Power Lunch - Power Lunch 9/19/23

Episode Date: September 19, 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. We're counting down to the Fed decision in 24 hours. Take place on this very program. The consensus is that no change in the interest rate structure will happen, but what the Fed says is often more important or equally so as to what it does. We'll be joined by former Atlanta Fed President Dennis Lockhart in a couple of minutes' time. Plus, how much could Tesla benefit from a prolonged strike at its rival? plans and which under the radar company could cash in on Tesla's self-driving ambitions. We'll explore that and more. Kelly. Let's get a check first on the markets, though.

With the Dow well-off session lows, where we were briefly down nearly 300 points, down 173 at the moment or half a percent. Disney weighing a little bit on the blue chips. The S&P down a third of a percent. The NASDAQ only down a quarter of a percent right now. Similar modest declines for the Russell's small caps. And the big IPO of the day is Instacart, priced at 30 last night. opened at 42, but if you got in at the open, we're about $5 below that price right now,

37 in change. So we'll watch this here to see if we can move back up towards that open price by, yes, the close. We're also watching shares of Block down as the CEO of Square steps down, and Jack Dorsey, who is still chairman of the company, is going to step in to run it. The stock is down 20% this year and 2.5% today. And Starbucks is falling as TD Cowan downgrades the stock on concerns about its business in China. They're lowering it to market performed from outperform, cutting the price

target by $107. The shares are down 4.5% this year. And we start with the Fed as we're 24 hours away from the big decision on rates tomorrow. The Fed is widely expected to hold them steady a little over 5%, but investors will be looking for signals about future moves.

Here with what he's expecting, we're joined by Dennis Lockhart, former president of the Atlanta Fed. It's great to see you again. Welcome. And what's the significance of tomorrow's move, which is widely expected to be a pause. Yes, I agree. I think it's going to be a skip, perhaps not the ultimate pause,

because there could be another rate increase at the November or the December meeting. I think the committee is going to be weighing the question of whether they're reliably on a path to get to 2%. And if the feeling is that that question is not clear, then in all likelihood, they'll hedge their bets. Probably will see some indication of another rate rise being possible. And the rhetoric will be, in some respects, inconclusive or not signaling a strong direction. Do you look at interest rates at these levels and scratch your head a bit? I'm making a lot of the last couple of days, but we're near, kind of 15-year closing highs and our 10-year yield.

Even in Germany, where they're more or less in recession, their yields are at their highest level since I think about 2011 or so. What do you think is going on here? Well, I think the longer-term markets, which the Fed does not control, of course, it's simply market action that deprizes those longer-term maturities, is, to some extent, taking on board the soft-landing idea that we're going to get through this and that rates can and should normalize. And we're going through a process now of normalization. We're still inverted, but the longer term rates have moved out. And I think that reflects a little

bit more benign view of the future. A lot of people keying off that word benign view of the future think that the Fed will begin reducing interest rates sometime in 2024. There were those who thought that by now the Fed would begin reducing interest rates. But let's focus on 2024. Do you expect that the Fed by this time next year will have begun a pivot towards lower interest rates? Or do you expect the Fed to stay higher for longer to make sure that inflation is really crushed? I'll say two things that I think you might take as contradictory. One is I expect that they'll stay higher for longer than many of the prognosticators believe that by second or middle of the year will see cuts.

I think they'll probably hold the interest rate for a good part of the year. Having said that, I think the SEP that come out tomorrow, summary of economic projections, will show a decline in interest rates by year in. So I think the transition will occur by year end. And I guess the third thing I should say is, who knows? You know, we're trying to predict it. We're trying to predict the future. It depends on how the data evolve. And, you know, that's a very tough, tough thing to pull off.

Love the honesty. Thank you. I'm thinking about core inflation, Dennis, and the fact that it's been much below the Fed's own forecast. I think the number was maybe 3.9 percent. they thought we'd be at by year end, but the last four months are tracking just 2.4%. So we'd have to almost double from here to hit that, which doesn't look like we will. How do they respond to that?

I mean, should they be more dovish? Everyone keeps asking, are they going to hike again? Are they going to hike again? Well, should they be more dovish? Well, there have been some mixed signals in the inflation data. Some of the headline numbers have picked up because of energy prices, gasoline prices and such. If I were in their shoes, what I would be thinking, at this time is it looks like on a core inflation basis, our narrative is playing out,

and it's going in the right direction, but I am not yet totally convinced that we're on a path to the 2% objective, because there's simply a lot of potential adverse developments that could occur before that is convincingly the direction inflation is going. So I think they will take a sort of risk management attitude and be cautious and careful, as Chair Powell has said. You know, Dennis, it's always kind of perplexed me as to why there is the focus on so-called core inflation. When core inflation excludes two of the things that are most central to the price increases that I as a consumer feel, energy and food. Can you, you're a sensible person. Can you explain to me why core inflation is.

is a better measure to look at than an inflation number that includes those two items? They are trying to discern the underlying rate of inflation, the underlying trend of inflation. It's like thinking of ocean currents that are below the surface and the headline numbers are more at the surface. And food commodities and energy fluctuate from month to month. They go up and down. they don't necessarily tell you about the longer-term trends that in prices in economy. But they're real. I feel them. But they're real. And there's an element that you're in a way pointing to that I think is important, and that is it's a little artificial just to carve out first-order energy prices and food prices.

Because energy prices play through to all other products. Every product that has to be transported to market, has energy in it. There's energy in the production of all those products. So it's a little bit of an artificial take. What the committee is doing, what the Fed tries to do is to understand really

what is fundamental in terms of inflation and then act on that. And I think, Dennis, the only thing I might add, though, is that food and energy can often be supply-driven, not demand-driven inflation. So if the Fed responds to their moving higher,

which is a tax on the consumer, by raising interest rates, that's a double tax on the consumer, right? So it's like they're trying to figure out, you know, what to do with inflation based on the underlying kind of capacity in direction of the economy. And if we're seeing higher energy and food prices for other reasons and they're, you know, idiosyncratic, and they respond by tightening, that's a double whammy.

Yes, and in the discussion in the committee room, there's often comment on idiosyncratic factors, that the committee is inclined to look through to try to, again, understand which way the wind is blowing in a more permanent sense or a longer-term sense. So those idiosyncrasies, which are common in the data month-to-month, short-term data is often very noisy, or something they have to try to figure out how to treat. and the approach is to look through them in many cases. Yeah, and you can say, well, the labor strikes are idiosyncratic. Well, the housing market is eager.

Well, rents are idiosyncratic at some point. I know people will say, you know, come on, everything can't be idiosyncratic all at the same time. Dennis, thanks for joining us today on the eve of this decision. We really appreciate it. Thank you, Kelly. Dennis Lockhart. Don't miss our special coverage of the Fed decision tomorrow.

Tyler and I will be live in Washington, D.C. It all kicks off at 1 p.m. Eastern. and we'll take you right on through to the decision and the press conference here on Power Lunch. And as we get ready for the Big Fed decision tomorrow, the 10-year yield hovering near the highest level since 20-07. Rick Santellie's the man to cover it, and he's in Chicago with more.

Rick. Yes, and it isn't only the tenure. As a matter of fact, all Treasury yields are on pace to extend their high yield closes for this cycle. And if you look at twos and tens on one chart intraday, you can see that tens hit four. 436 today, 2s hit 509 plus. If they were to close at those levels, they indeed would take out their current high yield closes.

But it's a close one. If you look at a mid-August chart for twos, any close above 508, which is pretty close to where they're at, anything above 530, excuse me, 434 for tens, and that's pretty much right where they're at as well. Why does this mean anything to anybody? Well, as you open the chart up, Tyler's right. Two's and tens go back to 07, not all maturities do. But the fact of the matter is that interest rates are trying to normalize on their own. We just heard Mr. Lockhart say the Fed wants to normalize rates.

Well, that's a little bit rich, considering how big their balance sheet still is, or the fact they're still paying interest on reserves, keeping a parking lot of securities from going out into the world, and potentially even pushing rates higher. But no matter how you slice it or what you look at, If ever, there was a point in time where energy prices are giving you a great glimpse into the future on inflation, today would be that day. Tyler, back to you. All right, Mr. Santelli, thank you, as always.

Disney shares the biggest drag on the Dow at this hour. After the company announces plans to nearly double its investments in parks and cruises, Julia Borsten has more. Hi, Julia. Hi, Tyler. Disney's $60 billion 10-year plan is literally a doubling down. on this parks and events business. The company outlining significant room for further expansion on both land and sea, saying it has over a thousand acres of land for possible future development. They say that's the equivalent of seven new Disneyland's. And while Disney parks welcome 100 million

guests annually currently, they see an additional addressable market of more than 700 million people with what they call high Disney affinity. Now, the stock is down today on this news of that higher spending, but CEO Bob Eiger said during the presentation earlier today, quote, we're incredibly mindful of the financial underpinning of the company, the need to continue to grow in terms of bottom line, the need to invest wisely so that we're increasing the returns on invested capital and the need to maintain a balance sheet. Going on to say, quote, the company is able to absorb those costs and continue to grow the bottom line and look expansively at how we return value and capital to our shareholders.

You know, Barton Crockett was on yesterday, Julia, and he said if he kind of looked across what Disney was doing, he was most bullish on the theme parks, secondly on content and thirdly on streaming. So even though the shares are down today, you have to wonder if Bob Eiger is also most bullish on the theme parks and investing there for the long term as people continue to question whether Disney would ever really break itself into multiple different companies with those particular focuses. Yeah, it's so interesting, Kelly, because we've been talking about this, sort of what does a slim. down Disney look like? You know, if Bob Eiger were to sell off, say, the linear TV networks, including ABC, what's left? And what are the core pieces of Disney? And one thing that Bob Iger has done so skillfully in his tenure as CEO going back to when he was CEO over, you know, a decade ago was this idea of creating intellectual property, creating and building up these brands that they could then exploit across all of Disney's platforms. That means the film studio. That

means the theme parks and that means Disney Plus now is another direct to consumer avenue to build up the value of those brands. And one thing that was interesting about this announcement is they say, first of all, they have the land to keep expanding. There's consumer demand. People have not been to parks yet, but have that Disney affinity, as they said. And they also said they have the ability to take some of these storylines that they have not brought to the parks before and be able to bring them to the park. So they see a lot of the potential there. And that's really about the core Disney IP. What may be separate from that? Well, the linear TV networks, that's not about the core IP. And so this might fit into the narrative of Iger doubling down on what's most essentially

Disney and thinking about what might not fit in with that anymore. All right, Julia, thanks very much, Julia Borsden, reporting and following Disney, which we seem to follow every day one way or another. Thanks again. All right, coming up, the boating indicator, one industry that gives a really good picture of how the economy is doing. We'll talk with the CEO of Brunswick about the business and what it is saying about the possibility of recession. And as we had to break, a quick power check, CBOE global markets, one of the best performers. In the S&P 500 today, this coming despite the CEO having to step down over personal relationships with colleagues which he failed to disclose.

On the negative side, Intel falling as it kicks off its development conference. And Intel CEO, Pat Gelsinger, is coming up on closing bell overtime at 4.5. p.m. today. Power lunch will be right back, but you don't want to miss that at four. All right, welcome back, everybody. Power Lunch is on its way to you now with rising rates, not just impacting home sales, boat manufacturer, Brunswick, feeling the impact of a challenged consumer shares of Brunswick down about 10% over the past three months, but still up 7% this year. The company just held its investor day at the NYSC yesterday, lowered its earnings forecast for the third quarter to the low end of its range, but looking out for.

farther. It's quite bullish. David Folk is the CEO of Brunswick. David, welcome. Good to have you with us. Thank you. Great to be with you. Thank you for inviting me. Looks like a beautiful day, wherever you are. Maybe it's New York City. I hope so. New York, it's nice. It is. It is. New York City. We're on the Hudson River at Chelsea Pierce. Good. Lovely. All right, so tell us about the industry and how your company is doing. Are you seeing some tentativeness that you might not have seen a year ago or two years ago on behalf of consumers. Yeah, it certainly is a different consumer in a market environment. The cumulative impact of inflation and the effect of rising interest rates on financing costs

and certainly impacting us. Obviously, we're a discretionary purchase. But I would say, actually, this selling season, this year, has been fairly strong versus last year. I think at least what we are seeing is stabilization of pricing and stabilization of interest rates, and that's really helpful for kind of consumers understanding what the affordability of purchases are. So certainly things are more expensive overall in terms of principle and financing, but at least stabilizing over the most recent period. And sales have been

pretty strong. So we're hopeful that 24 will be the same. I think if we were doing this interview two years ago, I bet I would have asked you very pointedly about any supply chain issues that you were facing. So why don't I go ahead and ask that? Number one, are you having any supply chain issues? And number two, since you brought up the matter of inflation and price increases, how much have you increased the prices of your vessels? Just choose a representative one and say two years ago, it might have cost this and now it's 12% higher or 2% higher. Yeah, I think, you know, the pricing of our votes is, you know, for the past probably two and a half years through the supply chain crisis and the inflation, probably about 20%, I would say, for a typical vote.

But that pricing, certainly we've moderated it over the past six months or so, so the rate of increases now much lower. And that's really the result, as you said, of the fact that our input costs are really moderate. So that's a very helpful, constructive backdrop. We certainly are out of the supply chain crisis that you referred to. So our input costs have now moderated. So our input costs have now moderate. So have our price increases. But that doesn't mean that consumers are not seeing higher prices. But that means for us, though, is we have to implement some discounting and promotional activity to make sure we continue to stimulate demand. Well, not to take you too far afield here, David, but when I see autonomous docking boat, I start to get a little nervous. I thought about,

you know, what's going to happen with cars here, but I hadn't really thought about boats driving themselves. Self-driving boats? Yes, you know, all of the things that are coming into automotive technology that you say every day, electrification, connectivity, and even autonomy are certainly coming into marine. It's a bit different in marine. In the car situation, you're truly trying to detach the driver from the driving experience. But in a recreational boat, driving the boat is part of the experience. We use autonomy to try and address some of the more stressful situations.

And one of those is docking. If you've tried to duck a big boat, you'll know that even for an experienced boater, it can be a stressed situation. So we're demonstrating today of the system we plan to bring to market in 2025, which autonomously docks the boat. You essentially stand off the dock, press a single button, the boat finds the dock and ducks itself. I love that. That is the thing I fear most whenever I am on the rare, rare occasions when I'm asked to drive a boat. Let's talk a little bit about what's the rage in the automotive business, and that is electric vehicles. Is that ever going to come to the boating world? Yes, in a slightly different way.

So this year, we've introduced the first three models in our lineup of electric outboard motors. They're relatively lower power than some of our bigger combustion engine motors, but they're still a very important part of our portfolio. We can electrify small boats. They're certainly more expensive. But we see in Europe in particular some waterways and lakes where combustion engines are not allowed. Wow. So electric conduct is your only option there and therefore there's a real market for that. The other way we can introduce electrification in marine is a lot of bigger boats have an onboard generator.

The powers a lot of the onboard systems like air conditioning and entertainment. We can replace that and we do now with high capacity lithium ion battery packs, which have no emission or local emissions. they're very quiet, they have no vibration. So electrification is coming into marine. Marine is fundamentally a more difficult application, but it is coming over time. I would have thought saltwater and batteries don't mix. Yeah, right, yeah.

You have to be very careful. You have to be very careful. What happens if they mix? Fire, explosion, or just sinking? Well, we just have to make sure that they don't. So we take extra care when stealing our systems to make sure that we have the right preventive measures in place and to make sure that if something like that does happen, that the vessel responds in the right way.

All right, David, thank you very much. Interesting conversation. We appreciate it. David Folks, Brunsway. You are very welcome. Beautiful day again. Let's get a check on Instacart, which opened for trading at $42, but it's just above 37 right now. So a tough day for anyone who bought the stock on the open, but investors in the IPO still $7.

in the green. We'll have more on that next. Welcome back to Power Lunch, everybody. Let's get a check on Instacart, shall we? And Leslie Picker has it? Hi, Leslie. For Instacart pricing at the high end of a boosted range and then trading up from there. The grocery delivery service has traded a little lower, quite a bit lower from its opening print. But we'll see what happens over the next hour and a half. You can see their shares up about 23% right now.

It's an important moment for IPO watchers. There's clear demand for new issuance after a drought. for the better part of the last 18 months or so, but it doesn't appear to be unbridled, clambering for shares. The IPOs we're seeing these days, aren't last week, Instacart today. They're either down rounds or flat from their latest private valuations, and investors are more focused on profitability than they were

in the recent cycle peak of 2020, 2021. Cornerstone investors that claim significant allocation of the offering ahead of time are increasingly important, and float sizes have been under 10%, which limits the supply of shares available. relative to the size of the company. The deals keep on coming, though. We have marketing automation platform clavio pricing after the bell today.

Because it raised its range, the IPO price will most likely come in at the high end or above that new range, guys. And I like how the point that Dan Premack was making, Tyler, about how that's like a software as a service company that's a lot more indicative of where the pipeline is. Clavio, you mean? Clavio, absolutely. Yeah, absolutely. All right, Leslie, thank you very much.

We appreciate it. Leslie Picker reporting. Let's get over to Bertha Coombs now for a CNBC news update. Bertha? Hey, Kelly. Rudy Giuliani is facing more legal trouble this time from his former lawyer who sued him this week, claiming that Giuliani owes him nearly $1.4 million in legal fees, wrapped up from investigations into his alleged efforts to overturn the 2020 election

and keep Donald Trump in office. Giuliani, who was charged last month along with Trump and 17 others, in the Georgia election case called the lawyers billed way in excess. The International Criminal Court, which handles highly sensitive information about war crimes, says it has been hacked. The ICC says it discovered the breach after detecting unusual activity on its computer network last week. The court, which is based in the Netherlands, did not say how extensive the hack is, who might be behind it, or whether it has been resolved.

And it may only be September, but the U.S. Postal Service is now accepting letters to Santa. USPS will start posting the letters online on November 20th, so strangers can adopt a list and send gifts to a kid in need. The Operation Santa program is now in its 111th year. I guess, Kelly, kids know that there's sometimes supply issues, even up at the North Pole, so you want to get those requirements. question early? I did not know about this program. That's actually a very, very sweet idea. It's wonderful. I'd be like we should get involved. Bertha, thank you very much, our Bertha Coombs. After the break, we'll speak to office and commercial real estate investment firm, S.L. Green. While the rates have struggled this year, the stock remains up 22% since Jan 1.

We'll hear straight from the CEO next. And as CNBC celebrates Hispanic heritage, we are sharing the stories of influential Hispanic business leaders. Here's Marcello Comberos, Ipsies, co-founder, and chairman. We've been through a lot in our countries. High inflation, our governments have changed a lot. Many times entrepreneurship is a necessity because we can't get a job in Latin America. And I would say, you know, my advice is just go for it. Just go for it. Just like maybe your parents did and your grandparents did back home.

And once you make it, lift somebody else up. Welcome back to Power Lunch. Climate Week is underway in New York City. Major companies are talking about their efforts to become more. efficient. We discussed one yesterday. One way real estate could look to reduce emissions, but are there others? Joining us now, our Diana Oleg is along with the president of SL Green. Welcome to you both, Diana. That's right, Kelly. We're here with Andrew Matthias, and who better to talk to you about decarbonizing real estate than you? We are surrounded

by climate tech companies here in the real estate space. How hard is this going to be to do to electrify New York City? How much is it going to cost and how much does it hit your bottom line? Well, it's been an initiative for a long time for us. We're a leader in ESG, and the tenants are joining us in this effort. We're finding as landlords and tenants are banded together, we're all working towards lead status for all of our buildings, particularly our newer properties, wellness ratings, which deal with the tenant experience in the building. And then these unbelievable initiatives to save electricity, to make ice at night to cool buildings during the day. during peak load times, software to monitor all sorts of building systems to make sure we're maximizing efficiency. We need some help from the state and the city in terms of the grid and making the grid cleaner. And I want to talk about that because we're looking at IRA funding, infrastructure funding that's going into all types of real estate nationwide.

Is that going directly to help you? Is that more directed at the grid, which you say obviously need some upgrading? It's far more directed at the grid where we need it badly. Our grid in New York City is 90% fueled by fossil fuels. It was 80% before Indian Point was shut down. So we need big help in terms of meeting the climate goals that Washington and the city are setting out for us in terms of net zero by delivering clean power to the city. That's HVDC power lines. That's wind and solar and hydro power from out of the city coming into the city.

But you're obviously in the office space. You're already having a difficult go of it, as we know. Higher interest rates are making everything more expensive and devaluing your properties. Having to decarbonize, how much is that going to hit the office sector in general? And do you think that there are going to actually be some offices that become unleaseable because they're not meeting the requirements? The way Local Law 97 is set up within the city, it's a reasonable framework. And the city's been open to working with the real estate industry to make sure different types of properties can

meet aggressive goals, but goals that are realistic. Obviously, the newest buildings like one Vanderbilt and one Madison, we can meet the highest standards. We're lead gold coming right out of the blocks. Our footprint is almost as low as possible, because that's the way the building's built. Older buildings, there's only so much retrofitting we can do. And Local Law 97, for those that don't know, is about regulations that are requiring you to decarbonize by a certain amount by 2030 by 2050. Do you feel that those are attainable goals? And again, let's get to the costs.

I think they are attainable for the newer buildings. I think for the older buildings, some of the frameworks that they've set out are too aggressive based on today's technology. We're here today's scouring and trying to find technologies that will help us get even our older buildings up to speed by 2030. The costs for newer buildings,

built in are, as I said, reasonable. The cost for older buildings when you talk about retrofitting, you know, difficult to underwrite and makes it not economic. So you wind up looking at change of use. You wind up looking at residential instead of office. That's the struggle going on right now in CBDs around the country. And I think one of the anchors has a question for you. Andrew, I'd just like to switch a little bit from the environmental issue to the occupancy issue. A lot of of analysts are worried across the country about office building occupancy rates. What is your vacancy rate today? How does it compare with a year or two ago? And what are you forecasting for the future? Are you concerned, as some are, that commercial real estate is going to have

some tough times ahead? Well, I think our least occupancy is pretty consistent with prior. We're in a bit of a downturn, so we're in the low 90s as opposed to the mid-90s. The physical occupancy, which is what a lot of analysts are tracking and where they're trying to gauge return to office and how engaged people are. In the peaks of COVID, we were down at 8, 10 percent physical occupancy. That's rebounded to about 60 percent physical occupancy in the properties, which has been, you know, great to see and encouraging. We'd love to see it back up in the 70 to 70.

where we were pre-COVID and a lot of the tenants and heads of businesses that we're speaking to are focused on getting their people back in the office more days more consistently. I think that'll have a big impact on leasing demand in the city and I think the downturn that you referenced may not be as severe as everybody is thinking it will be if we can get a little bit of time to work through the impact of higher rates. And just bouncing off that, obviously, we have a Fed meeting tomorrow, interest rates front and center, and they have caused dealmaking to be next to impossible. There's a lot of new supply coming on the market in apartment and some in office,

but when that comes through the pipe, we're told there are no deals being done because of higher rates. What would you like the Fed to know? Capital markets are frozen right now. I'll keep it realistic, and I'll say I'd love to just see a little bit of forward guidance from the Fed in terms of where the top is so people can start to adapt to a rate environment that's at least stable, not escalating every two months. To have that kind of visibility would allow us to adjust our business. You can't turn around a building, a battleship in a day. You need to adjust business plans and start to plan for the future. It's very difficult to do that in

the environment we've been in for the past 12 months or so. Great. Thank you so much. Andrew Matthias, President of S.L. Green, guys, back to you. All right, Diana, Andrew, thank you very much. And oil prices higher again today. Los Angeles is now on the cusp of cracking $6 a gallon for gasoline. We'll talk energy prices when power lunch returns. Welcome back. Let's get a check on the energy market.

Oil has just turned lower, but still above $90 a barrel. And as we reported yesterday, there's plenty of calls, including from Chevron CEO, that it's going back to $100. Brent's at 95. We're hearing more talk about the Strategic Petroleum Reserve, even questioning Pippa, whether this thaw in relations between the U.S. and Iran has something to do with our need to to lower oil prices. Yeah, I mean, everyone is talking about it. And, of course, there are six central bank rate decisions this week, you know, beyond just

the U.S. also over in Europe. And this is top of everybody's mind because, you know, it feels like it was a slow ascent from June, but then all of a sudden there's been so much activity. And actually, so back in the spring, you know, money managers had about $22 billion in oil across, you know, futures and options. And that has since risen to $65 billion as of last week. And now there's six times as many long positions for every short position. And the last time that that ratio was so high was back in April.

And then we saw a $10 decline in the price of oil. And so as one firm put it, it's almost like the canary in the coal mine when there's so much activity around it. But it almost feels like we had, we felt like the inflation picture was under control. And then kind of the market shifted to looking at other things. And now oil was front and center. and then given how much that feeds into inflation, is this going to be the problem again? Yeah. You look at, we just let into this with the idea that in California, $6 a gallon gasoline,

I mean, how long is that expected to sustain? Yeah, so actually in the past three years, their refining capacity in California has dropped 9.5%. And so they've also had some outages at their refiners earlier this year. And so they have no pipelines that can bring in refined products. They export some of their refined products to places like Arizona. And so there is a huge amount of demand in California that with strange refining capacity, they just can't meet. They also have stricter fuel blending standards.

And so then the only option is via tanker. And then, you know, you have the Jones Act. If you're trying to get it from the Gulf Coast, you have to go through Panama. Right now there's a delay in the Panama Canal. And so all of that means that while the national average is only about, you know, one or two cents higher in the last month, there are these pockets of distortions, particularly out west in California, where it's 50 cents. higher in the last month. Interesting. Very interesting. We need rain down in Panama, as I understand it. They don't have enough rain anymore. They don't have enough water to get the boats.

Yeah, you know, it all comes together. It always seems to come together in a bad way for oil as well. Pippa, thank you very much, Pippa Stevens. Up next, removing the human error. Some propose the solution to self-driving struggles is allowing AI solely to code or operate the neural networks that control such vehicles. Others want a more hybrid approach using AI and human coders. We'll discuss what the future might hold when we come back. Welcome back, the United Auto Workers Union, threatening more U.S. plants to strike if no progress is made with Ford, GM, and Stalantis. And while the Big Three continue to negotiate new labor contracts,

Tesla and other non-union automakers, they continue operations. Let's bring in George Giannarikas, managing director and senior analyst, leading sustainability research with Canacord Genoomino. George, how much does this strike of the UAW against what we call the big three benefit, potentially, non-union makers, especially Tesla? Well, we think that this strike could have a positive impact on companies like Tesla and even Rivian because they don't have unions that they employ. And also, you know, to the extent people need vehicles and they can't get them, well, there's

an alternative. You could get a Tesla. You can get a Rivian. And we happen to think that despite certain price discrepancies, electric vehicles are just better performing vehicles. So to the extent that this strike lasts longer, it could benefit electric vehicle adoption in the two companies we cover Tesla and Rivier. Does it benefit the other manufacturers that are non-union but operate in the United States, Mercedes, BMW, Toyota, etc.? Certainly we don't cover those, but they could certainly have a positive impact. on them as well. Although it's weird, George, because a lot of the EV names are down today.

Yeah, I mean, look, they've already, people had anticipated this positive impact that they could have. And, you know, the negotiations are fluid. And day to day, we don't really track the performance and who knows what's impacting the stocks from one minute to the next. But, you know, we're an extended period of time. We think that these EV upstarts, including Tesla and Rivian should take market share and given their newfound infrastructure and their ability to build a vehicle from a clean sheet of paper should positively impact their results. It is striking that the median worker makes less than $35,000 at Tesla compared with $80,000 at GM and almost that amount at Ford.

I mean, that's an enormous gap. You also think the positive catalyst for Tesla, and we hinted at this in the tease, but are this neural network kind of updated day, it debuted about its full self-driving? In fact, I think it led you to downgrade mobile. if I'm not mistaken. So for those of us who missed it, what's the significance of its recent launch there? Well, we didn't downgrade mobile. We actually read it at our buy rating there. And so what happened was within autonomous vehicle circles, what Elon Musk did a couple of weeks ago in terms of his live stream is that he demonstrated that Tesla has a neural network that's enabling its full self-driving

in version 12. And what that means is, is that the system takes photons in, in other words, video images and controls out. And in the middle of that is artificial intelligence. There is zero software code that's involved in making sure the vehicle goes from one place to another. It learns on its own to navigate its environment. Now, a company like MobilI and a company like Aurora that we cover as well, use a hybrid approach, meaning that, sure, they have some machine learning in there and some artificial intelligence, but within that system, they also think that hard coding software instructions is the best way to go. And in a thoughtful blog post late last week, Mobilized CEO came out and explained his logic behind having that software code embedded.

And Aurora believes that the same approach is going to win. And frankly, in our recent note, we said, we don't know who's going to win this race. Will it be Elon Musk? Will it be Mobili or Aurora? It's hard to doubt either of these companies and either of their CEOs and thought leaders of the companies. But at the end of the day, it's a fascinating debate. Who is going to win? Pure artificial intelligence or neural networks or a hybrid approach between the two.

So that's a really fascinating question. Let me tell you something else it's hard to figure out. And that is whether drivers are really going to trust these sons of guns. Because I own a Tesla. And sometimes when the automatic steering takes over, it does anomalous things in the middle of my driving. And, for example, when I, because this is all about me anyway, George, when I come to work every day, there's construction that's going on. at Route 46 and Valley Road in my area. And the access and egress is different every day

depending on what they're working on. How is an autonomous vehicle going to understand that? It's a really great question. And the thing about artificial intelligence and machines or computers that can learn from iterations is that they can figure out how to navigate that environment. I hope so.

Yeah, well, I certainly think, The systems have been getting better with time. And as a matter of fact, in our recent note, we dissected mobilized supervision system being deployed in China with a vehicle called a Zika-001. And it did exactly what you said. It navigated that kind of environment. Tesla, I mean, maybe you've had a little bit of a difficult journey, but in other circumstances, it's navigated that kind of environment.

We think that autonomous vehicles and the technology behind them are the same. the most profound technology that we'll see deployed within our lifetimes. It's going to increase resource utilization, improve safety, and in some parts of the world, it will replace public infrastructure. It's almost like deploying wireless networks where they were much less expensive and much more useful than wireline networks over 20 years ago. Fascinating. I look forward to that, and I really do. It could be truly, truly exciting, and I'm usually wrong. So I think you're probably right. George Giannarikas, thank you very much.

We appreciate it. Thanks for having me. You bet. We're all excited for that. I just feel like we're stuck in the murky middle or whatever. It's called Many More Stories to get to. Closing time is right after the break. We'll see what we can squeeze in.

Welcome back. These are all great stories. We've only got about two minutes, so let's get right to it. Got to hit the national debt. Cross $33 trillion for the first time. And no surprise, Tyler. We're seeing some pushback on the Republicans' plans for funding the government. So things could really be coming to.

ahead in the next month or so. We'll see. There could be a government's shutdown. My son asked me, does it $33 trillion in debt? Does that really matter? I said, well, there are some people who say it doesn't matter, but I think it actually does matter. All right, Amazon announcing it's going to hire 250,000 employees in the U.S. to help manage the holiday rush. That's $100,000 more than it hired last year. Also bumping the average hourly pay for warehouse and delivery workers, a welcome thing for those individuals and a good sign about what Amazon expects this holiday season. I will just say, according to Challenger Gray, though, overall retailers are expected to hire the least workers since 2008, about 410,000 compared with more than half a million last year. And half of those are going to be Amazon.

Exactly, if that's all included. Bankrupt Crypto Exchange, FTX is looking to clawback luxury property and millions of dollars in fraudulently transferred and misappropriated funds from the parents of Sam Bankman Fried. This lawsuit claims Bankman and Freed discuss with their son the transfer of a $10 million cash gift, $16 million luxury property in the Bahamas. We shall see what happens there. Yeah. And Senate Majority Leader Chuck Schumer, loosening the Senate's dress code allowing senators wear whatever they want on the floor. According to NBC sources, the move is apparently done in order to accommodate the casual style of newly elected Senator John Federman. My father worked on Capitol Hill for 35 years. I don't think he ever went to work without a coat and tie in the hottest day of Washington

summers on Saturdays. I have all the sympathy in the world for Mr. Senator Fetterman. and then his medical issues. I don't have sympathy for wearing a hoodie on the. Does this apply to every, we used when we went into the Capitol, like I couldn't wear a sleeveless, you know, outfit, or there were certain, I wonder if that still applies or not. You shall see.

Thanks for watching, Power Lunch. Sorry about being an old, old buddy. Closing bell starts right now.