Power Lunch - Red Flag For The Economy? 1/5/24

Episode Date: January 5, 2024

The economy added 216,000 jobs in December, much more than expected. While the unemployment rate held steady at 3.7%.But the labor participation rate saw its biggest one-month drop in nearly 3 years, meaning the pool of available workers is shrinking.Could this end up putting upward pressure on wages, and downward pressure on markets and economy? And what does it mean for the Fed’s plans?We’ll explore what it all means for you and your money. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch, everybody, alongside Kelly Evans. I'm Tyler Matheson, and we're watching the markets very closely as stocks are trying to hold on to gains. The jobs report coming in stronger than expected. Maybe taking a little steam out of that Fed will cut soon, Ken. And some long weekly winning streets are likely to be broken today. Nine weeks in a row for the Dow, which dates back to late October. Similar story for the S&P and NASDAQ. The NASDAQ down 3% this week. Apple, a big culprit there, and the 10-year yield right around 4% now after jumping up to 4%. 4.1 on the jobs report before a surprisingly soft ISM services report sent it back into the threes. Let's start things off with more on that December's jobs report. 216,000 jobs created. That beat expectations. The unemployment rate held steady at 3.7 percent, but behind that number, a potential red flag for the economy. The labor force participation rate, so its biggest one-month drop in almost three years to 62 and a half percent, meaning the pool of available workers is shrinking. And my next guess says that could put upward pressure on wages and inflation as the Fed

is contemplating its next move on interest rates. For more, let's bring in Corey Contanga, senior LinkedIn economist. Corey, welcome. Good to have you with us. Thanks for having me. Explain to us the labor force participation rate, how they measure it. It moves a little bit month to month, usually not all that much, but this was a fairly significant drop. Why? So the labor force participation rate measures the number of available workers. So that's going to be employed workers and unemployed workers. So whenever we see people joining the labor force or dropping out of labor force, that's going to push this number up and down.

What we saw this month in December was that there weren't really a lot of workers who were joining or dropping out. It was pretty much flat for unemployment. So we had gains in employment. We had workers gaining in employment. But we also had some workers entering the labor market. we had a decrease in the number of workers who were re-entering the labor market. So the labor force participation rate has kind of been holding steady since about August.

We occasionally see dips and we occasionally see spikes, but it's been pretty steady, which suggests that we've exhausted labor force supply. So when I see the number 62.5, is that then a percentage of all the people who are working or seeking work as a percentage of the total? working age population or what? That's right. Okay. God, I knew something for a change. That's amazing. So does this in and of itself suggest that the labor market is getting tighter or likely to be tighter, which would put pressure on wages as companies go out and compete for labor, which

would put pressure on economy, excuse me, on inflation, which would then put pressure on the Fed to keep interest rates higher than they might other. otherwise. That's right. But I think with the labor force participation rate, it's important to zoom out for a second. It's been declining for a while for about 10, 20 years. So we've just seen a kind of a secular decline in labor force participation rate. Is that demographics? Part of that has to do with the fact that we are getting older. The population is aging. Aging population is one of the reason why we keep seeing health care post strong jobs reports, right? So we are seeing the population aging.

There are going to be long-term consequences of that. Right now, employers are still dealing with the aftermath of the pandemic where they didn't have enough workers once demand shot back up. That has started to regulate, normalize a lot more. So for employers, they're still seeing a lot of applications. At LinkedIn, we're seeing applications per applicant up about 16% compared to last year. So there are still people looking for work. They may be currently at employers.

They may not just be unemployed at the moment. Corey, quick question about wages. This was a big topic of discussion last hour or debate. The ADP report is running a little softer than the government's reading, which this, of course, obviously, all comes to bear on whether the Fed needs to respond to higher wage inflation. What would you tell us is going on on that front? So what we're seeing right now in this December report is that there's a bit of acceleration in

wage growth, nominal wage growth. There may not be much there, actually, because this, again, this is average hourly wages. And that depends on the composition of workers. When we see lower wage workers, either dropping out of the labor force or losing their positions, that's going to raise the average level of wages. So there is this composition effect in the average hourly wages measure that we get from the Bureau of Labor statistics. So I wouldn't say that this one-month read is too worrisome. What we would worry about is if we continue to see prints where wage-in-fellation,

is running above 4%, because there are concerns that that might be feeding into price inflation. Right. Although part of the granularity that I guess we're getting from ADP is this idea that when people switch jobs now, the increases, the wage hikes are getting are not that pronounced. Certainly nothing like we saw a year ago. So that was an important source of wage inflation, but it looks like it's going away. Right. So we have seen that wage inflation is up when you change jobs.

Typically, one way to make gains, right? It's by changing jobs. Your current employer doesn't want to pay you more, find a new one. So we're actually seeing folks gearing up this January to look for new positions because January is typically the month where people start their job search. And we've asked people at, we've asked our members at LinkedIn if they are going to look for a new position, even though less people are quitting. And it seems like a lot of folks are considering finding a new position, about 40% of our members

surveyed. And that depends on what generation you're in as well. Younger folks are definitely going to be looking for. So let's bring this conversation around third and into home plate with respect to interest rates. Where do you think interest rates will be a year from now, given the trajectory of the economy? There is no reason for the Fed to cut rates right now because they see the economy slowing. It doesn't seem to be demonstrating that in any consistent way. So where do you see rates a year from now?

So I expect rates to start to be cut possibly in the summer. So a year from now, we might see rates get in that 3 and 4% range. Really what the Fed funds rate? The Fed funds rate? The federal funds rate. That's a pretty dramatic decline from where it is now, 5.5 and a quarter, 5.5 and a half. Well, the Fed is going to want to get ahead of the curve. There's still a lot of monetary tightening in the pipeline.

We have a lot of fixed mortgages. We have people who get their wages only taken once a year. I only get a wage increase once or twice a year. So there's a lot of tightening that the Fed's already done that's in the pipeline. And what they're going to want to do next year is get ahead of that curve and start to introduce some liquidity back into the economy in order to keep things going. Corey, I think you need to talk to your boss about those wage increases. I would recommend a massive increase for you.

But no job switching. No job switching. You stay where you are. You come back and join us. But tell your boss that the Power Lunch team says pay him more. more. Corey Cantanga, thank you. Thank you. Now, right after that stronger jobs report came a weaker than expected ISM services report. So does it keep the market's rate cut hopes alive or not? Let's ask my next guest, who's one of the few still thinking the Fed will cut aggressively

next year. Joining us now is Drew Mattis, Chief Market Strategist at MetLife Investment Management. Drew, it's been a while. It's good to see you again. Welcome. Good to see you, Kelly. So I'm interested to hear that you're on the more, can I call it Dovish side here? What do you foresee? Well, we're on the other side because we're expecting a recession. You know, where I have some difficulty with kind of where the consensus is right now is the idea of rate cuts and a soft landing. When we have an inflation rate that's above three, that doesn't square the circle. You know, if you were to kind of, I don't know, land on planet Earth and look at the United States economy and see a 3% inflation rate and an unemployment rate of 3.7, you wouldn't be asking yourself when we were going to cut rates.

you'd be asking yourself when we're going to start increasing rates. And I think, you know, there's a bit of a disconnect in the consensus between, you know, what people are thinking on the rate cut side and what's plausible in terms of what the Fed can tolerate with regard to inflation. But why does your disconnect? It sounds like you're saying, forget all of that. Focus on recession. It's still coming.

And they're still going to have to respond to that. Yeah. Look, I looked at the unemployment rate today. First of all, the survey response rate was just abysmal. You know, it was 50% of people didn't bother responding. So, you know, in terms of, you know, prospects for kind of revision, this is the report that's going to get revised. But then if you go into the details a little bit more, what you see is that something stayed the same, which was, you know, about 25% of Americans who are working in this report actually saw a decline in their weekly wages, either because their hours got cut or, you know, within the details of the report, you know, they saw. actual declines in their average hourly earnings.

So, you know, in terms of, you know, this is not a rising tide lifts all boats type report. This is, you know, some people got to surf the wave in and other people are left stranded. You know, I'd like to dive in a little bit more on how you get to a recession scenario. If, as you just said a moment ago, you landed on planet Earth and you saw U.S. inflation at 3%, and unemployment rate at 3.7% and payrolls gaining. You would say this is not the time to protectively cut interest rates in anticipation of a slowing economy. You would raise them because the economy is firm,

inflation is still alive above the Fed target, and the job market is stable and solid. So how do you get from that forecast, or observation of present conditions to conditions where you say the Fed is going to cut six times in 2024 because they have to do it protectively against a recession prospect. I guess I would fall back on the idea that when things fall apart, they fall apart fast. You know, when we have a long-term productivity boom, it's a long-term productivity boom. It happens gradually over time and its positive effects are felt in the economy over the

a very long period of time. When the unemployment rate starts moving higher, it tends to move higher quickly. And so things fall apart, you know, they don't gradually erode. And I think, you know, as we look ahead, there are signs of weakness in the economy. And really, the one kind of standout is the employment picture that's actually kind of working against that narrative. If you look at the ISM report, manufacturing is in recession. The service sector is barely treading water, according to that report. If you look at components of the unemployment report, they are showing increases in unemployment across a number of states. So, you know, I know there's been a lot of talk of the so-called Psalm rule for the United States, where if the unemployment rate goes up by enough, then it means

the economy's in recession. If you do that on a state-by-state basis, you've got a number of states already in recession. You have more states in recession in November than we're in in recession in October. And if you kind of put it out on a map and look at it, it looks like a disease that's spreading across the United States. It's not, you know, I think that when a lot of people talk about soft landing and we're talking about a recession, we might be talking about the same thing. It's just that I remember that a recession looks like something out of 1990 or 2000. And a lot of people don't have experience seeing a recession that didn't look like 2008 or 2020.

True. And California, to your point, has seen its unemployment rate rise by at least a point, maybe more than that already. It's high in New Jersey as well. That's right. New Jersey, we're a case in point. So, Drew, where does that leave the market? Do you think the market, I feel like it matters to the market if we're going to be in recession or not? Well, I do think it matters because, you know, I think it matters in terms of, you know, where rates go.

It's not just a matter of the Fed Funds rate. It's where do 10-year rates go. Where do mortgage rates go? And, you know, when should you be thinking about risk assets? Right now, everyone's thinking risk assets are great. you know, that could change very quickly if the unemployment rate moves higher and everyone begins to save a little bit more money because it seems like there's a risk that people might lose their jobs. And so when I talk about the economy, you know, rolling over quickly, that's part of the problem is once that dynamic gets moving, it's very hard to stop it. And, you know, fortunately, though, for the Fed, the way to stop it is to actually kind of lower rates and try to manage that process.

And we think that they'll have to do that. although, you know, to be honest with you, we would have expected that there'd be more weakness by now. But just because there's not evident weakness now doesn't mean that what we're seeing is stuff that points to a strong economy. And I think for those who are looking for a soft landing, if you believe in a soft landing, it means you're going to have a stronger economy with high inflation. And so you have to be thinking either that there's a recession later to get those Fed rate cuts or that the Fed's going to abandon its inflation principles. And I just don't think that's likely. Six rate cuts, a quarter point each.

time, that's a buck 50, so that would take rates down to 4% or a little below. Is that where you see them at the end of the year? That's what we're seeing at the end of the year. We're expecting 10-year yields to stay about where they are today, so the curve completely flattens back to, you know, straight across the board. Better than an inverted curve, I guess people would say. Drew Mattis, good to see you, my friend. Thank you. Coming up, a perplexing, perplexing new startup. Perplexity is using AI to go after Google's dominant position in search, and it just won backing. from Jeff Bezos. Details in Tech Check next. Plus, is it shutdown season again? Congress has only nine days to negotiate four spending bills to avoid a partial government shutdown. We will discuss

that when Power Lunch returns. Perplexity, an AI-powered search engine startup looking to take on Google, raising $74 million in a round led by some big names. Deirdre Bosa spoke to its CEO for today's tech check. Hi, Dee. So Google has been so far dominant for search for decades that few startups have been able to even raise significant capital to compete with them. Until now, that is. Perplexity backed by some, as you mentioned, very high profile investors from Jeff Bezos to Nvidia believes the generative AI shift has led to a paradigm shift that creates a new opening in search. I spoke to CEO, Arvin, Serena Bass, earlier this morning on what's changing the age of Gen AI. Have a listen.

Search has been about 10 blue links for the last like 20 years. And 10 blue links was always a hack. At the end of the day, people just wanted an answer. The concept of answer engine existed even in the late 90s when the internet was exploding. Asked Jeeves was an answer engine. In fact, like many Googlers used to come from Ascheeves and join Google at that time, because the 10 Blinks

was the concept that actually worked with the technology that existed at that time. And so what perplexity does is a paradigm shift in search. It's moving search from links to answers. He says it's all about the user interface. Google was born in the internet era and, of course, navigated mobile very well. But it's bread and butter search hasn't transitioned, he says, quick enough to the generative AI age. Srinivass says there's AI search experiments thus far from Google, that is, are cluttered, they're filled with ads.

And there's too much cognitive overload for users. So he is creating a product in perplexity that is clean, minimal, simple, and relies on a number of large language models from GBT4 to Anthropics Cloud to Google's Gemini and Beyond. And guys, perplexity, it may represent the next act for generative AI at large. Last year, it was all about enabling the models, chips and cloud computing. This year, SunaVaz and many others here in the Silicon Valley believe that we will see the rise of consumer applications. and mega caps like Google, they may not be the clear winners this time. How much you often hear in situations like this,

and it used to be the Jack Welch rule, and that is that if you're not number one or number two in the business, you might as well get out of the business. You hear about first mover advantage, and that first mover advantage right now would seem to reside elsewhere. Right, and if you think about the advantage in the generative AI age being data, right, First party data in particular, nobody has more than Google. And that's why, you know, I asked him, are there going to be one winner, two winners in the space,

just like Google has dominated a search 90% of market share? He says, not necessarily, actually. He thinks that there's going to be more, but he thinks that Google is still going to be valuable with that first party data, which powers a lot of the large language models out there. And he also thinks that they're going to make a big bet on cloud to kind of offset what may be happening. But this is really speaking to Wall Street fears about Google. position since the generative AI hype cycle began. Will it displace search? Will someone like a perplexity come up and do it better, maybe a better application built in the generative AI error? Or

can Google move fast enough? Nobody denies that Google has developed the foundational technology that it's not necessarily behind, but can they create a product that users really want to use? And we know that OpenAI and ChatGPT was able to front run them on that front. I just tried it out. I had a good answer for how long for a sausage casserole. Gave me little links up top and it got it basically, right? I wouldn't say it's majorly differentiated from the others. Still makes you go through the whole sign-up rigamarole, which early Google didn't make you do. It's not that differentiated. And I asked him about the commoditization of these large language models. And that's why he says that this year, it's going to be about the consumer applications. What Sequoia published a piece,

the VC firm located here in the Bay Area, says that you either are going to be close to the GP, the compute power or the consumer. And he believes and many other believe that we're going to see companies be closer to the consumer this year, whereas last year it was all about the GPs. All right. Thank you very much, Deirdre. We appreciate it. And I'm getting hungry, dear Jorbosa.

Further ahead, years in the making, United Launch Alliance's new heavy lift rocket, the Vulcan Centaur, is said to lift off for the first time early Monday morning. The mission is to send a commercial lander to the surface of the moon in what would be a historic first if all goes according to plan, maybe a small step for man, as they say, but potentially a big one for investors. We'll explain next.

Welcome back to Power Lunch. Let's get out to Chicago for a look at how this morning's data is playing out in the bond market. Rick Santelli with the latest there, Rick. Hi, yes. What a wild day. You know, if you looked at some of the key parts of this morning's jobs report, what jumped out at me was 4.1. Let's look at a 10-year chart of year-over-year average hourly earnings. The fact that it was 3.1 to 3.5 pre-COVID, and you can see it on the left side,

just shows us that it's been buoyant, and it actually looks like it wants to turn a little higher. And participation moving down to 62.5, that's never good. Look at an intradate chart of twos. Look at an intradate chart of tens. It's almost as though they did a round tripper. Okay? They were right around, what, 438, 439, right around the number.

It goes up. It comes back down. So basically we're near unchanged after seeing 439 and 410 on the extremes. But here's the thing. Look at how much steeper the yield curve is. If you look at the 2 to 10 spread, hovering at minus 35. This is the big point. This is 2024.

Watch out for long-dated treasury rates to be a different path than what many are thinking chart rates, which are going to follow the Fed. Let's go talk to a trader. Hey, it looks like we have Big Dave today. Happy New Year, Dave. All right. So what do you think of today's jobs number? Well, I guess it's supposed to be a little encouraging.

The markets up a little bit. They like it. Don't know what this is going to lead to as far as all the rate cuts, though. It's not a horrible jobs report. You'd think we might start getting some rate cuts here. Now, when it comes to rate cuts, at the end of last year, we saw the equity markets propelled because everybody's thinking six, seven rate cuts. Yeah.

The Fed's maybe, maybe closer to three. And it's an election year makes it confusing. What do you think? So here's my concern. with it. Once they start cut, and even just once or twice a little bit, if inflation starts picking up, it could really show that they don't really maybe have it under control. Ooh, that's a really good point. And you know, there's a lesson to be learned here. We had inflation data out of Europe this week. And they were expecting 3.9 in Germany. It comes out 3.8.

All the major publications were like, great news, great news. The previous month was 2.3. That's not supposed to be good. They wanted around 2%. 3.8, that's not a good number. They're telling us it's a good number. It's not really that good of a number. Well, the market's telling us to not a good number. The guild's closed up 25 basis points this week, and the boons closed up 14. Right now, twos are up 12. Our tens are up 14 basis points on the week. So I like your argument. If the Fed doesn't ease, the market's going to expect more and aggressively. Correct. And if they start easing and all of some inflation is coming off, it might show, wow, they don't have this under control, and we might start to move. You know, the whole notion of, is inflation going to be linear or not, meaning is it going to come down in an aggressive fashion?

And maybe it will, but I don't see that happening in the UK. I don't see it happening in Europe. Neither do I. And we've already, we hit, what, $34 trillion in debt this past week? You know what? And how many places did you hear about that? You have to dig. You have to dig.

You have to dig. You know what, though? You don't need to dig so far. I'll tell you who's going to tell you all about that every minute. 10 year, 20 year, and 30-year yields. And Rick Santelli. Those are the people that you're going to hear it from. Absolutely.

Dave, thank you. Tyler. Back to you. We are going to hear from that 10-year and from Santelli. very much. Kelly? Let's get to shares of Apple, which have turned sharply lower intraday. There's some news out that Steve Kovac can bring us, Steve. Hey there, Kelly.

Yeah, this comes from a New York Times headline that just crossed saying the DOJ is moving closer to wrapping up its antitrust investigation into Apple. We've known this has been going on for a long time. DOJ, like so many other regulatory bodies around the world, really,

looking at Apple's control over the app store, how that impacts the fees it charges for third-party apps. The same thing that we've been talking about forever. I will note, however, Kelly, this story does not say when this lawsuit is finally going to drop. A lot of people, in fact, expected it to happen last year. Still did not happen, but we do know Jonathan Cantor and a trust chief official over at the DOJ is one of the key players looking into Apple over all these issues around the app store, around control over wallet, and things like that. Not to mention the Epic Games

case, Fortnite Maker, that lawsuit between the two companies. He's still going on, still being battled on court. We're expected to hear from the Supreme Court pretty soon, whether or not it'll take up that case. That also plays into this whole theme around Apple and its app store dominance as well, Kelly. We had just been talking about the weakness in the shares, Steve. They're down 5.5% to start the year. Market cap, again, almost being surpassed by Microsoft, which is in the green today. The reaction by investors here suggests what?

I mean, even though this was telegraphed, they don't seem pleased about it. Yeah, yeah, that was really curious. I mean, again, I just read through this New York Times story. I didn't learn much new that it hasn't been reported for, that we haven't reported on this network before, about what's being looked at into Apple. Again, these are all the same issues that have been on the table for many years now of going back to, I don't know, 2018, 2019. But again, they did say there was a meeting between Apple and the DOJ as recently as last month. So that is something new. But also this story is saying there hasn't been the so-called final.

meeting between Apple and the Department of Justice where basically the regulatory agencies come to the company. They're about to sue for antitrust and see if they can come to some sort of last-minute agreement or, you know, read them the last rights before the lawsuit drops. That hasn't happened yet. When we hear about that, though, Kelly, then we can say this lawsuit is imminent. And then, of course, Apple will go to trial against the DOJ in an antitrust trial, just like Google did. And we're waiting for that verdict as well pretty soon. No, great analysis. The shares are only down half a percent now. They have dipped lower still. About $181, Danielle Shea last hour, had just told us if they do go sub-180, she'd consider shorting it.

It's been a rough start for them. Steve for now, thanks very much for bringing that news to us. We appreciate it. Steve Kovac. And let's go to Bertha Combs now for a CNBC news update. Hi, Bertha. Hi, Tyler. Two big headlines involving the New York Attorney General today. First, Donald Trump's civil trial could cost him $370 million. State AG Letitia James argued today that he should pay that price in penalties for decades if for decades of financial fraud. The filing came out less than a week before closing arguments are expected to begin in that fraud trial. The former president has repeatedly denied any wrongdoing. And just days before a New York civil trial involving the CEO of the National Rifle Association is set to begin, Chief Wayne LaPierre announced that he is resigning.

New York Attorney General Letitian James was seeking his ouster in the trial, as well as financial penalties for alleged corruption. LaPierre, who is 74, cited his health as the reason for stepping down. And you won't see any ads from Jeep Chrysler or Ramtrucks during this year's Super Bowl broadcast. Chrysler parent company Stalantis said today that it won't take out any spots. on the big game as it focuses on cutting costs. The automaker has also pulled out of several auto shows as it contends with falling sales. Tyler, back over you. Bertha, thank you very much.

Bertha Coombs. After the break, the national debt of the United States hitting a record $34 trillion. We'll talk about that and its impact when we return. Welcome back to Power Lunch. Another government shutdown could be looming in just two weeks, although we should be used to it by now. With the total U.S. debt passing $34 trillion, a lot of people are hoping for a more permanent solution this time around. More on that in a moment. But first, let's bring in Emily Wilkins to explain where things stand right now. And Emily, the border standoff seems to be playing

a big role this time. The border standoff is playing a big role. The supplemental is playing a big role. And also playing a big role is that Speaker Mike Johnson has made it clear that this is really the last time he wants to be dealing with this. He either wants to get it done, part of it on January 19th, part of it on February 2nd, and that if that doesn't happen, he's just going to continue current spending levels. And look, Congress has spent months working out the details of funding the government, but they still do not have an agreement on the overall amount that they want to spend next year, and that is really critical. It's holding things up. Tennessee Republican Chuck Fleischman, top House appropriator, told me that the longer it

takes to get that overall spending number, the more challenging it's going to be to prevent a partial shutdown in two weeks. Once we get the top line number and the allocations, then it's going to be exceedingly difficult, not impossible, but difficult to get a deal done by January 19th. However, if we could get a top line number within a day or two, I think it's entirely possible that we could put something together. Now, if they can't reach an agreement soon, 20% of government funding will lapse on January 19th. Now, this, It includes funding covering the departments of agriculture, energy, veterans affairs, and transportation, plus military construction, the FDA, housing and urban development, a lot of stuff.

This could really mean that fewer air traffic controllers will be at airports. It means reduced food inspections and delays in grants for farmers, as well as a number of other impacts, really, across the government. If lawmakers can't come to an agreement, and if they keep funding the government at current spending levels, they'll also trigger a 1% cut across the board. That translate to billions of dollars less with defense agencies being hit particularly hard. And when I was talking with the congressman yesterday, he said that really, you know, the shutdown is the worst option.

The second worst option is that one percent cut. Absolutely no one wants that to happen. But to do that, they're going to actually have to find a way to get these bills passed. Emily, thank you very much. Emily Wilkins in Washington for us, setting up our next conversation as a shutdown looms. And the debt continues to balloon.

Our next guest says the longer term problems is that our two political parties are so far apart and seemingly unwilling to fix the problem. Let's bring in Aaron Klein, senior fellow with the left-leaning, I'm sort of obligated to say, Brookings Institution. Aaron, welcome. Good to see you there. Good afternoon. I'm glad you're with us. Let me try and untangle this a little bit. Emily talked about this being, we don't get an agreement on a top line for spending for next year. as I understand it, this is really spending for this year that we're talking about fiscal 24, right?

Yeah, no, the government runs on an October 1 to October 1 basis, and Congress has kicked the can down the road so far that we're talking about January 19th or February 1st for the funding levels for this fiscal year, which basically runs through this September. So it is about the amount of money that's going to be spent into the economy this year and about whether or not the government is going to have a partial shutdown. And how much of this dispute, among the many disputes that seem to afflict Washington these days, how much is this dispute tied up with the question of military funding to Ukraine and Israel on the one hand and border security funding on the other? Or is that sort of a separate issue? So it had been a bit of a separate issue in terms of the White House's approach to adding a supplementary, This is what we're talking about is the regular money that funds the government for the entire year. The White House proposed was extra money known as a supplemental, which happens often, to focus on Ukraine and Israel,

and we're willing to make some border security adjustments in permanent law, as well as some more money to the border to get that through. So these are two separate tracks that have become interwoven as the political traffic jam backs up. Do you see a way, let's talk about the broader question, which is the longer term debt situation the United States is in, that matter of overall funding for fiscal 2024 as apart from the supplemental. Do you see a way forward or are these parties so locked into their positions that a shutdown is almost inevitable? So there's a way forward, but for that way forward, you have to have a negotiation, a negotiation requires identifying the other side. It's the other side, House Republicans, is the other side Senate Republicans? What is it the other side wants?

Do they want cuts to discretionary funding? Do they want border security and immigration? You have to have a negotiation, and right now it's difficult to know within the Republican party who you're negotiating with. Look, this top line number that the congressman referenced before had been agreed. to with Speaker McCarthy. Now there is no Speaker McCarthy in this, we're going backwards in the negotiation as the House Republicans change their leadership. I still wonder, Aaron, if we don't have a reckoning going out, because the structural, well, I don't want to get too technical,

but now that interest costs are basically going to be half the deficit for the foreseeable future, and the more we run these deficits, more we're going to add to the debt, which means we're going to have perpetually high interest costs for the foreseeable future, how do we, how do we, get out of that situation? So the longer term political reckoning that has to come as it relates to spending and revenue is nowhere on the agenda. That's not a 2024 issue. That's going to require, I think, a pretty structural realignment of the political parties.

There used to be a consensus in Washington. When I first started in the Senate, we had something called pay go, pay as you go, was a remnant in the Clinton era where we built up surpluses, Republicans and Democrats, President Bush the first through Clinton. kind of agreed that you had to pay for what you spent. And since then, it's just been on, when the Republicans are in control, a tax cut frenzy with voodoo economics that these tax cuts pay for themselves, which they never do, digging a very, very large hole, and then a series of major calamities that have required large amounts of money, like COVID, like the 08 financial

crisis. And, you know, now we're seeing things on the defense side. And so until there's a real change in parties and the voter priorities or an extra event that pushes that direction, the long-term issues are just off the table right now. Some people say that's why they think longer-term bond yields will remain higher for the time being. We'll just have to wait and see. Aaron, thanks for your time. We appreciate it.

Thanks for having me. Aaron Klein. Still ahead, ready for takeoff, a powerful new rocket preparing for its first-ever flight with major implications for the whole space industry. We will get the key details when we return. Welcome back to Power Lunch. A powerful new rocket is preparing for its first flight, and it could significantly impact the space industry. Morgan Brennan is here to explain. And this is on Monday? This is on Monday at 2.18 a.m. Eastern, and I will be down on the Florida Space Coast.

Thank you very much for this. This is a major moment. This is a decade and billions of dollars in the making. The made-in flight of United Launch Alliance's powerful Vulcan Centaur rocket. As I mentioned, The liftoff is scheduled for early Monday morning. The mission launching the startup astrobotics NASA contracted lander, which is filled with government and commercial payloads to the moon. In what would become, if all goes according to plan, over the next couple of weeks, the first time ever a privately owned spacecraft has landed on the lunar surface. Now, Vulcan is ULA's new heavy lift rocket.

It's going to replace the legacy vehicles powered by Russian engines. Vulcan's engines are built by Jeff Bezos. Blue Origin. It is a crucial moment for the Boeing-Laukeed Martin Joint Venture. This is the first original rocket that's actually been developed by ULA.S. Customers include the U.S. government and Amazon. And it comes as the company feels perspective takeover offers. It also comes as the launch landscape has dramatically shifted in recent years. SpaceX launched 96 successful missions last year, which was, by the way, an industry record. U.L.A. as it transitions to Vulcan, just three. competition is coming, including SpaceX's Starship that's under development, Blue Origins

New Glen, which is under development, has yet to fly. NASA's SLS, which is used primarily and exclusively for Artemis Moon missions, and a number of less powerful rockets from Rocket Lab, Relativity, Space, and others. The question, is there room for everyone? That remains to be seen, but as ULA's CEO Tori Bruno and others have repeatedly told me with thousands of satellites and spacecraft and needing to be launched over just the next few years, a capacity crunch could be coming. We may have more need than we have rocket supply to get everything to space.

What is this vessel going to carry to the moon? It's not coming back, is it, or is it? No, it's not coming. Well, what's it going to leave there? So the astrobotic lunar lander. Yeah. So it's got seven different countries. It's got payloads for seven different countries.

It's going to be doing scientific research. It's got some Amazon boxes on it. But it also has some commercial payloads, including, and this has been more controversial for a variety of reasons, but the remains of some Star Trek luminaries on board. It's not going to attempt to land on the moon until later in February to time it with the sunrise on the moon, which is a very different cycle than the one we see on a daily basis here on planet Earth. It will have exactly 10 days to carry out all of these missions, collect all of the data, beam it back to Earth, and then everything basically shuts down when the sun sets again. So it's going to orbit the moon for a few days? It's going to orbit the moon for a few weeks.

Oh, weeks. And then it's going to attempt this landing. And by the way, it's not the only commercial lunar lander that is attempting to do this. We actually have a little bit of a competition there, too. Intuitive machines, which is publicly traded, though very small cap at this point, is also preparing to launch its own lunar lander. Remains to be seen which one is going to land first, if, in fact, both of them land and land success. Is NASA still working on anything on this front or is it all private sector?

So this is all, so it is public-private partnerships with NASA under a NASA program that basically prepares the lunar surface for humans return later this decade. Wow. Interesting. All right. I'm not going to, it's happening to the moon. Enjoy Monday at 218. I'll be thinking of you. Shares of Peloton surging for a second straight day, getting a boost from its new partnership with TikTok. Coming up, we'll trade it in three-stock lunch. We will be right back. Time for today's three stock launch. We are trading some big movers as we close out the first trading week of this new year. It's been a little bumpy here with our trades. Art Hogan, Chief Market Strategist with B. Riley wealth management. The year may change, but Art Hogan. First up, Microsoft, the tech giant, closer to overtaking Apple as the most valuable U.S. company, your trade on Microsoft, Mr. Hogan. Hi, Tyler. I think Microsoft's an easy call. You know, obviously it had a great 2023, but if you look at 22, 23 combined, it's only up about 8.000. and a half percent. Valuation looks very attractive here at about 35 times. It pays a nice little dividend and it's got a pile of cash. More importantly, it is one of the AI darlings that is already

monetizing. And that's the most important piece. I think 2024 will be how do you monetize artificial intelligence? They're already doing it. They've got a head start. They've got the first mover advantage that you just talked about in one of the last segments. So I think Microsoft is a buy here and it's on our focus list. So we'd like to stock a lot. All right. What about JP Morgan. They report next week. They had a 52-week high again today. They're up 27% in the past year. You're sticking with this theme of, you know, kind of the juggernauts? Yeah, that's in the business when you think about the big banks, obviously the best balance sheet. That's why it has the premium valuation, trading it about 11 times and 1.6 times on the tangible

book basis throws off a 2.5% dividend. But we think Jamie Diamond's done a great job of directing this bank to be in the best place that it can be. So what you don't like to do is, is have a stock making it in 52-week-out before it reports earnings, not as nervous about this one. I think this is definitely a buy. Certainly, you may want to wait until after their report, but I would tell you that for the rest of this year, I think the financials, one of the end of performing sectors of last year, is going to get a lot of love. And if you want to have access, if you want to express that opinion, J.P. Morgan's a great way to do it. This is also one of the names on our focus list.

We're two for one today. All right. Let's move on to Peloton, surging for a second straight day on its TikTok partnership. Is the worst over for Peloton art? And frankly, I rode my Peloton last night, and I saw something very interesting to me. And that was logos for Lulu Lemon on all the bikes, which tells me that they are getting out of their own apparel business and maybe partnering up with Lulu Lemon, which makes sense. That's exactly. It does make sense. It's what they need to do.

They tried to roll out their own apparel brand. That didn't do well. I certainly think to your point about the worst being over, certainly. Is it going back to $4? You know, likely not. They've stemmed a lot of the bleeding. The problem is this is one of those companies. where you can love the product, but not like the stock. And why do you say that negative earnings?

They haven't been able to post positive earnings, sent them in a public trade company. They have a pile of debt, and they've got a niche market. So to your point, this might make a very attractive acquisition for a company that's in the apparel business or someone that's looking to add fitness to their offering stack. But I certainly think that as a standalone company, we've probably seen as much as they're likely going to do in the short term. And the short term horizon doesn't look like it has a whole lot of positive catalyst. All right, there you go. Fating it.

All right. Thanks very much, Art. Good to see you. All right. I'm happy to you. You bet. We'll power through as many more headlines as we can in closing time next. Welcome back.

Just 90 seconds left for us and several more stories you need to know. So we'll narrow it down to two. Starting with Costco, who shares are higher after they reported just over $26 billion in sales last month, a 9.9% increase from the year prior. impressive, led mostly by e-commerce demand as well. They said comp sales also got a 3% boost on an additional shopping day last month, thanks to the timing of New Year's Day, which fell on Monday. I contributed. I contributed also there, and I found great bargains in some clothing for my sons, and it was a never bought clothes there before. Oh, our kid, that's all they wear.

Is that right? No kidding. A hundred percent, yeah. Great bargains. Great stuff. I got some seasonal candles. And good meat, good stakes they have there. All right, U-Haul releasing its annual growth index. It measures the largest number of one way movers by state. The number one growth state in 2023, Texas for I think the sixth time in the last eight years. Wow. Rounding out the top 10, Florida, North and South Carolina, Tennessee, Idaho, Washington, Arizona, Colorado, and my home state of Virginia. California saw the most net losses of one way movers, thanks in part to the rising cost of living there. Many of the states that are attracting new people, obviously, are low or no state income tax. And by the way, Texas has the most Fortune 500 headquarters of any state.

Does it? Good job, Texas. All right. Thanks for watching, Power Lunch. Closing bell starts right now.