Power Lunch - Regulation Nation, Power Players 7/27/23

Episode Date: July 27, 2023

Companies are facing more and more regulatory scrutiny lately. And it’s not just one industry – and nor is the pressure coming from just one source. We’ll explore.Plus, we’ll speak to 2 power players who can shine a light on the consumer: the CEOs of Crocs and Travel + Leisure Co. both join us live. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Hi, everybody. Welcome to Power Lunch alongside Courtney Reagan. I'm Tyler Matheson. Coming up, Regulation Nation, companies facing more and more regulatory scrutiny. Regulation is back, and it's not just one industry, nor is the pressure coming from just one source. Plus, getting a pulse of the economy. We're going to talk to two power players who can shine a light on the consumer, the CEOs of Crocs, and the Travel and Leisure Company. We'll join us live. Court? Well, for Silo, let's give you a check on the markets right now. You can see things are a bit mixed with The Dow the laggard here, down just 32 points, but we're going to watch that closely because closing in the green for the Dow would make this the 14th straight day of gains. That's something that hasn't happened since before 1900. Meta surprising Wall Street off its highs, but still up, reporting better than expected results and guidance, living up to the promise of more efficiency in that year of efficiency they love to talk about.

We'll dive deeper into that name later in the show as it's higher by 5%. Other earnings movers, Chipotle sliding on a sales miss, eBay missing on results in Comcast, higher on strong results. IMAX also higher, touting the success of last weekend's box office. Ty, I didn't see Barbie, but I want to. I don't know how Chipotle could have a revenue miss with how many times my son and his buddies go there. But nevertheless, I guess you got one. All right, let's begin with the growing scrutiny facing corporate America as we've been covering the FTC ramping up its antitrust measures of late. and now today, Capitol Hill, taking aim at big technology, though refraining from holding Mark Zuckerberg in contempt of Congress.

The FDIC, along with the Fed, putting big banks under the microscope yet again, and let's begin. However, with the sort of bad week for big tech in D.C. with Emily Wilkins. Emily? Good afternoon. Well, lawmakers are escalating their war on big tech today with a proposed agency meant to rein in, meta, Amazon, Google, and other. major tech corporations. Senators Elizabeth Warren and Lindsey Graham, not two names that you often hear together, are introducing a new bill today to create a five-member commission to oversee tech companies. The regulatory group would review potential mergers and limit how personal data is used in targeted ads. The Pro Tech Chamber of Progress said the bill is full of, quote, unpopular ideas and consumers don't want to ban Google Maps or break up Amazon Prime,

whether under a new commission or a current agency. There is one bright spot, though, for big tech. Meta is getting a break after House Judiciary Chair Jim Jordan canceled a vote on holding Mark Zuckerberg in contempt of Congress. Republicans are currently investigating whether the White House pressured meta to remove several Facebook posts. Jordan initially accused meta of withholding information from the committee. But additional documents this week have seemingly satisfied the chairman's concerns,

at least for now. It's notable that lawmakers even threatened holding Zuckerberg in contempt is really noteworthy. Such a move is usually reserved for politicians, not CEOs of major companies. It is, Emily, unusual for two senators as sort of diametrically opposes Elizabeth Warren and Lindsay Graham to come together on a bill. What's the origin here and what's the, what is the aim of that bill? Well, you have seen both Senator Warren and Senator Graham kind of on their own raised concerns about, big tech. And these concerns are pretty wide-ranging. They deal with privacy. They deal with antitrust. They deal with national security. They deal with just competitiveness. And so you kind

of see Warren and Graham saying, look, we have all these ideas. We want to do all these things. Why not instead of leaving it to Congress, which can take a lot of time, we create a commission that might be able to move more quickly and more flexibly. The hope is that this can actually go to the Senate Judiciary Committee where Lindsey Graham currently sits. They're hoping that he can have some sway there. And really the sense is that there are there is support for this. You've had similar proposals proposed in the past from other senators. And there's a sense that this could have momentum as long as they actually find the time to do it, obviously a lot in D.C. to get done before the end of the year. So Emily, obviously, as you reported here, Zuckerberg was not ultimately held in

contempt. Are these documents enough to sort of satiate what the lawmakers were looking for at this point or what's really next for Zuckerberg and the company, as I'm sure this is not the end of the discussion about regulation. I certainly don't think that Jim Jordan would classify this as the end. I mean, really, this has been a thorn and Republican side for a while. They have said that social media networks and platforms have really been censoring conservative speech. Now, of course, those platforms have pushed back, saying that they do try to make sure that they are getting rid of misinformation. And so it's a bit of this push and poll that you're seeing here. And it might wind up resolved with some sort of legislation. But of course, you have divided government right now,

and this investigation is pretty partisan. So I wouldn't expect anything too big to be coming from Congress on this, just given everything they have going on and the fact that Republicans only control one chamber. Emily, thank you very much. Let's switch over to the growing oversight facing the financial sector, new capital rules being disclosed for the banking system. Leslie Picker is here with more. What's going on now from banks, Les. Hey, Court. So these are very highly anticipated. They're called the Basel 3 end game, but don't expect this to be the end of the road, because regulators are revising the capital framework, essentially the formula for assessing the riskiness of each firm to determine a new, higher buffer to protect against financial stress.

These changes would result in an aggregate 16% increase in common equity tier one capital requirements. The effects vary for each bank based on activities in risk profile, and regulators say most banks currently have enough capital to make. meet these new requirements. Fed Vice Chair for Supervision Michael Barr spoke about these so-called Basel three endgame changes at an open meeting a short while ago. Bar says capital requirements, quote, must be aligned with actual risk so that banks bear the responsibility for their own risk-taking. The goal of our action today is simple to increase the strength and resilience of the banking system by better aligning capital requirements with risk. As we learned earlier this year,

their banks with inadequate levels of capital are vulnerable. And that vulnerability can cause contagion, which threatens the stability of the banking system and hurts families and businesses. The banks, and in particular their lobbyists, are already pushing back on what's expected to be a fight through the four-month comment period. Fed Chair Jay Powell actually shared many of the industry's concerns. Raising capital requirements also increases the cost of and reduces access to credit and the proposed very large increase in risk-weighted assets for market risk overall

requires us to assess the risk that large U.S. banks could reduce their activities in this area, threatening a decline in liquidity in critical markets, and a movement of some of these activities into the shadow banking system. The final version of the rules will begin a phasing period in July 2025 with full implementation by 2028. But obviously, the debate over these new rules starts today. Yeah, Leslie, I guess I'm just, wondering about what risks are they trying to assess? Because many of these banks say, look, we have more than enough capital. But that's not really what was at the heart of the issue of

so many of these bank failures previously earlier this year. So one of the key interesting aspects of this is they're actually increasing the regulations for banks that have a minimum of $100 billion in assets. Typically, historically, it's been for these larger firms, but they lowered that threshold in the wake of what happened in March and April, which showcased just the overall vulnerability is the contagion effect that smaller banks, smaller than what we're used to seeing as highly, highly regulated, posed to the financial system. What they're changing is essentially the framework by which they assess risk. Right now and the way that it currently works is they use these internal models. Each bank has their own internal model to calculate their risk-weighted

assets. What this would do is it would standardize it and then also have an expanded version that looks at different areas of risk, including operational risk, including aspects of counterparty risk as it relates to derivatives contracts, credit risk. So it kind of broadens the, and market risk as well, broadens the scope by which they are subjected to, you know, assessing their own risk, assessing that framework. And that, they say, will kind of increase tier one capital requirements by about 16 percentage point in aggregate. And wouldn't that sort of almost definitionally mean less money into the system? Yes. Less lending, less less buybacks, less dividends for investors. This is important because that excess capital,

that cushion is oftentimes where bank C-suits sit and say, hey, maybe we should return some of this to investors in the form of buybacks, the form of dividends. Additionally, it impacts the ability and the willingness to lend. And so as a byproduct, it could, you know, curtail some of the credit availability that's out there. So all of these things are going to be worked out throughout the comment period, but some version of this will go into effect. All right, Leslie, thanks very much. Leslie Pigger. Good to see you. All right. More on a growing regulatory scrutiny here in the United States. Let's bring in James Pethakukas, CNBC contributor, an analyst with the American Enterprise Institute.

Is regulation coming back, Jimmy? Yeah, it is coming back. I think the more short-term reason is you have a split Congress, and if the Biden administration Democrats, want to get anything done. It's probably going to be through the regulatory state, regulatory agencies, executive orders. And I think the broader reason is since the global financial crisis over a decade ago, climate change and the rise of social media has made it a core sort of concept of democratic economics that this is a badly under-regulated economy. So I think that's sort of the long-term scenario. You know, you've got, I guess, regulatory agencies, antitrust

officials and others looking at bigness, big banks, oops, bad to be a big bank these days, bad to be big tech these days. Is bigness the target here? It is. It's sort of a throwback to sort of

the way Democrats and antitrust worked back in the 30s, 40s, and 50s, 60s, and then it became different. Then we started worrying a lot more about consumers and bigness, whether a company was big, it didn't really matter, how is it affecting consumers? But now it's really back to bigness and corporate power. Yet I wonder if the window isn't closing a little bit on that sort of view, especially of technology. After all, it's these big tech companies, which are also the leaders in AI, which is

supposed to be the next big technology. It's we're competing with China and AI, both commercially and a national defense. And I think that, that factors, sort of that national security aspect is going to play a role here. Jimmy, of course, all of this technology is constantly innovating. That's sort of the whole point, right, to move us forward. So if you're running one of these big companies, if you're Mark Zuckerberg, what do you do proactively to try to make sure that you can still have that runway for innovation, but that you're also not ticking off your senators at the same time? Yeah, I think the argument I would make, and it's one some technology companies are making, is really twofold. One, they bring up the China issue, which is, which is, there's some legitimate

aspects of that. We're competing with China and do we want to sort of, you know, handicap our biggest technology companies? But then I think there's just a more fundamental issue is, look, imagine it was 1985 and you wanted to come up with a sweeping bill to regulate the internet. It would have been ridiculous. It was barely there. It was just beginning. It wasn't really, we didn't have the web yet. That might be. where we're at with AI, at least. And I just don't think it's possible. I think that's the argument they're making. We're very early in this technology. And it's to be a bad time to regulate it. And listen, I think if we were going to have a massive new regulation of social media,

there have been a lot of opportunities where it seemed like a more relevant issue over the recent years than it does right now, and they have not been able to do it. And I'm just very skeptical of this agency or any other big sweeping bill is really going to happen. Is there a world in a world where, is there a world in which anti-woke GOP senators and congresspeople find league with anti-big Democrat senators and congresspeople? Well, I think that is the one, if you were going to like, so on the other side of the argument, that would be it, that Republicans aren't sort of the Republicans you used to know, that these sort of the populist, MAGA, aspect has a problem with big companies. Unfortunately, though, their critique is different than Democrats, which is why it makes it hard for them to come together on legislation. So I think if you're

going to get a bill, you would look at those kinds of senators, and Lindsey Graham has been very active with social media, but does that go deep enough in the GOP that they're actually going to get together and start smashing big business, you know, taking, you know, we're going to have little Googles and they're going to, you know, cripple Amazon and they're going to, you know, take Instagram away from Facebook. Again, it still seems unlikely, but if that was, that is the scenario you would outline if you thought that was actually going to happen. Yeah. James, thanks very much. James Pethakoukis. We appreciate your time. Well, coming up, that increased regulation, even extending to the state level, California

investigating Tesla over its autopilot system, details on that head. Plus, crocs, kicking rocks, the specialty shoe brand, down 13 percent. Analyst jumping. On any sign of weakness, we're going to speak to the CEO next. And as we had to break a quick power check, on the positive side of the S&P, aligned technology of 13 percent, earnings revenue and guidance beating expectations there. On the negative side, insurance name Willis Powers was missing on results, blaming inflationary conditions and cost of investments. Power Lunch will be right back.

Welcome back to Power Lunch. Shears of Crocs trading sharply lower down almost 14 percent, despite beating on the top and bottom lines. Investors seeming to pounce on a mixed outlook, namely revenue, perhaps looking for a reason to sell the shares because they've been up 60% in the last 12 months. It's been on quite a run. Here for a Power Lunch exclusive is Andrew Reese. He is the CEO of Crocs.

Andrew, thank you very much for being with us here. I know there's also some disappointment in what's happening with the Hey Dude brand. Some worry about some deceleration there, perhaps even some oversaturation. What's going on? Yeah, look, I think as you said in your introduction, made a record quarter to quarter to over a billion dollars of revenue in levels of profitability, strong debt pay down, cash flow, etc. As we look to the future, I think the investors are very nervous about Hey, dude, right? So it's a new brand. It's new to us. We bought it a little over a year ago. And it was also new to them. It's a relatively new brand

on the whole consumer landscape. So I think there's a tremendous amount of nervousness around the brand. We did lower our expectations for the rest of the year for the brand. That's really related to a wholesale business. As we see, the bookings for the business. I think the wholesale channel is nervous about what's going to happen with the consumer in the back half of the year. They're dealing with some overstocks from some other brands. They don't have strong history on Hey Dude.

And unfortunately, because of our constrained warehouse capacity, we don't have a lot of capacity to do a lot of at-once business. So with short-term orders that they might put in and respond to them quickly. Over the long term, we will fix all of those things. We have a new warehouse opening later this year, which will put us in a great position for future. we have a very strong level of confidence in the brand for the future over the long term. The consumers absolutely love it.

The consumer takeaway in the second quarter, and it was up 27%. So we're very confident about the future, but I think we've got a few wrinkles to work through in the next six months. And the investors are super sensitive to that right now. So then do you disagree with your wholesale partners about their nervousness when it comes to the inventory that they're looking to buy from you in a head dude or crox or even just. just in general? Yeah, we do. I think we have more confidence in the consumer than perhaps they do. Our direct-to-consumer business in the first half of the year was incredibly strong, right?

We see strong double-digit comms, both on retail and e-com. I think our direct-to-consumer business up 21% across both brands for Q2. That's much, much stronger than some of our wholesale partners. So part of that is the consumer is attracted to our brands and they're coming into our environments and they're getting service and satisfied by what we have to offer. And they're really loving what they see. So we have more confidence. And so the ways that we can respond to that, I think the wholesale partner is also

trying to push a little bit of the inventory responsibility back to us. We can accept a little bit of that and help to share that burden with them. But we just have some constraints right now. So we'll definitely work through it. We have a very strong long-term confidence. So how long do you think it's going to take to fix what you think you need to fix at, hey, dude, and I presume you're going to answer, you have no regrets over the acquisition? Yeah, we have absolutely no regrets over the acquisition.

So, you know, we bought the company a little over a year ago. We paid $2.3 billion. We borrowed some money to buy the company. So of that $2.3 billion, we paid down $850 million in debt already. And we have a strong line of sight to a significant incremental. paydown. So we're essentially paying for the company extremely quickly. The company is grown. 80% over the last two years is a two-year stack growth rate. It's highly profitable. It's accretive to earnings and we think it has a good long-term potential. In terms of how long does it take to

drive, I think, greater clarity about its future. We're very confident that, hey, dude, for example, will grow next year and will grow substantially next year. So I think it'll work out very well in the not too distant future. Andrew, before we go, you obviously sell around the world, China, up triple digits. Is that something that is just a result of the reopening? Or is that something that you think you can sustain going forward to some degree? It's two things, right? So there is some reopening in there, for sure.

We're up against some of those lockdowns from last year. But that triple digits is way and above the industry average. So that's really a testament to the work that we've done over the last several years, investing in engaging the Chinese consumer, bringing our kind of full Crox playbook and fixing what the structure of that market from a Crocs perspective, we're very much under penetrated in that market. And so we see that as early signs of a long-term growth rate or a long-term growth potential in China. So in essence, your question, which is can we sustain high levels of growth in China and get much greater levels of penetration in the Chinese market, which is the second

biggest market in the world? Absolutely. Andrew Reese, CEO of Crox, thank you very much for joining us here today, going through your earnings report. Appreciate it very much. All righty, further ahead on the program, we'll hear from another power player on the state of the consumer, the CEO of the Travel and Leisure Company. I like both. Joins us when Power Lunch returns. Let's check out the action in the bond market with Rick Centelli. Hi, Rick.

Hi, Tyler, and there is a lot of action. It all started this morning with a long line of data, most of it pretty strong. If you look at what was going on with durable goods, at 4.7, it was the best in three years, as you see on the chart. What I find fascinating, let's go back farther. We're now at pre-COVID levels. Actually, on the high side of pre-COVID levels, something to pay attention to. And it didn't end there. Initial continuing claims were very well behaved.

Here's a chart of continuing claims. At $1.658 million, it's at the lowest level since the end of last year. Actually, I'm sorry, the end of January. And the effect that's had, well, look at 10-year yields. They're zoom, zooming. As a matter of fact, almost on cue. 4% while we're on the air. That's an important psychological level.

Why is it there? Well, the Fed raised rates yesterday. Regulators talking about changing capital requirements of banks. That means maybe they have to sell treasuries. Now, none of that is for sure, but everybody is trigger-happy in treasuries at a very ugly seven-year note auction. You see that right around one eastern. The effects there. and that also pushed the distance between our yields and boon yields to the widest level since December.

We'll call it eight months. And finally, the euros, well, the European Central Bank raised rates and their currency. It went up and then it went down. It's on pace for a three-week low close. That, of course, boosted the dollar, which is on pace for a two-week. High close. Courtney Reagan, back to you. Thank you, Rick Santelli.

Let's get over to Bertha Coombs. She has our CNBC News update. Hi, Bertha. Hi, Cord. Former President Donald Trump said this afternoon that his attorneys had a productive meeting with Department of Justice prosecutors today. Though in a post on his social media platform, true social, Trump claimed there was no notice given of an indictment. However, three sources told NBC News earlier today that his lawyers were told to expect an indictment from the grand jury looking into the January 6th insurrection and other alleged attempts to overturn the 2020 election. The Justice Department has launched a civil rights investigation into the Memphis Police Department,

looking into whether the department has a pattern of excessive force and unlawful stops, searches, and arrests. The DOJ probe will also focus on whether the department discriminates against black residents. The announcement comes months after the death of Tyree Nichols while in police custody, but the new department probe is separate from a federal investigation into the Nichols case. It probably comes as no surprise. Scientists already think July will become the hottest month ever on record, and we've still got a week to go. That's according to the World Meteorological Association, which noted today that the previous record was set in 2019. I got to think, Courtney, there are a lot of air conditioners on sale right now.

If you can find one. Oh, my gosh, exactly. I was just telling Tyler, I looked down at the computer, it's 94 outside here in New York. Yeah. That's just too hot for me. Well, coming up, some big earnings out today. We'll trade the names in today's three-stock lunch. Plus, is today the day the Dow's seemingly endless wind streak does come to an end?

We'll see. Power lunch. We'll be right back. Time for today's three-stock lunch, taking a look at some big movers of the day based on quarterly earnings. So first up is meta-platform, shares surging on second quarter results, beating on the top and bottom lines, boosted by a rebound in ad revenue, and issuing an optimistic guidance for the third quarter. Now, the stock is up over 100 percent year to date, and analysts think there is. still more room to run. So here with our trades is Victoria Green. She's chief investment officer at G-square private wealth. Victoria, what's your take on meta? What a high flyer. Yeah, no, it's going to keep flying high. I think it's still a buy at these prices. You're still about 18, 19 percent off it. It's all-time highs. And we think all of the products they've launched

with Reels and then what they can do with the Metaverse. I know the Metaverse is kind of a joke right now. But eventually with tie-ins with AI and VR, I think that will get going. Look at it. They have three out of eight billion people logging in every single day. And their ad revenue has continued to increase. So this dearth of ad revenue spend, I think, is over. You saw that with Google and meta. And it's a great platform for advertisers to be on. So it's still a buy because they're saying they're going to have 20% growth next quarter.

Well, let's move on to McDonald's shares higher after the fast food giant topped estimates. The grimace birthday meal helped drive sales, Victoria. I didn't know anything about that. But maybe you do. I mean, it's hard to give a straight pace. talking about the grimmest effect on earnings, but it was. They're good at product rollouts. They know their market very well.

They've been very strategic with price increases. And they do feel, even if some of their put traffic were to slow, they're going to pick up more traffic from people kind of downsizing from set-in restaurants to fast casual. And they're still seen as a value deal. Also, you're seeing this growth internationally. Only about 47% of the revenues are U.S. base. The rest come from international emerging markets.

You saw great strength in Europe, including Germany and the UK. And I think they're going to continue to be strategic, and it's a well-run, well-executed company. You have such consistency across stores. They're marketing some point, and they have one of the strongest brand names out there right now. So for me, McDonald's is just a steady, Eddie bleach hit by. And finally, Southwest Airlines shares. These are down almost 10% today. Despite posting record revenue for the second quarter, the company notes a drop in unit revenue and rising labor costs.

Wow, there's a lot of talk about labor these days. Victoria, what do you make a Southwest from here? Yeah, and they are fighting labor. They are one of the only that do not have a pilot's or flight attendants contract long term. And they're just struggling because they don't have the international market pickup that you saw like Delta and United report. And also they were a little bit just in line. Everybody else blew it out of the water in Q2. And they came in just in line.

So they really need to work on optimizing their fleet, optimizing their pilot scheduling, getting that contract done and getting that headwind out of the way. They are pretty good with fuel hedges. But investors are so wary of airlines as a long-term investment because it's bitten. them so many times. So I think investors are concerned that you're just not going to see this peak profit and this peak travel just continue forward. And Southwest is so exposed to leisure travel and they're even leading in harder on leader travel. They're cutting out some of the favorite kind of corporate travel routes, shorter routes, early morning flights. So if leisure travel

sells, they don't have international and they're tilting away from corporate. So I just see them as the week as they're lying right now. It's interesting. The Southwest flights I've been on the summer have been absolutely packed. It stresses me out how they do the boarding where you have to like line up by the numbers. Different lines. Yeah. Not my favorite. But it's a fun airline. Victoria, thank you very much. Well, let's talk a little bit more about markets, earnings. All three indexes. Negative right now. Look at the Dow Industrial's off a half a percent. Rachel Aiken, senior investment officer at Cape Cod Five wealth management, which has nearly two billion dollars in assets under management. Rachel, welcome. Good to have you with us. Great to be back.

Good. Has the market gotten ahead of itself? Well, you know, we've seen just kind of an uninterrupted ride for the better part of this year. We've had only one slight pullback back in March. And ever since then, you know, we've just had these incremental days of 1% or less, higher and higher. If you look at valuations, you know, at the index level, it does look a little bit stretched. We like to kind of dissect the market a little bit further and say there are great opportunities.

that lead us to believe it's not overstretched under the surface, average stock in the S&P, much below the 20 times forward earnings that we're looking at today. But, you know, earnings are going to be a pivotal part of whether this market can continue to climb higher, but it's really had the wind that it's back as we've looked at a more resilient economy, recession somewhat pushed down the road, really the worst-case scenarios in so many macro elements, sidestepped, and people on the sidelines who are looking at 5% T-bills now looking at 20% equity returns, wanting to get back in. Would you expect or be surprised to see a pullback? You know, I think we have seasonality looking at a slower market where we may be able to

point to a pullback. I think it would be healthy for the market to take a pause and perhaps take a few paces back, regroup before stepping forward, perhaps in the fall. Would not surprise. And I don't believe if we see even a garden variety pullback, eight, 10%, we'd stay there long. I think there is sufficient momentum behind it for people to step in and say, this is my opportunity from missing out. I don't think, of course, this is categorized as one of those pullbacks here, but we are at session low is here as we're trying to see if the Dow can make it for that record 14th straight up day right now doesn't look like we're there. But I'm wondering, Rachel, if you have any belief that some of the old guard can come back,

that some of the market breath can actually expand a little bit, that it's not all going to be concentrated in those magnificent seven stocks. I'm looking here even just week to date, and energy's been pretty strong, material's been pretty strong. We haven't been able to say that in some time. No, you're absolutely right. And I think that was really giving investors a reason for concern. We started to see the tides turn a little bit away from that magnificent seven, as we call it, to other areas of the market mid-June. If you look at tech versus other areas of the market, industrials and materials actually did better.

You saw small caps and midcaps, outperform large caps. And we're seeing that breath continue to widen. And I think just being on a Dow watch, climbing higher and higher as opposed to the NASDAQ speaks to some broaden that we're seeing. And again, that's a very healthy and welcome thing in the market. If you were going to put money to work today for the next, year to five years, what kind of stocks would you look at or name some names? So I think diversification is always your best friend in the long term. So again, looking at a

portfolio, it would be allocated across multi-caps within the S&P 500, you know, somewhat neutral sector-wise, but across all sectors. But again, looking for opportunity today based on the rise in so many areas as of late. We might look at some of the unloved areas that have kind of been pushed out to pasture, the utilities area, real estate investment trust, those areas that have been painted with a broad brush set aside because of their normal dividend attractiveness over the last decade, no longer as attractive. But I think in the case of utilities and next era energy that we like, you get a great, strong, growing dividend, but you also have great growth opportunities. You can marry a company with an 8% EPS growth rate for the next couple of years and a dividend that they

just increased yesterday by 12%. So we think that's an excellent opportunity. And you have clean energy with the wind at us back and the profitability tailwind there that the inflation reduction act is providing there. And then in Reeds, again, another area that's been painted with a broad brush really put to the side. It's another sector that under the surface, there are so many areas to invest in and liking American Tower there. Again, it's a great growth story internationally for them and their for a four-a, excuse me, into data centers, close driver. Rachel, thank you so much. Rachel, Aiken, we appreciate your time today. Thank you. Nice to see you. You bet. Well, coming up, under investigation, California's Attorney General launching an inquiry into Tesla over autopilot safety

issues and false advertising complaints. What are the key details when Power Lunch returns. So make news in the Lithium space could have massive implications for that sector as well as EVs. Pippa Stevens has the details. This is hot. All the rage EVs these days. Yes, very much all the rage, Courtney. And what we saw today was Piedmont Lithium announced that it secured a key permit for its lithium conversion plan in Tennessee as the U.S. races to develop domestic supply chains for batteries. A plant like this requires dozens of permits. But the so-called air permit, which Piedmont just secured, is the crucial one. The company can now start building the plant with production, slays.

for 2026 using lithium imported from Ghana. But since it's processed in the U.S., it will still qualify for the incentives in the Inflation Reduction Act. At peak capacity, the plan could produce enough lithium for 600,000 electric vehicles. Now, China currently controls this market, refining more than 60% of global lithium supply. While the U.S. has a lot of lithium, only about 2% is processed domestically, according to benchmark mineral intelligence. So Piedmont is one of the companies looking to change that.

with CEO Keith Phillips telling me the plan is in an ideal location, a region that some are now calling the battery belt. That's fascinating stuff. So 2025 would be the soon as this plant would come along? 2026. 2026 would be the soon as this plant will come. Yes. Pippa, thank you very much.

All right, speaking of the EV space, Tesla finding itself in the hot seat yet again, the California AG investigating the company's autopilot safety and marketing. CNPC.com's Laura Kalladne joins us now to. discuss. Laura. Thanks so much for having me. Yeah, tell us what's going on here. Let's start with this issue of phantom braking in some Tesla vehicles. And I should point out, as I have before, that I have a Tesla, and I think I have experienced this phenomenon. I hope it didn't affect you too badly. So phantom braking is when the car suddenly decelerates. It's not usually coming to a complete stop, but suddenly slows down for no apparent reason.

on the basis of its autopilot or driver assistance systems kind of overreacting to something they think might be an obstacle. Think. I mean, you know, sense might be an obstacle. Inaccurately senses might be an obstacle. Like sometimes it's caused by an overpass with a shadow or something like this. And this has been a widespread complaint. Earlier, the Federal Vehicle Safety Agency investigated the Phantom Breaking complaints. I don't think they've come to a final conclusion on that. And now it looks like we learned from sources that had, you know, correspondence and voicemails that they shared with us, that California's Attorney General's Consumer Protection Division is looking into those complaints, as well as complaints about false advertising. One owner of a Tesla told us that he had filed a complaint to the FTC,

and then the California AG followed up to ask about it. And one of his main complaints beyond the phantom breaking issue, which is a safety thing, was that he had paid thousands of. for the premium driver assistance system in his Tesla, which is marketed as full self-driving. And it's not self-driving. It's not close. So those are the concerns we know the AG is investigating. The scope of their investigation may go beyond that. Yeah. The car I own does not have the full self-driving, but it has what I would call sort of an enhanced cruise control function that keeps you in a lane. and the out-of-nowhere braking occurs when you sense that some sensor on the car has picked up something,

and it reacts rather dramatically. A second issue, apparently, are claims about range on the Model 3 and the Model Y, maybe on other cars as well, that the cars actually don't get the 330 miles or whatever it is that Tesla claims they do. That's right. Reuters had a blockbuster investigation out this morning talking about how Tesla's, even their in-vehicle displays, are overly optimistic when they tell drivers, you know, how much range they have left on the battery. Tesla has also been marketing this, you know, as the world-class range, you could get the most miles per charge out of all these other cars on the market. And independent researchers like Recurrent and others, as well as internal records, show that they overstated that range. Yeah, very interesting. Have either of these issues raised to the level of a formal inquiry and what, if anything, does Tesla say about either of these issues?

You know, Tesla hasn't responded to press requests in many moons. Elon Musk dismissed the traditional PR team. Of course, Joe Rogan doesn't book itself. I've said that before. But, you know, clearly they have some business development, government relations, and other people, but they simply don't answer our questions. All right. Laura, thank you very much. Thank you. It does make it hard to do reporting. Yeah. Well, still ahead, the travel trade, timeshare giant travel and leisure, missing second quarter revenue estimates

as membership sales fell 5% from a year ago. Is post-pandemic travel boost? Is it starting to fade? Well, we'll ask the CEO when Power Lunch returns. Welcome back to Power Lunch. The travel and tourism sector is often engaged on the broader economy, and we're getting a read on some recent earnings reports

of what we're seeing. We've heard from Hilton yesterday. They're saying travel demand is strong, while Southwest is indicating demand could be softening. Timeshare company travel and leisure reported a miss on revenues, but shares are slightly higher today. For more, let's bring in CEO Michael Brown. Michael, thank you so much for joining us. So I guess that's a great place to start. Where are we when we're looking more broadly at the state of the travel market?

We all needed to break out of our homes post-COVID. But has that boom peaked? Well, travel continues to be strong in 2023. and it may have softened slightly or normalized from what we saw in the pent-up demand that we saw in Q2 and Q3 of 2022, but that was abnormal. Leisure demand this year has remained very consistently in demand, and I don't see it further softening, assuming the macroeconomic conditions don't change. What I think you're seeing this year is a rotation of how people are traveling. Listen to some of your earlier segments and what is happening is people are getting to places they didn't get to go to during COVID or last year.

International travel. I heard the cruise commentary and that's creating a little more competition in the U.S. But I can say for our business, our demand and arrivals for the second half of this year are no different than they were than in 2019. So leisure demands here. It's just rotating a little bit on the type of travel. And where is the demand highest right now in your business? And how, frankly, is these heat waves that we've been seeing in many places around the world impacting that? Right. Well, let's start domestically. The greatest demand that we're seeing is in the southeast of the United States and maybe that heat or driving people to our beach resorts because when we look at our searches and when we look at our bookings, they're at southeast beach locations. As you go in, internationally, two of the hottest destinations are clearly European summer travel. And as well, the Mexico market has really come back in force. And it's been that way for over a year. Again, I think as we look into next year, some of the demand of locations where people haven't

been to in three or four years will come back in the distribution of travel will be a bit more normalized next year between domestic and international. I'm curious about Mexico, because there are some safety concerns there. Are you hearing those at all? Well, I think we tend to hear the headlines of individual incidents that occur in some of the resort destinations, but places like Los Cabos and Cancun and Puerto Vallata have really stepped up not only the quality of the resorts and the destinations, but the security around them and the infrastructure that gets you from airport to resorts. So, you know, sometimes old news plays out longer than it probably should,

but the Mexican destinations have really stepped up the quality of the travel experience. And the arrivals would say no. And most of those arrivals, if they're not domestic Mexicans, they're coming from the United States. Michael, obviously there's some debate about where we are in the economic cycle. Some believe that a recession still may be coming. Others believe perhaps we're past it. How does a timeshare company like travel and leisure typically hold up when economic times do face a softening?

Well, I think it's one of the beautiful aspects of our model in two different respects. We sit at the nexus between what's great about hotel rooms, brands you can trust, loyalty programs, meeting your expectations. combined with the benefits of vacation rentals, which is more space. But we provide that more space with amenities in a brand you can trust. In a recessionary time, 80% of our owners have fully paid for their ownership. So they don't need to make an economic decision, whether they're going to travel to Central Florida, California, Hawaii in October, in the event of a downturn.

They've already paid for it. So it's simply do they want to use their vacation? What we tend to see is they might transition from a long-haul destination to a drive to to save that incremental money. But our owners are still going to go on vacation. And we've already seen that because the arrivals that we have 120 days out are no different than they were in 2019, despite all the news we've heard in the first six months of this year. All right, Michael, thank you very much. We appreciate your perspective today.

Continued, good luck to you. Thank you, Tyler. Thank you. More on the market's wild swings today, looking like that 14th day of Dow games. I've got to do a little work to get there. We'll talk about that with Bob Pisani and more when powerless continues. All righty, folks, we've got some wild market moves today. The Dow around session lows, the lows were about 220, now about 190. Bobazzani here to discuss it. Bob, an hour or so ago, you talked about how low volatility was. now we're starting to see a little of what we would describe as, I guess, volatility. Yeah, I want to put up the 10-year yield because I think what caused this was a poor seven-year

auction. Rick gave it a D. And for whatever reason, the minute we hit that, yields on the 10-year went over 4%. This was sort of a line in the sand for a lot of market observers. Two-year over 5%. It didn't quite happen. But that yield there moving up over 4%. Market immediately started moving down.

Look at the S&P 500. We've lost more than 40 points in a little. little over an hour, and that's exactly right around the time of that 1 p.m. Interest rate sensitive sectors, for example, technology, high prices. That was the one that moved down really, really fast. You can see the tech sector, which has been in a new high, also moving into negative territory. So tomorrow we'll get these personal consumption expenditures. Guys, maybe that will be important.

We're expecting headline 3%. That would be a real interesting number. We got in the 2% range, I think that'll help tamp down concerns about higher interest. trades. Guys, back to you. Yeah, very interesting. Watching the bonds often a tell of what's going to happen in stocks. Bob, thank you very much. We appreciate your time. I know you'll be watching it for our viewers over the next hour or so. As we wait to see whether that wind streak has been 13 continues. Yeah, it doesn't look like it. Real estate is the second biggest lagger for a group here. Of course, also they're very sensitive to interest rates. Thank you for watching, Power Lund. Closing bell starts right now. Court. Great to be with you.

Thank you.