Power Lunch - Record rally takes a pause 12/3/24

Episode Date: December 3, 2024

The S&P 500 slipped today, taking a breather following a major rally that’s taken stocks to all-time highs.New economic data also showed that job openings were higher in October compared to September. But the main event will be Friday’s November payrolls report. We’ll tell you all that 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.

Welcome to Power Lunch alongside Kelly Evans. I'm John Ford. Stocks are mixed today. No big moves for the major averages. The big thing Wall Street's watching, one of them earnings from Salesforce after the bell. That's in overtime. The key is how well it's monetizing AI. We talked to an analyst last hour who's still pretty bullish on software thinks the AI agents are going to actually help the whole category. And the sectors of 30% this year for all the doubt. Don't sleep on the small names either. That's true. He was talking about that. Markets are also looking ahead to some key jobs data. The ADP report tomorrow. The B. The job's report Friday. One of the last big data points before the Fed meeting and decision on the 18th. The Joel's report today was, no, it didn't show a decline in the number of job. But it didn't show an increase. I thought it was better. Anyway, the jobless claims lately, most importantly and most critically, have been wonderful.

So we had a bad jobs report last month, but there were a lot of storms going on. I think expectations are that this one's going to be pretty good. If it disappoints, different story. If it holds in there, it's going to make December's cut tricky for the Fed. Well, and then Bitcoin holding steady at 95. Right now, earlier on Squawk Box, Micro Strategy CEO Michael Saylor explained how his company is borrowing money and using it to buy more Bitcoin. Coming up, we'll debate, whether this is a brilliant strategy or whether it could end badly. Maybe both.

Yeah, this is one of the sort of battleground stocks. You now have people who swear by it and people who can't stand it. So we'll show you a little glimpse of that debate. Kind of like borrowing a ton of money to buy real estate. Borrowing a ton of money to buy anything really depends on the price of that thing, always going. up. Speaking of which, let's start with the markets, which are actually down. The Dow is down for the third time in four days. Now, NASDAQ was at a new high, though. As investors are gearing up for some key economic data this week, one of our next guests makes the case for small caps over large

ones, and over the last month, the Russell 2000 is up about 10% versus 6% for the S&P. Brent Shudy is chief investment officer at Northwestern Mutual Wealth Management, and Michael Farr is president and CEO of Far Miller and Washington and the chief market strategist at High Tower. It's good to have you both here. Michael, you're obviously CNBC contributor as well. Brent, let me just start with you on the case for small caps here. Speaking of a lot of controversial things in the market, micro strategies, one of them, small caps or another. Is this performance living up to its goals for you and you think it's going to continue into next year? Yeah, certainly you've seen small caps outperform large caps since

about July 10th, which was ironically the day after we had a weak CPI report that came on the heels of a week jobs report, which started bringing in the Fed to cutting rates into the equation. And so we do continue to believe that intermediate to longer term holders should focus more on small caps just because they are cheap relative to their large cap counterparts. And if you believe the market is going to continue pushing higher, it needs to broaden out, which it has recently. We expect that to continue into 2025. Yeah. The larger question, I guess, is just do you expect conditions to be favorable for the market overall? I mean, is there any reason for people to really, you know, kind of overly bet on the small caps instead of finding things to like about?

about stocks broadly? Look, I think there are a lot of risks that are still out there in 2025. We are later in an economic cycle. Inflation is not back to 2% yet. And you have seen economic weakness beneath the surface in lower income consumers and companies that are more tied to interest rates, which ironically small caps are. Look, look, I think you want to maintain exposure to fixed income. You want to stay diversified because 2025 is certain to be uncertain.

And so to me, you want to say diversified, but putting all your eggs in large caps, which many investors are is not a bright thing for us. And so we want to remain towards those small cap names, which I think offer value for intermediate to longer term focused investors. Michael, a lot of people saying that the major indices, a lot of stocks are fully valued here, especially after the post-election rally as we look ahead to the start of the second Trump administration. Do you diversify or what do you do? John, I think we've been saying that stocks are fully valued for about the past five years. It feels like Price to earnings multiples at 22 times are full. No question about it. Should you be diversified?

I think you should always be reasonably not reasonably diversified, but not over diversified. I like the notion of small caps. They've well underperformed. We've had this concentration of mega caps now. The top 10 stocks in the S&P represent, you know, almost 40%, 35, 40% of the index, the top three, 20% of the index. I mean, these are huge concentrations and expensive names, but small caps, many of them have lagged, so there's opportunity there. There's opportunity in the other 490 stocks that haven't really performed well either. So to go through your discipline, which is really the key, to take some profits and perhaps pair some of those positions that have grown really large in your portfolio and now represent outside risk and redeploy money to some of these things that haven't outperforming. or have it, perhaps underperformed, I think makes a great deal of sense. You have to be disciplined about it.

You can't be emotional about it. And you need to be tax sensitive coming into the end of the year. Caution, but I think very deliberate. And yes, what you say makes sense? Michael, what about the notion that there's a reason why certain things have underperformed? Small caps, for example, the rich have gotten richer in this market for a while. We used to talk about a certain cohort of stocks, you know, Fang, and that end was for Netflix. now we talk about invidia.

We keep coming up with new larger caps that are doing well for a specific reason. And then the U.S. has outperformed a lot of international markets, perhaps, for a reason. What lens should you use when you're thinking about diversifying into some of these areas that haven't done well? Yeah, okay. So first of all, you have to use a very cautious and careful lens.

Go there first. Money is hard to make. And when you've had a couple of years of a roaring market, you forget about the risk. You forget about the downside. You forget about the pain. Don't forget about the pain. So to take some of those profits, I think makes sense.

We're in this, I believe, Trump honeymoon phase of the new Trump presidency here. The last Trump presidency was very volatile at times. I remember just before coming on the air, he said something about 100% tariffs on the Canadian steel. And I went, he said, what? And it's very difficult to discern the difference, to make the sale. the difference between real policy and President Trump's posturing. They could both be very effective, but trying to pay attention to what to listen to. So there's a Trump trade out there. It's a less regulated environment, but it's also a more volatile environment. So still finding good balance sheets,

companies with real earnings, with not too much debt, that probably will do okay in a 3% GDP growth year coming up. Okay, so we'll keep our hands on our wallets then. Michael Farr, Brent Shudy, thank you. Now let's turn to the bond market. Yields flat as we await jobs data later this week. Rick Santelli joins us now from Chicago. Hey, Rick. Hi, John. You know, this morning, 10 o'clock Eastern, we saw jolts.

And job openings, they were stronger than expected. And if you look at a two-year and a 10-year on one chart, you can see a couple of things. All yields move tire on that data. But after the data was out and we peaked in terms of the intradate, high-yield, low prices, the short maturity. year gave up ground much, much faster. Hence, steepening the yield curve. All this, of course, in front of ADP tomorrow and the tenure, still hovering, hovering near the highest levels on a closing basis

since mid-October. And a lot of that steepening is just reversing some of the flattening over the last couple of days. And I think the two years trying to catch up in front of the data to some of the down-yield moves we've seen on longer maturities. Politics matter. The French, of course, have issues going on like much of the globe and their politics are playing right into the marketplace pushing up French yields. And if you look at a French tenure called an Oat versus the German highest quality sovereign, the boon, you can see at 85 basis points, French minus German.

It's the widest it's been going all the way back to 2012 and those borrowing costs could hurt. And coming from a country like us, we need to pay attention to how quickly these markets can move. And finally, the dollar against the Chinese currency, plenty of headlines regarding what the Trump administration may aim towards China, while the dollar is now at a one-year high. John Fort, back to you. Rick Santelli, thank you. And you emphasized, as Kelly did you, job openings at 7.74 million in October. That was up. Well, coming up at the height of the cloud biz boom, Salesforce was front and center.

But how's it holding up in the AI era? We will discuss next. Welcome back to Power Lunch. A tale of two very different tech names this year. Intel announcing yesterday its CEO, Pat Gelsinger, is out as the company struggles to navigate a turnaround and expansion of chip manufacturing and a push into developing chips to compete with Nvidia in the AI boom.

Meanwhile, Salesforce announced its suite of AI agents in September. It's caught the attention of customers and investors alike. Here to help us on both companies, his Futurum Group CEO, Daniel Newman, Dan, good to see you. So, Intel, moving on Beyond Pat, doesn't necessarily fix anything. What should investors know about what it's going to take to fix things? Hey, John, good to see you.

Look, I think there was that initial bump. Everyone was really excited, thinking that they're going to get the split they perhaps thought was going to fix everything. And I think you're starting to get that reality set in moment today. You're seeing it's down. People aren't quite sure. Will the split fix everything? There's so many unknowns with tariffs, with the relationship with Taiwan,

wand, the desire to bring chip manufacturing back to the U.S. There is no magic bullet here, John, and I think that was the thing that ultimately pushed Pat out is Pat had a plan. He wanted to stick to the plan. My belief is that the board felt the split would be more immediately profitable. They're missing what they feel is the biggest boom in history with AI, and they're not participating in a meaningful way. So they want more. They want it faster. They wanted the split. But I think the reality is Pat was the right guy to lead. It's going to be interesting because I know Michelle, I know David. I think they're going to be. going to do a good job. But Pat's plan, it needed more time and patience ran out.

Okay. Well, let's set the table on Salesforce as well. Mark Banyahu's been picking some fights lately, including with Satya Nadella and Microsoft. There's some claims out there that CRM in the AI era is not as essential as it used to be. They've got to deal with service now. They've got to deal with others. What do we need to see from this report? Yeah, John, look, Mark is one of those people that really understands where the numbers sit. And he's historically been one that's beat, and I think the street expects that. We've looked very closely what they're doing with agent force. He clearly understands that the pivot is required, and we're seeing it here at AWS, where they talk about agents. And in fact, here at ReInvent, AWS and Salesforce are deeply partnering.

Microsoft is making this route. Bill McDermott and Service Now have spent time with them. They are going down this route. They are making the right pivots. The question is how quickly can they pivot, and with these kind of SaaS applications being deprecated, we can now use kind of a data service model with many of our applications, and then we can build these generative tools that are going to, you know, deliver experiences abstracted in real time. But Salesforce, like AWS and others that people have called late to the party in AI in some ways, they have this massive user base, John, that they're going to be able to tap into. The question mark, and this is what 2025 and the AI boom is going to be all about is, can they tap into it and show meaningful revenues

that would keep investors coming to the party, keep investing in this boom, I think Salesforce can do it because customers, it's way too hard to move off the platform, but this is going to be a challenge for Mark and his team. Daniel, if I could ask you about Intel again, I'm curious to get your take on this one. If Elon Musk were to come in and take the helm of this company,

what do you think he would do? That's a great question. First of all, I think Elon would get very lean. We've seen what he did with Twitter, now X. He cut a lot. People said it would never be sustainable. He was able to make those cuts. I think a lot of people knew that there was some bloat inside of Intel.

And Pat knew it too. But when you have a culture and you have that many people, that many engineers, that many relationships in the market like they do, just cutting really quickly is never an easy thing to do. But Elon wouldn't care. You see what he's doing with Doge? It would be the same thing with Intel. The second thing is I think he would figure out a way to buy his way into this AI market.

The Gowdy chips are barely half a billion dollars. see NVIDIA running over $100 billion in GPU sales, Intel has to have a meaningful play there. And of course, you know, he would have to figure out a way to force the fabulous designers, the AMDs, NVIDIAs, Qualcomms, broadcons. They need to be using Intel Foundry. Until we see one of those big, fabulous designers using Intel Foundry, there's always going to be question marks that if it's part of Intel, is it trusted. And that's why they keep going to TSMC, no matter how high, Kelly, they raise the prices. So, Daniel, in 2025, now moving, we're ping ponging back and forth between chips and software.

I'm with you. What are the real markers of progress that you expect to see in AI? We're starting to see some of them, customer wins, some government usage. But how are we going to start to separate the wheat from the chaff, those who are making claims to have advantage from those companies that actually do? Yeah, I felt really strong about this for a while, John. There's been these couple of tiers. At first, it was the chips, then the infrastructure.

And we've seen Amy Hood at Microsoft come out and talk about how much AI, 10 billion against this 60 to 80 billion of CAPEX that's being spent. We need to hear more deliberate presentation of AI's impact on revenue. This isn't that incremental. We moved you into the next product at a certain price of subscription, and it happens to have AI features. People want to know, is it driving adoption? Is it creating lower attrition rates, increasing retention?

And, of course, is it incrementally? adding dollars to spend. So whether it's service now, whether it's Salesforce, are people spending more for agent force? Our evaluation says they will, but right now, most of the AI use cases, it's efficiency. They're cutting costs. Going forward, though, we've got to get more productive, and it's got to be really clear to investors. And I think the few companies that get that right, the SaaS companies that are really showing how AI is incrementally improving revenue and keeping retention are going to be the ones that are going to come out on top in 2025. We're going to keep our eye on those numbers here at CNBC, Daniel Newman, Future and Research.

Thank you. Thank you. And check out chairs of ZJK Industrial today. The stock is doubling up 127 percent to about $14. It had been over a billion dollars in market cap as well earlier in the session. It's a Chinese company, which today announced it's expanding its collaboration with Nvidia. It says it's assembling a team of specialists to focus exclusively on Nvidia's liquid cooling systems. Another AI derivative play with the big gain today is CRETO technology. Bank of America double upgrading the stock to buy,

from underperform and nearly tripling their price target to 80 bucks a share. It's currently trading at 69. This is all after the company's results were out after the bell of earnings and revenue. Beat guidance was raised. B of A analyst says CRETO is poised to benefit from AI growth because its cables are used in power-efficient AI clusters. Got a Midas market here. A touch from certain brands and names. Indeed.

Send some things higher. Well, after the break, digging deeper into the AI ecosystem, our trader will share some investment opportunities around industrial infrastructure for artificial intelligence. Market Navigator is next. Welcome back to Power Lunch. Here's a quick glance at the markets this afternoon, which have kind of been a holding pattern. We do get the jobs report out Friday morning. Dow is down 200 at the lows.

It's currently down 81. S&P's down a point. The NASDAG hit new highs earlier on and is still up 30. Now, when it comes to investing in artificial intelligence, could old school stocks offer some cutting-edge opportunities? My next guest scored big last year looking at. into the industrials that would support the build out of AI, names like Vertive, Eaton, and Super Micro.

Today, he's talking about his next three big industrial picks. And joining me now is Dennis John Jacques, the founder and chief investment officer at Ocean Park Investments. Dennis, it's great to have you here. We already showed a little glimpse of some of these names. Do these specifically support the AI buildout as well? No, absolutely. And I think that what's important for investors to realize is that, you know, they need to bring

agility and to really find value in the marketplace. Look, we're basically overdue for a market dislocation right now. And right now, if you see that, I think most people don't really understand is that dislocation and disruptions in the marketplace is really a feature and not a bug. And also, we are as an investor, we're basically wired in a certain way to basically focus on bubbles and dislocations, things that sort. And the companies that we're looking at right now I was really based on companies that are generating the power that's really needed to drive a lot of the AI in the marketplace right now. The one company that we like in particular is Talon. You know, I worked for the late Michael Price, and he always says that, you know, you can always find great opportunities that companies coming out of bankruptcy.

Talent basically came out of bankruptcy about two years ago. They restructured last year. The cash flow is growing about 25% or so. They cleaned up their balance sheet. The stocks trading less than 14 times PE is cheaper than the market. And they also have enough cash in the balance sheet to really buy back about 10% of their stock almost every other year. And I think that this company, this type of company, is really not well known in the marketplace. And we think that by next year or so in 69 months, I think they could be added to the Russell 1000 or even the SEP 500.

So that's one of the companies that we think that's going to go very very well. They provide a lot of the power that basically generate a lot of the AI movement. They're up 260 percent this year. So they have done well. The Ford P.E. is 42, which again, for the growth that you're describing is not necessarily that steep. So a lot of investors will be curious if it's too late for some of these plays. So let's quickly hit your two others that you want to talk about here. Clean Harbors, Quanta Services, similar kind of set up an opportunity?

Yeah. So with Clean Harbors, they focus on. hazardous waste management and oil recycling. Basically, they collect, dispose various hazardous waste from various companies. We believe that this company, the management team has a fantastic job, just growing cash flow.

They have a lot of cash on balance to buy back stock. One division that we particularly like is the safety clean segment. This division basically recycles and refines oil. And we believe that given the new administration and what the, the, the, presumably, the new treasuries with these three plus three, three, three, three, three, three plan. We believe there's going to be a lot of oil being produced in this country. I think that their backlogs are going to grow even bigger, which stands around 30 billion at the moment. The other company that we like is Quanta Service.

Quanta basically, they basically feed the, the customers of utility. These are very power hungry customers or utilities. They provide all the specialty services for grid, also. communication infrastructure. And what we really like about them, they're really a pure play. They compete with companies like Eaton, which we, which have done well recently. But if you can really want to focus on really improving the grid and also communication infrastructure, cost service is the one that we really like here.

It's amazing to highlight the performance of some of these industrial names. This is the sweet spot right now. It really seems that I'm glad to hear you think maybe into next year as well. Dennis, thanks so much for joining. us hope to check back in soon. Great. Thank you for having. Dennis John Jacques.

John? Well, coming up, what is micro strategies macro plan? Michael Saylor keeps buying Bitcoin and borrowing money to do it, but the company's now valued it more than double what its crypto holdings are worth. We will discuss more next. Welcome back to Power Lunch. I'm Kate Rogers with your CNBC News Update. A federal judge dismissed the gun case against Hunter Biden today following the president's

sweeping pardon for his son. He was found guilty of three felonies for lying on a form to purchase a firearm by saying he was not a drug user. He could have faced up to 25 years in prison. The dismissal comes a week before the president's son was to be sentenced. Jury deliberations are now underway in the trial of a military veteran charged with putting a homeless man in a deadly chokehold on a New York City subway train last year. The jury's weighing manslaughter and criminally negligent homicide charges against Daniel Penny in Jordan Neely's death. The defense says Neely was acting erratically, and Penny was trying to hold him for police, but prosecutors say he used far too much force.

And the Centers for Disease Control says the deadly McDonald's E. coli outbreak is now over. 104 people in 14 states were infected in the outbreak, 27 hospitalized, and one person died. The E. coli was tracked to raw onions served on quarter-pounders. Kelly, back over to you. Kate, thank you very much. Kate Rogers. Shares of micro-strategy have been on a monster run. this year up over 500% in part, or really all in part, because of its massive holdings of

Bitcoin. The company is the largest corporate holder of the cryptocurrency. They recently bought another 15,000 Bitcoin for about $1.5 billion. Its co-founder and executive chairman Michael Saylor joins Squawk Box this morning to explain the purchase. We sold $1.5 billion worth of stock by $500 million worth of Bitcoin. We bought back $1.5 billion we captured nearly a billion dollar gain in the arbitrage. That we can do with equity day by day. When we do it with debt, we issue $3 billion of debt that's backed by $600 million of Bitcoin

that comes due in five years. We pay zero percent interest. We buy $3 billion of Bitcoin. We capture the $2.4 billion in the arbitrage gain up front. But then over the course of the five years, double or we quadruple the investment because we're buying an asset, which is appreciating faster than the S&P. Appreciating faster than the S&P, that's the key part. Our panel of experts joins us to discuss the company's valuation.

Tom Lee is head of research at FundStrat. Tom, welcome Global Advisors and CNBC contributor. Herb Greenberg is here as well. He's editor of Herb on the street. Listen, with you two keyed up, I don't even know where this is going to go. Tom, I'll start with you. And I think my two questions about this would be number one, what happens when the price Bitcoin goes down. Number two, why would people pay a premium for the Bitcoin this company holds

when they could just go by the Bitcoin itself? Or they could short it and capture. You know what I'm saying. Tom, go ahead. Well, Kelly, both of those questions that you asked have been asked about micro-strategy since inception. They pursued this strategy for many years now. And I think those who've been skeptical of Michael Saylor's focus on following this Bitcoin standard, would have been. has said, well, you're paying a premium, so you should short the stock. And there have been many, many famous short-seller reports over the last couple years suggesting that. And of course, the stock has been a stupendous performer. I think one of the things investors are missing is one, it's clear that there is a pretty active treasury strategy that micro-strategy is using. So in other

they are using available capital and liquidity to do some opportunistic buying and sort of capital management around their Bitcoin position. But I think more importantly, they're really opening up the fixed income market to offer instruments that have derivative exposure to Bitcoin. I mean, they're issued instruments, both convertible and bonds, have been among the best performing corporate bonds over the past few years. So if you're looking at funds that are trying to say... well, you know, I can earn, you know, 4% on Treasury or I have a chance to buy corporate bonds

at, you know, 50 basis points wider. These have been tremendous performers. And so does that mean he's taking advantage of the bond market? Well, it's showing you that the high volatility of Bitcoin, and he talks about this, is actually something that he's allowed in the capital markets to lower his cost of financing. So he's actually arbitraging the volatility of Bitcoin to actually buy. borrow money at lower cost. I think it's a great strategy. So, Herb, I guess the only thing I would say about that is there's, it's basically these are, these are kind of, these are like future, they're

product, they're kind of products in the world of options or, you know, debt markets or what have you. I mean, this feels like it's less about a company. To that point, if Bitcoin continues to go higher, I guess none of this is an issue. If it stops, though, Herb, what do you think? And again, I still don't understand why this would in the long run be worth. twice the value of the underlying Bitcoin? Well, first of all, I'm a huge fan of Tom Lee. So what Tom says goes, especially for the way he thinks and for his strategy. And I'm not a Bitcoin expert and I'm not a micro strategy expert.

I'm here as somebody who basically can tell you there's a whole group of people who have a very different view on this because they're not so focused on it that they can, you know, people consider this. I put up a Twitter. I put up something on Twitter a while back. could go or so after sailors on squat box that time, I said, you know, we're talking about a pyramid on a pyramid. And I had more than a close to a million views on this thing. The biggest thing I had ever, that I've ever done that has been seen by people on Twitter or X or whatever you want to

call it. And they were all, you know, half of them were screaming at me saying, what do you mean? You know, if I had said speculation on top of speculation, the other half were saying, hey, I'm with you. So the point is, is it worth it? If you believe the bottom of the bottom line here is if you believe that Bitcoin is headed to where so many smart people think it's headed over some point in time, and you're willing to ride the volatility, then this is a leverage bet on that, like a leverage ETF. And you know, you would own it and you would put a big value on it for that because you're going to make so much more money. Tom Lee, Bitcoin in some ways reminds me of real estate. And I don't mean real estate in any particular place. The overall

general ideas that it tends to go up. But we go through these crashes, and if you buy it the wrong time, there's leverage involved, you can lose your shirt, right? I mean, Michael Saylor is basically gambling with the house money at this point. He's been very right for a very long time. He's made billions of dollars. But past performance is no guarantee of future results, as we like to say. That's correct. I mean, that is the nature of equity markets because stocks don't provide any floor. No matter how much people think there's a floor and a stock, there isn't, I mean, witness the sell-offs on stocks that disappoint. So is micro-strategy the fact that a stock could go down makes it any, you know, a worse investment than

Intel or any numerous names this year, like, you know, Wing Stop, which have fallen dramatically on an earnings miss? I just say we're almost like asking the wrong question. because what Microstrategy is doing is not only they offering you exposure to Bitcoin, they are funding a lot of this with zero-cost convertible instruments that have, you know, when you look at the option value, actually offering tremendous value. You know, if you try to buy three-year leaps on micro strategy, they're more expensive than the convertible bonds. Well, we've got to go in just a minute.

So I want to get Herb's last thoughts as well. Herb, I think I've learned over time, you know, we don't invest in individual stocks, those of us who are, you know, working for CNBC, but you can't really trade on somebody else's conviction. You got to have your own conviction about the thing, because if you're trading on somebody else's conviction, when it goes down, then what have you got? Right. So you've got to believe in it for yourself. Isn't that some of what this is? You've got to really believe in Bitcoin, like really, really, if you're buying micro strategy. Yeah, absolutely, because, you know, look, I listen to what Tom says, but let's face it, this is speculation. At this stage, it is a speculative bet. And to say anything but that, I even think the bulls would agree with that. It's just a matter of duration. So you have to be willing to deal with that level of speculation. Other than that, it's a big echo chamber of people on both sides of this trying to sort of, you know, peddle the, you know, what what they think will happen. And right now we have a lot of. lot of is my friend Peter Atwater would say people feeling very invulnerable, feeling, you know, just totally emboldened like they've never felt before. But hey, guess what? This reminds me of 2021 in so many ways just because it's, I mean, we are, I won't say peak fomo on Bitcoin and on macro strategy. But this is very reminiscent to what we've seen in the past. And, you know, right now, so many people are thinking, gee, I ought to be in that. And that's the point you have

to say there's potential risk here. Tom, quickly, what? would tell you that this company has really passed, you know, some people mentioned the collapse of FTX a couple of years ago, but the stock is much more highly valued now at twice the Bitcoin value than it was back then when it, again, weathered that event. What would tell you that it's going to, you know, maybe a 20% pullback in Bitcoin, Tom, or something like that? I mean, what would tell you that the footing here is short, or do you think that that's not the point? Well, there isn't, there is an anchoring, you know, that micro-strategy's active strategy can't trade it in excess premium to Bitcoin. That's what.

But second would be the scarcity. If we saw the Mag 7 adopt the strategy, then you'd probably see the premium diminish on a micro strategy. But as you know, there are very few companies that are adopting their strategy. Yeah, he's trying to get them to. It's funny that you think that that would reduce its value because others think that his idea is to get others to buy it as well, keep the value going up.

Gentlemen, you brought it. Thank you. We hope to revisit this. Tom Lee and Herb Greenberg on Micro Strategy. I bet we do revisit it. Well, rumors swirling that President elect Trump could take Fannie and Freddie out of federal conservatorship.

We will hear from an industry insider about the potentially massive implications for the mortgage market next. Welcome back to Power Lunch. Some big headlines over at BlackRock today with an acquisition to expand into private credit. Oh, private credit. Leslie Picker is here with all the details.

This is the hottest thing in town. Hottest thing in town really interesting deal. Perhaps one of the most interesting deals we've seen in the financial services space in quite some time. BlackRock, of course, with that big bet on private credit, acquiring HPS for $12 billion in an all-stock deal. The combination creates a private credit behemoth with $220 billion in client assets, which would make BlackRock the fifth largest manager of the asset class,

according to Pitch Book. BlackRock said in the release that it expects the private credit market to more than doubled $4.5 trillion by 2030. That bull case, according to BlackRock, is driven by the notion that, market forces, technology, regulation, all pushing activity toward private credit, which some see as a more efficient way of doing business and syndicated lending conducted by banks. BlackRock, not alone in thinking. State Street told the Financial Times last month that it's looking for acquisitions or minority

stakes to fortify its private credit offerings. Such tie-ups have become increasingly common among asset managers, insurers, even large banks. But skeptics are plentiful. Some say the burst in private credit popularity is indicative of a bubble. Others say this newfound debt load will lead to a reckoning in the next major downturn. In the meantime, though, public investors seem to be applauding the strategy. Look at those shares up more than 2%. Higher today, as well as in recent weeks, as the news leaked that this transaction was imminent,

and look no further than the year-to-date performance of private credit firms, Blue Owl and Ares relative to Black Rock, to see why the latter is making such a big push here. Private markets and their higher fees they generate have driven BlackRock to do three major acquisitions this year. The other two being infrastructure firm, GIP, and private markets data provider Pregwin. So a lot of BlackRock money being put to work here, or stock in these deals,

but such a big push into a fuzzy corner of the market. A good question always for investors to keep in mind. How could this go wrong, at least for some of these people going all in on private credit? I mean, there's, well, in terms of deals, there's obviously integration risk, And that's why you don't see that many deals in asset management. You don't see that many in alternative asset management as well.

Pitchbook said that this year we have seen the largest on record, more than doubling the prior record of alternative asset manager deals, largely thanks to those two big ones from BlackRock with GIP and as well as the one today with HPS. How could this go wrong? If there's a major recession with private credit, I mean, a lot of these newer managers don't have the workout credentials that you. you see at traditional lenders. So that could be something to watch for. And then there's also the question of too much capital chasing too few things. Totally. And that has been a huge problem. And that's why you see more private credit moving into investment grade because there's more supply there. And that's kind of a nascent place for them. Do they support a lot of private equity deals as well, private credit? Oh, yes. Absolutely. A big part of that. Which again, it's been a kind

of a challenge space the last few years, just with rates and all the rest of it. And that's what I was some sources close to this deal is there's this expectation and hope that we do see an upswing and M&A activity, particularly in that private equity community, which could foster additional private credit deals, which would give more supply of deal activity for these managers to foster. But, you know, we've been hearing the pipeline as full for some time. So, you know, we'll see if it materializes. Leslie, thanks.

Mortgage Giants Fannie Mae and Freddie Mac, known as the GSEs, have been in government conservatorship since the crash of the last. the subprime mortgage market in 2008. In the first Trump administration, there was a big push to recapitalize and release them, but the pandemic got in the way. Now there is growing chatter that it will be a priority in the second Trump term. Diana Oleg joins us now with the details. Diana.

Well, John, the conservatorship was never intended to be permanent, and those who want Fannie and Freddie private again argue taxpayers should not be backstopping the mortgage market. So I spoke with Mark Calabria, who was FHFA director in the first Trump administration and the architect of the GSE recap and release plan. We literally spent millions of dollars on plans. We have two paths to make investors feel that something is risk-free. Path one is Congress, you know, Congress comes in,

government creates an explicit guarantee. We tried that route, didn't happen. Unlikely to happen. The other route is, how do you build up these companies in such a way that the balance sheets are strong enough and the quality of the assets are strong enough that you get close to being risk-free. Well, Calabria's plan was 8% capital on the balance sheet in front of the MBS

and increased credit quality on borrowers. Now, the GSEs have been building considerable capital recently, although the pandemic cost them billions in bailouts for borrowers and mortgage services. I spoke with Mark Zandi, chief economist at Moody's, who said, without an explicit government guarantee on the Fannie and Freddie MBS, mortgage rates would go up 75 to 100 basis points, and even more for lower credit-worthy borrowers. He also argues that Trump just wants to boost the stock prices

for wealthy shareholders like Bill Ackman. They're already way up since the election, but Calabria disagrees. It's important remember that at the end of the day, anything that happens to the shareholders is incidental. I don't believe anybody in this administration is looking to help them or hurt them. But Calabria admits this will not be high on the president-elect's priority list. Zandi says the most likely scenario,

is that they stay in conservatorship. And he added, privatization is a solution looking for a problem. So much at stake in the housing market right now, trying to keep it affordable and all the rest of it. Diana, thanks very much, Diana Oleg. AT&T is laying out a plan to free up billions in cash and also double its fiber internet availability in the U.S. We'll trade that name, which is up nearly 4% in three-stock lunch. Today is Giving Tuesday a global effort to increase generosity in many ways, including charitable giving. Yet new research shows many Americans have reduced giving this year

as a direct result of the economy and their financial situation. Sharon Epperson joins us with more. Well, John, you know, most Americans want to give. The vast majority, 78 percent, say charitable giving is one of their core values. That's according to a Wells Fargo survey that also finds, though, that 29 percent of Americans report they've given less to charity this year compared to the year before. And 51 percent of Americans feel, they don't have enough money to give to charity at all. With economic pressure from the rising cost of living, fewer people are giving. According to the 2024 Giving USA report, total charitable giving reached a high of over $557 billion last year, with a bulk of donation, 67% coming from individuals. Yet individual giving

is shrinking part of that pie. Down 2.4% in 2023 reflecting some of the economic uncertainty. certainty. Giving by foundations, on the other hand, has been on the rise. We'll have a lot more at the CNBC Financial Viser Summit next Tuesday, December 10th on economic trends, market trends, and emerging risks, all of this to help advisors better serve their clients. You can scan the QR code there to register or visit cnbc.com slash f a. John? Sharon, if I can, it's so interesting to get this read because we were just talking about, for instance, the red book. consumer spending numbers up 7% last week. Like there's been other positive data points about consumer spending,

but this is giving us a different perspective on maybe who's spending, but also who's still under tremendous pressure this year. Well, even today on Giving Tuesday, just asking people what they're doing or if they're giving, many have said they've pulled back that when they were perhaps more flush in terms of their discretionary income during the pandemic, not commuting, not having as many expenses, they felt like there was more of an incentive to give.

And then some are also mentioning the fact that they are not going to be able to get a tax deduction because they're going to take the standard deduction and not itemize their taxes, while you shouldn't give just based on a tax break, some are saying without it, maybe that's not quite enough of an incentive to give right now when wallets are tight. That tells us something, I guess, about investors' outlook, maybe? Absolutely. I mean, a lot of folks are looking at what can we do if they do have enough money to give or they have investments that are appreciated and they don't want to pay capital gains,

tax, that may be one strategy that investors are looking at in terms of doing that. But a lot of the experts we spoke to, like Jane Wells, who heads philanthropy at the Aspen Institute, said that it's really a time that people are not giving as much. They're not donating as many hours. There's not the same engagement. And that's something that many folks are trying to figure out how do we improve that. Companies are doing it through matching gift contributions. Sharon, thanks.

We'll always appreciate it. Sharon Epperson joining us today. Let's move along to three-stock lunch, now trading some key names making headlines today. We welcome back to CNBC contributor Michael Farr to do the honors today. Michael, welcome back. And let's start with AT&T up a nice 4%. And they're having a pretty good year, honestly. They just revealed a plan to achieve $18 billion in free cash flow by 2027, a blueprint to expand fiber internet availability to enhance their 5G network.

And the shares are up 40% this year. It's been a great year for AT&T. And I'm a little mixed on this one, Kelly, because it has to be. done so well. It's hard to buy something after it's run up 40%. And yet the runway for AT&T still looks okay. Does it have another 10% or 20%? I'm not sure. But one thing I know is it matters what you pay for a stock. That's really, really important, what you pay. And your future returns will depend on it. So not outrageous. Stock could go higher from here. I think I'd probably find somewhere else to invest my money. But if you own it, I'd hold it. You could probably play it

for a continued trade. I do remember going back into the 80s when AT&T was the only stock you had to check for the Dow Jones Industrial average. You'd find out you'd yell across and you'd say, what's telephone doing? Telephones up three-eights. We're having a good day. My good buddy and dear friend, Art Cashin, and the friends of fermentation are a little bit in mourning today for Art. But Art was the AT&T guy. You just ask him. Indeed. Well, the S&P's up more than 30% over 12 months. Next up, Tesla, CEO Elon Musk losing his bid to have his $56 billion pay package reinstated, a Delaware judge upholding an earlier ruling in a case brought forth by Tesla shareholders, some of them who accused the pay package approval from 2018 being, quote, deeply flawed, unquote, in a process.

Michael? John, I'm so glad that you're coming to me on this one and not Kelly, because last time I was on, I said sell it, and the thing's going to continue to go straight up. Listen, look, as an investment, as an investment, Tesla makes no sense. Trillion dollar market cap, they make one and a half, 1.8 million cars. Four GM and Stalantis make 15 million cars, and this trades at four times the valuation, four times the capitalization. It's a trillion dollar company. What are they going to do to grow earnings?

This thing is overvalued by any measure. It's a hope and a prayer company. If you want to trade it and think you can get in and out, Bitcoin feels the same. way to me because I don't know that there's any there there underneath. I wasn't going to call you out, Michael, mostly because I didn't remember that, honestly. So thank you for bringing it up. Yeah, you're too nice, Kelly. Let's move along to U.S. Steel with the president-elect repeating his vow to block Nippon Steel's planned purchase of the company. That has the shares down 8%. What do you think? You know, there's nothing wrong with U.S. Steel. There's just nothing really right with U.S. Steel.

This is a slow growth. They're making a little bit of money. They don't really have a dividend. They don't have a real upside. Nippon, that acquisition merger, whatever you want to call it, was a bit of a helm, Mary. It was a bit of hope. Otherwise, they've been behind the curve. They're really not going anywhere.

There's nothing wrong with it. But if you're investing to grow your money, U.S. steel is not the place as far as I'm concerned. All right, Michael. Thanks, you want to leave us with parting thought? Market ends the year higher or lower from where we are right now. You know, ends the year, higher, and God bless Art Cashin. What a great gift he was to all of us. Thank you for saying that.

We haven't gotten the chance yet. We miss him so much. I always think of his saying, he would always say, stay alert, stay nimble. And that's as true now as it ever was. Michael, thanks. Appreciate it. Michael Farr. S&P went green, positive so far.

So it's going to be an exciting last hour of trade. We will look to you also to cover in overtime the sales force results, John. It's going to be a busy afternoon. Thanks for joining us on Power Lunch. Closing bell starts right now. Thank you.