Power Lunch - Power Lunch 9/11/23

Episode Date: September 11, 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.

Good afternoon, everybody, and welcome to Power Lunch. Alongside Kelly Evans, I'm Tyler Matheson. Coming up, a contrarian take on the markets right now. We're going to hear from someone who says bad news really is bad news. And the Fed is reinflating the NASDAQ bubble. Plus, where are the jobs in the suburbs is where you will find them. Restaurant chains finding workers where they live. And is it all part of a shift in the job market with the employer regaining the upper hand?

Kelly? Feels like it. Tyler, thanks. Hi, everybody. Let's first get a check on the market. It's Dow's up 95 but underperforming today with the S&P now up two thirds of 1%. And the NASDAQ up more than 1% as we're seeing kind of a restrinketing back towards the levels we were at on the open as we move through the afternoon. Two big deals to tell you about.

First, Disney and Charter ending their dispute right in time for charter customers to watch Monday night football on ESPN. A lot of New York subscribers. The Jets, as everybody here knows, are playing tonight. Charter shares are up 3.5%. WBD up as well on brighter prospects. for the TV business. We'll have more on that coming up. And a different kind of deal, Smucker is buying hostess for about $5.6 billion should help Smucker grow in what the CEO is calling convenient food occasions and what we call junk food. We'll get a trader's take on what this

means for Smucker a little later in the show. And we should note those shares are down 7%. So a lot of investors, Tyler, a little concerned about the valuation. Kelly, did the Giants actually play last night? Were you there? I was there. I felt bad. Soaked and smoked, believe me. And left it halftime. Wow. All right. Stox higher today after starting off September with the all too common September slump. So where does the market stand right now? Let's bring in our own Mike Santelli for more. Hey, Mike. What are you looking at? What are you seeing? Yeah, Tyler. I mean, look, if you looked at it from a distance, the market behavior this year has been really sticking pretty close to the pattern, the script that you might draw for, which is strength into July after we had that minor peak in

February. And then, yes, August, been some chop. We've had to kind of cool off in the way of sentiment, in the way of valuation, in the way of technical positioning. All that's been underway. But I think that there's also this sub-theme out there. And one of the reasons that the market has been very, I guess, sort of twitchy in the last few weeks is that this late cycle psychology is pretty much pervasive. That means people presume that we're in the latter part of this economic expansion. It doesn't go by a clock. You don't really know how much longer it has, how long we can stay late, so to speak. And so therefore, we're very sensitive to upticks and bond yields, oil prices, whether they're going to restrain a consumer that's already running out of a cash

cushion, and even the U.S. dollar, which has been on quite a run. So all this boiled together, I think essentially is what we have ahead of us. I also agree, by the way, I know you teased it ahead. Bad news is probably bad news right here because you have a Fed that said they're going to be patient. If they move it all, it's going to be spaced out in small increments. And so I don't think you're fearing the Fed right here. You're wondering if the economy in general can handle what yields are up to at this point in the expansion. All right, Mike, thank you very much. And we will, of course, see you at 3 p.m. for the closing bell today. Mike Santoli. Let's keep the conversation rolling with our next guest who says and warns, you know, we've all heard the line,

bad news is good news. It keeps the Fed on the sidelines, so forth and so on. He says, no, bad news is bad news. No matter how the markets have been reacting lately. Let's bring in Chris Seneca, investment strategist with Wolf Research. It's great to see you, Chris, and explain what you're trying to say here. Yeah, hi, Kelly. Thanks for having me. So, you know, we're in this phase where, you know, whether the Fed hikes zero or one or two more times, I don't think is really the story here.

It's about how quickly will the economy slow? And in fact, how will stock sectors react to bad news, right? And we've all talked about, Mike talked earlier about the consumer slow and the sentiment. And so we think that the bad news will in fact be perceived as bad news. You don't have the Fed liquidity driving stocks. And the lagged effect of Fed rate hikes is just starting to show up. We've looked historically, and it takes about 18 to 24 months for the impact of Fed rate hikes that hit the consumer in spending.

And if you think a year ago, the Fed funds rate was still before this next Fed meeting, only two and a half percent, right? So it just takes time. And I think we got a little head of the gun thinking that it was going to show up in the first half. And in reality, I think it's going to show up here in the second half. And what does that mean? So the obvious implications to that, if it sounds like it's worsening, our lower stock prices, maybe lower bond yields, you know, kind of the whole thesis that I bet a lot of people in our audience don't want to hear right now. Well, I think what the market's struggling in the near term is rates and oil, right?

And higher oil prices, pushups, interest rates, you know, on the long end, and it creates a little bit of problem for the Fed, right? Sort of the quickest thing we've argued that can end the disinflation narrative is higher oil prices, something in which, many of which, including the Fed can't predict. And then secondly, sort of almost idiosyncratically, what the bank Japan is doing and letting their long-term interest rates back up and relaxing yield curve control is pushing up longer-term interest rates. So I think as U.S. long-term interest move up over the next few months here, that itself is going to slow the economy. And I think ultimately interest rates end below 4% on the 10-year by the end of the year as economy really slows. And if, in fact, we do see somewhat higher interest rates, I think that starts to sell housing, which starts to slow consumer spending. And it has this, in a way, snowball effect on the economy. I was going to ask you to talk a little bit about what you see in housing and what the effect of that is on consumers.

sentiment and then consumer spending, what they feel and then what they do. So why don't you do that and also address how inflation is affecting consumer sentiment and consumer spending? Because as people look at prices that are stubbornly high for groceries, for gas, for other things, they may not be spending as liberally as they had been. Yeah, so there's a lot of news in the press about real wages becoming positive again, right? And that has happened in the past, just as you've gone into a recession. But I think what a lot of the folks miss is that there's a cumulative impact inflation.

So just because a good went from 100 to 120 and now it's only going to 125, we get excited about because that's disinflationary. But it's still 25% over the last three years, such that if you look at some of the surveys by New Michigan looking and asking consumers are cars and houses affordable, the results look terrible. People are saying housing cars aren't affordable. So if the two biggest areas of the economy aren't affordable, I just don't think that can be a good thing. I think housing prices and them being strong enough a lot over the last three years has really propped up the consumer. But low inventories is what's holding prices up, right? Because in a way, you have an asset

which hasn't adjusted to fair value, because of higher interest rates, propped up by the fact that there's no inventories. And I worry that if you all of a sudden start to see a slowdown in the economy, starts to see more job losses. You could just see a total rash of inventories enter the housing market and see a bigger than expected collapse in prices than many folks are anticipating. So we think because houses and ours aren't affordable, that's actually not a good thing. That's a bad thing. Ultimately, it's got in fact, in fact, you know, hit and demand down the road. The Fed meets next week. They're not going to say it. They're not going to say they're done. But what if they are? I think, Tyler, if they're done, I think,

whether they're done or whether they hike one or two more times, I don't think that's the story here. I think the story is how quickly is the economy going to slow? And is it going to slow or not? And our view is it's going to slow enough to move the sentiment from soft landing narrative, which is the widened consensus now to rise in recession risks again. And that's all you need to do to impact stock multiples. More earnings may end up being okay for the time being. But to me, the real story here is going to be, you know, how much, if any, do multiples for the market compressed because of either higher interest rates or because expectations shift now to rise in recession risk yet again as we kind of get into the fourth quarter.

Have to leave it there, Chris. Chris, we thank you very much. Chris Seneck, we appreciate your time. Well, in the meantime, Disney and Charter reaching a deal to end the cable blackout before ESPN right before Monday night football kicks in, Julia Borsden has the details. So the Jets fans or the Bills fans will be happy. I'm afraid we don't have, she was talking, obviously, about the Jets and the bills. But that's a good point about the bills as well. I mean, these are big media markets, you know. Yeah.

Charter has a lot of New York customers. And I don't want to steal if I want to talk about it. But the details here are so interesting because charter subscribers potentially could get Disney Plus and Hulu and ESPN Plus and Charter's going to pay Disney wholesale. Anyway, we'll circle back to her in a second. Shall we get some news in the meantime from the FDA on COVID vaccines? Novavac shares are moving sharply lower as they're left out of the bunch. Angelica Peoples has more. Angelica. Thanks, Kelly. The FDA has greenlit new shots from Pfizer and Moderna. Those shots have been updated to protect against newer variants of COVID.

However, as you noted, we have not received a decision on Novavax. The company says that its application is still under review with the FDA. And the FDA is saying that people five and up are eligible for another COVID vaccine about two months since their last one. And people six months to four years old could receive one to three depending on how many they've already received tomorrow we will hear from the CDC's advisors who will make some more specific recommendations until then we are waiting Pfizer and moderna are both saying that they should have their vaccines ready to go as soon as this week back to you kelly yeah it's a biggie all right angelica thank you yeah thank you we appreciate angelica people's reporting still ahead apple is being the most

talked about stock on the street once again after last week's China drama and today announcing a new supply deal with Qualcomm. And you might have heard about its little event coming up tomorrow. We will get you the details on all of that. Also, Tesla, another stock which gets a ton of attention and it's up almost 10% today after an upgrade from influential auto analyst Adam Jonas. Does our trader see what he sees? We'll ask her coming up later on. All right, as we mentioned earlier, Disney and Charter reaching a deal. now to end the cable blackout for ESPN right before Monday night football. And once again, we go to Julia Borsten, who has the details. Hi, Julia. Hi, Tyler. I'm here. And this deal was

made just in time. And this deals what Disney and Charter are calling transformational. It's what sources tell me is a modern melding of linear TV rights and digital distribution. And it really forges a new path for Charter's pay TV business, while also dramatically increasing the reach of Disney plus with ads. Now Disney plus ad supported tier will be included in Spectrum TV select video packages. Not for free for Charter, but at what they call a wholesale arrangement and it's guaranteed for all of Spectrum's video subscribers. Meanwhile, ESPN Plus will be included in Spectrum TV Select plus video packages and when ESPN launches its direct to consumer flagship service, it will be made available to Spectrum TV select customers. And Charter says it will sell all.

of Disney's direct-to-consumer services to its broadband-only users. Now, sources tell me this is really seen as a win-win, though Charter is dropping some of Disney's smaller channels, including free-form and Disney X-D, that is far outweighed by new compensation for Disney Plus, and then additional upside from that platform reaching a broader audience with its advertising. Meanwhile, Charter has some new value to retain its pay TV subscribers.

It does have that broadband business, but it wants to retain the pay TV business as well. Kelly Tyler. How much should we look at this, Julia, as a template for future carriage agreements? I think it's very much a template for future carriage agreements for Disney. It's unclear how much other media companies will be able to follow in this path and use it for their future carriage agreements. Disney is, of course, unique in that it does have this portfolio of directed consumer brands in Disney Plus, ESPN Plus, Hulu, And of course, they are also developing this ESPN direct-to-consumer business.

So Disney does have that sort of portfolio. It'll be interesting to see what happens with Warner Brothers Discovery. They do have Max. And we've heard from CEO David Zazlov about how they want to build that into its own sort of mini bundle and incorporate sports as well. But I think this is going to be part of the conversation now. If you are a cable provider and you also sell a pay TV bundle, the question is going to be, how are you incorporating both of these into your negotiations? I have to say at great career risk that I think very highly,

a lot about Comcast in this situation, because Comcast is both a deliverer of content and a creator-distributor of content. And that's going to be a gnarly issue down the road, it would seem to me. Well, Comcast has been both a supplier and a buyer, if you will, for quite a long time now. But also remember that Comcast has the broadband TV business. So Comcast is also providing the pipes.

And even if people cut the cord or switch to these digitally provided bundles like a Hulu with Live TV or YouTube with live TV, they have to get the broadband in order to be able to stream that content. So being a pipes provider does provide Comcast an advantage here. And they've been playing around with some of these skinnier bundles with this idea of a direct-to-consumer bundle that's over the internet rather than traditional cable TV. So Comcast really has his hands in every different part of this business. Fascinating changes coming to this business. Julia Borson all over it as usual. Thanks. And Apple is back in the spotlight today.

After dropping last week on China Concerns and ahead of a big product announcement tomorrow, today they're reaching a deal with Qualcomm on chip production. Steve Kovac joining us now. I don't think, is he in San Francisco? I didn't even realize. Steve, I thought you were here earlier when we were to. No. Okay.

That makes sense. West Coast. Christina Parzinevarez is right here with us on set. and there's many angles of this to discuss. Christina, first of all, tell us about the deal. It's important because two reasons. One, you have Qualcomm that's going to continue supplying modem chips to Apple until 2026. So that's seen as a win, especially because Apple is its largest customer, contributes over 23% of total revenue. That's a win. The second major part of this, too, is that the patent licensing agreement will also continue. So that's seen as a separate stream of revenue for Qualcomm, both of them coming in.

However, if you look at the stock price, it was jumped up 8% earlier this morning. come down off of those highs. There's probably two reasons for that. One is that we don't know the actual terms of the deal, but the assumption is that maybe Qualcomm's giving some type of preferential pricing to Apple, which means it's not exactly as amazing for margins as we thought. The second thing is we just can't deny that Apple is still working on creating its own in-house modem chips as well. It may not be there today, which is why it still needs to use Qualcomm's chips for the next three years, but it's on that trajectory. And so what does that mean for Qualcomm two years from now, or three years, 2026, when it loses its largest customer? And I know it's been

pivoting, but still, 23 percent. Hasn't Apple been making its own chips for computers? Yes, for some time. Quite some time. I know Steve can weigh in a lot of this, but specifically for 5G modems and the chips that are used for Wi-Fi, all that. Qualcomm and Apple have been fighting for years. and then in 2019, Apple bought Intel's modem chip business so that it could create its own chips. And you would think at this point in 2019 to 2023, it would be up to par, but it hasn't been up to par. And so it is, that's separate.

The Apple purchase, the Apple production. The modem chips. But with its core processors, that's a different story. Apple's done very well, which is why they put those core processors into the Macs and they pushed out Intel when it comes to the actual computers. Steve? Want to jump in here? Explain this to me?

Yeah, exactly. I mean, the timing of this is just perfect for Qualcomm and not so great for Apple. It's proving ahead, you know, 24 hours before we see these new iPhones. You have Qualcomm effectively coming out and saying, hey, tomorrow's iPhone 15. That's going to be powered by Qualcomm technology. And not just that, the 16, 17, and 18 iPhones are also going to be covered by that technology, too. And it just proves that this is a harder business than maybe even Apple thought it was going to be. We were talking all day about this, but, you know, four years ago, they went out and spent a billion dollars on Intel's modem patents to basically make that a foundation so they can

create their own modem, divorce themselves from Qualcomm, not have to pay, basically they have to pay Qualcomm a few bucks for every iPhone they sell on top of the cost of the component itself, Tyler. So that whole law, legal battle between these two companies was over that licensing fee. Apple was projected. Basically, they can't win that case. And they had that settlement. And now, four years later, here we are.

They have not been able to figure out how to make a modem that's on par with Qualcomm. So they're basically forced to go back to Qualcomm and sign this deal. It's not often that Steve and I get to be on the same panel. And I think this speaks to the greater theme that what we're seeing within the AI software chip world is the lines have lines have been blurred. So you have Apple creating its own chips. We talk about in video all the time with AI chips, where you also have meta working on their own version. Google working on their own version and more and more or Oracle working on upgrading to to provide cloud It's everybody is just trying to create and offer

Their own chips and their own software so it really blurs the lines and I bring this up just because it is going to be competition for a lot of these names If Apple is successful in creating those modem chips in just two years Goodbye 20% of Qualcomm's revenue stream which they already are aware and they're working on focusing on the Android market, but that's still something to become more vertically integrated. Correct. That's the, that's the push. That's what Amazon's been able to do so successfully is take every line item on the balance sheet and turn it.

You know, as I see the trucks going around. Steve, we'll just leave it with a, give us a couple of things you're thinking about on the eve of their big unveil tomorrow. Yeah, the big one is going to be whether or not this price increase actually happens that we've been talking the last couple of weeks. Analysts are just predicting that the pro line of iPhones are going to cost about 100 bucks more. Kelly, that means a starting price of $1,100. And not just that, there's going to be some real demonstration of how regulation is impacting Apple. They are expected to change the plug at the bottom of the phone from that lightning connector we've been used to using for over a decade now to the standard USBC connector that you see

in Android phones and so many other gadgets. This is because of regulation in the European Union saying new devices coming out 2024 and beyond need to have that standardized plug, basically forcing Apple to, to make this change in its hardware. So regulation really playing a part in tomorrow's announcement, too, Kelly. Trying to figure out if I already have. Would I have it? I have the, I think, whatever last year's phone was, Steve.

Yeah, yeah, you have it. You have the newer stuff and it's going to go back to the. No, no, that's the old connector. That's why I'm not talking. That's not this is the lightning connector? That's the lightning, and that's going to be replaced. So get ready. If you buy a new phone, you're going to have to buy a lot more cords and cords.

You're good. You know, I have a drawer in the kitchen, and it has all these, all these, what are the squares that go in the, wall and then it has all these cords for all the different. And then I have to, every time I'm charging something, you know, I got the ball. And I have to figure out which, which thing goes in. And then I bought an electric toothbrush because ours died. And it also, it doesn't come with the plug. I just have to, I have to find a brick to plug it into the wall. Well, $1,100, are you going to be worrying about this next year?

I'm just saying at that price point. I mean, the fact that we're talking about the cords after all the technological revolutions that the world has seen is unbelievable. Steve, thanks for now. I'll do some more research for tomorrow. Christina Parts and Neville, Steve Kovac. Thank you both. Further ahead, tax me if you can. The IRS deploying an AI-driven army

to catch wealthy tax cheats, and we've got full details when Power Lunch returns. Welcome back to Power Lunch. Let's check in on oil, obviously moving a lot to the upside lately. How did we close today? Pippa Stevens has more. Not doing a whole lot today after that big week

that we saw last week and ahead of Wednesday's CPI report, so we're kind of in wait-and-sea mode here, But it does feel like, as RBC noted, that the floor has been lifted for oil prices. And so, you know, while positioning is now getting more bullish, and we saw the latest CFTC data showing that investors are increasing their long positions. After the big run, we've seen in oil, we could see a pullback here. But it seems like going forward those lows, we'll see higher lows looking forward. China is still a wild card here, of course. But one area to keep watching, I know I keep saying it, but the refiners, they are lower now.

But earlier today, Marathon Petroleum did hit another record high, and Philip 66 hit a five-year high. So it really is that strong product demand that does continue to drive prices here. So the refiner is still an area to watch. Does that mean the gap, like what we're paying for gasoline is actually structurally higher than where the oil price is right now? If that spread is right. Yeah, yeah. So the crack spread is sitting right around $40 for the refiners on the 321 crack. And so that basically means that they're going to keep their utilization rates very high because they are earning such a good profit on that. At one point, crack speds were negative.

And so $40 is awesome, as John Kildoff once told me. So that does look very strong. So if they continue, their utilization rates are very high, they'll keep buying oil and that does support prices. Bipa, thank you. Appreciate it. Let's go to Bertha Coombs now for a CNBC News Update. Tyler, Pennsylvania State Police are sending a warning today to anyone who may be helping an escaped convicted murderer evade authorities since his escape from a Pennsylvania prison 12 days ago. It comes as police shift their search radius for Danielo Kovol,

He said he stole a dairy delivery truck this weekend and tried to reach out to former work acquaintances. The reward for information now up to $25,000. A U.S. State Department officials says the U.S. will closely monitor the upcoming meeting between Russian president Vladimir Putin and North Korean leader Kim Jong-un. Kim reportedly set off for Russia today on a special armored train. U.S. officials have warned the two countries are in talks about a potential arms deal to help Russia in its war with Ukraine. And a Star Wars relic is up for auction. A model of an X-wing fighter used in the filming of a battle scene in A New Hope was thought to be lost. But it turned up as part of a collection of an Oscar-nominated model maker after he died.

The starting bid set at 400,000. $1,000. May the force be with you on that. Very good. Bertha, thank you very much. Let's go to Contessa Brewer now for a market flash on MGM. Contessa. Well, Tyler, MGM Resorts is dealing with a major cybersecurity event that has caused system-wide outages affecting everything from reservations and websites and bookings to company email. The company confirms the incident. It says it has brought in external cybersecurity experts and notified law enforcement. A hotel guest staying at the Aria told.

me in the last hour that he's seen some slot machines offline. We can't confirm that that's the result of the cyber issue. I have reached out to the company to ask about the gaming systems. A spokesman for MGM tells me that casino operations are continuing without computers. We're monitoring various reports on social media about all the ways this incident has disrupted business as usual, ATMs, credit card payments at restaurants and the like. The company, I'm told, is working to get those systems back up and running as you can see the stock off. percent and a half. We'll keep you updated, Tyler. No idea, no information on what the origin of this outage may be or whether it could have resulted from a hack.

Not yet, but we do know that in 2019, MGM had a major data breach that revealed the information of millions and millions of customers. And now this one on the top of it, cybersecurity, very important in this industry. By the way, side note, I'm told that BetMGM, the gaming platform that you can get to on your phone, has not been affected because that runs on a completely separate system from MGM resorts. All right. Thank you very much. Contessa Brewer reporting and ahead on Power Lunch. There goes the job market. The Fed's effort to cool the economy seems finally to be hitting labor.

Up next, we'll explain why restaurants are focusing on suburbs for both workers and customers. More on that next. Welcome back from major chains like Chipotle to Kava to Sweet Green. They've all seen a focus on the suburbs in recent years. I love to hear it. We want more of it. Kate Rogers, what can you tell us? Hey, Kelly. Yeah, some of those major

changes, as you mentioned, looking to the suburbs for their next wave of growth, seeing not only a stable customer base due to changing migration patterns during the pandemic, but also a different labor pool. Names like Sweet Green and Kava, as you mentioned, have pointed to the burbs for expansion plans in recent years, allowing for access to customers

who are thinking beyond the typical office lunch rush and instead to dinner. But some companies are also seeing different labor patterns there. Coffee chain Bluestone Lane says it's looking to suburban expansion for its four new restaurants this year, adding that hiring has been more successful in locations outside of major cities. Take a listen to CEO Nicholas Stone. We're seeing a dramatically lower amount of turnover in suburban locations versus inner urban.

And I think that's primarily driven by cost of living pressures that the challenge of young people that are working in the hospitality industry or retail industry is pronounced in in a city areas. Now, Chipotle's chief restaurant officer, Scott Boatwright, also telling me in conversation, rather, that they're seeing all-time high retention at the company right now,

but seeing slightly higher turnover in larger metros, like Manhattan, for example, again, because of the cost of living there versus suburban markets. So just an interesting trend there that quite a few chains are noticing, Kelly. Back over to you. All right, thank you very much, Kate.

Let's broaden out our conversation now to the wider labor market. Recent data suggests the post-pandemic hiring boom may be coming to an end with both job openings and job growth slowing in recent months. Unemployment also ticked up slightly in August to 3.8% from 3.5, but still within what we're calling the Goldilocks zone. For more on employment trends and what's behind the cooldown, let's turn to Tom Gimbel, LaSalle Network, founder and CEO. Tom, welcome back. Good to have you with us. Good to be with you, Tyler. What is causing the slowdown? Is it as simple as the Fed?

Yeah, companies have to plan for the year-end for next year. We have an election year coming next year, and the good times don't last for forever. And I think what's happened with the Fed is while the economy is still showing that it's unbelievably resilient in the employment sector, it's still something that gives leadership and CEO is a sense of, I don't want to go too fast. So where have the cutbacks to the extent that there have been cutbacks in employment? Are they mostly big companies and are smaller and mid-sized companies still hiring at a brisk pace? That's exactly right. Politicians for years have said the small and medium-sized businesses are the economic engines of this country. And I think that's true no matter what party you're in. And when you look at what's happened in big companies where you see the layoffs, Microsoft and Google and meta,

those companies hired way too much and way too fast during the pandemic and coming out of the pandemic. And now that that's in our rearview mirror, and we're looking at this, those people are either doing startups or going work for small to medium-sized businesses. And I've said before, Tyler, is that it used to be that if you were in an industry 30 years ago, you were kind of pigeonhole. Today, skills are much more transferable as well as geographic locations. So it's really a different market than we've ever seen before. That's really interesting. Tom, let's kind of pivot to talk about maybe the most hot button issue in the workplace right now, which is work from home. it's disappearance and the leverage which with employers versus employees have the upper hand.

What are you kind of picking up about the satisfaction people have with their work from home arrangements? Well, I think the employees who have it and they like it for whatever reason is good for them when they were allowed to have it. But times change. I mean, I was talking to a client the other day. They were asking me what the rules were for the definition of work from home. And what it used to be was, if you work remotely, you still had to have. daycare or child care for your children. Otherwise, it wasn't the same as legitimately working. And when you have people who say today they can't get child care during the main hours of the day,

they were kind of double dipping, that how can you be giving full attention to your job and being a stay-at-home parent simultaneously? Those are both really full-time jobs if you're going to do it. That's why you have daycare or in a nanny situation. You put them in front of the iPad and, you know, I can crank out three to four hours at work. like now, my kids are 1921 and 23, Kelly, but we had technology, we had TVs, and I'll tell you, they were still climbing up my leg and slapping me in the face when they had the opportunity. So it's, it's easier said than done. And I think what we've got to look at holistically is working from home and working remote is why we're doing this and what the situation, the problem is with

the employee-employer relationship. And what we've had is the power shouldn't be in one side or the other, the power is going to be a supply and demand model. And that's always the way it's been, and it's the way it always will be. When there's greater supply, it drives it down. When there's less supply, it drives it up, meaning wages. And that's just what the capitalistic society is. And for too long, we've been trying to make it about geographic region. I had a client today this morning talked to me and say, I had employees that relocated to California during the pandemic. And I didn't realize that California has different wage laws than the other states, and we realized that we were breaking the law by not paying them a certain way. Well, welcome to the new world. And so there's

a lot of things that are out there. Should the employer be penalized for that? Because an employee rogely moved to a new location? I don't know. But it doesn't seem fair, and we've got to navigate these waters together. Very quickly, where has the hiring slowed the most, and where where does it remain the most robust? Well, the most robust that we continue to see as technology. And when I say that, I don't mean tech firms. I mean security experts. I mean cloud infrastructure folks.

I mean people that are implementing new software and ERP like Workday and Salesforce and SAP type programs. Those types of roles continue to be top of mind. Where we've seen a little bit of slowdown and that's on the sales hiring. And when I say that, it's a little bit concerning because when companies are dumping money into sales forces, that means that they're seeing an opportunity to keep growing. It's not dry yet, Tyler, but it's not as robust as it was a year ago. Tom Gimbel, thanks. As always, we appreciate your time today.

Good to be with you. Up next, the IRS is using AI to combat tax cheaters. We've got details when we come right back. Welcome back. The IRS has used its billions in new congressional funding in an interesting way. They have a battery of new AI tools, and they are launching a new crack down on the wealthiest tax invaders, Robert Frank is here to discuss those details. Yeah, so the new IRS commissioner, his goal here was first, let's use all this money to help the service part of our business, help people who want to help paying their taxes, understanding what they need to do. Now we're at phase two, which is go after a wealthy tax cheats. And what they're doing is putting a lot of that money, number one, two enforcers, they're going

to hire tens of thousands of auditors and enforces. But number two is develop AI machine learning. to figure out what patterns they can find in tax returns, especially for these large partnerships that can help them identify where people are hiding their income. And that's where an agency not known for its technological prowess is going to really make a step change. And I think this is a part where AI really can do some good, because AI is great at these massive data questions

and huge computing power and applying that to finding the areas where humans didn't really see the patterns before, but AI can. We just had a little Kiron up there that said it was going to target 1,500 millionaires with tax, I think it was tax debt of 250 billion dollars. That's right. So one of the parts of this is they're going after 1,600 people who have a million or more in income who have recognized tax debt.

In other words, we know. Known, known and acknowledged by the taxpayer that they owe at least $250,000. $250,000, excuse me. $250,000. And this could raise hundreds of millions of dollars. if they return all that. You and I would say, how can they get away with this already? The IRS just didn't have the staff to go after them legally and get this money back.

So that's phase one. Phase two will be the AI learning. At phase three, they're going after the 75 largest partnerships. That's a lot of hedge funds and law firms and look at how are they, because they're very complex returns. AI is going to help them sift through all that and narrow in on where they're underreporting income or avoiding taxes. I suppose this is kind of situational dependent, but if I'm being accused, you wonder if you can kind of come back and say, oh, no, no, no, the AI has got it wrong. Or if the things that they're highlighting are so obvious that they're just saving the time of a worker to kind of take weeks to come to the same conclusion.

It's exactly the second thing. It's finding which returns to pick out of those 100 million returns that will be the ones that will yield you. Most likely the greatest result. It's still going to take a human to look at it and say, oh, there's a problem. But AI will sit through that say, here are the ones that are most likely going to be a problem. And then the human being will take a look and say, oh, yeah, you know, we see $10 million an income that wasn't there before, where did it come from? Are these initiatives politically sensitive or politically contentious? Everything is politically sensitive and contention.

Absolutely. There were objections to the idea that the IRS was going to bring in, quote, jackbooted. Exactly. Whatever. Exactly. And so on the one side, you say, for every dollar the IRS now spends on enforcement, they get $12 back in collections. That's hard to argue with, from any political point of view,

this is money that will yield a great return in terms of tax collections, especially if you go after the wealthy, which pay the most taxes and avoid the most taxes. On the other side, to Kelly's point, there will be a lot of small businesses and some large partnerships that don't do anything wrong, that spend hundreds of hours and lots of money to battle something only to prove that they don't owe much

or haven't done anything wrong. So the cost to the American society in terms of hours spent, advisors, tax lawyers, this will be a big boon for the accountants and tax lawyers who have to fight all this stuff. We've truly never been at a point like this before. Robert, thanks. Thanks, guys. Good. All right, still to come, a Twinkie promise, J.M. Smucker, scooping up hostess brands for more than $5 billion. That's the icing on the cake there.

We will trade that and other key movers in three-stock lunch next. Welcome back, everybody. It's time for three-stock lunch. launch, we are going to trade some of the day's biggest movers, and we're going to start with Tesla. Shares rising more than 10% as Morgan Stanley's Adam Jonas, one of the Jonas Brothers, raises his price target on the EV maker to $400, a new street high. Jonas citing Tesla's new machine learning supercomputer, dojo, as the reason for the bullish call. Let's trade this name and a couple more with Victoria Green, CIO of G-squared private wealth,

and a CNBC contributed, a big fan of the Jonas Brothers. What do you think of Tesla? Okay, Tesla's a buy for me here with a few caveats and asterix. You need to look at it like Morgan is looking at the stock, which is a technology stock, not an automotive stock. Tesla's considered one of the most polarizing names on the street. According to Bloomberg, it's about a 268 average price target, so you have the lovers and the haters of it. But if you look at it like a legacy automotive, like how JP Morgan's looking at it, they've got a 120 sell on it, is because they say, okay, look at it versus GM and Ford and all the legacy automotives.

But if you look at it as a moonshot as what Morgan Stanley is looking at and that they can get full self-driving done, then it's a buy. But you need to be willing to take the volatility of a technology stock here and realize if they don't get full self-driving done, maybe by the end of this year, certainly by next year. And it's going to be really hard to justify this. So it's a bet on Elon coming through with FSD. All right. And more than a 10% rally today. Now we've got an interesting interview coming up on CNBC tomorrow. Walter Isaacson.

Oh, my gosh, the book comes out tomorrow. You've seen all the all the hype. All the hype. That is the best. I think it's going to meet that, by the way. He will be on Squawk Box tomorrow at 8 a.m. Eastern Time. We're looking forward to that. In the meantime, let's talk some Smucker.

Shares are down sharply after they acquired, they'll announce they'll acquire hostess brands and a $5.6 billion deal. Victoria, a lot of investors are worried that Smuckers is overpaying here. Do you like this? No, I do. It's a buy for me. Smuckers is doing what they said they do. They were divesting some legacy pet brands that were slow,

and they're re-invitalizing. their consumer foods. Other than uncrustable, consumer foods for them has not worked at all. The jams and jelly section of them have been stuck with slow growth. This is going to revitalize their growth in the consumer foods. And look, this brand's been growing about 15, 20% per year, and we snack so much. I actually looked this up before I came in. According to NIH, we snack at least 90% of us one to three times a day. And who doesn't love Twinkies? Come on, now it's the All-American snack food. So I actually like this acquisition. Yeah. All right, let's move on to Alibaba shares down just over 1% after outgoing CEO Daniel Zhang unexpectedly stepped down from his position running the company's cloud division.

Victoria, what do you think of that one, Allie? Yeah, for me, it's a sell because what Alibaba's going through right now, they're looking up breaking up into six separate units. And he was the head of the CEO of the cloud division, which was their second largest division. And this just shows that maybe this breakup is going to be a little bit more difficult. They have a postponed grocery IPO in Hong Kong. but they're really trying to unlock all of these separate lines of business value. And for me, I'd rather maybe sit on the sidelines until they break up and figure out what bits and pieces of Alibaba I really do want to own. Anytime a company is going through a huge reorganization and you have turnover in one of your most profitable, fastest growing businesses after he's only been there two months.

You just have to raise some eyebrows on corporate governance. So I just can't touch the stock right here right now. All right. Clear point of view of Victoria Green. We thank you, as always. Thanks, guys. tuned. More headlines you need to know, including an Xbox credit card on closing time after the break. We've got about three and a half minutes left in the program and a bunch more stories you need to know about. Let's start, however, with shares of Northrop Grumman, excuse me, which fell sharply early this year on government spending concerns and they have never really recovered. The stock

down more than 20 percent so far in 2023. Let's bring in Morgan Brennan now for more. Hi, Morgan. Hi, Tyler. Well, those concerns following a big run last year, but Northrop Grumman is the fastest growing defense prime and its space business is actually the largest in the world. Space system sales grew 17% in both Q1 and in Q2 and the portfolio as it exists today is just three years old. It's the combination of 20 companies brought together over time. Now I spoke with CEO and chair Kathy Warden about it just earlier today. We are focused on being at the forefront of technology and that has led us to grow the portfolio very rapidly. And what we see today is

a broad variety of applications for our products. National security is our core, and it will remain our core. There are applications, though, in civil and commercial, and we look to leverage that technology base quite broadly. So 85% of Northrop's space business is national security focused, much of it classified, including the Sentinel program to modernize the nuclear triads ICBMs, plus the next-gen interceptor for homeland missile defense. But Northrop also does work for commercial customers think satellite communications. There's an emerging space logistics business. And for NASA, everything from the James Webb Space Telescope to the Cygnus cargo capsule that's currently attached to the International Space Station. Guys, they literally bring ice cream to the astronauts. And I don't

mean that freeze-dried astronaut ice cream that you're getting in the museum gift shop. We've got a lot more for my exclusive interview with Kathy Warden coming up on overtime. That's going to start at 4 p.m. Eastern. Morgan, thank you very much. We appreciate it. Morgan, Brennan. A quick note on the defense stocks, Tyler, there was a lot of hope this year that they would, you know, between the Ukraine war and everything else going on with the economy, kind of be a place to hide. And you could maybe say they're a place to hide, but the ITA is still down about one and a half percent year today. Interesting. Interesting. I think of a cargo pod, like one of those pods that you see in people's backyards are holding on to stuff there. Let's talk about a couple of quick stories before we go.

Shall we got to mention the IPO news of the day, which is that with Instacart kicking off its IPO officially. We're getting some info. Looking to sell the stock, excuse me, $26 to $28 a share, $331 million, valuation, $8 to $9 billion, way below $39 billion in 2021, way below the $12 billion internally they thought they were worth in many. Yeah, interesting how that one has come down. I think a pandemic fall off, I guess, is one of the things you'd have to say. And the reality of this, you know, this market. And I think, again, for public investors, if your first chance to get it is now, I'd rather have it at $8 billion valuation than $100 to go back to the famous Uber example

and how poorly that IPO has performed ever since. All right, Xbox, this is dangerous, folks. Xbox to launch the Xbox MasterCard, its first ever credit card in the U.S. issued by Barclays. It won't have any annual fee and rewards Xbox players, like my son, card points on qualifying purchases within the Microsoft store. This would be very appealing to young Mac Matheson.

This is very clever. I think this could have broad appeal in this kind of a way, you know, Barkley's looking for in rows. A great interview with Sarah earlier on Squawk on the Street. The CEO talking about that. Maybe we'll see more. More to come. Great weekend, everybody. Enjoy the rest of the day. And thanks for watching Power Lunch. Do I say good luck to the Jets fans tonight?

Sure. The New York area needs it. And I'll say good luck to the bills. Closing bell starts right now.