I think, you know, valuation, if I owned it, would keep me in this name right now. But over longer term, I probably wouldn't be an owner given the lack of execution on innovation. You look like you're in my kitchen, to be honest with you, but that's okay.

And obviously, you like Kid Rock, but you also like the old course at St. Andrews. Let's move on to Walgreens' boots. A large judgment against them, CVS, and Walmart yesterday. But is it really? $650 million, I believe, is what the amount is. But payable by those three over 15 years. Now, obviously, there are other cases. coming. Obviously, they will appeal this. Is that alone a reason to sell, which is the rating

you have on this? No, I would not sell on that issue itself. I mean, you're going to nail on the head right there. The opio's issue, while it's going to continue to be a headline risk for both all of these names, Walgreens and CVS, because they've chosen to fight these cases on a case-by-case basis. You know, this just happened to be one of the larger ones. I mean, you had a series of verdicts come out of Florida earlier this year. So really, unless these companies change their tone and really go after some type of global, you know, settlement, which I just don't see happening right now, it's just going to only remain a headline risk. I do think that on a side note, that Walgreens do that, they do probably have a little bit more of a liability problem than CVS because,

one, well, they had to pay out a pretty large, you know, settlement back in 2012 with the DEA on this issue. But secondly, they've had to control their own distribution, something CVS did differently. But that's not why I'm a sell here. You know, the verdict doesn't really change my thesis at all. We don't want to own this name because of the structural issues that they have. I mean, look, the company has become a price taker. Over the last seven years, they've had about 100, probably a thousand basis points worth of gross margin degradation because of reimbursement rates continue to get reset lower,

and they just really, you know, participated. So you couple that with the fact that I think management has really underestimated the positive effect that COVID had on their business, potentially creating even more difficult cops next year. So, yeah, I don't like this stock at all. I would stay far, far away from it. You get five words on Verizon, David. What do you do with the stock? If I only get five words, I would say that this downgrade is a rear view mirror analysis. Majority of what they said is already priced into the stock. I like Verizon at these levels. All right. I think that was about 18, but we'll forgive you. That was good. No, that was very good. I love the kitchen. Love the kitchen, man.

I know Charlie loves homebuilder, so you have to do it. All right. Wagner with Aptus Capital and right? Looks like my kitchen. I totally agree. I'm sending somebody home right now to chat, but he's really there. In the changing world of television, live sports still hold their value. How much we will have some numbers behind a huge new deal next on Power Lunch. Welcome back. We've had a ton of changes in college

sports lately and it is all driven by money. The numbers are starting to get mind-numbingly large. Dom Choo is here to look at the Big Ten's new deal. Massive. I mean, it's massive, not even close to what the biggest deal was before. So this is big money, and this is a 10-figure deal, likely going to be the biggest media rights deal in college sports history. So the sports conference announced today, it's agreed to a seven-year deal worth north of $7 billion. So that's $1 billion plus a year. College football, of course, likely the first thing that comes to mind when it comes to seeing headlines about this kind of a deal, but the

Big Ten made it very clear in its announcement earlier today that it would be about not just football, but things like men's and women's basketball, also Olympic towel sporting events as well. Now, as part of the deal, three broadcast partners will be airing Big Ten content between 2023 and 2030. That is Fox, CBS, and NBC, which includes the NBC Peacock streaming video platform, and of course, full disclosure guys, NBC Universal Comcast is, of course, the parent company of this network CNBC. Go ahead. No, you go ahead. Does this mean that the Ohio State Michigan game will only air on one of these networks as part of that deal? So the schedule as it lays out right now will look like a noontime game that will be broadcast by Fox,

a CBS game that will be around that 3.30 time slot that the SEC game currently fits in right now. That's where the SEC plays. And the prime, right, that's moving to ABC, ESPN, remember in the coming years? Yes, yes. Yes, exactly. So NBC gets the nighttime game, kind of like Sunday night football. And people think they're all, it's this big tent SEC and that's it and everything else. Commissioner Kevin Warren, congratulations. That's it for power line.