Power Lunch - Real Estate Ripples?, and On The Hot Seat 8/14/23

Episode Date: August 14, 2023

China contagion is a concern today, as the country’s real estate sector sells off following a big warning from Country Garden. How bad could the ripple effect turn out to be globally? We’ll explore.Plus, someone once said “there’s no such thing as bad publicity.” But that person was not Goldman Sachs CEO David Solomon. After a series of unflattering articles, many are asking: how much longer can he keep his job? We’ll discuss. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch, everybody, alongside Kelly Evans. I'm Tyler Matheson. Coming up, China contagion the country's real estate sector selling off big time following the warning from Country Garden. How bad could the ripple effect turn out to be, not just in China, but perhaps across the Pacific and globally. Plus, someone once said there's no such thing as bad publicity. That person was not Goldman Sachs CEO David Solomon after a series of unflattering articles. Many are asking this Monday how much longer he can hang on. on to his job, Kelly. And we'll tell you one key to watch and trying to figure that out. But first, let's get a check on the markets as the Dow remains down 21 points today while the S&P and NASDAQ have turned higher. The NASDAQ, by the way, of three quarters of a percent right now after two straight down weeks. And InVIDIA is a big reason why bouncing back almost 6 percent today. More than 6 percent now as this rally picks up someone after it's about 15 percent peak to trough sell off in the past month or so. We'll have more on that move in a moment. And the big deal of the deal of the day is U.S. steel soaring 30% even though it rejected a takeover offer from Cleveland Cliffs.

The shares of Cleveland Cliffs, by the way, are also up 10% unusual to see that kind of move. So we'll look at whether this deal or a different one could be on the horizon for the original X. Tyler. All right, while the U.S. markets are in positive territory, stocks have been falling all across Asia, largely as a result of concerns about real estate in China. Let's bring in our friend Dennis Unkevick, partner at Meyer Unkovic and Scott. He works with U.S. companies. doing business in China and has been warning about the troubled state of China's economy,

and this does nothing to improve that, does it, Dennis, in part because real estate is such a huge percentage of the Chinese economy. Tyler, 25 to 30 percent of China's economy is real estate. And so when you think about if you took 25 to 30 percent of our economy and it went down what the effect would be, this is on top of what we, this is on top of what we. I think we spoke about last week, China's really, really poor economic performance in Q2. Evergrand was a Chinese real estate company that had some debt issues a few years ago. How in scale and importance does today's development about Country Garden or the recent developments regarding Country Garden compare with that one? Bigger, worse, more worrisome, less? What?

You put your finger on a really important issue. Evergrand, today owes 3,300 billion U.S. dollars in debt. That's a lot of money. But the country garden, the one we're going to talk about in a minute, is four times as large as Evergrand. As a matter of fact, country garden until I think probably the last week was the number one largest private real estate developer in China. Now it's number five. Let's bring Eunice Yunn, our person on the ground in China, live from Beijing, into the conversation. Now, Eunice, the property sector in China is an enormous part of the economy there.

And ripple effects from it seem to affect, as they would, not only the equity markets in that country, but also consumer behavior in that country. because if the property markets are shaking a little bit, that rattles confidence, doesn't it? Oh, absolutely. Whenever you hear about some companies such as Country Garden having troubles, that really does affect the psychology here, and not to mention the fact that people are also worried about deflation, you'd mention Country Garden. We had more bad news from Country Garden over the weekend in terms of its financing, saying that it suspended trading in 11 onshore bonds.

And that was on top of the company missing $2 bond payments last week. And if you remember, Moody's had downgraded the developer. And we also heard from Morgan Stanley now, which cut the rating to underweight. So a lot of bad news has been hitting the sector. And then in addition to that, separate to Country Garden, two state-backed development. also announced that they were having some issues. A company called Jin Mao, as well as another private wealth manager, had said that it had also, you know, was reporting some troubles. So we were really seeing that these issues are starting to spread even outside of the real estate sector, which unnerved a lot of investors today.

Eunice, as we debate that we're also concerned about what's happening with the Chinese consumer and the economy more broadly, we're going to hear from S&DIC. Latter this week, we began to speak about this a little bit already. You know, again, the fragility is not just about the property sector at all, is it? No, it's not. And a lot of investors here, as well as just regular people, have been wondering how the economy is going to perform from here on now. So we're going to get some numbers on Tuesday, which are going to reflect that, especially in terms of, say, retail sales figures. So people are kind of eyeing that. But there is a great concern about exactly how healthy the economy is.

And then in terms of the government, the authorities, at least of the property sector, really have not been making any major announcements. As had been hoped, to try to drive that sector as well as the rest of the economy. So most of the help has been more indirect to try to get people to really buy more property through, say, for example, making it a little bit easier for people to get loans, But in terms of any direct rescue, we haven't seen anything like that, though the hope still is there that the government would come in and save some of these developers. So, Dennis, I'm famous for my compound questions, and you're the beneficiary of one right now. What does Country Garden own?

How did they get into trouble? That's number one. And to bring this home to the U.S. viewer, Country Garden is to China and China real estate as well. what company would be to U.S. and U.S. real estate? As usual, two tough questions. Number one, what country garden has done is done private developments of apartments in real estate throughout China. Got it. They have 3,000 different projects going on right now.

And when you think about what that means, the largest player in private growth in real estate in China is in big problems. Now, what the Chinese government has done recently is they've tried to support the state-owned SOE companies that do real estate development, but that really has not helped in the private sector. And as far as the U.S. question you gave me, I don't have a clue. I do not know who the largest real estate developer is in the U.S. My guess is there may not be one as percentage large as country garden is. That's why when Evergreen two years ago, had serious problems. This is four times as great, and that's why I'm worried about not just China, but the global economy. I mean, there may not be a developer that is as dominant in the apartment

field. Maybe, Eunice, you have an idea here. But what got them, Eunice, into trouble? Was it the fact that the consumer economy dried up, and there weren't buyers for the apartments that they were selling, or renters for the apartments they were selling? People became cautious, defensive as a result in part of COVID, and so they just weren't buying what Country Garden was building? Well, they didn't cite, the developers didn't cite specifically COVID.

In fact, they've been pointing at a lot of the falling property sales as well as the prices just in the past several months or so. So it's not necessarily because of a COVID problem, but yes, I mean, the problems in the real estate sector have been dating for, you know, the past couple of years, the authorities had tried to stop

some of the debt issues and challenges that they foresaw in the property sector, which then kind of triggered a lot of other financing issues that these developers had faced. But more recently, the combination of, you know, the problems that the developers had, plus the fact that you have consumers and potential property owners who are now holding, off and are kind of worried about what's happening, either because they don't have enough money in their pocket, or they're thinking, you know, it looks as though the prices in my market are actually going down, so I'm just going to hold off a bit on whether or not I'm going to buy something.

So that mentality has also been affecting sales. And then, oh, and then one other factor is the fact that these developers haven't been seeing as much revenue when it comes to land, or at least the local. governments have also haven't been able to to make as much money in terms of the land. So the whole combination of it all has just really been challenging for the real estate sector. Dennis, just a quick final comment. Tyler, could I add one more thing just very quickly. I was just going to mention the currency.

Go ahead, Dennis. Yeah. I'm sorry. In China, early on, you were supposed to pay up front for your apartment or your condo, and eventually they would build it. What's happened in China, as you just pointed out a minute ago, The people are no longer willing to put the money up front. So these big countries like country are not getting enough money, they're cash poor.

I'm sorry, Kelly. No, no, no, no. No, it's absolutely. And I was just going to say, you know, a lot of people are watching currency as well for any further signs of weakness, you know, capital outflows, that kind of thing. We'll leave it there. Thank you both so much for your time today. We really appreciate it.

Our Eunice Yun and Dennis Unkevick. Coming up, tech is on the move today with chip stocks like Micron, Invitaeatine, leading the S&P. We'll discuss those names in Tech Check coming up. shortly. Plus Solomon's future, is it at risk? The Goldman's CEO under increasing scrutiny will discuss more when Power Lunch returns. Welcome back to Power Lunch, everybody. The NASDAQ, the best performing major average today. InVitia, one of the best stocks on the index. Christina Parts in Evelas has more on what's behind the 6% movement. Christina. Well, let's first

just talk about the recent sell, down almost 7% this month and almost 10% off. It's 52-week high. And And that is what is seen as an entry point for many Wall Street analysts, especially ahead of its earnings out next Wednesday to the 23rd. So Morgan Stanley, part of that reason you're seeing that 6% bump. They think that Nvidia is only serving less than half of the demand in today's market, and that's enough to drive revenues over $15 billion in the next few quarters. They think Q2 revenue guidance of $11 billion, which is already 50% higher than what analysts were anticipating, is conservative. In other words, Nvidia should blow past that revenue number driven by. data-centered demand. Not everything is perfect, though. There is a concern about lack of supply, specifically for the GPUs or the GPU AI chips. Secondly, Chinese tech giants like Alibaba,

Baidu, bite-danced, are trying to rush order their Nvidia AI chips, the A-800, over fears the Biden administration will impose even more export restrictions. So that would push forward revenues in the near term. Nonetheless, Tyler, the Bulls are still out in force on this name. back for you. They have made a reappearance today. That is for sure. Christina, thank you very much.

It's pushing the NASDAQ higher, but the NASDAQ is still on pace for its worst month since December and on track to snap its five-month win streak. But our next guest says, don't give up on the tech trade. He sees a good buying opportunity here. For today's tech check,

we welcome in Paul Meeks, portfolio manager at Independent Solutions Wealth Management. Paul, welcome to you. What key levels are you watching? Not necessarily any key levels on either the SMP 500, the NASDAQ, or the tech dominated NASDAQ 100. What I've seen is, you know, there were a number of tech stocks

that deserve to have big 2023 ramps. And there were a number of tech stocks that probably were frauds that didn't deserve it. And so unfortunately, the whole sector got grossly overbought. And now we're starting to see some reality. We're starting to see some consolidation. And I actually think that consolidation might continue a bit further, just as your reporter said, a really big report for NVIDIA a week from Wednesday that would be August 23.

But the pendulum never stops in the middle. I think that we could have continued tech weakness. I don't necessarily see a buying opportunity today, particularly not in NVIDIA when a stock is up 6% on the session. But I do see a decent buying opportunity coming in select tech names and pretty soon. I'd love to hear which names you like. And if you could tell us which ones are fraud, please. That would be great too. Well, I don't necessarily mean accounting fraud, financial fraud, but I think there's a number of AI wannabes that are jumping on this theme, just like folks jumped on.com back in 1999. But as far as the ones that I like among the mega caps, among the fangs, I do expect to see continued upside in Nvidia.

We just mentioned that, Amazon and meta. Now, there's a couple of value plays that are smaller cap names, except for one, AT&T, and T. But then you have super micro SMCI and harmonic HLIT that are companies that haven't done that much wrong. But their stocks have been crushed on their most recent reports. And so I see a combination of tech values. And let's keep on going with some of the biggest beneficiaries. I see long-term in AI, some of those megatech names. Well, some of those mechetech names conspicuously absent include Microsoft and Google.

Why? I own those names, but not in the same size. Microsoft, I think, is one of those companies that really probably got overwhelmed by the AI hype. And when they announced their quarter, yes, they had some interesting things to say of AI. They definitely will be a future leader there. However, unfortunately, they came to the dance since the 1980s by selling software for PCs. And consumer electronics, both the personal computer market and the smartphone market will continue to be under pressure for a while. And so that really negatively

impacts Microsoft with their legacy business. As far as Alphabet, I think Alphabet is okay, but I don't like it as much as an AI play as I do the other favorites that I mentioned earlier. Other chip companies that you like. I mean, you mentioned Nvidia, and there were a couple of others. Run back through that roster, if you don't mind. Of course, the semiconductors will be enablers to the AI revolution. So if you like Nvidia and you believe that AMD advanced micro devices can execute, I think they can under Dr. Lisa Sue, who may be the best CEO in all of Silicon Valley, those are two semiconductor names to keep an eye on.

I also think micron, though I wouldn't buy it today because it's up explosively, will be interesting because micron dominates with only four companies in the world, memory chips and AI applications will have a voracious demand. Anywhere else, Paul, that you're peaking, that people haven't, you know, it hasn't been as much consensus because the micron angle is an interesting one. Yeah, I think Microsoft, I've stayed away from, Apple I've stayed away from Micron. I do like, right? The stock has already started to pop a little bit, about to $70 per share. But yes, they had a disastrous past year or so with too much supply, not enough demand.

Remember that Micron and some of the other memory companies do sell into some of those same pesky consumer applications like smartphones and PCs. But the AI driver for Micron over time, not necessarily today, will be unmistakable. All right, Paul, thank you very much for your information and insight. We appreciate it. Paul Meen. Yes, sir. All right, further ahead, rising risks, the death toll reaching nearly 100 in Maui. As a result of those devastating fires out there, it's truly just an amazing scene. We'll look at the growing damage when we return after this.

Shares of U.S. steel surging more than 30% after the company rejected an unsolicited bid from rival Cleveland Cliffs. Pippa Stevens here with more. Hi, Pippa. Hey, Tyler. Well, huge moves today in what would create the largest steel company in the U.S. U.S. Steel rejected that bid from Cleveland Cliffs, which valued the company at north of $7 billion, with a more than 40% premium to where shares of X closed on Friday. U.S. Steel called the offer a, quote, unreasonable proposal, but said it's initiated a formal review process to evaluate strategic alternatives. Now, some Wall Street analysts pointed to antitrust concerns, but Cleveland Cliffs' CEO Lorenzo Gonzalez struck an optimistic tone this morning,

telling CNBC that despite the rejection, he believes the deal will ultimately go through. We believe that we have a compelling case that the government should be not only approving, but enthusiastically supporting this deal. We will finally have, after a few decades, a steel maker that is among the top 10 in the world. Because this deal will close. We are going to buy. We are going to be able to finish the deal. with the support of the USW are going to have an American champion among the top 10 in the world.

He added his partnership with the union is, quote, ironclad with United Steelworkers backing the deal. U.S. Steel said it's received multiple unsolicited proposals and that there's, quote, no deadline or definitive timetable to review options. But the reaction in the two stocks today makes it seem like the Wall Street is optimistic. Well, you look at, I was just going to say, the reaction in the U.S. steel stock, that tells you that stock is in play. Yeah, well, I think once the company said that they've received multiple proposals, it seems like this could be something they're looking at, considering, and if shareholders like the deal, then that puts pressure on it. And the backing of that big union, both Cleveland Cliffs and U.S. Steel, the majority of their workers are from the union. So that's a

key part of this as well. Pippa, you always seem to know everything we're going to ask you about, but this will, you know. So looking at New Corps, which is up 30% this year, you know, I don't know that much about the steel industry, but we know that going back decade, two decades, they pioneered these mini mills, the companies worth $43 billion and what have you. Are they considered direct competitors with the likes of U.S. steel and potentially Cleveland Cliffs, or are these different product categories that they're operating in? So I'm also not a steel expert, but New Corp did pioneer those electric arc furnaces, whereas Cleveland Cliffs and U.S. Steel have more of the blast furnaces. And so that is more costly. If you own your own iron ore

reminds, it makes it possible, which both Cleveland Cliffs and U.S. Steel do. It is more costly. It's also much worse from an environmental standpoint, given that you have to use metallurgical coal. That said, there are some specific applications that need the highest grade of steel that can only be made with that virgin iron ore. And so Cleveland Cliffs and U.S. steel do have those products. The specialty market a lot on that, where you need that really pure material that you don't get from the recycled scrap. And so Newcord, the mini meals, electric art furnaces, use scrap. And so it's better, it's recycled. It can run on electricity versus coal and the coke that's needed for the high temperatures.

But there are some products where you can only have. You listen to the CEO of Cleveland Cliffs. You'd expect him to be confident. It's not a moment where you wobble. But he said, we're going to buy it. We're going to buy it. We're going to get this done. We're going to get it done.

And his shares are up almost 10%, which you rarely see on an acquisition. And he said he already went to the government. He has that union support. So it does seem like he feels particularly confident that this is going to go through. but who knows the automakers might voice some concerns because then they basically have 100% lock on the electrical market and they still produce for that. Which is probably what the share prices tell you.

Anytime you see the acquirer going up that much, you go, well, they're going to be setting the price, most likely. We'll see, it'd be great to learn who the other bidders were as well or people who have been sniffing around. Pippa thanks. Pippa Stevens. Meantime recovery efforts are now underway from the deadliest wildfire in modern U.S. history. At least 96 people confirmed dead in the Lahaina Fire on the island of Maui.

We'll have the latest details when Power Lynch returns. Welcome back to Power Lunch. Check out shares of Hawaiian Electric. The stock down 38% today on concerns its power lines may be linked to the deadly Maui wildfires. A class action lawsuit has already been filed. Let's get to Bertha Coombs now for the very latest. Bertha? Hey, Kelly, here's what's happening at this hour. The governor of Hawaii says the death toll in Maui now stands at 96, but that in the coming days,

searchers are likely to find 10 to 20 more fatalities per day. Governor Josh Green says one of the reasons for the grim death toll projection is that the fire burned Lahaina at the rate of one mile every minute fueled by 81 mile an hour winds. With so many people still missing or unaccounted for, the state has set up a Maui County Family Assistance Center. Maui families have been providing DNA mouth swabs there in order to help document the missing and identify the dead. And more than 60% of the customers without power Maui now have the lights back on, according to the local utility. Crews are working to restore power to 5,000 additional people in the area. But as he mentioned, Kelly, Hawaii Electric, which supplies

Maui with most of its electricity, is facing scrutiny for not immediately having cut off the power in the areas where winds were high. Back over to you, Tyler. Bertha, thank you very much. As extreme weather and wildfires, sadly become more and more common, corporate America and its workers are also bracing for longstanding impacts from smoke for decades to come. Diana Oleg explains in her continuing series on the rising risks from climate change. From Las Vegas to New York City to Midwest metros in between, smoke from wildfires in Canada and the U.S. West is disrupting lives and impacting livelihoods. We won't know the full financial impact of this summer's smoke until it clears. But we do know that wildfire smoke reduced earnings in the U.S. by an average of $125 billion a year between 2007 and 2019,

or nearly 2% of annual labor income, according to a study by researchers at the universities of Illinois and Michigan. Co-author Mark Borghulte says those numbers are rising with the effects of climate change. The events that we've seen in the last few months are two to ten times as large as the, as the events that we are, we have in our study. Even one or two days with smoke, he says, can also trigger lasting employment losses and hourly workers without paid leave are particularly at risk. Substantial share of workers, if they don't show up for a job, they're going to, they're going to lose that job.

Declines in their firm's productivity or their ability to come to work can then be passed on to those workers in the form of lower earnings that aren't possible to make up. That risk is not lost on major public companies employing thousands of workers globally. Amazon already had air quality protocols in place on the West Coast like air scrubbers in warehouses, but this summer in Chicago, they were sending N95 masks to drivers, cutting routes short, and issuing alerts to employees to return home if they felt unwell. We are going to have to change the way we think. These events are not going to decrease. They are likely going to increase. What we are learning is that data is power. We are finding us the more data we have, the better we can react and the quicker we can respond. Minnesota-based Eco Lab, which ironically helps large companies reduce their environmental impacts, saw four times the number of smoke warnings this summer than usual. Jeff Burt, senior VP of Health, Safety and Environment said, They may now use strategies they learned when COVID hit.

We had to form teams. We had to follow data, science, and develop precautions, processes, methods. We will do the exact same if the wildfire smokes continue throughout the U.S. and other areas as well. Now, employee safety is obviously of utmost importance, but companies are going to have to start focusing on their own bottom lines looking at their earnings and potential losses, not just to their employees, but also to investors. Yeah, and I'm curious, you know, what the full impact of that will be over time, Diana. Yeah, it's hard to say. Look, this has been a very strange summer because we saw the smoke come very early from Canada,

whereas our wildfire season actually started later because we had a wet spring in winter, and now we have possibly a lot more ahead this year. Fair point. Diana Oleg, thank you so much. We appreciate it. Still to come on Power Lunch, Goldman Sachs, current CEO David Solomon, under fire on multiple fronts, according to reports. coming from his predecessor, Lloyd Blankfine, as well. Our Hugh Sun just spoke with Blank Fine, and he joins us with some updates after the break. Welcome back to Power Lunch, everybody, and take a quick look at shares of Goldman Sachs,

which are up about 50 percent in the nearly five-year tenure of CEO David Solomon. But after a recent series of unflattering articles about his leadership, is the stock performance the only thing saving his job right now. Hugheson, CNBC.com banking reporter joins us here on set, and you just spoke with one of the men at the heart of one of these recent reports, former CEO Lloyd Blankfein. Former CEO Lloyd Blankfein, who's come on air multiple times. So let's set the context for this conversation.

He was a little bit upset at the New York Times. The New York Times had a big profile on David Solomon, in which the lead anecdote was a conversation between Lloyd and between David Solomon about the supposed impatience that Lloyd had with the progress they were making, things like that. what Lloyd said to me on the phone about an hour ago was that it was mischaracterized, that the conversation happened, but that he didn't express any kind of impatience, and that he was actually very supportive of David, that he wants him to have a long tenure

and that he's in his camp. One of the quotes, if I'm not mistaken, was that he reportedly said he needs to spend, you know, less time on the jet and DJing, something to that effect. Yeah, that sounds familiar, and that perhaps was part of a different story, but in general, it positioned the two men as sort of at loggerheads. And what Lloyd wanted to make very clear to me was that he was supportive of David and that his conversation was mischaracterized. And to take it one step further, guys, we all know about this trend of sort of boomerang CEOs.

You've had Howard Schultz, you've had Bob Eiger come back to take their jobs again in return to their CEO job. I asked him point blank, I said, Lloyd, are you going to pull up an Eiger here? And he said, you know, look, there's no intention of that that he has got, for the most part, he's enjoying his retirement and that he really, you know, had no thought. And there's been no conversation about returning in any way like that. So what about Solomon? I mean, apart from the article, apart from any friction, which it sounds like there is little

between Mr. Blankfine and Mr. Solomon, what about Solomon? Is he a survivor? Yeah. Yeah, so, you know, I've had conversations with other partners existing and former partners who talk about the morale, and they say that it is, it is low. It's not a fun time to be at Goldman Sachs right now. There are, and there have been other times in which it's not been fun at Goldman Sachs. You guys all recall the vampire squid era in sort of the 2008, 2008, 2009 time period after that. And so, you know, we talked about, and we have talked about the show.

The rivalry between who was it, Corzine and Paulson. These were difficult times as well. Or just the narrative that Goldman had benefited from, you know, the woes of the financial crisis and had come out, you know, looking remarkably well after the financial crisis had destroyed a lot of other firms. And that narrative certainly took hold for many years. You know, it is an unpopular time to be at Goldman Sachs. But, you know, for the most part, they're used to that. I think, you know, for what it's worth as long as the stock, and we pointed to it earlier in the show,

holds, as long as the Goldman stock does not collapse, then he has some time. And he has time to execute his strategic vision here, which is to increase the amount of fee-based businesses, fee-based revenue that the bank gets, to sell some of their consumer businesses. Consumer banking was a notable stumble, correct? Yes. I think anybody would look at this, and I've talked about this, about how it was both poorly executed and it was a strategic era. And, by the way, they moved too fast into it,

and then they pulled out too quickly. That much is clear. But for the most part, they're saying that that is sort of in the past, although they're still paying for it. But the future looks potentially brighter. If you look at the stock performance, let me call them the big three, J.P. Morgan Chase, Morgan Stanley and Goldman, all right? Morgan Stanley's stock is, there it is.

Morgan Stanley's stock is the outperformer there since Mr. Solomon took over. And I can't imagine that Goldman, which is accustomed to being the top cat in this competitive set on Wall Street likes what it sees there. No, and they can't be happy with this. Now, you have to look at the context. They are the most levered to the Wall Street businesses of trading and invested banking. Those businesses are in a cyclical low. And Morgan Stanley has moved into asset management and asset gathering to a different scale.

I mean, that's been their strategic focus. In which they get annuity like streams of revenue. Correct. They get paid more or less, you know, regardless of what's going on in these other parts of Wall Street. They do better when you do better, right? Incentives. To borrow somebody else's slogan. Goldman hoping for maybe an IPO return, some deal-making activity.

We've talked about a lot of different areas that that might happen. But meantime, what's left of their consumer play? So the consumer business is under a cloud of a sort of intrigue and uncertainty. We don't know whether or not they're holding on to the credit card business. There is some talk that they've talked about unloading that. Amex. So that is in itself a source of uncertainty and volatility. This is their Apple branded card. This is the Apple branded card in which they have, I recall, something like a 10-year deal

left with Apple. So this is a long-term thing. And they would need, by the way, they would need Apple to sign off on that unloading that transaction because it was a contract. And for the most part, their consumer businesses will look like at the end of the day, just the deposit-taking operations in which, you know, they take money from, you know, on the market. They pay people like me and some other folks at 4.3% currently, and they use that money to fund their businesses. All right. Hugh, real quickly, there are some who say that these problems go back to Blank Fine and are more attributable to him and some of his decision making than Solomon. I don't know if you asked him about that point blank, but what would you say about that criticism, which we see sometimes with CEO transitions, that the one who's under pressure says, well, these problems weren't necessarily of my making.

Lloyd's been gone for five years. Yeah. That's what I would say. He owns it today. Solomon owns it without a doubt. All right, fair enough. Hugh Sun, thank you so much for bringing us your reporting. Appreciate you. All right, some news just out involving banking regulation, and Leslie Picker has it. Hi, Leslie.

Hey, Ty. FDIC chair, Marty Greenberg, speaking at a Brookings institution event, detailing, quote, lessons learned from the spring bank failures and the additional rules in the pike that have the aim of making future wind downs more orderly. There are three main lessons that the FDIC is hoping to address here. The first is already part of that Basel 3 endgame proposal that came out last month, updating regulatory capital for banks with more than $100 billion in assets based on their unrealized losses or gains on available for sales security. Second, the FDIC is proposing a long-term debt requirement for banks that would have more than $100 billion in assets. This debt could absorb the losses before the FDIC needs to. Grunberg says that investors in this debt would have an incentive to monitor the riskiness.

of banks and exert pressure on management for risk mitigation. Now, lastly, the FDIC is looking to bolster its so-called resolution plans, including the prompt establishment of virtual due diligence data rooms and up-to-date information on key personnel should a wind down occur, having those living wills, those plans in place may have mitigated at least some of the friction that we saw in the spring, guys. I've been surprised, Leslie, as long-end yields have gone back, towards their highs lately, that we haven't seen more pressure across the banking complex.

And some are asking, you know, where'd all the bad stuff go? No, it's a good question. I think the level of those unrealized losses, you know, as we saw in Q2 reports, those are still there. The question remains, you know, what happens on the deposit side of the balance sheet. And we didn't really see too much in the way of, you know, withdrawals of deposits, it's nothing out of the ordinary, as you would normally see during the second quarter, when looking on a quarter of a quarter basis. Banks did, however, see some weakness after those Moody's downgrades last week,

and especially if you look at the options markets and the bond markets, too, for some of these corporate issuers. There is definitely a sign that people are getting a little bit more concerned. All right, Leslie, Leslie Picker. Shares of Octa upgraded to buy at Goldman Sachs today, they see 25% upside in the idea. entity security app after a pretty tough past year. They now see better margins and subscription growth to come. Does our trader agree? A fresh three-stock lunch is right after the break. Welcome back. Elon Musk just sent another tweet in the direction of his potential MMA competitor,

Mark Zuckerberg. I mean, just for the heck of it. We're going to let you know. This one's taking a new twist in turn, if I may, because he's now saying he's going to test Tesla's FSD full self-driving technology in Palo Alto tonight, and he's going to ask the car to drive to Zuckerberg's house. So that also gives him a chance to tweet or X this live stream video. So he says, you can monitor our adventure in real time. He says, if I get lucky and Zuck actually answers. What is it? Tyler, my eyes are failing me.

Answers the door. The door. The fight is on. The fight is on. The fight is on. Okay, so they're going to still playing this. Musk is still playing. Zuck after yesterday, I think, is moving on.

Musk will now have a chance to test out the live show. technology as well, once again, that failed, obviously, during the Ron DeSantis presidential launch. Now it's time for today's three-stock lunch, and we're looking at three big movers. And with our trades today, Victoria Green is here, G-squared private wealth, CIO, and a CNBC contribute. Hey, let's start with Tesla, Victoria. They've also reignited their price war in China, announcing new cuts for Model Y and Model 3. Stocks down about 2%. What's the trade here? Beyond, like, not getting involved in the Elon Musk versus Zuckerberg drama, I think the trade still a sell. And hear me out, I'm not a Tesla hater whatsoever. But the stock is up 93%. You've already

seen all of these pressures on margins. You had margins slip to 18.1% just to sell cars. And Elon even said it himself, we will happily sacrifice profit margin right now to sell more cars. And so I think this is just going to be a battle that doesn't bode well for Tesla in the short term. So for me, I'm all about taking profits. And I think it's a good time to be looking at trimming back this stock because they have faced competition in China. And some of the July numbers, I think it was there were the cars that they manufactured and distributed in China in July. It was down like 31% according to the Chinese data. So you're seeing pressure there with Lee, BYD, and Neo, even if Neo is a little questionable right now.

So I just see Tesla right now is a little too risky and something I'd take some profits after this really nice run up. All let's go to Octa shares of that tech stock up after getting an upgrade from Goldman Sachs. We just mentioned Goldman saying it sees more than 25% upside despite some headwinds there. Your take on that one, Victoria. I see more headwinds than 25% upside. Obviously, it was a nice double upgrade from sell to buy from them, but they even mentioned the macro headwinds they're facing, and they're facing extremely stiffer competition between Microsoft

and then CrowdStrike getting into this identification software. And so I think you've got two very large established players that are well within a lot of Fortune 500 companies, and I do not see sales re-accelerating, and potentially we continue to see deceleration in some of their trends. So for me right now, I'm just not buying that they've trope. out yet, and it's still a sell for me. Can we get her on U.S. Steel? Let's see.

Of more than 30% today, preparing to hit a 52-week high, rejecting for now the $7.3 billion buyout proposed from Cleveland Cliffs over the weekend. Would you be an owner of the stock here? I am. It's a buy for me. I know on a 30% update, it's a weird stock to say go in and buy it. But if you look at some of the valuation and where the deal was priced, there's still about 10% upside. We see it priced around $3250 a share if that deal went forward. They also seem to have other interested parties for selling off some or parts of it. So I think they're well positioned for a little bit of a bidding war. So if this was the initial foray into it, now,

Cliffs is a very, very strong negotiating firm. Their CEO is known as a, it's kind of a big dealmaker and definitely pretty hard to negotiate with. But I see U.S. Steel is well positioned in this market. They also have a technology that Cliff really wants. They did switch over to the electric art furnaces away from just melting iron ore into steel. They're now taking scrap. And those are cheaper, easier, less admissions, and also less union workers using them in some of these new facilities. So I think U.S. Steel is extremely attractive here. It's a merger arb play, absolutely. But they may be able to play a couple different bidders off of each other, and we'll see where it goes. A lot more little deals being talked about in the market these days.

Do you see that as potential kindling for a market that burns higher toward the end of the year? Yeah. First of all, Goldman would definitely love that. Speaking of Goldman, They would love to see that the MNA market unfreeze itself. You are starting to see a little bit of thawing there, not a ton on the IPOs, but MNA looks a little attractive. I'm still actually very surprised you haven't seen more M&A in the financials markets, some of the regionals getting snapped up or some of the smaller banks. And so I do think there is potential for consolidation.

Anytime there's stress or crisis, you do see potential catalysts for consolidation. And so that's why I love those quality companies with the balance sheets that might be able to snap someone up. One thing I think is interesting is we haven't really seen Warren Buffett with his massive cash hoard. He's kind of like a dragon sitting on his gold pile stock right there. And he hasn't moved yet. And so that's one thing I think is interesting. If we see, you know, Berkshire's hoard, Apple has the massive cash hoard, you have some of these huge companies that have the balance sheet in cash to make some of these acquisitions.

So you could. I think you could see second half warm up a little bit. All right. Victoria, thank you. Victoria Green with Chis Squared Private Wells. All right, we got a few minutes left with lots of stories we still want to get to. It's closing time when powerwrecked. Well, we got a little over three minutes left in our program and several stories we want to tell you about, so let's get right to it.

After three years of rather haphazard plans for getting workers back to their desks, the return to office movement has entered a phase of some remorse. 80% of bosses regret their initial return to office decisions, saying they would have approached different. had they known better what their employees wanted. This sounds like there's some sort of regret that they were as forceful maybe as they were and didn't take into account what employees wanted, which is more flexibility, I think, on work at home. And I do this sometimes with a leadership of the home.

Sometimes it's best if you don't tell people what your plan is. You just kind of do it, you know, you maybe say this, department, do that. You know, the overly explicit nature just allows people to get really riled up one way or the other. And I think that applies to more than just work from home. Meantime, according to a new survey from Credit Karma, more than half of borrowers, get the, I'm not sure what to make it this, Tyler.

More than half of borrowers say that when their federal student loan payments resume this fall, they'll have to choose between paying their debt or paying for necessities like groceries and rent. I don't know what to make of this. I mean, these poll questions you can often answer in a certain way, but when push comes to shove, most people find a way to take care of their debts and feed them. themselves. Maybe there's some cost cutting that goes into family budgeting and so on and so forth. But either way, it is going to be a jolt to those individuals who have student loans and are now having a three or $400 a month extra payment. After not paying for three years, and we talked to B of A Institute, and they keep telling us the budgets, the finances of households are sound, even with the student loan thing resuming. So we'll see whether this anecdotal evidence

or the kind of data from the accounts tells the true story. And as we talk about financial stress a little bit of troubling report from the Wall Street Journal, highlighting how America's homeless population is growing now at a record rate, up 11% year over year to the extent that these statistics can be relied upon or those homeless individuals can be counted. That is the biggest jump since government data became available back in 2007. Among the biggest drivers, the hypothesis is, is high housing costs and a lack of affordable rentals and homes.

And I think obviously the fentanyl crisis, the drug crisis that is affecting so many people and the mental health crisis, which goes hand in hand with that, is a big, big contributor to the homelessness we see in many cities. The only thing I'll say no matter what the cause, or if it's bad now and then the economy gets worse, you have to contemplate. Policymakers in particular have to think about how to get ahead of this so that this doesn't all of a sudden really explode in a way that would top even what we've already seen. And Saudi Arabia's soccer league is adding another star.

How do I say a Nymar? Naimar. Naimar. We're on more than $200 million a year. The Saudi Pro League previously added. I know Cristiano Ronaldo for a similar price. Messi turned down the chance, taking his talents to South Beach instead. It's hard to believe, but the English Premier League began this weekend.

They have the shortest offseason of any sports league. Watch it on Peacock. Yeah, that's right. Big interview coming up tonight on last call. Brian talks to Florida Governor and Presidential Hopeful Ron DeSantis. Thank you for watching Power Lunch. We are looking forward to that. Closing bells.

right now.