Power Lunch - Recession vs. Soft Landing, and Rousing Housing Numbers 1/18/23

Episode Date: January 18, 2023

The Fed is releasing its Beige Book today, with clues into economic activity across the country. We’ll break down the evidence that shows us likely entering a recession versus a “soft landing.” Plus, we’re getting positive signs for the housing market. Mortgage numbers are up, and builder sentiment is rising too. But is it just a blip, or will the slowdown really not be as bad as feared? We’ll explore. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Hi, everybody, and welcome to Power Lunch. Alongside Contessa Brewer, I'm Tyler Matheson. Glad you can be with us. Coming up, the Fed releasing its beige book tells us about economic activity across the country. More evidence in the recession versus soft landing debate. Well, plus a couple of positive signs in the housing market. Mortgage numbers are up. Builder sentiment is rising to.

Is it just a blip or signs that the housing slowdown may not be as bad as fear? But first, let's get a check here on the markets. As you can see, we're all in the red across the board. Now off by 1 and a quarter percent. You've got the S&P 500 down a percent. The NASDAQ has fallen by eight-tenths of a percent, and the Russell 2000 is down about the same. Worst performing sector on the S&P 500 today, consumer staples, Kraft Heinz,

Hormel, General Mills, these stocks that might be expected to outperform during a recession. So maybe at least for today, the markets may be in the soft landing camp. We're about to talk more about that in just a moment. So how about the big names at the World Economic Forum in Davos? where do they stand on the economy? Let's listen. I think the sentiment is softening a little bit and the view that the chance of a softer landing

both in the U.S. and Europe is actually increasing. I think most people are generally over the near term or midterm and long term, very optimistic. And hopefully it turns out to be like Davos. If everybody's talking about a recession, it won't be as bad because we're just going to be wrong. Consumer spend remains strong.

And a lot of people are thinking about, well, there's a recession. coming, et cetera, there's demand weakness. We obviously haven't announced our results, but generally, I'd say across the world, the consumer stays strong, and we're a consumer company in terms of demand. All right, let's talk a little bit more about the economy and the world. While so much attention has been focused on the Fed, our next guest says the deficit is the big concern, as the federal government is expected to hit its borrowing limit tomorrow. It can limp along for another a couple of months using mirrors and string. Here now, Dan Arbus, CEO of Zirian investments.

Dan, as always, it is great to see you. My notes, you say that the markets may well be winning for now the sort of soft landing battle, but that there is a larger war over the horizon, which is very much in doubt. What is that war and why is it so critical to our future? Well, I'll go to the bottom line first, Ty. Thank you. I think it's critical because the bottom line, I believe, is higher interest rates for longer than anybody thinks. And that is going to be the big battle that is facing and going to be facing the economy through what's happening right now. For the last 15 years, markets have been completely preoccupied with the Fed. and interest rates relative to inflation and deflation. It's already eight months ago that you and I talked on your program about the likelihood that inflationary pressures in the economy were event-driven and we're going to work themselves out in the private sector, which I believe that they substantially have.

And the market has absorbed higher interest rates without stalling completely into recession, but that's really largely a function of the fact that there's been enormous amounts of liquidity injected into the system by the combination of monetary and fiscal policy, specifically crossing the threshold during the pandemic into modern monetary policy, which was money printing directed by the Treasury and checks sent directly to consumers. And so that money is still coursing through the economy, but the Fed has got a really serious problem. Dan, let me interrupt you here just for one quick second. We just now know that the Fed has released its Baye-Begbook.

Let's get to Steve Leesman for that breaking news. Steve. Yeah, apologies to my old friend there, Dan Arbus. Let me tell you what the Bayesbook said for the date ending, the six weeks leading up to January 9th. They said economic activity was unchanged since the last report. I guess that means flat in. most dictionaries. Five Fed districts had slight increases, six saw no change or slight declines. One district cited a significant decline in economic activity. On the outlook, little

growth was expected in the months ahead. Consumer spending was up slightly. Some retailers said high inflation sapped consumer spending or consumer purchasing powers. Auto sales were flat. We saw that today in the retail sales report. Some dealers did say that increased inventories on the lots did boost sales. They were moderate to robust gains in tourism. Manufacturing declined modestly. We saw some very nasty or ugly manufacturing numbers this morning on industrial production. Good news here.

Supply chain disruptions were said to be easing. However, housing continued to weaken. On the employment front, it continued to grow at a moderate to modest pace for most district, according to the beige books. Some districts noted an increase in labor avail. However, firms hesitated to layoff workers even as demand slowed, which could be a bad sign eventually. They say that employers were reducing headcount through attrition, not through firings. Prices increased at a modest to moderate pace.

The pace of increase, however, was said to have slowed. It would continue easing in shipping costs and commodity prices. That's good news. Retailers noted difficulty, though, in passing through price increases, something we've heard in some of the earnings reports that have come out recently. Some retailers offered bigger discounts. Future increases in inflation were expected to moderate this year. And that, Tyler, is your page book for the six weeks leading up to January.

Steve, stick around it. And I'm so happy that you guys both know each other. And I know you both are deeply steeped in Eastern Europe and Russia. For many years. So I'd love to get there. I'm not sure we will in this conversation, but we will. Dan, I want to come back to something that I know troubles you. and I was really stunned by.

And that is that the total federal debt is something like $31 trillion. Last time I looked, it was $21 trillion, and that was just a couple of years ago. When that debt rolls over, that is going to have to be re-barrow. You're going to have to roll it over at a higher interest rate. And that means that a greater percentage of federal spending than has been the case in the past is going to be devoted to merely paying interest on the federal debt. That crowds out all kinds of other things, and the same thing is going to happen with corporate debt and bank loans and so forth. That's dangerous.

Well, of course that's dangerous. Every 1% increase in the rate of interest is basically $300 billion additional burden on the debt service of the federal debt. So pretty, pretty soon, if we assume that rates are going to be 4%, and I think they're going to be considerably higher on average over the coming years, we're going to be spending over a trillion and a quarter on servicing the debt. That's close to 15% of GDP, crowding out, making it the largest single budgetary item ahead of health care, ahead of defense, ahead of pensions, crowding out infrastructure and all kinds of discussion. So what do you do? What do you do?

That's a really serious problem. But even bigger is going to be the impact on interest rates of the coming supply and demand dynamics in the treasury market. The size of the national debt has doubled in the last 10 years to 31 trillion, as you mentioned. We have five trillion of treasuries maturing over the next five years. And the Fed needs to reduce its balance sheet to sustain its credibility from what it was, which is $9 trillion to what it now is, which is $8.5 trillion, down another $7 plus trillion, where is all the demand going to come from? Who's going to buy it? Primary markets.

Who's going to buy it? Primary market makers institutions used to be dealers. They're now taking a lesser and lesser share in original treasury auctions, which Steve can confirm. And the big buyers at treasury auctions are now private asset managers. That's the private market. Foreigners that have held a third of the treasury market until now are re-regionalizing and de-dollarizing, which means they don't need more treasuries. China buying natural resources from Saudi Arabia, from Russia, from Latin America, from Africa,

ultimately in one. The petro-dollar regime is in the process of unwinding. while we have a whole parallel economy going down in other currencies, not the dollar. So you've got a drying up and a repositioning of buyers, and the buyers are going to be a lot more price sensitive. When they're looking at the risk, they're going to demand a higher premium. And so I think the 10-year average on the 10-year bond average has been 4.5% in the post-voker era, I think it's going to be five or six percent, and then spreads on top of that are going to be wider.

Think about the impact of that, not only on the nation's solvency, but on corporate solvency. Yeah, and as you say, when you look at what corporations are going to have to pay to roll over their debt, it could be really, really burdensome, particularly for capital-intensive companies, which I know you you point out. Let me get Steve to throw in a final thought here on what Dan just talked about and that that big, massive obligation that one way or another, we the taxpayers and the markets are going to have to bear. Supply and demand, Steve, bring it on.

Tyler, it's, well, no, it's easy in the sense that you either address it before it's a crisis or you wait to the crisis to address it. I mean, I think right now the debt is sustainable in the sense that we can pay the nut that we have right now. But over time, as Dan suggests, it's going to become increasingly burdensome. And it will force the body politic to address it as they start to write those checks. I think if I'm not mistaken, defense is something like 5% or less of GDP. And Dan is talking about a number that rises up into double digits. I think that the one place I'd push back a little bit with Dan is the idea of replacing the dollar.

I think there is some de-dollarization, but overall I think the dollar will remain the world's reserve currency because there isn't really a very good alternative as of yet. Perhaps that steps forward and it becomes one. But I think ultimately there will be demand for our debt at the right price. And that's not really the question. The question is not demand. The question is what is the price that we have to pay? to sustain that demand. Dan, final quick word to you.

Three things. One, Steve, National Defense is 22% of expenditures. I'm looking at the chart right now. And debt services is approaching that. Relative to the dollar is a reserve currency, I agree right now, in the G7, the dollar is the strongest currency because we've exported our fiscal proflacy and our, our, our, our, our, our, our, our, our, our, our, our, our, our, our, our, our, our, challenging monetary policy to the rest of the G7, but pay attention to the bricks and the parallel economy because it is for real. And then finally, how long can we actually continue to incur trillion dollar deficits year after year as we did last year and we did the year before and continue to issue treasuries to pay the interest on the deficits that were

occurring until eventually there's a shift in people's perception of the credibility of the creditworthiness of the nation, which is certainly not helped by these brinkmanship games that are going on in Congress over the debt ceiling. Tyler. And the consuming potential credit to fall. You remember what happened in August of 2011? Yes, sir. It was completely baked in, but then when it happened, everybody.

I know we have to go, Tyler. We do. Quickly, please. There's not a question of our financial ability to pay. It's a political issue. That's why the S&P downgraded the United States credit rating was because of the political issue. The U.S. has excellent debt-to-coverage ratio.

It's a very wealthy nation. We can cover the debt financially. It's a political question. Gentlemen, we have to leave it there. Dan Arbus. Great to see you, my friend. And Steve Leasman. Great to see you both.

Yeah, really fun. It was good. Appreciate it, guys. again soon, I hope. Coming up on Power Lunch here, we have much more on the market. Stocks are sinking throughout the day. You've got the Dow down now, more than 400 points. Honeywell, McDonald's, United Health, IBM are accounting for nearly half of those losses.

Apple, one of the better performers on the Dow today down, but just slightly. It still has issues, though, delaying a headset, grappling with supply chain in China. We'll have more on Apple. Coming right up. Stay with us. Apple share is falling 20%. in the past year as supply chain issues and COVID cases in China weighed on iPhone orders. And just when China's reopening raised hopes of an improvement in sales, the global economy's

bracing for a recession. Joining me now is Tom Forte, senior research analyst at DA Davidson and CNBC technology correspondent Steve Kobach joins us as well. Steve, first of all, tell us there's news coming out about a headset that might get delayed. Why and why does it matter? Yes, so this report comes from Bloomberg. and I want to be clear, there is reportedly supposed to be a headset coming out this year. Still, that appears to still be on track.

A headset, not earpots. We're talking a headset. We're talking about the thing you wear on your face and go into virtual reality. Oh, what this report says is there are a couple versions down the road has been postponed. So Apple declined to comment on this report. But what they're saying is the ultimate goal, Tyler, is to get glasses that look like yours and mine right now instead of these clunky headsets that we've been saying. Now, the clunky headset is still coming, likely this year. In fact, if I had to guess based on Apple's routine when they do spring events,

probably going to be in March if I had to guess, and then they will iterate on that. What this is saying is a cheaper version of that headset coming next year or the year after, but it's that third version further out that appears to be delayed. All right. So let's talk, Tom, about what's coming down the pike here for Apple. If you have the beige book coming out and suggesting that consumer spending is up just slightly, personal experience would tell me that consumers,

will choose to spend on Apple devices or splurge on things like a new headset, if that's the thing that they've been saving for. Tell me how you think that we're going into 2023 for Apple with China reopening and where the consumer is. So China reopening is a huge short-term boost for Apple and consistent with our view that the sales that were lost in the December quarter will be captured in the March quarter on the China's zero policy in the December quarter. and that they weren't lost entirely. So I think that as you pointed out, Contessa, consumers' willingness to spend their discretionary income and Apple products, despite macroeconomic challenges, bodes well.

What also bodes well is that the wireless carriers are essentially subsidizing the next generation iPhones to support their 5G network spend. So Apple's proven that it can do well, even in a challenging macroeconomic environment. So where are the headwinds, Tom, for Apple? China is still a headwind. So in a near-term basis, the good news is that you're going to see a rebound in consumer spending and the supply chain situation has improved. But we do anticipate that over the next couple of years, Apple will address its over-dependence on China. The other good news, though, is that they had a projection of a 10-percentage point negative impact from a strong dollar in the December quarter. You're starting to see the dollar give back some gains against the past. against the euro, so that might work in its favor. But the big headwind, again, is the challenging

macroeconomic environment. The good news is consumers will spend a great portion of their discretionary income on Apple's products, especially the iPhone. Have either of you, I'll start with you, Steve, seen really compelling evidence that Apple is ready to reduce its dependence on China? A little bit in small but significant ways. So, for example, they started producing. introducing iPhones in India. A little bit earlier than he used to. Small. It's not going to supplant China. It's not going to take away their dependence on China.

Absolutely not. And obviously they don't want to tick off China. Of course not. Of course not. We're moving our production here. Right. I mean, it would be self-defeating. And also, their silence spoke volumes about the protests that we saw.

They said they were monitoring it, but we heard nothing from Apple about, you know, the ramifications of those protests and frankly, horrifying. footage that we saw out of there. So that's one issue. The other issue, so there were little pockets of places looking. Vietnam, Malaysia, those are all hot spots right now where they may turn to to start producing more products. A lot of that right now is happening, but it's mostly the accessories, the AirPods, the watches, some Macs and things like that. We had a segment yesterday on value-driven leadership, and Tim Cook was mentioned as one of the people leads with the values. That was not a case where he led with values, it would seem to me. Tom, let me ask you that same

question. Do you see real serious at scale and attempts by Apple to not rid itself of its dependence on China, but reduce its dependence on China? Yeah, so definitely this is going to take multiple years. I think that the initial indications are more reliance on India and then to a greater extent Asia and things of that nature. So I think that right now it's more of a need than anything that's put in place. But I do expect that this is Tim Cook's, you know, forte, pun intended. And I do think that he's going to address this over time, and over the course of the next couple of years,

there'll be a lot less dependent on China than they are today, which really is the biggest risk to the stock. All right, Tom, thank you very much. Steve, great as always to see you. Thank you both very much. Up next, more on the markets move lower as we look at the Dow Industrial's off approaching session lows. That's pretty doggone clothes, if not there.

Down one in a third percent. S&P, a little more than 1 percent. NASDAQ, the positive one in a, well, the cleanest shirt in a dirty laundry, I think. Better gauge on the mortgage market, demand climbing its rates drop, but is this newfound housing confidence here to stay? Plus, mutually insured destruction. California experiencing a surge in flooding, natural disasters. The state's insurance policies could lead to even more problems going forward.

We'll talk about that when Power Lunch continues. Well, welcome back, everybody. Home is where the data is. A ton of housing data out today, including a big surge in mortgage demand. Diana Oleg joins us to discuss. Hi, Dai. Where's the demand coming from? Okay, so the demand is coming from both people who want a refi and people who want to buy a house.

We saw mortgage applications last week jumped 28% week to week. They're still way down year over year. But what this says is that after the holidays, people came back. And they saw that mortgage rates were significantly lower, and they decided those who could benefit from a refi jumped in, and perhaps we're seeing a little bit more demand from potential home buyers. And we also got news from the National Association of Home Builders on Builders' sentiment, and it went up four points, and everyone had expected it to go down.

The builders, obviously, again, reacting to that drop in mortgage rates over the last couple of months, seeing more buyer traffic, feeling better about potential current and even future sales, although it is still in negative territories. Where, and that's... I'm sorry to interrupt. I thought you're finishing. Where do mortgage rates on the 30-year conventional fixed stand right now as compared with the peak a few months ago? Okay, so we're now at 6.04 percent, according to Mortgage News Daily, which runs the daily numbers.

Now, we were at a high at the end of October at 7.37%. Today's is the lowest since September, but we have come down significantly off that high. And what that means is you're seeing significant savings on the monthly payment. know people don't buy a home on the price of the home they buy it on the monthly payment we are still however what roughly double where we were a year 15 months ago yeah we were about three and a half percent a year ago and so you're still higher on the payment and that's why we're still seeing that slowdown in sales we're also seeing the slowdown because there's just not much out there to buy total inventory is higher but new listings are way down and the reason that total inventory is

higher is because everything's sitting on the market longer and the builders are just just not ramping up enough. But, you know, look, we got the builder sentiment number as positive today. And you are seeing the ITB. It's down a little bit with the broader market. That's the home building ETF, but it's not down nearly as much as the broader market. So the builders are clearly getting a boost from that. Well, you know what? If you have mortgage holders who are starting to surrender to what might be the rates for some time to come, maybe you're also going to have home sellers surrendering to a new normal, which is you don't get sky high prices anymore and buyers that have to pay more than they were hoping for. Right. I mean, sellers may stay it that way,

but they're also the trouble is if they're going to rent, great. But if they're going to buy another home, they're still feeling like I'm probably trading 2.75% from during the pandemic for a six and a half percent or six percent rate. And they're not really wanting to do that. So it's going to have to be a real reason that they need to move or they might want to to wait until prices come down even more. We're seeing prices down about two and a half to three percent since July, but they're still up year over year. So I think prices are going to have to fall a little bit more for potential sellers to say, okay, maybe I'm buying at a lower price as well to offset that higher rate. Got it. Diana, thank you. Sure. All right, let's get to Bertha Coombs

now for a CNBC News update. Hi, Bertha. Hi, Tyler. Here's what's happening at this hour. The U.S. Supreme Court has turned away a challenge to New York's new gun safety laws. The denied a request by far-around dealers who said the new restrictions hurt their businesses. Their appeal of a lower court decision against them will proceed. In England, thousands of nurses are holding a two-day strike for a 19% pay hike and the hiring of more nurses. The government says it can't afford such a big raise and that other services would suffer. The Nurses Union has scheduled another even larger two-day walkout in three years. weeks time in case there is no progress towards a deal. And single-use coffee pods may not be as bad

for the environment as many people think. Canadian researchers found that pods can significantly reduce emissions by limiting wasted coffee, water, and energy to prepare it. However, the Washington Post warns that the savings can easily be lost if the use of pods encourages consumers to drink more coffee each day. Personally, I can't drink. after one o'clock in the afternoon or I won't be sleeping at night. Well, I'm with you there, Bertha. Yeah, right?

Well, I guess all of us old people are in it together. We're helping the environment. Thank you, Bertha. Ahead on Power Lunch, Jack Potter Bus. The new year has a lot of the cards for casinos between online gambling, sports betting, the return of Macau, and Vegas on fire. McQuarrie is out with a new note,

laying out some top picks. Plus, everything must go. Twitter, We're actioning off everything from espresso machines to kegirators. Really, we don't have kegators. Yeah, apparently big fire sale at the San Francisco office. Our lunch will be right back. 90 minutes left in the trading day.

Let's get you caught up on stocks and bonds and commodities, starting with Bob Bassani at the New York Stock Exchange. Stocks sinking throughout the session here, Bob. Some of this is easy to explain, some of it hard. I'll show you the easy to explain part, banks. PNC's. The levels of reserves for potential long losses a little higher than expected, so that's weighing on the banks today. A little harder to explain is what's going on, for example, in industrials.

They're getting clobbered. I'll make it simple for you. The economic data we're getting is threatening the soft landing thesis. So retail sales, industrial production, weaker than expected. These stocks have been rallying on the soft landing thesis. If we're getting a little bit of a harder landing, well, maybe they're too high priced, and that's why you're seeing some of these industrials to the downside. Similar situation with consumer staples, you might say why. Gee, that's a staples there.

But if the consumer is actually starting to pull back on those retail sales numbers, yep, these stocks have done very, very well last year. They're pulling back. A little harder to explain is why some of the retailers actually are up today. I mean, some of these names that are out there, the department store names like Coles have been on a tear recently. I think the simplest way to explain it is they are dirt cheap at this point. They sold off really big, so they have a lot less room to do. drop. Contessa, back to you. All right, Bob, thank you for that. All right now, for a check on bonds, the yield on the 10-year note falling sharply today. Right now, trading below 3.4%. Lowest level

since September, the drop coming on this morning's PPI numbers, which showed prices falling more than expected, wholesale prices down 0.5 percent compared with an estimate of 0.1%. And adding to the recent signs that inflation may indeed, Contessa, be easy. While stocks are following bond yields to oil higher, holding above $80 a barrel. Let's bring in Pippa Stevens now for more on that. All right, tell us how oil's closing. Well, oil just now dipped into the red ahead of the close after earlier topping $82. But it is coming off eight straight days of gains.

And as we've been talking about, this really is China demand driving the story. We've heard from so many leaders in Davos that the country's reopening. Things aren't looking as bad as previously forecast. So that is what's driving the bull case for oil. But we did get a differing view on how the market looks right now from the OPEC and the International Energy Agency. They both released their widely followed reports this week. And OPEC actually thinks that the market is more or less in equilibrium right now. The IEA, on the other hand, thinks that during Q1, we're actually going to see a big oversupply in the market based on weaker China demand.

But then they say in the back half of the year, that will flip into a substantial deficit as demand gallops ahead. So competing narrative in the short term here. I'm also noticing in other commodities that we're seeing metals on the move. Yes, so both aluminum and copper hit their highest since June. And once again, this is on forecast that maybe things aren't as bad as they previously thought. Now, interestingly, Goldman Sachs out with a big call on aluminum. They raise to their target. Now this, they see this year aluminum averaging $3,125 per ton.

That's up from about $2,600 per ton previously. and those prices up 9% so far this year. Pippa, thank you for that. Appreciate it. Thanks, Pippa. All right, stocks continue to give back gains. The Dow down more than 400 points right now. For more on what's moving the market,

let's bring in Michael Yoshikami, founder and CEO with Destination Wealth Management. Michael, good to have you with us. Why is the market down so much today? It's hard to say. Probably what's happening is there's concern that we're going to have. a deeper recession than many are we're starting to predict the so-called soft landing scenario. I think soft landing is probably overly optimistic. I think that we're probably going to be in for a mild recession.

I don't think it's going to be a deep recession. But soft landing is kind of a dicey bet. If you look at the Fed's history on this, they've only been able to engineer soft landing just a couple of times. So I think that's why the market's down. Let's turn to inflation. The PPI number was better than expected. some of the CPI, the other inflation measures have been a little better, I guess, than expected.

Have we, if not broken the back of inflation for this cycle, at least sort of leveled off the curve? Oh, yeah, for sure. I mean, you're already starting to see, for example, use car prices are plummeting. Well, we're not plummeting, but they're going down a lot. So I think you are starting to see some inflation mitigation. And I think that's a positive. I think that's why you were just mentioning on the 10-year treasury where it's trading. The yield has just dropped tremendously, even as to Federal Reserve, has been raising rates.

So I think that there is some optimism that inflation is getting under check at this point. I think that certainly China reopening is going to be helpful as well. That's going to be some of the supply chain concerns. Supply chain concerns we have. Well, tell me, given the big economic, picture that you're painting for us, the names that you like here, your ideas are pretty well-known names. You've got Apple on the list, Amazon, Costco, Johnson & Johnson, Airbus, and Alphabet. Yeah. Well, first of all, my contention is that big tech is obviously having some problems right now

of CBC.com. I know that on the front page, they're talking about big tech's laid off 60,000 people, I think, just in the last few months. So, but I think big tech is going to be okay. I think once speculative tech gets killed, there's nowhere else to go with big tech. And then I think that some of the other names, the Costco name, for example, is really a name that will likely thrive when consumers have less money. And when economic growth drops, that people tend to be more restrained in their spending. And so I think that you want to make sure that you have a broad selection of companies, pharmaceuticals, the J&J kind of names, Airbus capitalizing on rebound and travel. I think that's what makes sense. I would be very hesitant

to move towards speculative names right now. I think that money is going to dry up because interest rates have gone out. Thanks for sharing your advice, Michael. Appreciate it. Michael, Yoshikami. Is online gaming the future of casinos, especially as Vegas is seeing this massive rebound? And Macau could see a battle for an uphill recovery here. Power lunch. We'll be right back. Welcome back to Power Lunch Casino stocks facing uncertainty in 2023 on concerns that an economic slowdown could hurt leisure spending. My next guest sees at least 25% upside for some of the top names in the industry. So should you bet on these stocks? Let's bring in Chad Bainon, senior analyst at McQuary. Chad, great to see you today. I'm just going to go through your top picks here.

MGM, Draft Kings, Churchill Downs, Caesars, and Vichy, which is the largest property owner on the Las Vegas strip, one of the gaming reits and a big read at that. Talk a little bit about online gaming. We're heading towards the Super Bowl, which will be the biggest day of sports betting. Ohio has just come online. What could move the needle here for these gaming stocks? Sure. Thanks for having me, Contessa. So one of the things that we're trying to really highlight here, particularly related to draft kings, a name that certainly suffered in the past two years after a huge run after an IPO was we think we're going to see a few things. in the market. One, this movement towards the single game parlays. So that comes from the technology

that we're seeing with Draft Kings, Fandle and some of the peers, where when you log on to bet on a game, you're actually more interested in the player props, what's happening during the game. And there's a number of these that will be driven by the technology. We think Draft Kings is a leader in that. That will also help the hold rate. So the percentage that you as the consumer should theoretically lose to a company like Draft Kings. The second thing, thing is a reduction in external marketing. This is something that was extremely negative for companies like Draft Kings in 2022 when they lost over $800 million. We think over time, this comes down. And the CEO, Jason Robbins, has said that he wants to dial back those marketing and promotional

spends in the states where sports betting is more mature, like New Jersey. Exactly. This has been a difficult sector to analyze because what's, they've said is it's year three when you start to see the stickiness from the early cohorts, a reduction in the promotions, and really that gross profit per player. We're now in year three. So this is the time where the rubber meets the road. And we think this is the time where we're actually going to see upside surprises to estimates from companies like Draft Kings and its peers. Though I will say that one of the challenges for Draft Kings is that its competitors are starting to show profitable months, profitable quarters. And that leaves them looking like they're maybe catching

up. The stock, by the way, over the last 12 months down almost 37%, though I'm seeing, you know, just over the last month to date, up 23%, so it has seen some growth. Let's talk about Vegas, the Pact calendar there, certainly would impact Caesars and MGM, the two biggest operators on this trip. Sure. Related to Vegas, one thing that we think the market is missing is that midweek occupancy, it's about 500 basis points off of where it was pre-pandemic. You pointed out kind of What will drive that? That's the conventions. You saw really good attendance with consumer electronic show in January. We think we're going to continue to see that throughout the year. And then you obviously end with F1 in November where hotel room rates are three times what they regularly would be in that week. And then throughout the rest of the year, you have really good events and in marketing that will kind of help compression nights where operators like MGM and Cesar's will be able to raise rates.

I can't let you go without asking about Macau. There's a lot of skeptics who point out that with COVID infections swirling around China, that you're not going to get that massive return that we've seen in Las Vegas. What do you anticipate? We think there will be a movement from VIP to premium masks, just given the structure of VIP junkets, changing the model. We want a little bit of exposure. That's one of the reasons why we like MGM because they have a mix between Vegas, Macau,

regionals, and digital. Las Vegas stands, we do have an outperform, mainly. because of Singapore, because of their market share in Macau. But we don't want to put all our eggs in the Macau basket. We like online sports betting, then Vegas, then Macau in that order. Got it. Chad, great to see you. Thanks. All righty, Moderna shares hire on the back of positive results for its RSV vaccine. But our next guest doesn't like the stock.

We'll be right back. All right, folks, time now for three stock lunch. The glasses are arrayed. We're sipping on some big movers of the day. Moderna hire on success for an RSV vaccine in adults. Charles Schwab lower after missing fourth quarter estimates. Kraft Heinz getting dragged down along with other consumer staples on pace for its worst day since July, hold the catch up. Here to help us trade them all.

Courtney Garcia, senior wealth advisor at Payne Capital. She's a CNBC contributor. Let's start with Moderna. Good news on the RSV vaccine front, but you're a little dower on the stock. Correct. Yeah. So yeah, we've had some, I mean, really great news coming out. There are some great news with the data on the RSV vaccine. And this is on top of them working with Merck because you have some things that they're working on with cancer. And that's going to be really important that they can use this MRNA for other purposes rather than just a COVID vaccine, which is going to be great for them in the long run. The reason I have the sell is unfortunately, I think this is already priced into the stock. All that good news you're seeing in there. It's trading about 40 times next year's earnings. So I think for that reason, I would not be a buyer of this. I think that's already priced in. All right, Charles Schwab missed expectations with earnings and revenue, but you think it's a buy.

Why? Correct. Yes, I think I'm going opposite on all of these. But despite the fact that it did have a miss of earnings and revenue, the numbers really weren't as bad as you see. They were actually just below what they were last quarter, which is actually a record for them. I think is showing how positive they're affected by higher interest rates. And if we are in a higher for longer rate environment, I think we likely will be in,

23, Schwab is going to continue to be a beneficiary of that. And I think for that reason, this is a great play here. I actually buy this on the dip. All right. And our last one would be Kraft Heinz. Yes. Craft Heinz, actually, I kind of see as two stories here. I have a hold because short term, it definitely has some issues it's going to be facing. We've just had a year of inflation and price increases. And unfortunately, you're likely going to see that continue having an effect on craft really and their competitors. I think you're going to have to continue to see promotions there. longer term, though, I do think they've put themselves in a good position for longer term growth. Their leverage ratios have significantly come down, meaning they can put a lot more money into

their business. And specifically what I like is they're actually focusing on things like emerging markets, which is going to be something not just for the next year, but I think for the several years. And seeing them invest money and focus on that, I think is actually going to be a great beneficiary for the long run. So short term, I have some hesitations. Long run, I like it. I have a hold for that reason. All right. Courtney, thank you very much. Always great to see you. Thanks for having me, as always. Oh, you bet, of course.

Still to come, other key stories we're watching. Power Lunch, we'll be back into. President Biden has declared three California counties, federal disasters. The state has declared 41 of its 58 counties disasters. A lot of homeowners here, hard hit by massive storms and flooding, and now they should probably brace for another blow. Flooding is not covered by standard homeowners' policies. And over the last five years, 35 percent fewer Californians got policies.

through the National Flood Insurance Program or NFIP. Now, fewer than 2% of homeowners in California have flood insurance, either through the federal government or private insurers. Last year, of course, was one of the worst years for property insurance. You had Hurricane Ian. You had the winter storms, California storms to kick off 2023, and travelers just yesterday pre-announced catastrophe losses for the last quarter because of the winter storms that nearly doubled the consensus estimate.

the shares dropped on that news about 4 or 5%. But where might there be opportunity? Reinsurance. It's in a hard market. That's industry jargon for raising rates. And they have real pricing power. Some of the big names here, Everest Re, Swiss Re, Hanover Re, Zurich, Re, Renaissance, re, as you might imagine.

They're actively working to limit risk or charge adequately for it. Another place that you might see investment opportunity, the largest private flood insurance, in the nation, Neptune flood. I just got off the phone with the CEO, Trevor Burgess, and he told me Neptune saw a 600% spike in flood insurance sales in California over the last couple weeks because the flooding is now top of mind. It has replaced drought as being the, you know, preeminent storyline. And when that happens, people rush out and they're like, oh, I really need to protect my own. I've always been a little confused. If your car is damaged in a flood, that's covered under your car policy. Because it's comprehensive.

And you get coverage there. Right. If your house is damaged by flooding, it's generally not covered unless you have flood insurance. But if, let's say, the roof blows off or a tree comes through the roof and you have water damage. Or if your pipes leak. Or if your pipes, then you're covered, right? That's right. But one of the interesting things about this is that the flood maps where you might think that you're in risk are wildly outdated.

And so a lot of people who are getting flooded may not have known that they were even at risk for it. And that's why it's really important to talk to it. And particularly when you've lived the last decade under a drought, as has been the case in so many parts. And the greater risk was wildfire. Oh, and don't get me started on the California insurance market for wildfires. Let's talk about Twitter, auctioning off some memorabilia on office items from its headquarters in San Francisco. Everything from coffee makers to fluorescent logos to industrial kitchen appliances.

Representatives from the auction house heritage global partners tell Bloomberg in a statement that the fire. sale has nothing to do, nothing at all to do with the company's financial position. But the FT reporting that the first round of interest payments do on the $13 billion of debt financing used by Elon Musk to buy Twitter, those first payments do at the end of January. That's a lot of Currig coffee makers. That's a lot, a lot. So your payments come in due so you have a garage sale. What can I get rid of?

Also, there are fewer employees who need to use all of that. Well, that's true, yes. There are many fewer employees, maybe down on coffee, I don't need quite as many of those things. Maybe you could have branding opportunities for that. You go on, you bid for a coffee maker, and it's your Twitter coffee maker. Yeah, I guess, you know, I mean, I think there's, to me, very little cachet in owning something that was previously owned by Twitter. I don't care about that. But if I was in the market for a nice coffee maker? How much would you pay? 20 bucks? Maybe 20 bucks. Yeah. I'm not big. going to take a lot to get to $13 million.

Anya, we've got a bit of a sell-off on the market there, down 455 points. That's roughly where it's been most of the afternoon. Actually, if you looked at a graph there, you see that it's very close to the lows and it's kind of been hovering there. The S&P 500 off about 1% NASDAQ at 11,0001, 11,0002, 11,0003, no, 11,0002 is the number on NASDAQ and, relatively speaking, that is the stronger performer right now. And we got those beige book results that showed economic activity, relatively flat, consumer We're spending slightly up.

And so a lot of talk about the soft landing versus recession to come. Nice to have you back. Thank you. Good to see you. Contessa. Thanks for watching. Power Lunch, everybody. Closing bells starts right now.