Power Lunch - Record rally takes a breather 10/21/24

Episode Date: October 21, 2024

The Dow is lower today, giving back some of the strong gains from last week, as Treasury yields rose and investors awaited new earnings reports. And while many tech giants set to report results are focused on winning the AI wars, Apple has been criticized for lagging behind. We’ll tell you all you need to know.  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 Mathis. I'm glad you could join us. Stocks are mostly lower right now. The NASDAQ has just popped into the green, however, by the slightest of margins. Barish comments this morning from Goldman Sachs expecting average growth in the S&P 500 to average only 3% over the next 10 years. But let's not forget that Goldman's team that made this prediction has been low and incorrect before. And this has been an ongoing debate for at least the 15. years that I've been paying attention. And maybe it will be different this time and it will be true

this time. But no one saw the 2010s coming with their platform stocks. And it's a hard bet to make to move to the sideline. But it's a, it's a, you know, who knows? I mean, really, if you look at where the multiples are now, you would not expect that we're going to get the 13% returns that we've had over the past day. Agreed. And they're hardly alone. Barry Bannister on this program told us the same thing that he expects lower forward returns. Weighing on those returns, for instance, in the Dow lately, have been shares of Boeing. It's just one of a handful of stocks actually moving higher in bucking the market trend today. They reached a tentative deal with the union tied to end the machinist. But if you look there, look at it down 38% on the year. This is a company that's got lots of troubles that may begin with labor issues, but certainly do not end there.

And the deal is only tentative. Let's remember. And Bitcoin falling today along with stocks, but along with stocks, it had been near record highs. A lot of the money pouring into Bitcoin is doing so through the. ETS. So crypto making a little bit of a comeback, but down right now, higher by 58%. Crypto, gold. I mean, we're seeing a lot of these takeoff as people worry a little bit about the dollar debasement play. That's kind of a running part of this commentary. We start, however, with big tech and the role AI will play in the onslaught of earnings expected in the coming weeks. While many of these tech giants are focused on winning the AI wars, Apple has been criticized for lagging behind. One report says Apple's only

employees think they're two years behind other tech giants. In the Wall Street Journal article out today, Apple's CEO, Tim Cook, talks about his philosophy, not first, but best. Here from some insight on this, the AI race and more. Let's bring in Navrina Singh, CEO and co-founder of CRETO AI, an AI governance platform. Steve Kovac, our tech correspondent, is also with us. Steve, let me begin with you. How is Apple all that far behind? And I mean, you know, Mr. Cook making the case, we'd rather be good, great than first. And that has been the story around Apple for decades, even before Cook was CEO, when Steve Jobs was CEO, we're not going to make the first smartphone. We're going to make the first MP3 player. We're going to make the first MP3 player,

et cetera, et cetera. You can game that out how it is. We're about a week away from Apple intelligence actually launching for the first time. This is what so many on Wall Street, the big bulls on Wall Street are saying, this is going to drive a super cycle of iPhone upgrades. We just don't know how true that's going to be. We do know by the end of this month, which again is next week, they're going to launch at least the first tranche of these AI features. But based of what we've seen on these early tests, they're kind of underwhelming compared to what you can do in chat Chhabit, compared to what meta showed off just a few weeks ago. They are technically behind. But again, And there's no reason to think that Apple won't eventually catch up.

This is a much longer game than what a lot of people are talking about. And by this time next year, we might be having a completely different conversation around Apple. No, Rina, let's broaden out from Apple, but you can certainly address Apple if you like. My notes indicate that you expect earnings reports to reflect risks from AI, caution in earnings reports from major tech companies such as Nvidia, Microsoft, – that Nvidia comes out later, Microsoft, Amazon, Apple, Meta, and others. regarding risks associated with AI as well as examples of governance. What makes you feel this way? And is that prediction being borne out in what we're hearing and seeing from these companies?

Are they highlighting risks? Are they talking about governance and safety? Absolutely. Well, thank you so much for having me, Tyler. You know, one of the cool things about the wave that we are living through, the generative AI wave, is that there's a lot of excitement around the potential upside. But one of the things that we are also now seeing is a caution around what is long-term sustainable value that these companies can deliver. A big component of delivering that long-term sustainable value is really grounded in trust that these companies can bring alongside these AI capabilities.

So our prediction really is with the upcoming owning reports, we are going to see a much more caution around not only the unknown risk, but also the known risk that these companies have not been. been able to really sort of manage effectively because a lot of them are still building their AI governance programs and are in early innings of figuring out what is the potential upside of generative AI at scale in production. Yeah, and I think there's another thing that we've got to play into this. Let's talk about Microsoft for a second here, which is also reporting earnings and all the other hyperscalers. How much are they spending to build out these AI, as you just mentioned?

For Microsoft, it's going to be about $19 billion a quarter. It was $19 billion. This time they're saying to expect even more, maybe $20 billion a quarter. Meta, Amazon, they are all spending enormous amounts. And we saw this last quarter that they're really, investors are getting impatient. We see you spending all this money on artificial intelligence with no payoff. I'll go to Microsoft again for a second here. While they do appear to be generating some sales on the cloud side, what they're not doing as definitively is the user-facing stuff.

They made a lot of big promises about this co-pilot assistant that they started selling to businesses almost one year ago. And there's very little evidence that that has taken off in the way that many people kind of predicted. There's very little evidence that people are using it to make them more productive. That's really hard to quantify when you deploy this to a workforce of tens of thousands of employees, whether or not it's making them more productive in order to justify that cost. Microsoft has a lot of work to do to really tell that story better. and prove that story out. And it really hasn't done so yet.

It's all on the cloud side and the hyperscalers right now. It's amazing what a narrative change it's been since a year ago. Microsoft, as we said, only up 10% year-to-date. The S&P's up 22, and there's all these new entrants into the market. The AI arms race is not just taking place where we can see, you know, stock tickers and so forth. The money flowing around Silicon Valley has private companies as well that it thinks will flourish. Kate Rooney is here in studio with us. Welcome, Kate.

The big headline is this valuation for there's many heads of it. headlines around perplexity today, but it fits into this discussion that we were just having. Yeah, so the big headline for now is the capital raise, but it does fit into some of what you guys were talking about. I am told by a source that $9 billion is the new price tag for perplexity. So this is a buzzy AI startup looking to compete with Google. Search the person tells me, perplexity right now is in the midst of raising $500 million or so. That would be its fourth time raising money this year.

This is very rare, I should say. That is a massive amount of funding just for one year. These numbers could also shift. Am told that it's going to be a mix of new and then existing investors. Perplexity, it's already backed by Jeff Bezos. He got names like Invidia, NIA, Sequoia, among others. And the Wall Street Journal was first to report this news last night. The startup makes money off of subscriptions for that surge product, but the cash could very well be going to fighting off some new legal battles over copyright. Today, Dow Jones and the New York Post filed a lawsuit claiming that the AI startup engages in what they called a massive amount of illegal copying of their

work. They called it a brazen scheme to compete for readers while simultaneously free-riding the valuable content the publishers produced. Perplexity did not immediately respond to request for comic guides. Its search tools allow users to get answers with citations. In the New York Times, Forbes, Wired, have all accused perplexity of similar violations. The startup has struck certain revenue-sharing programs to address some of these concerns. But guys, it marks the latest example, this battle between tech and publishers over how these companies can use that copyrighted content. to train and then run their AI system. Dow Jones is seeking financial damages.

Could amount to $150,000 per violation. You add that up, you're going to need that new cash pile that this company. So, in Ivina, let's talk a little bit about this. Number one, what are these companies, what are the AI companies, including perplexity, going to do with all the money they raise? Why do they need it, number one? But number two, and more to the point of how Kate's report just ended there. How do you feel about these glorified search engines using or gaining access to copyrighted material? Have the laws not kept up with the practice, I guess is what my question would be?

Yeah, absolutely. So to address your first question, if we just sort of unpack what is needed for some of these large language models to even show up, is three components. One is massive compute infrastructure. Second is really access to good quality data and third is algorithms. And so what we are seeing, especially the investments that are going into some of these exciting new private companies is most of that is going towards CAPEX. Like how do you actually have massive amount of compute which big techs have access to so that you can train these large language models and large Gen. systems and read the benefits. Now, to address your second question, as you can imagine, a lot of these early

Gen AI players, the reason they have been able to build these last systems is because they've scraped the entire internet. They've had access to the data which has been available on internet, really calling into site the questions around data sourcing, usage rights, compliance with the IP laws. And it is an issue that I think we should all be concerned. about because first and foremost, there is a lot of copyright infringement that's already happening with these large language models. And so what we are seeing with perplexity and Dow Jones case is actually a real reflection

of the issue we have right now in the market is how do you ensure that the content creators their data rights are protected. And this is going to be a very important issue that not only emerging private sector companies, but also public companies take heed off because that's going to put them in regulatory costs fires. And we are going to see more and more of these issues surface. And this is where AI governance becomes pivotal. How do you ensure that you are complying with emerging regulations? How do you want to make sure that you are managing the risk is going to be key? But I mean, if they had stopped to ask content providers, everybody, for permission or, you know,

to do this in the first place, that's why it was. It was. It was very, research operation, non-profit. You never asked a lawyer for permission. You're supposed to only ask for forgiveness. By the way, there are stories about that. There are two things happening here, though. One is exactly what you said. ChatGPT and all these things we keep talking about

wouldn't exist that they hadn't already slurped up the entire internet and turned that into these large language models. Let me just stop here. It would be one thing if we all said, well, that was the original sin, but if you want up-to-date information, it's different. And that's the problem now. That's the problem. How are they going to keep feeding the bees?

I'll go back to what perplexity is. is going through right now. Because by the way, the New York Times last week sent out the cease and desist order against them for the very same issues. And the CEO of Perplexity, he told the Wall Street Journal in the story about it. He said, oh, we're not ignoring their requests. We're not doing it. I looked up on Perplexity today and asked it a very specific question about the top story in New York Times.com right now. The first result right there, New York Times. One thing to add is the way, and the difference between Perplexity and Open AI and some of the other systems out there, the way it's designed is through citation. So you can see, hey, we're giving you this information, but we're going to show you where it's from. Whereas you could be running into the same issues with Open AI, with Anthropic, but you wouldn't know it.

This is exactly the Google News fight all over again. That's why the publishers know exactly what to do. On Google News, we all used to do this. What do the articles they type it into Google News? You see about a sentence enough to get the gist of what you needed to know, and they didn't get the money, and they didn't get the advertising, and the business is imploded, and they're not going to let it happen again. I would say two things from Silicon Valley that I think are fascinating. I wonder if Nbrina's heard this as well.

And she actually threw a conference that I had heard this brought up. It's something called synthetic data. So we'll get to the point where these AI systems have now scraped the Internet, learned everything, and then they're creating new data to train themselves off of. So the thought from some of these AI CEOs is that we will get to a point where they don't need the publishers. There's no way. There's no way. How can they train themselves?

They've already used it. So they've made fake data. It's the current information thing. That's the part. Right. But they'll get their own version of this. to train off of. They'll write their own stock market stories.

They don't need to go to CNBC.com. They won't even need us. So the other thing I would bring up is that the companies with the biggest cash pile are really set to win. So you saw Open AI raise massive amounts of money, billions now in $157 billion valuation. Perplexity, all of these AI startups in order to, A, fight these legal battles, and B, fend off competition from big tech. The ones with the biggest cash pile are the ones that are going to win.

And I think it's really indicative of what you're seeing in venture markets right now. a last word to you. You want to pick up? Yeah, absolutely. So, you know, I do want to underscore that where this money is going is something that these companies should deeply be thinking about. Rather than fighting off lawsuits, what if they were actually directing this money towards safety measures and governance practices? And I think this is something that we saw recently at the CRETO AI Summit where we brought in world leaders and all the companies, Amazon, Microsoft, Salesforce, you name it. The governance leaders from these companies actually showed up to our summit.

And a big question was, how do we actually direct the capital towards good governance practices so that you can build trust around these technologies so that you can make sure that you are compliant to emerging regulations? And more importantly, you're continuing to build that good hygiene around risk management and compliance. Can you imagine the renaissance that journalism would experience? Yeah. If look at the deep pockets that open AI, this could be the best business model that has, has come along for this industry in decades.

If they all had to license, all of their current information from all of these providers, it could be a fold mind. Dow Jones said that. Well, they said in one of their stories. But it would be a bad business to invest it. I wouldn't want to necessarily invest in Open AI under those conditions. They said they would rather woo than sue. They would rather strike these partnerships than be suing.

But the end game for some of these publishers might be, all right, we're going to file the lawsuit. But we're going to bet that they will strike some sort of deal. And Dow Jones News Corp has one with Open AI. So that may be where. where this ends up, the woo side versus the suit. But also, fool me once, you know, shame on me, fool me twice. We went through this with Facebook, right?

The news feed and so many publishers just catering to what Facebook told them. Look at BuzzFeed. They're BuzzFeed. And look where BuzzFeeds at right now. They built their entire business mostly on that. And so if you do that with AI, that's also a risk. Yeah, you're so well said. All right, folks.

Thank you very much. Navrina Singh. Thank you. Kate Rooney, Steve Kovac. Good to have you both here. Good to see you. In person. All right, a quick power check as we had to break on the negative side of the S&P 500.

You got Cigna, the insurance giant lower on reports. It's reigniting efforts to merge with Humana or Humana after initial talks of that stalled last year. On the positive side, you got Kenview higher after activist investor starboard value built a significant state in the consumer health company, which was spun off from J&J. We will trade it ahead in our three-stock lunch. You want to wait for that. We will be right back after a very quick break. I promise you there's much more to come.

All right, welcome back to Power Lunch, everybody. Shares of Boeing hire today as the company reaches a tentative deal with the union that could end that ongoing and very painful strike out there. Philobo joins us now with the details of the proposed contract. It's more than Boeing wanted to spend. What are the odds that the rank and file support it? Great question, Tyler. Look, 96% voted against it last time.

So let's do the math. Only 4% voted for the previous offer. They've got to get to 50% plus one to approve this offer in order for the strike to be over. So what are the odds of that happening? Keep in mind that this is a far richer offer that they're voting on than the one last month. 35% raise over four years. That's the big headline figure that's getting the most attention. There's also a $7,000 signing bonus, a little richer than originally proposed.

And a $5,000 one-time deposit in all of the workers' for all. 1Ks. What is not in this offer is a reinstatement of the pension program. Now, there is an increase in the multiplier for some of the older members who had a Boeing pension, but there's no new pension being offered to all of the machinist. This is day 38 of the strike, and the costs, they're piling up. By one estimate, this is costing Boeing $1 billion per month. We're not even going to get into the free cash flow implications. Liquidity right now is believed to be somewhere close to 10 billion dollars. We may get some greater clarity on that when the company reports its Q3 results on Wednesday. Remember, Boeing has also announced that it is cutting 10% of its staff. So as you take a look

at shares of Boeing against the S&P 500, year to date, it has been a rough time for Boeing. This chart says it all. Remember, three Q3 results before the bell on Wednesday. And again, that's, I think, when we get greater clarity. And also, guys, during the conference call, that's when we will hear from Kelly Ortberg when he talks with analysts about the state of Boeing. Phil, there's the question about will it get approved or will it go through? And then there's a question about what will it cost Boeing if it does? Oh, it's substantial, but it's not to the point. Look, it's more costly, most believe, if you don't get this resolved.

I was at the Wings Gala in New York on Friday night. And generally speaking, when you talk with airline executives, when you talk with suppliers, leasing company executives, almost everybody says the same thing. It's costly, but you've got to get this done. Because if this drags on, let's say it goes into November and then beyond that, you really start to see a lot of pressure being put on the financials for Boeing. They need to get this done. All right. Phil, thank you for now. We appreciate it. Phil Bow. Meantime, data shows consumer spending is still strong with the potential for even more positive momentum as the Fed lowers at least short-term rates.

We'll highlight some specific sectors which could cash in on Market Navigator next. Welcome back to Power Lunch. Stocks are near session lows with the Dow down 352 points. The S&P down 18, both of those coming off a six-week win streak. The NASDAQ is briefly, barely, I should say, in the green, and the Russell 2000s aren't on there, but they are underperforming today, down about 1.5% as we've seen a real backup in those longer-term interest rates. The 10-year yield just continues rising to about 413 last check.

On tap this week is another confluence of economic data. earnings and Fed speak. That should give us a better picture of how consumers may fare in the near future. My next guest believes the numbers will signal a clearer path forward for spending and is here to tell us how to follow the money. Let's talk to Jill Moek. He's the chief economist and head of research for investment managers at AXA Group. Jill, it's good to see you and a very confusing sort of backdrop here where the economy is better than expected. Interest rates are rising. The stock market is rising as well. And there's much debate about whether the Fed should be cutting rates in this environment. So what are you looking to this week?

Well, honestly, when the Fed decided to cut by 50 basis points, my first reaction was that maybe they were jumping the gun a little bit. And then there was no absolute sense of urgency of emergency there. As you said, the economy was doing perfectly okay. My only guess is that they overreacted to some disappointing data on the labor market in the summer months. the issue for me is whether the sort of new consensus around a more prudent pace means that the Fed could stop altogether. I don't think so. I don't think they have this in themselves at the moment.

My impression is that what the Fed wants to do is precisely to avoid creating a situation down the road, which would be consistent with hard lending. And to do that, you need to cut rates at a steady pace without no triggering any massive, massive movements, but you still need to remove some of the restriction, which is currently in the system, because we're still living with the risk that at some point the level of interest rates, which remain much higher than what the Fed themselves tell us the sort of neutral rate should be. There's a risk that down the road it triggers some sort of nasty lending. So steady, but on the way down. But your data show that we are going through the second acceleration in a row

on the three-month annualized inflation rate, or maybe the core inflation rate, which would be even more significant. So why should they be cutting rates or worrying about neutral? Yeah, it's true that if you look at the very shorter momentum on a three-month annualized basis, for instance, you can see that there has been a reacceleration,

especially in some segments of the consumer price index, which normally the Fed cares a lot about, in particular core services excluding rents. So I agree that this should be, pose for thought, so to speak, for the Fed. But without accidents of this nature before, we had, for instance, this hump in inflation in the first month of 2024, and we discovered in the summer that actually it was just a sort of accident.

So given the fact that this reacceleration is very recent, I don't think that the Fed is ready to give up on the general direction, which is accommodation. Another thing to take into account, obviously, is that we know that there are some external forces around there, which in any case are probably going to continue taking inflation down. We've been extraordinarily lucky so far, but also energy prices have remained quite tame. Food prices also, generally speaking, have remained quite tame. This is going to help maintain inflation on an okay footing, I would say, even if we probably have to accept that. it stays above 2% for a while longer. So you're betting on a series of 25s here,

notwithstanding that pickup that we were just demonstrating, industrial production we get this week. Maybe it'll be softer, but round out that GDP number that still looks stronger than we might have thought just a few months ago. Jill, we'll leave it there for now. Thanks for your time. Giel Moek with AXA.

Welcome. Tyler, Kelly, still ahead. Diminishing returns. Goldman Sachs forecast just a 3% annual rate of return for the S&P 500 over the next decade. That's down from 3. 13% over the past decade to debate the bank's thesis with our own experts next. Welcome back to Power Lunch. I'm Pippa Stevens with your CNBC News Update.

Secretary of State Anthony Blinken is heading back to the Middle East as part of a push to restart ceasefire negotiations in Gaza. The diplomats' trip to the region comes after the death last week of Hamas leader Yajas Inwar. The State Department says Blinken will start his trip in Israel. The federal retrial began today of the former Louisville police officer facing civil rights charges in the death at Brianna Taylor and her boyfriend in a botched police raid. Brett Hankison is accused of depriving the couple of their right to be free from unreasonable seizures. The jury couldn't reach a decision in his initial trial resulting in a mistrial. And more than 100 women's soccer players signed an open letter protesting FIFA sponsorship deal with Saudi Arabian state oil giant Iraq. Ramco. The players who include former U.S. national team captain Becky Sowerbun cite issues with Saudi Arabia's

record on climate change and women and LGBTQ plus rights. They're calling on FIFA to replace a Ramco with an alternative sponsor better aligned with these values. Kelly? Wow. All right, PIPA, thank you very much, PIPA Stevens. It's been good times for the stock market over the past 10 years. The S&P has tripled during that period for an average annual growth rate of 13%. But that era could now be over, says Goldman's David Koston. In a new note, he estimates the S&P will deliver only a 3% annual return over the next 10 years, citing stocks current high valuations as a key reason for the low forecast. But Koston has been relatively bearish.

One example back in May, he thought the S&P was unlikely to deliver any more gains this year, capping his price target at 5,200. The S&P has marched past that and is now sitting around 5,8.50. Let's discuss more with Hightower Advisors, Chief Investment Strategist and CNBC contributor Michael Farr, along with our own Michael Santoli. Welcome to you both. Michael Farr, I'll just start with you. And we always have to be cognizant that, you know, a period like the 2010s can't be repeated. But do you think it's worth people changing their investment strategies against the prospect of potentially lower returns?

Never? No, absolutely no, no. I hope that wasn't unclear. Look, the Goldman Report does very admirable analysis and math, and they're looking for a reversion to the mean after we've had a period of outperformance. That all makes sense. But it really gets to be a bit too Malthusian for me

when you take a straight line project today's situation over the next 10 years. 10 years ago, 20 years ago, we didn't have an internet and we didn't know how it was going to change things. We didn't have AI five years ago that anybody really knew about. that has driven so much of the stock market returns, really in a back-weighted kind of a way with just enormous returns. And then finally, I mean, you know, we've had a GLP-1 class of drugs for weight loss that also seems to address diabetes and a whole range of illnesses.

So the point here that Robert Malthus unfortunately found out when he was the first recognized economist out there and was wrong in his projections about how we would outlive our fuel supply and the population was going to start. starve everybody, that things advance and technology advances, the world advances. And so I get it, and you have to always be cautious in the management of your portfolio. But at the same time, I don't think you can ever bet against the U.S. markets or U.S. economy or corporate U.S. America. This will grow over time. Goldman could be right, but I wouldn't change a thing for now. Be deliberate and be disciplined. And you'll get through this. Michael Santoli, let me get you to react to what Michael Farr just said. I mean, you can't deny the fact that the S&P 500 is tripled over the past 10 years. It's up 60% over the past two years.

And that would suggest that, well, maybe this party can't go on forever. At the same time, saying there would be a slowdown in returns, you could still make nice money at 7% a year as opposed to, you know, as opposed to 13%, 30% higher, obviously. Sure. Well, I mean, 7% would absolutely be, you'd probably sign up for it right now. given the starting point. And I don't think Goldman's an outlier here. If you just look at the standard math in terms of asset allocation entering today at a 1.3% initial dividend yield for the S&P 500 at 22 times forward earnings, make some assumptions about eventually there'll be an economic cycle that interrupts the upward trajectory of earnings, and you have to maybe build in a cushion

for absorbing some tougher times. Vanguard, for example, maintains a 10-year projected asset asset return outlook. And it said, as of June of this year, you know, three to five percent for U.S. equities over the next 10 years. U.S. growth stocks, zero to two percent. It doesn't mean it's going to be right, but it suggests that we've kind of built in a little bit of an expectation that things are going to remain pretty good. The little bit of a disclaimer here on all those kind of textbook analyses is that the floor and the ceiling of equity valuation both seem to have risen over the last decades, whether it's because the quality of the index, the companies that are dominating it is better. It's less cyclical. A lot of people have done much work on this. I mean,

in the last 10 years, the S&P 500 has traded below a 15 times multiple fleetingly a couple of times at major bottoms and never else. And that used to be the long-term average. So I think you have to account for the fact that there's been some creep upward and secular valuation, but also recognize that, you know, keeping expectations low is also a bit of a, you know, kind of should be in your toolkit. It means you're not going to save more. It means you're going to be diversified. And there's nothing wrong with that. Mike, if I may pivot slightly to ask you about the other thing on my brain and bespoke tried to answer this, but it was when's the last time the Fed cut by 50 and had long-term rates go up by 50. And it has happened, evidently. It happened in 01 a couple

of times. It happened in 03. And that was ushering in disinflationary period. So I don't want to get carried away. But this is really unique, don't you think? That was for me. Yeah, I mean, honestly, it's somewhat unique. I think a lot of things about this are somewhat unique, but also this was preceded by a pretty aggressive tightening cycle where we kept rates for 14 months or whatever, above, way above what we consider to be neutral for the economy. So I don't know that you want to map the previous cycles experience exactly to what we're dealing with right now, but there's no doubt about it. You've seen this re-acceleration, or at least better than expected performance of the economy

at the exact moment the Fed cut by 50. And at the exact moment, people are finding new reason to worry about things like Treasury supply down the road. Now, I don't worry about the absolute level. 415, 418 on the 10-year, we could probably make our peace with that just because nominal GDP is like 5.5% right now, at least at this peak. But you have to keep an eye on all that stuff. Michael Farr, if I am typically a long-term investor with a 70% equity waiting, which I know is a little higher than some people suggest and a 30% fixed income waiting, what would you suggest I do, given the fact that I don't think you see any of the signs of sort of speculative excess in the market or any of the signs of a bubble that may be about to burst? We don't have that sort of enthusiasm, Tyler. We don't have everybody on the same side of the boat, stocks can't go down. And we don't have the enormous leverage out there that you typically

see for market bubbles. So stay the course and stay disciplined and have a plan. You will be fine over the long term. Remember my partner, John Washington, said the time to buy stocks is when you have money and the time to sell stocks is when you need money and otherwise leave them alone. You'll be all right. All right. That's good good wisdom there. Michael Far, Michael Santoli, thanks very much. And still ahead. What do robots, AI, and balloons? have in common. They could all help insurance companies pay out natural disaster claims faster. We'll explain how in our clean start next. Welcome back in the wake of back-to-back hurricanes causing enormous damage across several states.

The task for insurance adjusters is enormous. But what if that task could be made simpler with balloons? Diana Oleg has the details in her continuing series on climate startups. Diana. Well, Tyler, for decades, insurance adjusters have used the same methods to assess property damage after natural disasters. They visit individual properties and use small airplanes with high-resolution cameras so they can see damage to roof, structures, and neighborhoods. The planes speed the process and help prioritize specific claims. Now one startup claims it can do one better. You're looking at stratospheric AI-enabled robotic cameras flying on weather balloons. They're called Swifties, the brainchild of Near Space Labs, a Brooklyn, New York startup looking to modernize the way the insurance industry assesses both property risk and damage in an increasingly volatile climate.

With our balloons and our SWIFT's insurance companies are able to get access to information right after the catastrophe and assess the damage and payout claims within days instead of weeks and months. Near Space Labs uses giant weather balloons to launch its cameras twice as high as airplanes go. The cameras provide high-resolution imagery over thousands of square miles. Our balloons capture what 800,000 drones would with one flight. This means that we can be faster, better, and cheaper for our customers. And it's not just for use after a storm. Insurance and reinsurance companies like Swiss RE, are using near space to help them understand and price risk.

The imagery of property specifics like roof characteristics, surrounding vegetation, defensible space, all feed into customer AI data sets. That part is especially attractive to investors. If you are actually going to be able to use AI to do risk analysis, you need a cheap abundant source of imagery. And we believe that at least over the next decade, NearSpace is probably the cheapest way to do this.

In addition to Third Sphere, NearSpace is backed by Crosslink Capital, Wireframe Ventures, IAG Firemark, Toyota Ventures, and Leadout Capital. Total funding to date, $24 million. Neerspace says it has flown over 1,000 commercial missions, but it's still ramping up its operations. Its CEO says they're focusing on risk analysis with insurers now, but by next year they'll be able to react to major disaster. from hurricanes to floods to wildfires. Kelly. Diana, on this front with the technology and the surveillance and all of that for insurance companies, I had friends whose homeowners got canceled because a drone saw that there was a tree touching their house, but they didn't know. And my agent says this happens all the time.

There's no, hey, you should trim this branch before we drop you or hey, this or hey, this or hey, that. They were just boom, non-renewed, branch touching the house. Sorry. Well, I don't know how that really relates to what we're talking about here. this is going to be more about assessing risk due to climate change and natural disasters. But I guess if you're having those issues that you should contact your insurance company. I guess my point would be, is there a way to whatever conclusions they're going to draw about coverage as a result and risks? Is this an ongoing discussion that you are part of or are you only going to find out if something happens to your policy or the rate goes up or so forth? Well, it all goes into the risk assessment of what the insurance company is looking at when they price that for your home.

so you can talk to them about what they're looking at. But, you know, insurance adjusters now, when they go out after a storm, they're looking at all kinds of damage. But when they price in the risk to begin with, they're also using planes, so they may see the same thing. This is just a cheaper, faster way of doing it. So if they're using drones, if they're using planes and not this specific technology, they're still going to see the same thing as they would have seen 10 years ago. All right. Diana, thanks. We appreciate it. Diana O'Lick. Shares of Disney meantime are lower as the media giant lays the groundwork for a successor. to CEO Bob Iger.

We'll trade it in three-stock lunch next. Welcome back. It's now time for today's three-stock lunch, and we've got some of the biggest movers on deck. And Sylvia Jablonsky is here to do our trades today. She's the co-founder and CEO of Defiance ETFs. Sylvia, welcome back. Let's start with Kenview. A name after remind people is now the owner of things like Tylenol and Lysol mouthwash.

I think it's Lysol. Anyway, the shares are surging today. No, it's not Lysol Mouthwash. It's Listerine. Listerine. Oh, no, it's not Lysol. Lysol mouthwash would be a bad idea. Listery.

That would be really bad. And tile at all. The shares are surging 5% as activist investor Starboard is taking a stake. What do you do with the shares of this spinoff, Sylvia? Get them with some Lysol, Sylvia. Hi, Kelly, thanks so much for having me. I'm definitely not going to try that Lysol Moutche. But, yeah, I think, you know, Starboard value getting involved, it's interesting.

I just look at this company. And since they spun off from Johnson and Johnson, you know, they're down about 18%. They have all of these great brands, and they've already talked about during their last, you know, a couple of earnings calls about cutting costs, looking to, you know, improve on advertising and product placement and things like this. And still not much has happened. You know, the stock is kind of soaring on this news. But prior to that, you know, we haven't seen a whole lot. And so this is probably one that I'm going to sell. I just don't think it's going to be a moonshot anytime soon.

All right. Let's move on to UPS, shall we? shares are falling around 3%. Barclay's downgrading the stock to underweight. Bank sees risk to earnings as well as increased competition from Amazon. Do you agree with the Barclays analysts, Sylvia? I do agree with the Barclays analyst. I think on one hand, they have the risk of competition from Amazon. On the other hand, there are some other issues here too. So during COVID, these companies took off, right? They had all of these orders and deliveries and volumes were up. But since then, we've had higher inflation, we had tougher monetary policy. Consumers were starting to cut back on spending. Businesses were starting to cut back on spending. So this was a company that actually felt the

risk of higher rates for a longer period of time. And I think that, you know, the global picture wasn't much better for them. And so I think until we see better global macroeconomic conditions in terms of inflation coming down, cost cutting down, that this company is going to struggle a little bit. They just don't have that, you know, pre-pandemic or sorry, immediate post-pandemic, of revenues and demand that they had before. 10% gain in five years, criminal in this kind of market environment. Okay, so what about Disney? Speaking of underperforming, in a statement, they said they are planning to name

Eiger's replacement in early 2026 and that Gorman, the former Morgan Stanley CEO, will replace the current chairman of the board next year. Are you a buyer here? So, yeah, I am a buyer here for the long term. You know, this is a company that has been down about 60% over the last three years or finally up high single digits. They have multiple lines of revenue potential, streaming, ESPN, Hulu, strong IP, you know, great kind of movies coming out. And this is the House of the Mouse. People like it. I think that this will be a turnaround story in the next years to come.

They're trying to catch up with Netflix and they're finally tightening up shop. All right. Sylvia, thank you. Sylvia Jablonski. All right. Still to come, crypto contributions, cryptocurrency packs are shelling out millions in political donations this election cycle. And we'll tell you who they're putting their money behind next. Well, welcome back to Power Lunch. Bitcoin pulling back today after getting close to 70,000. We've heard a lot about Bitcoin in the presidential campaign, but it's also playing a role in local down-ballot elections. McKenzie Sagalos is here with us. Mack, what you got? Hey, Tyler. So with two weeks to go into the general, fresh election data for September shows that crypto pack money is focused on close house races as part of an effort to push candidates favorable to the group's agenda over the top.

Now, Fair Shake, which is the leading pro-Crypto super PAC. And one of the top spenders across any industry, this election cycle, has funneled a big chunk of its final donations to close house races in eight states, including New York, Nevada, and California. And several of those races are considered toss-ups by the Cook political report. And more than 70% of those donations are going to Democratic candidates. Now, all-in, crypto groups have spent over $130 million in congressional races for this year's election, including the primaries. And what I will say is that a lot of that money, it's going to Senate races. Well, I was going to ask you, where is the Senate figure in this at all? And who's collecting there?

So you had $10 million apiece going to the candidates in Michigan and Arizona. And then overwhelmingly, the vast majority of this money, $40 million is going to vote out of the Senate banking chair, Sherrod Brown, who hasn't been very favorable to the industry. Wow. He's Ohio. Am I correct? In Ohio, yes. We're also seeing a lot of crypto spent in the presidential race.

Kamala Harris, getting $12 million from the crypto bill. millionaire is Larson. Ah, all right. So a little bit her way as well. McKinsey, thank you very much. I got to leave it there. And we got to leave you right here. Thanks for watching, Power Lines.