Power Lunch - Rate Cuts Coming?, Tesla Revs Up 7/9/24

Episode Date: July 9, 2024

Fed Chair Jerome Powell just told a senate committee the economy remains strong, despite some recent cooling. He also said holding rates too high for too long could jeopardize growth. We’ll break down what that means for timing of potential rate cuts.Plus, speaking of growth – the values of sports teams have been soaring for decades. Is there any sign that we have finally reached the peak? We’ll discuss.And, Tesla’s rally rolls on, with the stock on pace for it’s 10th-straight positive day. It’s up more than 40% during that streak. If you’re holding it, should you sell now? We’ll ask our trader. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody, and welcome to Power Lunch alongside Kelly Evans. I'm Tyler Matheson. Glad you could join us. Fed Chair J. Powell, appearing in front of a Senate committee today says the economy remains strong, despite some recent cooling, also adding that holding rates too high for too long could jeopardize economic growth. Hint, hint. Speaking of economic growth, the values of sports teams have been skyrocketing for decades, recessions or not. Is there any sign we might have finally reached the peak? Before that, let's get a quick check on the markets. As you see there, Apple and Microsoft, continuing to battle it out for the market cap leadership, getting very close to $3.5 trillion as we watch that battle it out. Plus Tesla higher for the 10th straight session of 40% during that streak. If you're holding it, I hope you're long. I hope you're not short because you're getting crushed if you are. We're going to get advice from our trader coming up in three stock lunch.

Let's start with the Fed and the markets, though with Fed Chair Jerome Powell, testifying before the Senate Banking Committee. While he acknowledged the risk of holding rates higher for too long, He said, we also need to see more good inflation data before cutting them. Take a listen. It doesn't seem likely that the next policy move would be a rate increase. We don't take things like that off the table, but that does not seem the likely direction. The likely direction does seem to be in as we make more progress in inflation.

And as the labor market remains strong, we begin to loosen policy at the right moment. Let's get some reaction from Dryden Pence. He's here. He's CEO of Pence Capital Management alongside Stephen Stanley. Chief U.S. economist at Santander, welcome to both of you. Dryden quick knee-jerk market reaction. I guess markets took this is slightly hawkish, given that he still tried to say maybe we need to see, you know, some more consistent progress. Well, I think at this particular point, it's always continues to be that weight in C,

and it's a question, is it one cut, or is it two? Is it September? Is it December? But in general, they're still trying to be very data dependent. And I think that you're trying not to give the idea that they're going to be political about it or anything other than completely objective. And I think that that's kind of the market's taking that in stride and continue to do. We have a robust economy. And I think that that's one of the key things that we're just slowing down from 90 to 50. Let's ask the economist to your left.

Is it robust even because we were debating last hour whether things have now slowed, not you have to debate the recession question, but simply the question of cutting rates from five and a half percent to something maybe more neutral or appropriate. Exactly. No, the economy is definitely cooling off, but it's cooling off from a very hot setting for, you know, a couple of years now. And I thought it was interesting in the hearing. The politicians wanted to emphasize how much it's cooled off and not talk about the level.

And Powell kept coming back to the fact that, yeah, we're slowing down, but the economy's still solid. And why do you think he did so? You know, I mean, because it's funny because you'd think, okay, well, it'd be the opposite. I would expect the Fed chair to be talking about, well, things are cooling and everyone else to say, no, but inflation's still high. And it sounds like that wasn't quite the tone of it. Well, I think, as you would imagine, most of the politicians are probably hoping for a little rate cut before the election.

And I think Powell didn't want to have to commit to anything. So if inflation data cooperate, they'll be easing soon enough, but we're not there yet. Trident, we're going to start seeing some earnings later this week from some of the big banks. What are you expecting for earnings season as we get into it and then earnings for the rest of the year, if, in fact, the economy is slowing a little bit. Well, like we said, we're going from a toward pace to a sustainable pace. And I think what we're going to see, and we're going to know here within the next, next 30 days is that a broadening out the earnings recession is now turning into from a rolling recession into a rolling recovery.

And you're going to see the broadening out of many companies are beginning to see pick up in earnings. We've had this narrow growth. We're going to see that broaden out. We're going to see more companies. I think the vast majority of companies are going to beat and they're going to beat expectations and they're going to probably be beat handily because you're beginning to see this final phase of the rest of the S&P 500, finally catch up to some of the earnings growth that the magnificent seven had. Are you at all concerned about the valuation, I note in some of my research materials, that when you look at the equal weighted S&P 500, I'll ask you first and then maybe you can chime in, Steve, the equal weighted S&P, or you take out the seven, the magnificent seven, the earnings multiples are pretty normal.

Exactly. So when you say we're at a higher, if you say the market has gone up too far, it's only with a few companies. So when you look at the, rest of it, they're, you know, about an 18.4 if you pull out the mag 7, right? So we want into a normal valuation, a normal PE area. And if earnings are growing, that's going to be supportive of those stocks. I mean, one of two things happens here, I think. Either the foundation of the market gets better and stronger and broader, or it propels the market forward into the rest of the year. And so I think that we're kind of on the side of we think the market's going to be reasonably robust continuing for the rest of the year. It's just leadership is going to change.

And you're going to see that rotation and leadership to a broader group. Stephen, I just read an interesting stat from Bespoke that said both the ISM manufacturing and services are under 50, as we know, but that usually that only coincides with recession. And the weird thing they said about that is usually by the time this happens, the market's already sold off. But this time we're at record highs. It's very odd. Well, again, I mean, it gets back to the change versus level picture because the ISM measures change, right? So the economy can be cooling and not necessarily be weak. I think the manufacturing sector has been contracting a little bit, but the services sector, I think it's maybe it's

normalizing, but I don't think that what we're seeing in that part of the economy is weakness at all. So it doesn't worry you, and why don't you comment on Dryden's comments on earnings? How do you expect them to come in? Well, I mean, I think if the economy slows, it can still be a good period for companies. Companies have had better pricing power, maybe to, to Chairman Powell's chagrin. Yeah. And as long as that continues, obviously, it weighs in positive direction for profitability. A recession is one thing.

A slower economy is something very different. But that's where I find the Helen of Troy example very interesting today and not to go too granular on it. But this is a consumer products company that raised prices a lot in recent years. Has maybe gone too far now has to pull back. And if that happens, this is what Piper Sandler and Nancy Laser, I've been warning about could happen, that we could see corporate revenues stalling out, you know, margin pressures, earnings declines. You know, so from that point of view, this doesn't look quite so much of a healthy development

as maybe the start of a worrisome one. Well, it's certainly, you know, you're talking about a weaker economy, right? So they're always dangers in that. It also means an economy that is more vulnerable to a shock, right? Recessions don't just happen out of thin air. They're usually caused by some sort of external shock. when we're growing at 4%. We withstand those types of shocks as we have

over the last few years. You get a slower economy. You're more vulnerable. So it doesn't necessarily mean recession, but it could happen. And similarly, Dryden, I don't know if you had any thoughts about what we're seeing

in kind of, whether it's Helen or some of the CPG companies that are having to rethink price now. Well, I think the idea of that people going out and buying any product at any price is over. For a while, they did that. And so now you have a consumer

that's more conscientious, that's more thoughtful, they're picking what they're going to spend their money on, and you're seeing some changes in consumer behavior, right? So you've seen companies in fast food industry not do as well or not be able to sustain their price increase because you expect fast food to be fast and cheap. And when it's neither, you're going to move to something else. And so consumers are beginning to change their pattern

as they think more about this inflationary environment, and they're becoming pickier. That doesn't mean they're not spending money. More people are making more money than ever before. and Americans spend it. So the aggregate demand stays very high, but it's going to move from sector to sector. People are moving towards experiences.

People are moving towards, you know, other particular things that they're trying to spend their money on and be more thoughtful about it. Dryden, it takes a cool cat to wear a full three-piece suit on a 97-degree day. God bless you, man. And a double-breasted. Looking good.

All right, thank you, sir. Appreciate it. Thank you as well. Appreciate it. All right, coming up. Some housing industry watchers, expected home prices will ease in the second half of the year. But so far, that's far from the case. Even as the supply of homes increases. We will discuss what's going on in real estate.

Plus, what if the winning stops, why one of the most successful NBA franchises is reportedly losing serious value on the open market. We'll look into that and more when Power Lunch returns. We'll be right back. Welcome back to Power Lunch, everybody. We heard from Chair Powell on interest rates today. No clear sign of when a rate could be coming. Lots of sort of hints in the air, though. That may be bad news for home buyers who were hoping for a drop in mortgage rates soon and perhaps home prices as well. But so far that has not been the case, even as the supply of homes on the market finally, finally increases. Diana Oleg joins us now to explain what's going on and why. Hi, Dye. Hey, Ty. Yeah, we are in a housing market unlike any other due to economic forces unlike any other.

The foreclosure crisis, the great recession, the pandemic, and the unprecedented quick cut and then quick spike in mortgage interest rates. Take a look at supply of both newly built and existing homes for sale. It shot up during the 2005 housing boom and the ensuing foreclosure crisis, which flooded the market, so home building essentially ground to a halt. By 2012, new homes were just 6% of all supply. Then total supply dropped even more in the pandemic when demand spiked. Now it's climbing back. But in a weird twist, it's mostly new homes climbing back. The month's supply of newly built homes for sale is now almost three times that of existing homes. Month supply is how long it would take to sell that supply at the current sales pace. Now, new and old home month supply usually track pretty closely. But new construction now makes up 30% of total inventory. This is due to a roller coaster mortgage rate scenario, dropping to historic lows at the start of the pandemic. and then spiking to 20-year highs just two years later. That makes homeowners who wanted to move up, instead stay put, cutting existing supply,

further, and it makes buyers look for cheaper homes. So you can see that in the month's supply of homes for sale in May by price tier. It is the lowest in the $100,000 to $500,000 range, because that's where most demand now lives. And that is despite the fact that supply has increased the most in those lower tiers. The homes are just getting eaten up. that fast and that is why prices are still going up. Back to you guys. Yeah, people are looking for a price point here, I think, and they're getting squeezed out at the high end. So I guess that's

why people are building to where you go where the money is. You go where the people are. You do. And that's why some of the, you know, big builders who are looking at the lower entry level models are doing well, your DR Hortons, you know, they have an express brand, your KB. Homes that have that built to order brand. But again, there's going to continue to be pressure until we see mortgage rates pull back. But then the argument is, if we do see those rates pull back, then you have a flooded demand comes in,

and that just pushes prices even higher. All right, Dye, thanks very much. Appreciate it. Diane Oleg. And for balancing to another key component of the CPI, car prices. A short time ago, we got the new data on the used car market where prices have been falling, but they're still up significantly from the pre-pandemic. Phil Abo with the details.

Phil? And they continue to fall, Kelly. If you take a look at the June data, which comes to us from Cox Automotive, overall prices compared to June of last year, down 10%. But look at the decline compared to May. It's definitely slowing down, down just 2.2%. It was lower for every single vehicle segment, trucks, compacts, you name it. The prices have been coming down. However, this is getting close to the point where most believe we're going to see a normalized market. In fact, Cox Automotive believes that used auto price. will be stabilizing over the next six months. Demand for used vehicles, that continues to increase, and that's going to give some support to the prices there. One area where you may not see support in prices, the used EV market. And keep in mind, what we're seeing in the used EV markets are a lot of vehicles that initially were being sold for well over $50,000.

That ain't happening on the used market. So far, when you compare June with last year down 16.6 percent in May. they were six and a half percent higher in terms of pricing. This is expected to continue, especially as you see more lower priced EVs come into the market. So as you take a look at the auto dealership stocks, they should be getting a little bit more demand over the next couple of months. And the supply is going to be limited because we're in that part of the three-year cycle where there's going to be fewer three-year lease vehicles coming back to be turned back into the dealerships. And that's going to support pricing as well. Guys?

prices come off the way they have, not just for EVs. We know a little bit about that, but why are they falling? Right. Well, first of all, the demand clearly outstrip the supply when you go back during the pandemic and then right after the pandemic. And that demand has fallen off significantly. And as that demand has fallen off, increasingly a lot of people who were in the market to potentially sell their vehicles. I mean, I'm sure you've gotten these notes, Tyler, emails from your dealers They're saying, have you taken a look at what the value is of your vehicle? You want to send it to us? You want to sell it to us?

You know, those things are prompting a lot of people to say, okay, I'll do that. So you had a lot of supply come back into the market. That also brought down prices. And we're getting to a point where it's just much more normalized compared to what we saw during the pandemic and right after the pandemic. I sadly have one of those EVs that I bought at a premium price. Then the company, which shall remain nameless, cut the price on the new cars. And that, of course, sent me...

Gee, I wonder who that was. I wouldn't want to mention, though, they're on a 10- or a 12-day stock winning streak. Well, who cares? But anyhow, so, yeah, the residual value of this particular vehicle is much lower than I would have anticipated. You know, the Honda minivan tie. If you had gone that round... I saw you rocking the big minivan. Anybody needs it.

They want it back. They call me all the time trying to offload that thing. Yes, they do. They want it back. Minivans are in demand. That will continue for a while. There's just not much production of them out there. So if you have one and you get one of those emails, people are thinking long and hard.

Is it time to get out of the minivan? If you can. Not in me, Casa. All right, Phil, thank you, sir. And a quick power check as we had to break on the positive side. Cheers on. Oh, there you are. Just add insult to injury.

Continuing to rally there, ladies gentlemen. Trying. Yes, the shares are trying. We have anthropomorphized them. With a 10th straight day in a row, we will get the trade on that one ahead and three-stop clutch. Negative size, you got your album-a-l shares of the lithium producer lower after Oppenheimer cut its price target on the start. They make a movie about Oppenheimer? Yeah. More on that one coming up.

That's your power check. We'll be right back. All right, folks. Welcome back to Power Lunch. Let's give you a quick check on the market, shall we? Green arrows for the S&P 500 and NASDAX. Been that way, setting record highs there for those indexes. And the industrials basically flat at 39, 325.

Energy, one of the worst performing groups today. And that's why we invite Pippa Stevens here. Tell us about it. Well, we have four big movers. I'm going to run through all of them quickly. So let's start here with BP. They announced some Q2 considerations today. They said they're taking an impairment charge of up to $2 billion.

Part of that, thanks to an ongoing review at one of the first. of their German refineries where there are decreasing output. They also said that they had weaker refining margins to the tune of about 700 million. They also pointed to trading weakness. And this, of course, all comes as Marie Aachenclos tries to reinvigorate investors in the stocks and he took over on a permanent basis back in January. Weaker refining also playing through to Exxon, which also gave their Q2 update.

They said refining margins could impact their results by up to $1.5 billion. They said that their upstream operations should be helped by higher oil prices. However, that will be offset by lower gnat gas prices. When they report later this month, that is the first update since they completed the pioneer acquisition. That will be important as well as the ongoing soap opera of the Chevron Hess Exxon. Okay, then Devin, moving through to the next one. So they are left out of the M&A party. No more.

They are acquiring the Baccon assets from privately held Grayson Mill energy. So that will increase their footprint up there. And Various is Andrew Dittmar said they'll leapfrog from the eighth largest producer to the So a pretty big sizable footprint and then also relocating some of their operations outside of the Permian, which led Bank of America to upgrade the stock. And they're not down much. I mean, to see it only down fractionally on that side, that's pretty interesting. Especially since it's not so much a play on their longer term inventory. It's more on the current production, about 70 to 80 percent of the deal values based on operations that are already ongoing versus the long-term inventory. Finally, Album Aral stocked down more than 7 percent, the biggest drag on the S&P. This comes after Baird kind of cut. guidance the head of Q2, lowered their target from 170 to 127, it heard something similar

from Oppenheimer. We have a longer-term chart. It is now down more than 70% from its 22 high. Crushed this year, too. I mean, obviously everyone knows this is the lithium play. One of the real sort of company plays on that commodity in the market, and it's been a tough year. Yeah, I mean, lithium prices have fallen more than 80%.

And I think, you know, they ran up, you know, way too quickly. I think everyone would now agree. And then the dissent has been just as extreme. and that does no favors for any producers. I mean, you can't predict your long-term pricing any of your contracts if you have these wild swings. Relatively new commodity markets, so it's still sorting out some of the peaks and troughs.

Wow. All right, Pippell, thank you very much. And let's get to Kate Rooney now for a CNBC News Update. Kate. Hi there, Kelly. NATO will send a representative to Kiev as Ukraine continues to push for membership into the alliance amid its war with Russia. Secretary of State Anthony Blinken announced the development this afternoon along with several other measures meant to strengthen NATO support for Ukraine.

That also includes a new military command in Germany, led by a three-star general that will train and equip Ukrainian troops. Hurricane Barrel, meanwhile, knocked out power for more than 2 million people in Texas, as swell terrain temperatures blanket the state's storm hit southeast. The power company for the Houston area says it's assessing damage from the storm and will soon publish estimates for restoring the system. But state officials warn could take days to fully restens. return power. And a Russian court issued an arrest warrant today for Lexi Navalny's exiled

widow. The court accused Yulia Navalnya of participating in an extremist group. She has taken the mantle as Russian opposition leader following the death of her husband in a penal colony in February. Kelly, back over to you. All right, Kate, thank you very much. Kate Rooney. Still ahead dropping like a Steph Curry jump shot. The New York Post reporting the Golden State Warriors are struggling to sell a stake in the team. They claim the value. is slipping despite being one of the NBA's best performing teams of the past decade. Could an exodus of tech firms and workers be to blame? We'll dive into all of that when Power Lunch returns. Welcome back to Power Lunch, everybody. Sports team values continuing to store so or so much so that

many are wondering if it has to stop eventually, including our friend and Houston Rockets owner, Tillman Fertita. Here's what he told us last year. I can tell you this from being involved in the Denver process and in the Washington. process, there's not a lot of buyers out there. When you start talking about these numbers, we're in numbers now that were middle class billionaires like myself, can't afford them anymore. I'd like to be described as a middle class billionaire. That would suit me just fine. We're going to find out because the Boston Celtics are going up for sale coming off an NBA championship. Talk about selling at the top tick. Here's what Celtics majority owner, Wick Grosbeck, said about

investing in sports teams yesterday with Scott Wapner on closing bell. We put in 200 million of equity 22 years ago for this. I mean, it really was literally 200 of equity. It's been a crazy ride. We won't repeat that in the future, but I'm bullish about the NBA going forward. I think it's a sound investment. You should own this team if you love trying to be the best. You should own it for reasons of community and competing on the court.

But you know what? The finances can also work out. I should say so. If you bought a $200 million and you're going to sell for something like $5 billion, in addition to the Celtics sale, the Golden State Warriors owners trying to sell a piece of that team. Perfect time to welcome our newest team member, Mike Ozanian, senior sports reporter. Mike, welcome. Great to be here. Thank you. We're delighted to have you with us. So am I wrong, or does it seem like quite a few NBA owners have been selling in recent months? You've got the Bucks.

Lazary got out. You've got Mark Cuban selling a big hunk of his steak, or maybe all of his steak, I can't remember, in the Mavericks. Now we've got the Bay Area team selling out. And we've also got, well, you know who we've also got? Deerbosa in the Bay Area. She joins us, too, to chip in here. But now the Celtics, so you have the Celtics, the Warriors, the Mavs, the other team in the finals, and the Bucks all selling. What's going on?

All for different reasons. I know that doesn't help at all, but particularly taking some money off the table. Mark Cuban sold controlling stake in his team, but he still got to run the team. He still got 27% of it. Yeah, he's got exposure. Right, exactly. The huge next media deal coming along, it's going to probably see the average amount being paid to the teams go from 90 million to over $225 million per team. So you have some owners taking cash off the table.

Grousebeck, that's a family situation. There's some estate planning involved. But look, he's done okay. Probably a 23, 24% annualized return on his investment, something in that nature. Not too bad. Not too bad. Deirdre, let's talk about the Warriors. I mean, there's a team that has been the closest thing to a modern dynasty in the NBA.

But last year they didn't make the playoffs. They had a very poor record, maybe one, two years before that. And now Clay Thompson is gone. And they are in a reload. And Curry is getting a little old. Cury's getting older and would probably rather play golf than basketball. Who knows? But at any rate, the thing that makes the warrior so valuable in part is that you also get that Chase Center arena.

Yeah, that's right. They moved over from Oakland for that Chase Center. It's supposed to be sort of this mixed urban complex. You saw Uber move in there before the pandemic take up a ton of office space. They've sublet there or subleased their space to open AI. So there is activity there. I guess at the heart of the question is, you know, San Francisco, a fair weather sports fan city. And, you know, that's something I've asked myself since moving here about eight years ago.

Guys, I come from Toronto, which is through and through a hockey town, okay? I know in the States it's a little different. There's not as much hockey. This has certainly been a basketball town since I got here since we've seen the Warriors do so well. But it does feel like something is shifting. And as, you know, San Francisco is sort of one of the last major cities to really go back to work, We still have many companies here with hybrid work policies, and you've seen companies sort of move out or stay with hybrid work.

There's less fans to go to some of these games. So it's not all that surprising if the Warriors valuation goes down as well, which maybe Mike can speak more to. But I don't know, Mike. Are you seeing that go down? And do you think that that might be one of the reasons for it? No, I think the valuation is going up. There's a small piece that there's been an agreement to sell that piece in their teams,

probably for about a month and a half. that minority valuation is about $6.5 billion. So if you gross it up to a control stake, you're talking at least $7.5 billion. The thing is, notwithstanding everything Deirdre said, which is all spot on, a lot of the revenue streams are guaranteed. There are contracts there for several years, season ticket holders from sponsors. So they're really locked in for several years. So you're saying there's no valuation decline for the Warriors or for the NBA more broadly?

I don't see it in the next couple of years, not with this massive new TV deal coming along. And I think as private equity investors and institutional money continually see the NBA and other sports as an asset class to invest in, diversifies some of the winnings they've had. Are the poor middle class billionaires being priced out here? The three of us, yes. I think maybe season tickets, stop up, maybe we can buy something. Maybe we bring D into the equation, it'll change everything. and we'll get it moving here. I would also like to be a middle-cast billionaire.

Wouldn't you? I would. I would not mind that title. But let me say something because what's been really interesting here in the Bay Area is sure, you've seen sort of the men's sports teams increase in value, lots of season tickets selling out. But a new movement specifically here in the Bay Area is really the rise of women's sports. And over the last two years, we've seen a new soccer team, Bay FC, women's soccer team.

And in 2025, we're going to be getting the first WNBA expansion team in more than a decade of Valkyries. And, you know, they see San Francisco. We had an event here at our One Market Studio just a few weeks ago. They were so enthusiastic. The CEO of Bayfc and the new GM of the WNBA team, you're seeing some images from it now. They were so optimistic and so excited to be here. And I asked them even, you know, is it hard to get talent to play here? because housing prices, because of the city's reputation, the so-called doom loop, and they said not at all.

Women want to come and play here. We're figuring out the housing piece of it. But let me just give you a clip, too, of Brady Stewart. That's a Bayfc CEO. Just her enthusiasm really comes across here. I've been absolutely blown away by the Bay Area sports community embracing our team and our organization. we do have many, like, multiple teams that everyone looks up to, right? The Giants, the Warriors, the Niners, they're incredible organizations, and they have, like, opened their arms to us, and it's been very humbling, frankly. And I think community of sports and athletes has been very powerful in the Bay Area. Mike mentioned private equity.

That is a big piece of the growing popularity and valuations for women's sports teams. So on that note, and I think as people look to diversify, ownership are looking to retail, Mike, as one potential way of getting the public in on this, maybe not exactly through an ETF, but a structure like that where there could be kind of broad ownership. That's why the valuation question becomes so interesting. You don't want the moment that the valuations have peaked to be the moment that you bring in the retail public. So it's reassuring if you're saying you still think there's considerable upside here. Right. And this is all new because private equities only started coming in in the last five or six years, really. So,

you know, when those funds liquidate, they want to show positive returns. And I think what Deirdra's talking about. It's almost like women's sports are the NASDA tech growth stocks of sports. You know, 50 million can get you a WNBA franchise. That's phenomenal. You know, it couldn't even get you a fraction of the Golden State Warriors. No, it's interesting. Wick Grousebeck said, you know, we're not going to see a repeat of that $200 million investment going up to $6 billion in 20 years. We're not going to see that again. He was pretty clear on that. I'm only going to say this. Wick's a great guy. I know him, he's very smart. But when I first started valuing sports teams in 1989,

and I was looking at the list, I asked the sports banker, I said, wow, George Steinbrenner paid $8.8 million for the Yankees, and now that you're saying they're worth $2.25, and the guy said to me, yeah, but that's because TV rights have gone up a lot. We're not going to see that over the next 10 years. And yet, here we are. Yeah, I think, look, there's disruption, right? We're going from Lanier broadcast to streaming.

in media is figuring it out how to monetize it and I think professional sports is going through the same thing but as this new NBA deal shows particularly with a global sport like the NBA where these players or brands it's going to be monetized one of the things that's interesting

to me is how the NBA the valuations on NBA teams have closed the gap in valuation vis-a-vis the NFL I mean they're out there asking $5 billion well it wasn't too long ago that $5 billion was the top valuation of an NFL team.

No, that's a great point because it's funny. You're saying that we're talking about private equity. Well, the NFL has not yet allowed private equity to come in. When the commanders were sold, Josh Harris's group was sort of trying to use that. The NFL put its feet down. But I think when you see private equity come into the NFL, which is going to be in the not too distant future, instead of NFL teams going for maybe six times revenue versus nine or ten for the top NBA teams, you're going to see the revenue multiples go up for the NFL as well.

So what did the commander sell for? Little over $6 billion. Little over $6 billion. So you're saying that number in a few years is going to look antique. Yes, absolutely. And only the high class billionaires or the retail public or everyone coming together are going to be able to afford, I think, to get in at that point. Do you have a quick last word?

Mike, I'm curious. I've been wondering about the 49ers because they're based down the peninsula from here in Santa Clara. And of course, that is where NVIDIA is headquartered. And I wonder if there's any correlation between, I'm sure they're minting a few mid-class billionaires. Is that the term we're going with given NVIDIA's stock soaring price? Do you think that's going to have effect on ticket sales, merchandise, just the 49ers position?

Yeah, look, I mean, the demographics of what's been happening out there has been a boon to the Golden State Warriors, a boon to the 49ers. Not so for the Oakland A's, who seem to be headed to Las Vegas. so shows you the popularity in particular of the NFL and the NBA versus popularity of the baseball team out there. Right. All right, D.

Thanks very much. We appreciate it. Thank you. Thank you. We'll look forward to many more. Thank you both. And by the way, mark your calendars for CNBC's second annual game plan summit. It is on September 10th in L.A.

The event brings together industry leaders, visionaries from the sports and entertainment world. They'll learn more and register. You can scan the QR code on the screen or go to CNN. BBCEvents.com slash game plan. Coming up, the FTC releasing an interim report on its two-year probe into Big Pharmacy Benefit Middleman. With some scathing conclusions, we'll dig into the details and ramifications when Powerlunch returns.

Welcome back to Power Lunch and update now on a story we've been following, the role of PBM's Pharmacy Benefit Managers. They're the link between the Big Pharma companies and your local drugstore. Today, the FTC slamming the companies, blaming the company's blaming the, blaming the them for high drug prices. Bertha Coombs joins us now with more. Bertha. Yeah, this was a long-awaited report.

It's been a two-year probe. The FTC's interim report argues that PBMs, which claim to save patients and insurers' money, are actually driving up costs. They highlight specialty drugs, high-cost or complex drugs to treat special conditions. The report outlines how the big three PBMs, CVS's CAREmark, Cigna's Express Scripts, and United Health's Optum

have boosted their sales growth by designating more and more drugs as specialty pharmaceuticals, then they make patients buy them at their preferred pharmacies. Now, one example of how this works, the price of the generic version of the cancer drug of Glevec, which treats leukemia. The report notes that in 2022, PBM preferred pharmacies were reimbursed $2,700 a month for the drug.

That's 40 times the net cost of $66. And it cites a quote from a PBM executive admitting to a consultant that it doesn't look bad, does it look good, the optics are bad, that they'd actually designed their plan to, quote, aggressively steer customers to home delivery where the generic cost is 200 times higher or over $19,000 while not telling patients that non-preferred outlets like Costco charges $97. Now, CVS says it stands by its record of protecting employers and patients from rising drug prices. United Health Optum says PBMs served as a counterweight to drug makers' monopoly power to set

prices, while Cigna's express scripts told CNBC the report's conclusion were biased. And industry officials are noting that FTC Commissioner's dissent, Mayor Melissa Holioke, basically comes to the same conclusion that the conclusion of the report was biased. So who's paying that $19,000? price at a non-prefer, by a mail order for the drug Gleve Act that you cite there. And is it my insurance company? Is it me, the customer? Who? That ostensibly, that's one of the holes that Holyoke, the commissioner, who dissented on this report, talks about that. They don't really tie together all of those knots in this report. These

are things that people have talked about. One of the criticisms that she says that even if the report's assertions of increasing concentrations among these PBMs are accurate, increased concentration does not prove that competition in the market has declined because they all compete against one another. Ostensibly, that is the rate that they're going with the insurer. They're bringing it to the insurer. Right. But what happens with these rates is that there's a net price, there's a little bit less. And then what happens is that you as a patient pay your co-insurance based on those higher prices, as opposed to the net price that everybody else is dealing with.

So that's where it's such a very complex process that it's hard to discern. It is opaque by design. And that is the big criticism people have. It is opaque by design. And that is what a lot of the bipartisan legislation is trying to get at to make it less opaque, to make sure everybody knows what's happening.

One smaller PBM executive told me, And we put out a trend report on what's happening with our prices and what we're saying. None of the big PBMs do that anymore. Well, I think also the question remains, what are the policy steps that they think really solve this? Or do they try to leave it to the market to, in some way, come up with a better system? That's one of the things that people talk about in the sense. Employers are the biggest part of the market. They are the large employers or half of the market.

And they set the tone and negotiate with these middlemen. But there's just so many layers that people don't necessarily understand. And one of the things that a lot of this legislation is trying to get at is to just create more transparency and to set some limits. You know, it used to be that the pharmacy couldn't tell you that you could pay a lot less if you paid a cash price rather than your insured price. Through legislation, that was changed. And so now you can ask them, how am I going to pay the lowest price? And sometimes the cash price is actually the lowest price. So bizarre.

All right, Bertha, thanks very much. Appreciate it. Well, Helen of Troy plunging on a rare earnings miss and cut to its full year outlook on pace now for its worst day ever. Helen having a bad day. Helen having a bad day. Reporting weakness in its beauty and wellness business will trade it. And other movers will have all kinds of allusions to mythology and Greek literature.

For those of us who guys. Crypto Watch is a story. sponsored by Grayscale. Time for today's three-stock lunch here with our trades is Ava Ados, ER shares, C-O-O, and Chief Investment Strategist. First up, Ava, we got Tesla on track for its 10th consecutive update, 45% gain over that time. It's a question a lot of our viewers ask, what do you do when you have a big winner, though this one, I mean, it's up a lot in the last month, but you may not be a winner in

this stock if you've held it for longer for a year or two. Yeah, definitely. So we have it as a hold. And as you said, like, initially the company was down early in this year, but now they went up 40% in the last 10 days. We're tracking their short interest, and it's highly, almost perfectly negatively correlated with the stock appreciation, which means that the shorts have been covering, and that's partly a short squeeze too. So this is a company that's been controversial for many reasons. One was Elon's, uh, compensation package, which was $50 billion that has been settled. Now there's a lot of discussion about the relative valuation of the company. Now, that's an $800 billion company, which is more

than most of the competitors combined. And therefore, price to earn its ratio is 91 compared to five for the rest of the category. That means there are a lot of negatives and positives for the company. So we would hold at this point. All righty, thanks, Abel. Let's move on to Lenar, which got an upgrade from Wedbush to neutral from underperform today after the stock passed its price target. Homebuilders have had some headwinds the past month, as you can see on that chart there. Ava, what would you do with Lenar here? Best case scenario hold. As you said, home builders are not having their best here.

And unfortunately, we don't think things will change anytime soon. The macroeconomics do not favor home builders when it comes to first-time buyers. They can't really afford to buy a new home. And when it comes to current homeowners, they're reluctant to give up their 3% mortgage rate that they secured during COVID. Inflation is that 3 to 4% annually mortgage rates have been sticky. And so unless we see the Fed cutting rates, home builders are not going to be the best category to be in. So we would hold only case someone already owns it. And that's a bet that the Fed will at some point cut rates.

Otherwise, this is not a good category to be in. I think you started to answer my question, Ava, and that was what a hold means. A hold to you means if you own it, don't sell it. But if you don't own it, don't buy it. Is that basically it? Exactly. Okay. That's exactly.

Okay, good. I got it right. Wow. Cool. All right. Finally, a stock impacted from the weak consumer. Shares of Helen of Troy headed for its biggest one-day plunge since going public. 52. Who knew Helen was that old? Wow. 52 years ago. Your trade here, Eva.

52 years, but it's a sale. Their first quarter was really bad. The fourth outlook is even worse. Now we're speaking about a company where their profits and margins have dropped by one-third. And what has not been discussed a lot by analysts is that when you have a combination of sales dropping, inventory rising, and margins coming down, comes to a retailer that's a really, really, really red flag. And so their SG&A has soared. Their long-term debt has increased. We're not saying that they're about to go bankrupt, but this is definitely a company that has to be monitored for bankruptcy risk. It's a sell. Well, that would be a go-to-hellen of Troy. Eva Ados, thank you. Power Lunch. We'll be right back. Welcome back. The Dow has gone from negative to positive and back to negative territory throughout the session today,

down 55 points. And just want to mention quickly Darden restaurants, kind of the anti-Tesla. We were talking earlier about Tesla's winning streak. Well, for Darden, it's down 10 sessions in a row for a 9% cumulative decline. Wow, that's quite. Now, the S&P and the NASDAQ are up just a little bit. There you see the NASDAQ up by one-tenth of 1% and the S&P up by a smaller amount as well. So sort of a split market. And I still think keep an eye on Helen of Troy and what's coming in the consumer sector, deflation, profit margin hits, that sort of thing. Thanks for watching Power Lunch, everybody. Closing bell starts right now.