Power Lunch - Power Lunch 9/27/23

Episode Date: September 27, 2023

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

Hi, everybody, and welcome to Power Lunch alongside Kelly Evans. I'm Tyler Matheson. Coming up, a couple of big interviews on the program today. First up, Byron Allen, he's the billionaire investor who made Disney a big offer to buy ABC and associated television stations. We'll talk to him about the status of that bid and why he thinks traditional media assets like ABC still have value in today's changing market. Plus, we'll talk to the CEO of Marriott. What's the real state of the travel industry? How about the post-pandemic boom?

Is it still holding over or are we well beyond that? International demand, still strong? We'll check in with that, Kelly. Looking forward to both of those interviews, but take a look at what's going on in markets as well today, where the picture has gotten worse as we've moved throughout the session. This morning's optimism has faded as bond yields have turned higher once again. The Dow, remember, coming off its worst day since March

and adding another 250 points to those losses, the NASDAQ, the S&P, down about half a percent a little more than that. Speaking of the NASDAQ, in the first half of this year, we were up more than 31%. An incredible run, but so far this half, we're down nearly 6%. And the key number we're watching, we are 10% down now from this year's high hit on July 19th. Call that, yes, correction territory. The question is why? What's changed for more return to CNBC senior markets commentator Michael Santoli?

And Mike, may I mention treasury refunding in early August as a possible catalyst? It could have been something like that. I mean, obviously, it's part of the mix. And I think that if I would boil it down among the asset markets that are testing the pain threshold for equities, you mentioned treasury yields. To me, it's not just the level. It's a somewhat disorderly sell-off in treasuries that's also non-fundamental. So yields going up for, quote, the wrong reasons, right? We're not really repricing the Fed path very actively. It's not about inflation expectations outright ticking higher. It's not about economic growth accelerating. It's about concerns about supply. It's definitely mispositioning. It's a very unusual setup to have the curve uninvert by long-term yields racing higher as opposed to short-term yields coming down. So all that stuff in the mix with a market entering August where you had soft landing consensus got pretty cozy. So all that stuff boiled together. And then when you have energy in the dollar also kind of closing off some of the escape routes, so to speak, I think that's why we're here. There's some mechanical complications too. You see this sort of self-fulfilling

short-term tactical trading to the downside as we get into the end of September as the seasonals kind of bottom out and we start to get oversold and we hit the 200-day moving average in the S&P. Maybe it's all coming together for some kind of decision point. All right. Mike, stay right there. As we continue our conversation, major tech stocks like Apple and Amazon inching closer to correction territory, both are down, close to 10 percent this month. And our next guest says the complacency trade is over in this new higher-focus. longer interest rate environment. Let's bring in Mike Bailey, Director of Research with FB Capital Partners. So we have two mics here. Mike Bailey, let me start with you. Was last week on Wednesday

when the Federal Reserve Chair talked about basically higher for longer, was that really a marker in the trail that has led to this week's and last week's sell-off? Absolutely. I know I hate to say the kind of the beginning of the end. I don't want to sound so, you know, kind of dismal or bleak. But I do think that really kind of put a stake in things. And we talk about this complacency trade. Stocks were just, you know, ripping this year up until the summer. We sort of hit a bit of a plateau. The VIX came down. We view that as significant complacency. A lot of investors were kind of staring at each other saying, hey, it's been a great year, what's next? All of a sudden, Jay Powell comes along and spoils the party and says, hey, wait a minute,

rates are going to be up for a lot longer. Deal with it. And I think investors just took that and they've been running, frankly, for the exits since then. Between now and year end, would you rather be in equities or treasury security, short-term treasuries? Yeah, we want to be diversified. You know, I mean, unfortunately, you know, that treasuries look great. You look at it's like, wow, I'd love to lock in some of those safe yields for a long time. However, you know, I think resisting that temptation and sticking with a, you know, if you plan to have a diversified portfolio, stick with it. You can certainly use some of these opportunities to, you know, pick up long-term bonds and get, you know, 6% yields for a long time.

So I think that's attractive, but you really do want to say diversified. But at some point, yields are going to go back down. You don't want to be stuck with this. A big, big overweight and bonds. You want to make sure you've got some equities to give you some growth. Mike Santillai, I thought you kind of perfectly captured the way it feels with almost disorderly move that we've seen on the long end of treasuries. I guess the question is, what's the pain point?

What stops this now? Is everybody far enough on one side of the trade now that it can start to go the other way or not? Yeah, I mean, it seems like we're building toward that moment. I certainly don't know if it's about a level. I know a lot of folks are starting to raise their expectations for how high yields can go. PCE inflation maybe is going to be some kind of tether to that view that somehow it's up and away. Oil prices clearly have some effect on the longer end of the curve, even if the Fed's willing to look through headline inflation, sometimes the bond market doesn't.

But I do think it feels as if we're stretching this thing pretty tight. What I'm mostly focused on is within the stock market. It's about the magnitude of decline in the S&P that we had in March in response to the regional bank, mini crisis, you might call it in retrospect. So we are similarly oversold. We're getting a lot of these conditions built if, in fact, you get some relief on the macro front, whether that's yields, whether it is the date on Friday or something else. I do think that that'll be the test. What's the character of the bounce that we get ultimately out of this? Mike Bailey, let's go to a couple of your picks. And I'm curious, the first one, maybe because

it begins with A, is Amazon. Absolutely. So Amazon, you know, We're looking at, you know, kind of a tech wreck here at this point. The question is, what do you own? Do you like tech? Yes, but we like tech names that have growth, trading at a discount. And that's really a key for us. We're kind of in the middle of something really messy here. So what do the big tech names have a significant discount?

Amazon's front and center? So trading at a deep, deep discount compared to the last few years. What's next for Amazon? They've really been on this big, big recovery in terms of they've built this massive logistics, you know, business. And it was too big. filling it up. What happens when they do that over the next few months, even the holiday season? Incredible profit growth. So we're really looking into that. I think they really have a much better opportunity to do that, frankly compared to some of the other Magnificent Seven companies,

maybe beyond Nvidia. So pretty compelling, trading it a discount, probably something you want to own here. The antitrust concerns don't bother you? Certainly that is a risk factor out there. We did see Amazon underperform yesterday, meaningfully, you know, when that news came out. I think as we look at that massive, massive discount that Amazon's trading at, it's baking in a lot of problems. I think a lot can go wrong, frankly, and you're getting paid for that at that discount. There could be something with the FTC. There's a lot of information there, 170 pages, et cetera. However, history would suggest these things do play out over a number of years.

I think companies, tech companies have learned from Microsoft and others how to try to manage through this. So we would expect some type of recovery for Amazon, but certainly worth watching here. All right. A pair of mics beats a pair of jacks anytime, right? Thanks, guys. Mike Bailey, Mike Santoli. Appreciate it. Thank you. All right. One thing, is this you, Kelly? Please. No, no, I don't mean to step on you. I couldn't even see over there. I was thinking about PIPA. One thing complicating the feds fight against inflation are higher oil prices. This morning on Squawk Box Minneapolis Fed President Neil Cashcari said he doesn't think oil prices on their own can force another rate hike.

But oil's up nearly 40 percent in the past three months with a big gain today to a 13-year. month high. I heard it was 93, but I didn't believe it until I looked for myself, Pippa. Why now? With the strong dollar and everything? Yeah, I know. So we finally breached through that November 2022 level that was acting as resistance now at the highest going back to August of 2022. So why today, this is all about inventories at Cushing, Oklahoma, of course, a key energy storage hub for the U.S. and also where delivery for the NYMEX WTI contract is. So we got data today from the EIA that shows you can see on your screen, that inventories now are at the lowest there in 14 months. They are just around 22 million barrels. And that's important because once they get

under 20 million, that's when we start to approach tank bottoms, according to Rebecca Babin over at CIBC. She said that that's, you know, that's when we get quality issues. You lose pressure. Then there's issues with the oil. Think about water sediment dropping to the bottom. And so that is the key level to watch there. And the reason why this is happening is because there's now a more than $10 spread between the December 23 and December 24 contract. That's a record. And so basically, if you're going to get so much more money right now, combined with higher rates, which makes your cost of capital to store oil higher, why would you want to store anything? So all that oil is going to sell it, right? Exactly. Exactly. You want to because there's a $10 spread over the span of a

year, and that's a really widely watched spread because it's the final contract of the year. And so nobody wants to store, and so that's why we're seeing lower inventories, and that's what's pressuring the front month contract today. And so if we drop below that 20 million barrel level that you mentioned, you would expect oil to move up in price? Exactly. And we probably won't drop below that level just because there are some factors that kick in. You need a certain threshold in order to blend your different grades.

And so the companies that operate their major pipelines like Enbridge, planes, you know, they have an interest to keep the inventory at a certain level so they can continue operations. And, of course, Cushing is no longer as important as it used. used to be given that we built out pipeline capacity from the Permian directly to the Gulf Coast. But it's still a very important point, and it is where the NYMEX crude contract is priced. And so that's why it's so closely watched. Interesting. PIPA, thanks very much. Pippa Stevens. All right, coming up, we will talk to the man making a $10 billion bid for ABC.

What's the status of the talks with Disney? Byron Allen will join us next. And a quick power check, Generac hired today as investors like the guidance that company is giving as part of its investor day. on the downside. Next Era Energy, selling Florida City gas to Chesapeake for $923 million, also reducing its growth rate expectations. We'll be right back. Welcome back to Power Lunch, everybody. Check out shares of Disney. The stock below $80 a share right now and around its pandemic low, by the way. If it falls below 79, then you're talking about levels not seen since 2014, believe it or not. The company going through major changes that might include a sale of assets

including its ABC network and affiliated stations. Joining us now is a man who made a $10 billion bid for those assets. Byron Allen, along with our own Julia Borsden. Julia. Thanks so much, Tyler. Byron, thanks so much for joining me here at the Code Conference. So you're bidding $10 billion for ABC National Geographic FX and then some of these local networks. Why are you interested in purchasing these networks and why at that price point?

First of all, thank you for having me. Listen, this is a phenomenal asset. And if Disney is willing to sell it, we just wanted to make it very clear we're willing to buy it. Capital is not the issue. There's plenty of capital to buy assets like this. The real commodity is can you get the deal approved? And by far, we are the best ones to get that deal approved. A lot of folks out there, plenty of cash, they can't do it.

I don't think tech companies can get it down. I don't think tech companies can buy a lemonade stand. I don't think Washington, D.C. is going to roll out the red carpet for them. A lot of the media companies are too big to do it. And I don't think D.C. will be supportive of private equity and hedge funds buying this type of assets. This is a very important asset. It's local news. It's national news.

It's where 80% of Americans get their news. So they're going to be really careful with who they approve and getting this type of asset. And it's going to be an owner-operator like me. I've invested a little over a billion dollars buying ABC, NBC, CBS, and Fox affiliates around the country. Local news is very important when the pandemic happened. In some of our cases, our local television stations were getting 90% of the share. People were watching our stations trying to figure out what was going on with COVID. So this is something that it's not about cash.

It's not about capital. That's the easy part. It's about certainty to close. But I want to ask you about that because you say it's not about capital. But when the news first broke that you were making this offer and there was that $10 billion number out there, some of the analysts note said it's unclear how serious this offer is because you would have to raise the capital. Can you tell us a little bit about your financing plan for this size of a deal? We have quite a few banks that support us and stand with us and even private equity firms.

That's the easy part. The heart part is getting this deal done if they choose to sell it. Now, they're not ready to sell it. Bob has said that they're not ready yet. me. He's brought in. Bob's really excellent at what he does. Very, he's the best. He's brought in some excellent consultants, Kevin Mayer, Tom Stags, and they just said, look, we're not ready. It's something that's a thought. He made that announcement here on your network that he says he doesn't see at his core. Next star said they have interests. And Bob and I've been talking about it for some time now that

I've, I have interest in buying these, these stations and these particular networks. And we said, we're ready to go when you're ready to go. Now, they may never be ready. They may say, hey, we're not ready. We changed our mind. We don't want to do it. But if they are serious about doing it and they get there, we'll, we're ready to go. So you were interested in these assets. You also made a bid for BET and then Paramount decided not to sell. They decided not to sell. You also were interested in Tegna. If you can't get any of these assets, are there other assets that you are interested in right now? I think other assets will start to to become available. And I think we'll eventually get them. Look, I started this company 30 years ago from my dining room table. It's one of

the largest privately held media companies. It's a marathon, not a sprint. And, you know, we'll have our opportunity. Folks are going to need to sell. There are some folks who have to sell so they can fund their streaming initiatives. And we believe in linear and streaming. And if you're willing to sell your linear assets, we're there. We're seeing something we've never seen before. You know, These are 100-year-old legacy companies who are having to reinvent themselves. They're trying to build a new airplane while they're flying their old airplane mid-air. So this is something that is much needed. Folks need to shed their assets that are flat to declining so they can go and invest in assets that are growing.

You know, we're firm believer in operators matter. When I bought the Weather Channel five years ago, I bought it from a couple of private equity firms who, you know, they thought they had maxed it and it was declining. Well, since then, we've pushed up the top line revenue and the EBITA, and we're continuing to push it up and push it up double digit. And so this is the type of opportunity that's really perfect for us, if they make it available. Byron. Tyler Matheson here, it sounds like, and correct me if I'm wrong here,

that one of the central interests that you have in these assets are the TV stations. and the TV state, because you own TV stations, but you point out that in those areas, and also I assume in ABC's network, you have properties that are flat to declining. Why are you so interested in traditional stations at a time when so many other people are not interested in those stations, and how do you think you can take those assets and turn them, you say you've done it before, what are the real sort of tactics you would use to turn them from flat to declining enterprises into positive growth drivers? Well, listen, if you buy the stations, you want the network.

You don't want to bifurcate that. You need those local television stations, those local TV stations. That's the reason why Disney was able to resolve their negotiation with Charter, Spectrum. You need that local news and you need sports. These local television stations carry the true religion of America, NFL football, What people forget is that ABC, NBC, CBS, and Fox, we just did an 11-year deal with the NFL NFL paying them $10 billion a year for 11 consecutive years, $110 billion. I'm a firm believer that Americans are never going to wake up and say, I don't want local news,

I don't want college football, I don't want NBA basketball, and I don't want NFL football. So I'm highly confident that these local television stations are going to have a great deal of value well into the next decade. I also think that there are things we can do, you know, growing this company as an independent. Now remember, I'm one of the few owner operators. I started the company from my dining room table 30 years ago, and I owned the company 100%. So I've had to learn how to produce things very efficiently, and I've been able to take certain assets and spend less to achieve more. So I think we can do quite well, if given the opportunity, to buy us. an asset like this if they choose to sell it. One of the key factors that's also putting pressure

on the broadcast networks right now is the strike, which means there isn't a lot of new primetime television in the scripted category on TV this fall. We just had the writers resolve their strike. The Screen Actors Guild, they are still on strike. And one of the key sticking points is AI. How do you see AI impacting the future of your business? And how are you already using it right now? Well, right now we're using it. You know, when I bought the Weather Channel five years ago, to me at the end of the new owners presentation. Oh, by the way, you own something that's like a fully distributed broadcast network that uses artificial intelligence, proprietary software to curate, aggregate, and stream super hyper local news, weather sports, geofence to the user's zip code.

And I went, wow. They said, don't get excited. I said, why not? They said, because it loses well over 25 million a year. And you're going to probably want to shut it down. And I said absolutely not. And what I did was I invested over 125 million of my own capital to reposition the asset. And when I looked at the asset, you know, it just reminded me on the conversation I had with Reed Hastings. I had dinner with him shortly before this presentation was made to me. And I asked Reed, the founder of Netflix. I said, Reed, what keeps you up at night? And he said, Byron, Netflix.

I go, really? I'm sorry, Reed. I said, what keeps you up at night? He said, YouTube. And I said, YouTube. And he goes, yeah, he goes, if YouTube starts delivering lots of premium content for free, how do I get people to pay me $15 a month? And I thought, there it is.

I'm going to aggregate this content. I'm going to put together premium content and make it free, the world's favorite word. And so what I said is I don't think Julia wants to pay $4.99 a month for Local Now, now we'll make it free. And we put over 500 fast channels there, over 675 local news stations. We did a deal with CBS. We did a deal with NBC. PBS.

We're on track to have over 1,200 local television stations. We just, Digionette just gave us best streaming service in competition with Hulu, Paramount Plus, and Tooby. And I have to tell you, we've seen the revenue go up 35 plus in a very short period of time with the simple concept of local news, content, and premium content for free. And we're chasing YouTube.

We're chasing almost $30 billion a year in advertising. that's what we're doing with local now. Well, certainly a lot of different things at play. We're so grateful to have your perspective on this big offer you just made. We'll see how that all plays out. Hopefully you can come back on and tell us as these negotiations continue. Byron Allen, thanks so much for joining us here today at the Code Conference. Tyler Kelly, sending it back over to you.

Julia, thank you so much. Our thanks to Julia Borson and Byron Allen. Another big interview coming up on Power Lunch, the CEO of Marriott joining us to talk about what he's seeing in the travel industry as the post-summer slowdown set in and what about those hotel defaults we heard about stay with us here on power lunch uaW now planning to expand the strike and let's go to phil abo for the details bill well they could expand it tyler we're going to find out for sure on friday according to a source familiar with the uaW's thought process in terms of the negotiation with the big three

sean fain president of the uaW will hold a facebook live presentation friday morning just as he did last week at 10 a.m. Eastern time if there is not significant progress in the negotiations with Ford GM and Stalantis. If he does hold that Facebook live and if he does say we're expanding the strikes, those new strikes would start at noon on Friday. Same thing we saw last Friday. So it's a repeat pattern, Tyler. And what we're seeing here is the UAW saying, we want to keep the pressure on these guys. We're not going to tell them exactly what we're going to do. And we want to see their new offers. And we do know that, for example, General Motors will be presenting or meeting with negotiators from the UAW later this afternoon in Detroit. So there are talks. They continue.

The question is whether or not the progress is enough to keep Sean Fain from saying we're going to hold even more strikes starting at noon on Friday. All right, Phil. Phil LeBoe, thank you very much. Meantime, the yield on the 10-year, and many of them, are once again at those 2007 highs. You know, Rick, every time we check in, it seems to be going higher. What's the high print at this point, 460 something? It's just kind of remarkable to watch this play out all day. Oh, absolutely. The high print today has been right around that 460 mark with regard to 460.

Yeah, 464, right on the nose, it looks like, Kelly. So we're getting very close, in my opinion, to levels that I've been saying are important technically, right in the 460s, the anniversary date of the high yield and a 10, nearly 16%. Back in 1981 was at the end of September. So anniversary dates are very significant. You really need to pay attention here. Let's start at the beginning. Real quickly, Kelly, if you look at a two-year, it's hovering at levels that we haven't

seen since 06, but it's not going to make a fresh pass at a high yield close. But if you look at tens and 30s on one chart, you can see the difference. They're aiming up. So it's going to be a fresh 16-year high yield close for tens. It's going to be a fresh 12-5 year high yield close for 30s. Hey, let's add in Boons. Boons closed at a 12-year high yield close. So we see that it's going on across the globe.

And it doesn't end there. And the strike could figure in big time because the yen is getting weaker and weaker, which makes their cars cheaper and cheaper. So right now, you see, we're on pace for an 11-month high close on the dollar-versed the end. But we're only a smidge away from levels we haven't seen in 33 years going back to 1990. And that dollar index is on pace for the sixth consecutive high close. So you're right, Kelly, every time we look at the screen, it seems to be moving higher in yield. But I have a feeling that the end of September is going to hold some reversal surprises.

You would hope so after what we've seen. Rick, thank you so much. We appreciate it for now. Our Rick Santelli. Let's get back over to Pippa Stevens now for the CNBC News Update, Pippa. Hey, Kelly, Michigan State's football coach has officially been fired over sexual misconduct allegations. The university suspended Mel Tucker without pay earlier this month and last week notified him he would be fired for cause. A rape survivor and sexual assault awareness speaker hired to speak to Tucker's team accused the coach of sexual harassment. His fire incomes less than two years after he signed a historic 10-year, $95 million contract extension. Six young people from Portugal took 32 European governments to court today. They say their leaders failed them by not acting fast enough on climate change and violated their human rights.

If the European Court of Human Rights upholds the complaints, the governments may be forced to cut carbon dioxide emissions faster than planned. And Bruce Springsteen is calling off more shows as he deals with health issues. He announced today he won't perform for the rest of the year as he deals with a stomach ulcer. But the boss vowed to be back on stage in the new year. Tyler, back to you. All right, Pippa, thank you very much. And we look forward to his return. Ahead on Power Launch, time for the next stop on our Powerhouse Road trip.

We've hit the suburbs, a couple of hot. But smaller markets in Perkipsy and Dayton. Today we head to the big city, Big D, Dallas, the fourth largest, market in the country, by the way, where sales are slowing, prices falling just a bit. We'll be right back to take you to Dallas. Welcome back is the post-summer slowdown setting in for some of the travel names. Marriott shares on pace for, sadly, their worst month of the year amid fears of a consumer slowdown. Marriott's CEO, Tony Capuano, joins us now on the heels of their first investor day since 2019. And Sima Modi, who follows this beat for us, is here as well. Sima.

Thank you, Tyler. And Tony, welcome to Power Lunch. Hi, Seema. Nice to be back. It's great to have you on. You had your analyst day today and you unveil some pretty bullish three-year targets, including plans to expand around 270,000 rooms over the next three years. Is that irrespective of where interest rates land? I think so. You know, there is certainly some challenges for new construction, particularly here at home as well as in Europe. But we've got a couple of hundred thousand rooms under construction in the pipeline today, which should get delivered during the period that we presented during the Investor Day today. And during the second quarter, we talked

about 6.4 to 6.7 percent unit growth for 2023. So, and we reaffirmed those numbers today. So when we wake up on January 1st of 24, we will have already delivered the first 100,000 of those rooms. that make up that three-year development plan. Yeah, overall, the response or reaction from Wall Street analysts has been pretty positive to the comments you made today at your analyst meeting. But there certainly has been this active debate around the health of the consumer as we see credit card delinquencies rise, inflationary pressures back in play with gas prices moving higher. What are you seeing, Tony? Is there signs of a trade-down consumer behavior changing amidst the travel economy?

Yes, Seema, it's a great question. We haven't seen it yet. You know in the second quarter we saw global Revpar improvement of about 13 and a half percent. Based on that performance, we guided to 6 to 8 percent rev par growth in the third quarter. And we announced today during the analyst meeting that we saw 8 percent rev par growth two months ago. We saw 9 percent rev par growth last month. So we're really not seeing it yet. But to the extent we do start to see a little bit of trade down.

It's one of the great advantages of having such a broad portfolio. And one of the things we've been talking about recently was with the acquisition of City Express hotels in Mexico, we've now got a large and growing portfolio in the mid-scale tier. So we think the breadth of our portfolio can certainly accommodate any trade-down that might occur in the face of future economic softness. What about business travel? We're at the thick of the season. Any signs of returning to 2019 levels this year, Tony? Well, we're watching September closely.

Obviously, the fall after Labor Day should provide some really important clues, and we'll look forward to talking about that during the third quarter call. What I can tell you is we sort of break up business travel into two categories. Small and medium-sized business and then larger multinationals. As we talked about last quarter, the business travel volume for small and medium-sized business was already more than fully recovered to pre-pandemic levels back in 2022. And we continue to see great strength in that segment. We're seeing slower, albeit steady recovery with the big multinationals,

but we'll be watching that closely through the fall. Tony, it's Kelly here. Just a question. Could you talk a little bit about the impact that higher rates? Hi, are having across the hotel space? because I have to imagine a lot of these properties, maybe the smaller ones, not necessarily part of the chains, maybe some of your proprietors, that these are financed with a lot of debt. Is that debt at higher levels now? And how does that affect their yields, their profitability? Well, certainly a tougher interest rate environment puts additional pressure on yields.

The one thing I would tell you is we've got a terrific and broad group of owners and franchisees, most of whom have been investing in the hospitality sector for years, if not decades. I think they understand the cyclicality of a sector and they under, from a business perspective, but they also understand the cyclicality of interest rates. They're not trying to time the market. They're not investing for yields for a quarter or two. In many cases, they're owning these assets for years, sometimes decades. And so it is certainly putting pressure on short-term yields, but I think most of them have a longer-term investment horizon.

Tony, how worried should we be about a potential government shutdown, the impact on flights, delays, and more cancellations? Well, to state the obvious, a government shutdown is impactful to the broader economy. It's certainly impactful to travel. U.S. Travel Association came out earlier this week, indicating that it could impact daily U.S. travel industry spend by as much as $140 million a day. Number one. Number two, as you point out, it could have a real impact on wait times at airports, and the like. And then I think third more broadly, it would be one more negative on consumer confidence, which is obviously something that is materially impactful to our business and to the sector more broadly.

That and more, Kelly, with strikes and there's a lot happening. Tony, we really appreciate you sitting down with us today and getting your outlook. Tony Kaplanow, CEO of Marriott. Thank you for having me. Nice to see you all. Right in the middle of the area we're all concerned about the consumer, You know, so much more. Seema, thanks very much for bringing that to us, Arceema Modi. Speaking of which, Target is 40% off its recent highs and touching this lowest level in nearly three and a half years. And now the company is cracking down on organized retail crime. We'll look at the fallout next.

Welcome back to Power Launch, everybody. Costco moving higher after beating earnings estimates in the conference call. The CFO mentioned that they are not seeing a dramatic increase in shrink this year. But on the other hand, Target is shrew. shrinking its footprint in response to the most common form of shrink, and that would be theft. Courtney Reagan has the details, two companies sort of responding to this in different ways. Yeah, very much so, Tyler. On the Costco call last night, CFO Richard Galante kind of brought it up saying,

look, everybody's asking me about shrink and if it's a problem for us. And I will tell you that it is not really a problem for us at Costco. He did talk about if there are some instances of shrink increasing. It might be because of some of the self-checkout and potentially. potentially errors there didn't say whether that was on purpose or not. And maybe people just accidentally don't scan things correctly in that regard. Also, of course, you know, they've got big pack sizes at Costco. It might be a little harder to run out with a pallet of goods.

And of course, that membership model, right? You have to be a member to really effectively go in there, shop there, and be able to check out. So that might also be part of it. But to your point, Target, a little over or maybe about 24 hours ago did announce that they are closing nine stores in four different areas of the country because of theft. Target said, look, we did what we could to put in different security measures and made investments in the stores and the employees and security. And we just simply can't get a handle on it any further. It's too dangerous to operate here and it's unsustainable for the business environment.

And so they are closing those stores, including one here and New York City. And what's interesting about that location sort of in the point of this discussion, Tyler and Kelly, is that it also is in the same complex with a Costco. And they are, again, not having the same issues the Target is. It's very interesting because many of the stores, it would seem to me, and I know the store in New York City or one of them that's being closed, these are going to have profound effects, I would think, on the surrounding community and the people who live there, who have come to depend on those stores for groceries or staples or other things. Right, exactly. And so in the release the Target put out about this, they said, look, there are 150 other target locations collectively in the area of these nine stores that are closing. and also the website. But exactly to your point, Tyler, we know that when a retailer closes stores, it is almost impossible to recoup all of those sales at either another location that might be, quote, unquote, nearby and or online, because people go to their stores, maybe it's on their way home from

work or to work or school, and if they lose that location, then they are more likely to fill in that need with another retailer, as opposed to going out of their way to a little further distance to also use that retailer. So I think that is concerning. And that's why Target didn't make these decisions lightly on the earnings call when asked about what they would do if this continue to be a problem. Would they close stores? They sort of said, look, that's more or less the last resort. We're doing everything that we can first. So I can't imagine that was a decision that was made lightly. But if you've been in any of these stores recently, Tyler Target or otherwise, that have had some of these problems and all the merchandise is locked up at that particular target location.

we're talking about New York City and East Harlem, I mean, it's like aisles and aisles of just everything locked up. And it's not a very pleasant shopping experience for an honest shopper either. So theft may be a problem, but then it sort of snowballs because maybe traffic and sales fall because other shoppers don't want to go there either because of the measures that Target has to take. And sometimes the shelves not as fully stocked as they used to be, maybe as a part of a protective measure. I wonder whether the physical layout of Costco's where you have sort of one exit with people checking your tickets and often it moves quickly, but there's a line of carts there moving through at the time you get out, as opposed to Target where there may be multiple entrances. There's nobody checking your tickets. I wonder if that's one reason why you don't have the grab and run theft at Costco that you might see at a target. It very well could be, and we've heard from other retailers like Best Buy, and they point to that as sort of limiting the number of exit points as something that has helped them. I know other retailers, I believe it was Macy's also talked about sort of limiting the doors in the exit points as well, just sort of doing everything they can from a technological or very simple point of view.

All right. Courtney, thanks. Appreciate it. Courtney Reagan. And still ahead. We're going where the stars at night are big and bright, deep in the heart of Dallas, Texas. We'll look at what a million dollars can buy you there, compare you. with Dayton and Poughkeepsie. That's our Power Lunch Road Trip Stop Next. Welcome back. It's day three now of our Powerhouse Road Trip. We're getting an in-depth look at what's happening in different housing markets across the country, especially just how far a million dollar budget goes these days. Yesterday we were in Dayton, Ohio, and today we're heading to Dallas, Texas. Number four on Zillow's top 100 metro areas by size. The market's

a little bit different from the last two places we visited. Prices are down 2% from last year. sales are also down about 16%. Here to tell us what it's like on the ground is Daniel Hunt. He's a realtor with Keller Williams. Daniel, Daniel, welcome to Power Lunge. Thank you for having me, Kelly. So is it, I'm going to tell you the staff that jumped out to me the most, is that the average price down there, median sale price, $401,000.

So how is the market? Yes, that's correct. The market has slowed down quite a bit. My sales, my team, me and my team sales, a little bit down about 10 to 15%. A lot of sellers are giving really good incentives for buyers to purchase their homes. You have a lot of realtors and loan officers teaming up together to do all they can to help buy down interest rates, help to pay closing costs. So it is a slow, a little bit slower of a business, but people are still moving here. Definitely still high demand here in Dallas.

So in most, maybe I'm not right in saying most cities, but in many, many places, sellers have the upper hand because things are selling it above asking price. They don't stay on the market very long. But you seem to be painting a very, very different picture, one where sellers are having to really put out to help buyers get in the house. Yeah, yeah. You're correct, Tyler. Right now, you know, due to a lot of reasons, of course, higher interest rates, inflation,

which is calling people to not be able to afford homes like they did quite, so easily right after the pandemic. It is more right now of a buyer's market. Sellers are, I mean, I'm seeing a lot of different programs from assumeable mortgages where people are assuming the mortgages, a lot more order financing, seller financing options. A lot of, like I said, even realtors collaborating to even cut commissions to do all they can for the buyer. I don't say right now, it is a seller's, I mean, I'm sorry, a buyer's market for sure. So let's talk about, I have to imagine a million dollars goes pretty far down there because according to the realtors, the median sales price is actually $369,000.

You have a property that sold a little over asking in the $900,000 range. Tell us about this. Yeah, that was a very unique property. We got really creative with selling that property. We had, in close included, all the furniture. I do do a lot of tours. Most of my lists that I do tours on my YouTube channel, which was able to bring a out-of-town buyer. So we're just getting real creative with our advertising.

The way we used to do things, we have to kind of expand our mind to reach individuals who may be looking to relocate. Lots of people are looking to relocate here to Dallas. I think now we're still going to, of course, the top ten cities in the country where people are looking to move to. So, yeah, just getting real creative with making our listings and our properties more attractive to as many buyers as possible. So that one was sold with all the furniture that, I guess, was purchased to stage the property? No, that good question. That particular property was an Airbnb, but the Airbnb market here in a lot of areas are changing. They're not allowing force Airbnb rentals and a lot of residential areas in the Dallas land area. So that's causing a lot of investors to sell their properties if they do not want to deal with long-term tenants. So we had decided to, you know what, let's sell everything to make this home look more attractive. It was staged perfectly, I mean, it was staged perfectly for Airbnb tenants. and it worked out perfectly. All right. Well, Daniel, thank you very much.

We appreciate it and give us a little glimpse of what's going on in Dallas. Thank you for having. Powerhouse Road trip continues all week long. Tomorrow we head to Albuquerque, New Mexico, one of the hottest markets right now, and we're not talking about the weather. That's right here on Power Lunch, 2 p.m. Eastern time tomorrow. Still ahead, a shake-up at Charles Schwab. Shares are only fractionally lower today, as the market has made quite a comeback off the low.

The Dow was down nearly 400 points earlier. It's down only 64 right now. Power Lunch will be right back. Welcome back to Power Lunch. It's been a tough year at Charles Schwab, with shares down 35% since January. Kate Rooney has some new reporting on internal troubles at the brokerage firm. Kate? Hi, Kelly.

So five current and former Schwab employees tell me that the firm is trapped in what they describe as a cycle of uncertainty. They say unclear succession plans and problems with integrals. integrating TD Ameritrade is overwhelming some employees, as they put it, and contributing to low morale. Two of those sources tell me that Schwab's CEO, Walt Bettinger, was set to step down this year, and then Silicon Valley Bank collapsed, delaying his plans. Schwab appointed Rick Worcester as the president back in 2021. He was seen internally as the heir apparent insiders say that that delay is really causing anxiety and uncertainty for executives across the board. The 35% drop

For the stock year to date, does add to some of those problems. Schwab announced layoffs two months ago. Some worry that more are coming. That's causing angst, especially for TD Ameritrade executives who joined Schwab through a 2019 acquisition. Before the regional banking crisis, Schwab was feeling the heat of customers reacting to higher rates. Clients have been moving cash from some of the lower paying bank accounts into higher yielding options, putting some pressure on earnings. employees say the crisis distracted from integrating TD accounts, and that $26 billion deal was announced four years ago, TD accounts are just now being moved over in waves. The latest was over Labor Day

when $1.3 trillion in assets were transferred. This merger has come with some of the usual cultural clashes you might expect. Employees describe the TD team as used to moving faster. They're primarily based in Chicago. They're focused more on active trading. Then you've got Schwab's culture. that tends to be more like a traditional bank, moving a little bit slower with more bureaucracy. Schwab called the TD integration a tremendous success telling me, quote, we are pleased with the progress of the TD Ameritrade conversion and grateful for the focus of our employees on our clients and their commitment to ensuring a smooth transition. Our approach has been deliberate, thoughtful, and strategic and has proceeded carefully since the acquisition announcement. No comment, though, on the CEO transition.

An analyst at William Blair, meanwhile, pointing out some green shoots. They say Schwab trades at around 13 times forward earnings compared to its 20 times historical average. They say, now is a good time to play the potential rebound as the risk-reward dynamic has shifted. Back to you guys. When you have succession hitches like Mr. Bettinger, whom many of us know and like, staying around, it can't it, can't it? In other words, people who thought they were going to be moving up may move out, may leave. Yes.

Yeah, that's exactly it, Tyler. So it's causing some uncertainty and worries around some of the top executives who aren't certain, you know, where they're going to move into, what spot might be open. And especially with some of the TD team that moved over, they might be at the C level in the C suite and say, I don't necessarily see where my next opportunity is. And there's also cost cutting. So some of the higher paid employees are especially nervous when you're not. that is the case and that's been announced, but it does cause a lot of angst, as employees told me. Yeah, the higher pay sometimes makes you conspicuous. Kate Rooney, thank you very much. Can I plug delivering alpha one more time?

Oh, please. Yes. This is the last time I'm going to get a chance to do it. I'll be at Delivering Alpha tomorrow, along with an all-star cast of CNBC and investment talent, where we'll look at the current investing landscape. We'll head to 2024 and more, and that will be tomorrow in New York City. good timing with the why what's going to say with the market turmoil that we've seen but look at the down has come back here in the last hour very yes and bally green if you went to lunch and came back and you had a crisis plan well now you throw it out the window and that's all the credit for that won't we although bespoke did say every sector was oversold yesterday thanks for watching power lunch

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