Power Lunch - Pumped-Up Prices, Closed-Door Meeting 9/13/23

Episode Date: September 13, 2023

We’re following 2 big stories today: CPI & AI. August’s data showed inflation up 3.7% year-over-year. That was hotter than July, but can be blamed on gas prices. Are we really past the inflation threat? We’ll discuss.Plus, Elon Musk, Mark Zuckerberg and Bill gates are meeting with senators in Washington to discuss the future of AI regulation. We’ll ask what they’re saying, and why it’s occurring behind closed doors. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good day, everyone, and welcome to Power Lunch. Alongside Kelly Evans, I'm Tyler Matheson, and we've got a couple of big stories today. CPI and AI. First, inflation, the year-over-year rate up 3.7 percent. That was hotter than July's number. August was hotter than July. But a lot of that can be blamed on gas prices. So are we really past the inflation threat?

That's the question we'll discuss. Plus, Elon Musk, Mark Zuckerberg. They're not fighting. They joined with Bill Gates and others to meet with senators in Washington today discussing the future of AI regulation. We'll ask what they're saying and why it is occurring this discussion behind closed doors. Kelly? All right, Tyler, thanks. And let's get a check on the markets where the Dow is up 26 points.

The underperformer today. The S&Ps hanging on to a third of a percent gain. And the NASDAQ is up two thirds of 1 percent today as we have seen bond yields dip lower from this morning. Now, Apple shares are lower again after its big iPhone launch event. yesterday down about two-thirds of a percent, but almost seven percent now this month. And a Chinese government spokesman says the country has not banned purchases of Apple phones, but also noted security incidents concerning the iPhone. Speaking of which, the one affecting GM resorts, the security incident, that is, still going on. Reports of slot machines at casinos being down,

people having to pay in cash or write their credit card numbers down on paper. MGM shares this week are down about 4 percent. And Netflix also turning lower intraday as the CFO comments on the business, including the impact of their password sharing crackdown. In fact, with the stock down almost 4% today, let's get out to Julia Borsden for more detail. Julia? Kelly, that's right. Netflix shares are now down about 3.5% after CFO Spence Newman spoke at the Bank of America Media Conference. He cautioned that Netflix's ad business is still in the very early stages and so far not material to the overall revenue of the business.

He also said this is something they are going to have to build up over time, saying it's not easy to build an ad business from scratch. Now, on the upside, Newman said they're nowhere near peak margins and the positive impact from crackdown sharing will be felt through 2024. But there is a negative piece of that. He said that spin-off accounts from the crackdown and password sharing are skewing towards signups for the ad-free option, which works against Netflix's push to build up ad viewership and ad inventory. Now, as for speculation, that Netflix could buy sports rights or media assets, he said it's hard to see the return on billions of dollars of investment in live sports. He also said there's a very high bar to acquire any distressed assets. Tyler? So this is a pretty drastic reaction, $15 on the stock, almost 4%.

It feels like a lot for someone who is saying what ought to be sort of patently obvious, which is that you can't build an ad-supported model from scratch and do it quickly. necessarily? Well, look, there are two things that analysts and investors have been very optimistic about in terms of providing new legs of growth for Netflix, beyond the usual expansion internationally in particular. One of them is the crackdown on password sharing, and the sense that the crackdown and password sharing is going to get some people to sign up for the ad-free version. Those are just going to be regular subscribers, but also going to get some people to sign up for the ad-supported version, which has these dual revenue streams. Then there is this optimism about advertising in general. This sense that especially if consumers are under pressure, they're going to be

looking for lower cost to add supported options. But I think there's this question of whether people were too optimistic that advertising could start to impact the company's bottom line in the near future. What I heard in this commentary from Newman was that not any time in the near future, certainly not this coming quarter or the next quarter. It's going to be a while before we see a meaningful impact from advertising. So I think he was trying to sort of quell this enthusiasm. and make it clear that it's a long-term bet, not a near-term one. All right, Julia Borsden, thanks very much. Let's get back to inflation now and the reaction to this morning's CPI report.

Rick Santelli joins us now from Chicago. Rick? Yes, Tyler, a counterintuitive morning, to be sure. Let's start at the beginning. You know, CPI, there is a raw actual index. It started in 1913. The core index, well, that started in 1957. And the index you're looking at starts in 1947.

I couldn't go all the way back to 1913. It's not seasonally adjusted, and you can see at an all-time high. And you could also see the angle of ascension has really climbed over the last couple of years. And the reason I'm showing that is, is because for all practical purposes, every CPI makes new index raw number highs. Then we adjust it. We do a lot of different calculations to bring you the number. And what did the numbers show? It definitely showed hotter inflation.

Whether it was a headline number at 610s or year-over-year core and headline, all warmer than expected, as you look at twos and tens on one chart, you can clearly see we reached almost 508 in the twos, 434 in the tens, and then it all reversed out. And if you look at a two-year how significant was that test. August of 25, 508 is the high closing yield. So we basically intraday tested it and failed and moved lower. And in front of tomorrow's ECB, meaning the same dynamic we had in the states, where short maturities like the two-year are leading the curve.

In Germany, that two-year incidence known as the shots. And you can see it there over 3.15% leading the curve going into tomorrow's ECB, where the fear is that their inflation is running hotter than expected. And finally, you know, there's a lot of different ways to measure inflation. Us old-timers still remember the CRB index, which, by the way, is trading at an 11-month high as we speak. Tyler, Kelly, back to you. All right, Rick, thank you very much.

We appreciate that. And August CPI, that print showing inflation, posted its biggest gain in August this year, rising 3.7% from a year ago. Now, that's a far cry from the 9.1% set in June of last year, however. And with investors seeming to shrug off the higher-than-expected core number, will the Fed do the same come next week? discussed with Steve Adlin, president and CEO of the conference board and a CNBC contributor.

What do you think that this CPI print does for the deliberations inside the Fed? Well, it's interesting because clearly the market had it all priced in because of, you know, you see it in the numbers today. You know, the conference board has projected that the, the Fed will remain constant here and skip an increase in September, but we'll have to come back in November and raise the interest rate one more time, discount rate by 20, basis points. So we think there's one more in here. And I think this, today's numbers prove that there still has work to be done here. Everybody's disappointed in today's numbers because it's gone back up. And we've been waiting for this holy grail of 2%. Now, having said that, if you look at the numbers,

the real difference month to month is gasoline prices. Yes, it's gas. It's all gas. It's all gas. And that is really important for the consumer because it's pretty low on Masel's hierarchy, food and gas, but even food, you can trade down and you can have different meals with gas, there's gas. You got to put it in in order to get to work, to get to school, commute. So it tends to be a fixed cost, and it really affects the poor people disproportionately hard. We've got two things going on. Russia and Saudi Arabia both cut supplies this month, and also you've still got the end of the summer gas formula. Now, that ends on Friday, September 15th, and they, and they, and they, refiners can go back and get more throughput here in the United States.

Hopefully then, as you get more throughput, if nobody else internationally cuts supply, we can kind of get these gas prices back down. But you see consumer confidence directly correlated in their mood, directly correlated with gas prices. You can almost see it month to month. Well, it is the tried and true thing because people, it is the one thing that people see on their way to work, on their way to pick up their kids. They see the signs that tell the.

whether the transportation fuel is getting more expensive or not. The other one that was sticky and up from a year ago is shelter costs. Yeah, and, you know, look, you think that raising interest rates would cool the market. The problem is that there is a lag in the market from the interest rates, the mortgage rates, and so forth through the rental market. And it's still the rental market that's driving that increase in shelter. But you also have a housing shortage at the same time. This has never been seen before.

So, you know, yeah, you've reduced the demand, but you still need supply in here. And so I'm sure the home builders and other commercial multi-unit builders are going, well, which way should we go here? Because, you know, do you build into this thing? Because normally you would just shut it off, but at this point in time, you still need it. So you've got two things going on here. The biggest variability is gas. And you talked about being 100 days out from the Christmas holiday. That's really important to this economy from a conservative.

consumer standpoint. And if consumers continue to have to put all their money in their gas tank, there's not going to be as bright of a holiday season, and that's going to hit GDP. And it, yeah, it affects, as you say, it affects income level. I mean, sort of inflation-adjusted income levels, and that hurts the less fortunate, the less high-income people in the country much than it does others. Steve Adelan, thank you very much. We appreciate it. Steve with the conference board. Sticking with the inflation theme, Sima Modi joins us now with a look at the travel numbers inside this morning's report as well. What do we learn, Sima?

Kelly, following four months of declines, airfares bouncing back by 5% in the month of August as energy prices continue their upward climb. Plus demand remains strong with data showing a record number of Americans planning to travel overseas in the next six months. However, airfares are anticipated to drop by 30% this fall. from the summer peak. That's according to travel from Hopper. Average round-trip ticket to Tokyo and Paris dropping significantly as well. For hotels, co-stars Jam Freetag says average daily rates rising will rise in the near future as conference season picks back up, led by the big cities, New York, where rates have already increased by 10% year over year. That's one of the reasons, guys, analysts say hotel stocks continue to outperform airlines in 2023. And Sima, where do you think

the trend broadly speaking goes from here as we kind of suss out which way inflation pressures are pointing in the next six to 12 months. Yeah, well, experts, Kelly, have been flip-flopping over the narrative as to what the next three to six months really look like. I think the pivotal moment will be this holiday season and if gas prices continue to move higher, how that impacts Americans and they're thinking around a road trip, will they think twice about whether they do take that trip and will they stay at a roadside hotel or not? So there are a lot of different question marks, of course, that we need want answers to, given the recent pickup in energy prices. All right.

We'll see airfares in particular the way jet fuel prices have been. Seema, thank you very much. We appreciate it. Coming up, only 102. Who is counting this? 102 shopping days until Christmas. But if you start worrying about sales numbers now, you can beat the rush. We will dig into an early lackluster holiday sales prediction.

Talk about what it means also for the consumer. And the big AI meeting in Washington is breaking up. Our A.man Javers caught up with Elon Musk on the sidewalk. We'll go to Washington for the latest headlines out of that meeting. Stay with us on Power Lunch. Some of the biggest names in technology on Capitol Hill this morning talking with senators about the future of AI. Our team all over at Emily Wilkins on the Senate side talking to lawmakers. Amon Javvers is speaking with tech leaders.

And Aiman, let's start with you because you had a nice conversation with Elon Musk as he left the meeting. Amen. Yeah, that's right, Tyler. He was a little chatty as he left the meeting here. We're just outside the Russell Senate office building. This meeting is going to go on until about 5 o'clock, 530 this afternoon. A lot of those big names that you talked about have already left. We saw Bill Gates on his way out the door. We saw Sundar Pichai. We saw Mark Zuckerberg. None of them stopped and talked to us. But Elon Musk was in a bit of a chatty mood, I think. A little bit reflective, I would describe him as he came out of the meeting today. He called it historic as he stopped and talked to me. Here's what he said.

I think it was very civilized discussion, actually, among some of the smartest people in the world. So I thought Senator Schumer did a great service to humanity here. I think we'll, I think something good will come of this. I think this meeting may got on history as being very important for the future of civilization. You know, Musk also told me that he views AI as a different kind of issue than the typical thing you see on. Capitol Hill because it impacts all of civilization potentially in his view with potentially dire consequences if AI gets out of control.

So he was here very much to deliver that warning to the senators. We also got a word, guys, by the way, from Facebook's team. They gave us a readout of what Mark Zuckerberg said behind closed doors. And he, apparently, according to Facebook's team, told some of the senators here about the importance of AI and also the importance of open source software in AI development. and that being a key. That's interesting because open source has been a little bit controversial because it can lead to bugs and malware being unintentionally or maybe maliciously slipped into some of the software. Zuckerberg nonetheless pushing for that piece as one of the bullet points

that he delivered to the senators here guys. So some of the big names here making some big points on Capitol Hill. Back over to you. I'm not sure that Mr. Musk went into it with you in that sort of walk by. But what is he so concerned about? And do I infer from his concern? that he welcomes some kind of regulation or some kind of governing body like the FCC or the FDA to to supervise this. Tyler, he does welcome it. He told me that when the CEOs were asked who favors regulation in this group, all of them raised their hands literally to say that they favored some kind of regulation.

Now, the devil's always in the details on that really depends on what regulation you're talking about. Elon Musk told me, look, I deal with all the regulatory agencies here in Washington. all the time. He said he was on his way over to the FAA right now to talk about aviation issues, which you can imagine for both Starlink and SpaceX in general are going to be significant issues. So what he's talking about with civilization, though, is something much bigger than that. It's the idea of AI getting out of control, right? And if you have a consciousness or at least an intelligence that is greater than humanity itself and it's tasking itself with things to do, you kind of worry in the Terminator scenario where that leads.

Elon's been doing a lot of thinking about that and has been very vocal about that over the past several years. He clearly was telling that, giving that worldview anyway, to the senators here today. All right, Amon, thank you very much, Amon Javers. You bet. Now let's get to Emily Wilkins for the political side of today's meeting. And you heard how Elon Musk described it, Emily, very flattering to Chuck Schumer, saying this was a historical event. And, Kelly, you heard a lot of senators echo that talking point that what happened in the room right behind me was historic. The three-hour hearing, they're now going to have another three-hour meeting, talking about tech, talking about policy, talking about AI.

And when Senate Majority Leader Chuck Schumer exited the room to chat with reporters, he was very, very optimistic about what he had heard in the room and what consensus he got. Listen to what he told us. We got some consensus on some things. First, I asked everyone in the room, is government needed to play a role in regulating AI and AI? Every single person raised their hands, even though they had diverse views. So that gives us a message here that we have to try to act as difficult as the process may be. And there is disagreement, Kelly. Of course, not everyone is on the same page.

They might be at a high level. But once you dig into the details, it is clear that there is a lot of debate. They agree that there needs to be regulation, but they don't agree on who needs to regulate. whether this needs to be a new agency, a current agency, a single agency, multi-agency, that is still something that senators are very much discussing. And as Amon alluded to, there was debate on whether AI should be open source. On one hand, it could lead to more innovation. On the other hand, there's concerns that AI models are pretty easily corrupted and that that could wind up being a very negative thing. You have seen some early framework for legislation that has come out of the Senate.

Senator Schumer put some forward. We've seen bipartisan efforts by Senate. Senator Josh Holly and Richard Blumenthal. But really everything right now is at the 30,000 foot level. And it's going to take a while to really get those details. Richard Blumenthal said he hopes to have a draft legislation by the end of the year. That could put actually passing legislation well into 2024. And then, of course, you're running up against the election. So we have a little bit of a transmission delay here, Emily, but let me ask you this. This was a meeting convened by majority leader Schumer. Were there GOP members in the room? Was it the whole Senate? Who was there? from the Senate.

So there were Republicans in the room. It was bipartisan. All senators were invited. Schumer has convened the small bipartisan group. It's him. Senator Rounds from South Dakota, as well as Senator Heinrich, Senator Todd Young, two Republicans,

two Democrats. And it was Schumer and Rounds who really led a lot of the questions today. And Schumer and Rounds both said, anything the Senate does on AI, it has to be bipartisan. Even if that means that they can't get a bigger bill done,

They need to move in-locked step on an issue as important as this. All right, Emily, thank you very much. We appreciate that. And coming up, the pinch that stole Christmas. Early estimates predict holiday shopping could be a bit slow this year as consumers become more frugal amid high inflation and a potential recession still looming. We'll get the key details when power lunch continues.

Stay with us. Welcome back, Dow Jones Industrial Average has given up its earlier gains. It was underperforming all session long, but it has turned negative by five points. as the S&P and NASDAQ try to hang on to their increases today. A lot of the focus has been on the consumer lately amid signs spending is starting to slow. Courtney Reagan is here with a look at one not-so-rosy holiday sales forecast, Courtney? I know. It seemed like they come out earlier and earlier, right, Kelly, but it's almost mid-September,

and market watchers and economists continue to debate whether the U.S. is moving into recession or are we in a soft landing. And the first holiday sales forecast are kind of having that same debate. Deloitte forecast holiday sales will grow between three, and a half and 4.6% today. But of course, but today's CPI reading puts overall prices up 3.7% year every year. So that's just about in line with the rate of inflation. Deloitte's economic forecaster, Daniel Bachman, notes inflation did account for much of the retail sales increase last year. And with this year's moderation, retail sales will grow more slowly, might just outpace inflation. However, Deloids vice chair, Nick Hendrinos says the sharp rise in services

spending is leveling off. And spending on durable goods remains high. Bain, though, more cautious forecasting holiday sales will grow 3% or just 1% inflation adjusted. The consultancy group says while rates and increasing debt are headwinds still elevated retail prices, higher wages, higher disposable income, along with higher stock prices could be useful tailwinds. And then morning consult survey data shows that more than a quarter of Americans started holiday shopping as of late August and that those early shopping deals aren't doing so out of financial stress, but they're actually more likely to be splurging. Interesting stuff, Kelly. So it's really

just, it really seems that these numbers are adding up to a flat year. Pretty much. Exactly. Pretty much, right? So you're going to see this increase, but if we have the CPI sitting at 3.7% year every year overall, of course, there's going to be some differences when we're looking category by category about flat. So consumers aren't falling off, but we're not probably going to be spending as much as we could have in years past if we didn't have all these pressures continuing on top of all of us. And if gasoline prices continue to eat away at people's spending power, that could affect the ability to lay out for gifts and so forth. Courtney, thanks. Appreciate it.

Let's go to Kate Rooney now for a CNBC News update. Hi, Kate. Hi there, Tyler. Utah Senator Mitt Romney is walking away from the Senate after just one term. The 76-year-old Republican announced he is not seeking reelection for the seat because he thinks it's time for a new generation to step in. Romney, the only Republican in the Senate to vote twice to convict former President Donald Trump in an impeachment trial, said a second term, rather, would take him into his mid-80s and would result in him being less productive. Russian authorities said a Ukrainian attack set two warships ablaze in a Crimea Navy yard.

A Black Sea fleet strike injured dozens of people in Sevastopol, the largest city on the Crimean Peninsula on the port, has been used to initiate attacks deep into Ukraine. The incident is the latest in a string of attacks on Russia's Navy. Beyonce and Taylor Swift have a big reputation in the music industry, and now the nation's largest newspaper, is hiring reporters just to cover their careers. Gennett-owned USA Today and the Tennessean are looking to hire a journalist with at least five years' experience to follow the international superstars as they run the world. Tyler, I don't know if they're looking for any business journalists, maybe, in anchor.

two, three, we all got more than five years experience. Exactly. It feels like you need a trio, a triumvirin to cover this. So call us, right? Yeah, give us a call. We're here. We're ready. Thanks, Kate. All right, ahead on Power Lunch, mortgage market mayhem. Applications falling for the seventh time in eight weeks sinking to their lowest level since 1996. Race for a 30-year fixed loan now soaring well above 7%. We'll break it all down for you on the health of housing when Power lunch returns. Welcome back to Power Lunch. Rising rates continue taking their toll on mortgage demand. Diana Oleg joins us with the latest data of, let's see, lowest since 1996 now, Diana, I think. We keep setting new lows, Kelly. Mortgage rates, though, actually held steady today following the

release of the CPI data. That's because it came in right along expectations. So not much change in the expectations of what the Fed will do. That said, the average rate on the 30-year fixed is sitting at 7.25% according to mortgage news daily. And rates have now been over 7% since late July. That's the longest period that they've held at that level in 22 years. So it's no wonder mortgage demand has fallen off a cliff. Total application volume is now sitting, as she said, at the lowest level since 1996. Refi demand is next to nothing because there are very few borrowers who have rates higher than today's and could therefore benefit. In fact, refis now make up just 10% of all originations, that according to Black Knight. Cash out refies no longer worth it because to get the

cash, you have to trade up to a much higher rate. Applications for a mortgage to buy a home were 27 percent lower than they were a year ago. And while that has all to do with higher mortgage rates, it also has to do with low inventory and home prices, which would you believe are back on the rise again. And just to add fuel to the fire, mortgage credit is tightening as well. We're seeing that in higher overall credit scores and higher down payments. Are, Diana, stick around as we bring in Danielle Hale, chief economist atreelter.com. Danielle, welcome. Good to have you with us. As Diana just pointed out, it's kind of a curious phenomenon.

You've got interest rates at highs and sticky highs, not seen in 20-some years, but you've also got prices continuing to rise, presumably because supply is so low. There's not a lot of cracking going on in the prices of houses, is there? No, not really. And you're right, buyer demand is low, but supply is even lower, and that's keeping prices elevated. We did see a bit of a pullback this summer. So prices dipped on a year-over-year basis in June and July in our data. But in August, they were back up compared to a year ago, and other measures are sort of moving similarly. Prices are roughly staying flat at recent highs despite high mortgage rates. And that's creating some affordability challenges for buyers, keeping demand. but not as low as supply because many existing homeowners like Diana mentioned have mortgage rates that are much lower than today's. And so moving is a very expensive proposition for an existing homeowner today. Yeah, you don't want to give up your 3% mortgage and exchange it for a 7% mortgage. Danielle, what do you expect or anticipate in the fall, which is traditionally a kind of dormant season for a home buying and selling? because people are where they sort of want to be.

They don't want to move around the holidays and so forth or in the dead of January. Yeah, so for shoppers who've been frustrated by the spring and summer market, it has still been relatively competitive because supply is so low. Fall tends to offer a bit of a break. The best time to buy in 2023 is that first week of October. It seems prices ease seasonally. Buyer demand tends to ease seasonally.

And these seasonal cycles in the real estate market are a bit more predictable than mortgage rates have that. So you don't necessarily have to wait for mortgage rates to change, but you can take advantage of that cycle in the housing market, especially if you've been shopping for a while and have been frustrated by what's available in the market. I think that's what. Yeah, go ahead. I was going to say, and adding to that in our August data, you know, and new listings are still down on a year-over-year basis, but they did tick up from July to August, which is not a seasonally normal trend. It is a bit of surprise. And it does suggest that maybe some homeowners are capitulating to this high rate.

environment and just making moves that they have perhaps delayed before things get worse. Yeah, what's fascinating, Diana, as well, is to think that the best way to get home prices down would probably be for the Fed to cut rates because then all of a sudden you probably have a lot of people saying, okay, now I don't mind moving and taking on that new mortgage. So it's kind of a reversal of what we usually see. Yeah, it is. And look, there are a lot of homeowners out there right now who might have been worried about those higher rates and trading up, but they also might be thinking prices are starting to rise

again, and I might be able to make more on my house and could be this be the top of the market, that may be why they're jumping in as well. But I also have to think that rents are playing a factor in all of this. And that is that we're seeing apartment rents really start to cool off dramatically as we see more of this supply come onto the market. And that's reducing the number of home buyers out there because they're seeing this incredibly pricey market and saying, all right, my rent's not as bad as I thought it was going to be, or at least it's not going up as it has been over the last couple of years. Maybe I'll wait this out a little bit. So I think that dynamic is going to play out quite a bit in the fall.

And I do wonder, as we see inflation, if it starts to cool off at all, that we would, you know, potentially see rates come down. And that's really going to start to move this market because there's so much pent up demand out there. Danielle, I'm not sure you have this on the top of your head. Maybe Diana does, but I'll ask you first, Danielle, what does the composition of the mortgage market look like? In other words, are more people taking adjustables than was the case a couple of years ago? I can only imagine that it is. That's a good question. So I haven't looked at the data super recently, but yes, the last time I looked at the data, adjustable rate mortgages were a bit higher than they had been over the past couple years. But, you know, because the likelihood of rates falling is higher than it has to be over the past couple years. But at the same time, the price savings, so the rate savings that you get from taking on an adjustable mortgage has declined. And so I don't know, Diana, you may know the recent numbers better than I do. Diana? Yeah, actually, they're up around 7, 7.5 percent right now. And in the last week, the adjustable.

rate share of mortgage demand did rise. And that happens every time you see mortgage rates go up. Just as a comparison, we were seeing the adjustable rate mortgage share back in 2020 when interest rates were around 3%. That share was barely 2%. So you've pretty much tripled in the course of the last two years because of those higher rates. Danielle, Diana, thank you very much. We appreciate your time today. And coming up, banking on a shake-up, Citigroup announcing a corporate overhaul, including cutting back layers of management to better streamlined business decisions. We'll get the key details with the stock up 2% when Power Lunch returns. Welcome back. City Group CEO Jane Frazier announcing a complete reorganization of the bank's business.

It includes job cuts and a consolidation of management. Part of a bid to streamline decision-making as the stock remains in a slump, down 6% this year, although up 2% on the news today. Joining us now is our own Leslie Picker as well as Hugh Sun. chronicle in detail what's going on here. Leslie, I'm not sure there's much more to say other than a 20-year stock chart. Well, the 20-year is a good time horizon to look at because Jane Frazier basically called this the biggest reorganization in the last two decades. The stock reacting somewhat muted to the news, I think, less than many analysts had expected it to, of about 2 percent, because the main goal from all of this,

kind of as you look at these reorgs that tend to take place from time to time at banks, they're trying to drive efficiency, essentially eliminate certain layers, make sure that when decisions need to be made, they're made in an expedient fashion and aren't bogged down by bureaucracy and red tape and things that you can find in big organizations anywhere, but especially true at large regulated banks. And so that's the end goal here. But of course, with efficiency, with reorganization, often comes job cuts, which the industry itself has really been kind of succumbing to over the last year or so. So Citigroup didn't put a number on the amount of jobs they plan to cut. They said there will be cost savings that are announced in their fourth quarter earnings.

But, you know, anytime you see this, you can kind of expect some trimming down of the workforce. So, Hugh, if we could look at a comparative chart of City, Bank of America and J.P. Morgan, say, over the past 10 years, you look at City and it's been essentially dead money. Why? What have they gotten wrong? Well, it dates back to the financial crisis. So they actually had a deal initially to purchase the bank assets of Wachovia. Now, that went to Wells Fargo, which ended up paying a lot more money for it. That was hugely consequential for Citigroup in its future, because they never had that huge base of cheap deposits that in a zero interest rate environment

was essentially helping them, you know, stay afloat and print money. I'm talking about the rivals here. And so they were always subscale in the place that you wanted to be a mega-scale place. which is the United States market. And so they've got, you know, a huge overseas empire of these subscale, smaller retail businesses, which they've largely exited. But they were really kind of crippled in that sense.

And as you say, they've been dead money since then and they're trading for roughly what they traded for around the 2008 timeframe, which is astounding. Leslie, they made a very conscious decision, didn't they, to sort of wind down their U.S. retail banking process? presence. I mean, you just don't see Citibank. They've been white. You don't see Citibank locations around even in the New York market, particularly. There's some, but not not. Yeah. From a physical branch standpoint, that's absolutely true. And of course, they've been divesting a lot of their

international businesses. They're expecting to IPO their Mexico business in about two years' time. So it's really part of this slimmer, more focused organization. They're hoping that, you know, with driving key focuses and key competencies, they're going to be able to really boost that stock price. So far, it really remains to be seen. They've been transforming the business for years now, as Hugh alluded to, this idea that kind of a post-financial crisis city has just really continually been in this mode of transformation. So this, according to Frazier, is the biggest one yet in terms of an overall reorganization. We'll see if it's effective. Hugh, what would you add? Well, this is the structure.

So Jane Fraser is changing a structure that essentially was put in place by Sandy Weil 20 years ago. And the former executives and the current executives I've spoke to today after the announcement said that basically you had country heads and you had division heads squabbling. You know, you had behavior in which people could essentially behave as though they ran their company within city. And so you had a lot of dysfunction. And I think that this, you know, she's getting some good reviews for this change. I think the question is, you know, she's been CEO for two and a half years now. This structure's been there forever. It's been a known issue.

Why did it take this long for her to do these changes? As we look, Hugh, at that fall off in the stock price. I don't know whether you can see it, but it's roughly the time of the financial crisis. Was there, was there a reverse stock split there or something that accounts for a lot of that? Tyler, I have that. I mean, mostly it's their exposure to. They went all in, whole hog on CMBS and a lot of these exotic mortgage-backed securities in which pumped up their valuation for time being. That was clearly illusory.

And when that balloon got popped, they just never recovered, Tyler. Yeah, it's amazing to see how high the shares were once worth. And Leslie, do they remain kind of an idiosyncratic case? Or, I mean, we've talked about, you know, Morgan Stanley seems to be doing quite well. Goldman obviously has its struggles. but City really, this stock has been, it seems just kind of the more difficult story for so long now. It's definitely been a depressed stock, and I would say it's an idiosyncratic case for certain reasons. I mean, Wells Fargo has also had its challenges and scandals,

and that has had an adverse impact on its stock price as well. So overall, the banking industry is experiencing a whole host of headwinds. It's been broadly as a group trading lower since the end of July when the Basel 3 endgame rules were first announced or were they were first revealed that would increase their capital requirements. As well as just the overall macroeconomic picture hasn't necessarily been favorable for the banks as a whole. But in terms of just idiosyncratic overarching management of the business, City is definitely facing its own headwinds. And they're hoping that this restructuring is able to combat some of those pressures. but it's all part of this idea of streamlining, focusing, and then driving those businesses that they think can help boost the stock price in the future. So, you know, we'll see if it works this time around.

But I think investors have been patient that have been in the stock for a while, and we'll see how long that patience lasts. All right, folks, thanks very much. And you see the stock a little bit higher today. Leslie Picker, Husson, we thank you. And coming up, we'll get some technical support. We had our technician check the charts and some stocks not. feeling the love from analysts right now. Power lunch will be right back.

Welcome back to Power Lunch. Time for some technical support. So CNBC is out with a screener of the most expensive stocks today that analysts also don't seem to love. So here's the criteria. Largest valuation premium in the S&P 500. Less than half of the analysts covering it say it's a buy, which is hard to find. And it's at or above consensus price target for the next 12 months.

So we'll see if Jessica is as bearish on these here to chart them as Jessica Inslee. She is Director of Product with Options Play. Welcome. First one, perhaps not surprisingly, but I've heard some more excitement for this one lately. IBM, what do you see here? Yeah, IBM, I think, is very interesting. So we're at that pivotal moment, and I'm actually bullish. This is the one from the list that I would personally buy. So my key level is 135. So it's right about here. And what's important about 135, you can see this is a consistent area of basically supply, meaning when it comes up here and here, and here and here. We weren't unable to overcome that. Right. So we want to make sure that we have those areas of supply become an area of demand and we shifted over to buying, which is a good sign. That's number one. The first before that happened, though, we're looking at the 200 weekly moving average. I want to see a stock move above that. Once that triggers my bullish trend in my longer term view, then I want to see consistent higher lows. I want to see consistent higher highs. The danger of this right now for my traders, this is at the higher end of the

that higher high. So I would expect a retracement perhaps down just a short term. Like we have bare market rallies, they also happen in the declines. That could happen. So my support, again, is that 1.35 line. I want to make sure that that's not breached because that is my third period of a bull case. Interesting. So basically, as much as you look at this and say that's now turning into support, if we can't hold it and how long do you wait to find out, a day, a week, a month? That's such a wonderful question, Kelly. This is a weekly chart. So I'm looking for weekly closes. Okay. If it goes below it, that's okay.

I accept that. There's price action. However, it's a weekly close below that. That is a sign of weakness. And then that would be areas of concern. However, this is more than one point that points to bullish sentiment within IBM. So therefore, I'd absolutely be a buyer here. Fascinating.

Okay, with that kind of a tease of what we might think about the next two, let's move on to Intel. That's the next one that pops up based on these criteria. And when we show this chart, what do you see here? Yeah. So Intel, I think, is very interesting. We're at actually a pivotal moment. So when we talked about those areas of supply and demand, that's all the market is, especially from a technical perspective,

but you can even bring that fundamental. The 40 line is what I'm really paying attention to. This was an area of demand. Here that was supported, the stock went back higher. However, as soon as we breached it, notice how we falled and fell drastically. Now, we're getting those series of higher lows, getting some higher highs, but we've reached that critical moment of 40. If we do not overcome that, I expect we'll have some consolidation.

And it's the psychological aspect of trading and the market that comes into play. This is a five-year view. If you purchased INTC at $40 a share, there are so many shares that are existing. You might be break-even. And you say, you know what? I want to get out of this. Exactly. So would you take just one week that we trade above 40 as a good sign?

The weekly close, I mean? Yeah. So this is a weekly chart. One week is a good sign. I want to see additional confirmation, though. Okay. There is trend strength with a standard deviation. You think about the math of that.

It's on the higher end of where prices are closing, and that's great. However, you want consistent weekly closes. Got it. So bearish until or unless we see that breakout. All right. Correct. Then progressive, okay? Flo, don't get mad at us over here.

Look, I don't know. This to me looks like a rising trend. I don't know the technical jargon, but what concerns you here? So with this one, I am a bear for progressive. And we're looking at the 26 weekly moving averages. And the weekly averages that I look at as a technician from that weekly view actually are quarterly. The market looks at prices from a quarterly perspective. We think about earnings and the way that data comes out.

26 represents two weeks. We breached below that. That's the indication of just weakness of a trend. And the Dow theory tells us that there's periods of consolidation with a trend reversal. And that's what I see right here. So I want to make sure that, again, there is a target here. I want a higher high. We're not beginning to do higher highs.

We're looking for a breach of this lower low. So it's this area of consolidation that I'm concerned with. That's correct. Yes. And the trend strength is weakening with all of the other indicators, and that's what's really concerning. Now, only do we look at the areas of supply and demand to define our resistance and our price targets. What I'm really concerned with, in addition to that, is trend strength.

And that's weakening. It's not strong enough to overcome those. All right. Sorry, Flo and all the other kids. What are their names again? They were like members of the family during the pandemic. Jessica, thank you so much. We appreciate it today.

Jessica, with our technical support time. Thank you. I actually understood that, Jessica. That was really good. It was really good. All right. It's closing time. After a quick break, we'll be right back.

We'll try and be as clear as Jessica just was. All right, we've got less than two minutes in the program on a number of stories that we want to get to. The first one is that Lyft has unveiled a new feature that helps match women and non-binary drivers and riders in an effort to improve safety and peace of mind during rides. And so the program is called Women Plus Connect. It's rolling out today in Chicago, Phoenix, and San Diego, San Francisco with plans to go eventually nationwide. I think this is the case of a company listening to its customers who are putting safety at a high up on their agenda. I suppose. And the after work happy hour may be over as we know at the Wall Street

Journal highlighting that more and more workers are choosing to clock out and rather than socialize at 5 p.m. according to consumer analytics firm Sercano, after work dinners are down 43% from 2019 levels. And what interesting nugget I liked in this with all the new pet owners, they got to get home to watch your pets. They got to get home to watch your pets. I think people got accustomed to working at home. People are probably still working at home. So there's not as much. But if you go into Manhattan on a... It's busy right now. It's busy, man. Busier than it's been in years. Oh, yeah. There are a lot of people out at the bars.

California is also close to banning heavy-duty driverless trucks on state highways. The bill easily passed both houses. Now it's up to Governor Gavin Newsom. It would require trucks weighing 10,000 pounds to have human safety drivers in the cab. That makes a perfect sense to me. Yeah. Yeah. The fully autonomous stuff, I'm not sure it's there yet. California, in the one hand, this is the place where San Francisco is letting you know, way more places do there experimenting. On the other hand, they're, you know, cracking down more heavily in this area.

So they're sort of all over the place. Dow is down 75 points right now. Thanks for watching, Power Lunch. We've turned sharply lower at least for that average. Can the S&P hold it? That's up a couple of points right now. Closing bell begins right now.