Power Lunch - Rising rates, the housing trade and defense as your best offense. 9/19/22

Episode Date: September 19, 2022

Yields surge ahead of the Fed meeting Wednesday. We’ll break down the impact on different corners of the economy and the market. Plus, the housing trade as the 30-year mortgage rate hits 6.42%. From the builders to lenders to apartment REITs, are some of these beaten down stocks about to turnaround? And the best ‘defensive’ plays in a rising rate environment. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Our lunch begins now. I'm Sima Modi. Here's what's ahead. Rates surging ahead at Wednesday's Fed meeting, rattling everything from stocks to crypto. This hour, we will explain the fallout and have a list of defensive names that could work in this environment. And the housing trade, as rates rise, sentiment falling for the ninth straight month, we'll look at the beaten down builders, lenders, and apartment wreaths to see if penny are now good buys. But first, Brian, with a quick check on markets, Brian. All right. Seema, thank you very much. Well, it's been kind of a choppy session. with not a lot of big moves either way. You can see the Dow Jones Industrial averages down to whopping 0.06%. I mean, why is anybody to take a big position ahead of the Fed? Could happen

tomorrow. It's unlikely, but it could. Either way, the market's maybe in a holding pattern, head of that Fed decision on Wednesday. Materials and industrials are two of the best performing sectors, if you want to call on that, health care and real estate among the worst, but nothing's moving in that big of a way. The bond market pricing in a lot of the action, the yield on the 10-year, though. Hitting 3.5% earlier in the session is the highest level since April of 2011. Two-year yield at its highest level since November of 2007, SEMA. Big moves there. And with 48 hours until the Fed's interest rate decision, we're taking a look at how those rising rates are impacting different corners of the economy. We're going to begin with

the big decision itself. My next guest says the central bank should hike rates by 125 basis points on Wednesday to stay ahead of the market. rather than follow it. That's Komal Shri Kumar, President of Shriqamar Global Strategies. This call, Komal Shri, I should say, making you highly unpopular on Wall Street of recommending the Fed raise rates, not by 50, 75 or 100 basis points, but 125.

Tell us why. Seema, I am trading short-term unpopularity for long-term popularity. That would be the best way to put it. Yes, it is difficult for the markets if the rates rise by one and a quarter percentage points, But if the Fed actually does that, they are going to be ahead of the market for the first time rather than be a simple follower, which the Fed should not be. So Jerome Powell has repeatedly said inflation is going to be transitory, even when he changed his mind.

It took several more months before the tightening to begin. So the Fed credibility is still very low, Seema. What I'm saying is doing one and a quarter percentage points is going to do a lot in terms of helping credibility. And that is very good for markets, both equities and fixed income over the medium term. Shri, beyond the Fed's 2% target, how much weakness in the labor market is the Fed willing to tolerate? We've already seen unemployment rise from 3.5 to 3.7%. How high will they allow it to go? For 4.5%, what are you expecting?

I think 4.5% is fine in terms of acceptability for the Fed, CEMA, given that the midterm elections are taking place this November and we don't have the presidential elections for another two years. So the political side of it is going to be relatively dormant so you can tolerate a higher unemployment rate in the short term. Here is the problem. And Brian spoke earlier in the program about possible credit events. If you have a major institution that is about to fail, as we saw in 1998, 2008, then typically the Fed springs into action gives up all of its anti-inflationary message and switches over to flooding the market with liquidity and bailing institutions out. That, to me, is the risk, Seema, not a higher unemployment rate. Hey, Shri, thank you very much for the shout-out. Do you think there is a risk of a credit event? I mean, Scott Miner, the previous hour, talked about commercial mortgage-backed securities, not as big as residential. We get that. It's not 07. It's not 08. Nobody's saying that.

But the reality of it is, if you got a bunch of half-filled skyscrapers in San Francisco and L.A., and Portland and New York and Chicago, and a couple hundred billion in debt on them, that is not a small thing. It is not a small thing at all. And what we don't know, Brian, is to what extent those events, even if they are not a 1998, even if it's not a 2007, what if they cascade one on top of the other and you have two or three institutions which get hit with the domino effect? That's something we do not know. I don't think the Fed is aware of it either. And if that happens, that's when all the bets are complete. You need to change your playbook right away if that happens because the Fed is not going to stick with its anti-inflationary stance

anymore. That's the problem with what I have with the Fed today. It is easy to keep citing Paul Volker at every press conference. It's a lot more difficult to behave like Paul Walker. Again, during the beginning stages of my career, I watched the tractors rush over to Washington, D.C. to surround the Federal Reserve building because it's interesting. interest rates were so high. There were construction people who were shipping bricks over to the Federal Reserve because there was no construction industry. There is no way this chairman, this Federal Reserve is going to go to any of those lengths to control inflation. And with having let inflation go to such a high level, Brian, they have to do a lot more than what they have done so far.

Let's hope. Let's hope history does not repeat itself. I didn't mean to cut you off, Shere, but I'm just curious what the playbook should be for investors right now. Two days till a Fed decision, last week was the worst week for the S&P 500 since early June. What type of strategy should investors use right now? Get more growth stocks, more value, get more defensive. What's the play? Very timely question, Seema. I have been saying going back to last October that we are going to enter not just a recession,

it's going to be a stagflation. You're going to have recession with high. inflation rates persisting. If you do that, both equities and fixed income are losers, as they were the last time around 40 years ago. Under those circumstances, you have to go hide in cash. You can hide in dollar remaining very strong. You can choose some commodities. And I have been a big proponent of globally diversified real estate where you can go and hide for the next two to five years and come out of it with a decent good return. But a 60-40 portfolio between equities and fixed income, even between growth equities and value equities, is simply not going to do it.

All right. Some creative strategies there. Komal and Sri Kamar, we appreciate your time today of Shri Kamar Global Strategies. Thank you very much. I mean, he's right. He's just basically blowing up the entire investment advisor model. Stay away from staff. Seema, what you want to be is 70-30 based on He said, no. That's why we bring him on to a more creative way of looking at the market. I don't know if those were, he was listening to music. I don't know what those headsets. We've got to send Shree some better heads.

We're going to hook, Shree, we're going to hook you up with a little. All right, your next guest says the bigger unknown for the market is how fast the rate of inflation will ultimately decline in the mounting risk for earnings. Bringing Carl Farmer, portfolio manager with Rockland Trust. Yeah, decline? Let's hope, right? Are you predicting a giant decline in inflation in the near term, Carl? I wouldn't say a giant decline. Thanks for having me on today, Brian.

Seam. I appreciate being here. Well, it can't go much higher. I mean, I think the president made that point sort of last night when they were asked by 60 minutes. You know, is it going to go up? He said, well, we went down to a tenth or whatever. It's not spiking up. But inflation is everything because the Fed is everything.

And that's all we're talking about right now. So what are your expectations for the Fed? And what advice are you giving your clients right now? Sure, absolutely. So as you pointed out, interest rates may not decline soon. So even if inflation is peaked, it's unlikely to see interest rates decline until inflation's under control. The most important point to remember and consider is that in the last 50 years, the Fed hasn't cut the funds rate while that rate is lower than prevailing inflation. And with CPI still over 8%, we're not that close yet.

The biggest unknown, like you pointed out earlier, is that how fast the inflation rate can decline and to what level. Though the energy impact is lessened, higher food and shelter prices may take longer to change. So the Fed still has some work to do. The Fed may have work to do, but there are still certain stocks you think can ride out this period of volatility. You like Nike, and it's one of the biggest movers on the Dow right now. Tell us the bull thesis here. Oh, sure. Thank you.

So the consumer direct acceleration strategy with Nike is still growing. Digital is, in fact, now 24% of brand revenue. Easier growth comparisons also should see themselves going forward because the China shutdowns and the supply issue We should both anniversary coming up soon. One thing to step back and realize is that they still have great relationships and strong endorsement deals with recognizable talent. The price is off more than 40 percent, and this sets up for a good entry point for a long-term investor.

What are your thoughts about the dollar? I mean, a lot of these multinationals that have this footprint overseas, they're getting killed by the stronger dollar, which, by the way, is now at a 20-year high against the euro, a 24-year high against the yen. How is that changing your forecast for not just Nike, but even? Look at the tech sector. Some of the biggest names lost billions of dollars last quarter just because of Forex headwinds. Absolutely. The movement's been fantastic. One thing, again, without predicting currency in terms of trying to spot exactly where the euro or the dollar will head, a lot of the pain has already been felt. I mean, we're seeing some, you saw some of that in Q2, and we should probably see some more of that discussed, certainly in Q3. But you're right, it is a challenge, but I think a lot of some of what the multinationals have experienced. should start turning around as we head into 2023, and we'd like to take a long-term view of that.

Other names you like, Visa and MasterCard, those stocks really haven't held up with the rest of the market. Right, no, they've actually held up better, I guess, during the sell-off so far, so they're not cheap, but the cash to digital transition is accelerated during the pandemic, and we've also now seen travel spending continue to recover. Kind of looking at the big picture, these are stable businesses that also have continued innovation, which gives upside to the future. So we still like those here for the long term. Okay, Carl, we'll leave it there. VISA trading at $191.

Appreciate your time. Thank you very much. Coming up on power lunch, from high risk to high return, are the beaten down home builders now a buy? That's the call from Key Bank. The analyst behind the reports explains why the sector is about to turn. Plus, Bitcoin falling to its, get this, lowest level since June, are there any bullish catalyst for crypto? We're going to discuss that. And before the break, a look at shares of fertilizer.

stocks. Mosaic CF Industries, which are some of the best performing stocks right now on the S&P 500. More Power Lunch after this. Welcome back to Power Lunch. Homebuilding sentiment falling for a ninth straight month. The National Association of Home Builder says the housing recession shows no signs of abating as mortgage rates hit 6.42%. So are rising rates wrecking the housing trade? We're breaking it down in three components. The home builders, mortgage lenders, and residential reits. Let's start, though, with the builders, the XHB ETF, down 32% this year. But our next guest upgraded the group today, saying the sector historically outperforms following early declines. Let's welcome Ken Zenner, HomeBuilder analyst at KeyBank. Ken,

why do you think these stocks can write out higher rates? Thank you. Well, our new thesis rip looked at past credit cycle input, and what we saw is the builders actually outperforming, which is kind of counterintuitive. So what led us to that conclusion? We looked at 19 cycles from 1963, and we actually saw that the home builders historically fall about 41% on an absolute similar to where they are, 28% first the market. But more importantly, the home builders actually begin to perform in line with the market. So it's very much a relative call to the market.

The idea being early pain, which they've suffered, can equal early gain. Usually the stocks trough in the third quartile of the cycle, which average about 14 months. Okay, got it. So this is more about how these stocks have traded ahead of future rate hikes. But which home builder do you think has the most pricing power in this environment? We heard from Toll Brothers a couple weeks ago, warning of a shortage of homes. That, of course, has been the big story for over many years now. Right. So, you know, adjectives, tight, oversupplied pricing power. You know, we do follow stocks historically. Homebuilder gross margins follow price, appreciation, which as you know is beginning to roll over. I think there's quite a bit more supply out there than people think. You should look to days on market for that. So we are quite cautious on fundamentals. We are quite cautious on policy conditions. However,

market conditions, valuation, relative underperformance, really give us a lot of confidence that from a relative basis, the builders can start outperforming. And it's been pretty pronounced, even, you know, for the people that remember 05 to 09, the builders basically fell a whole bunch into the late 07, and then they actually outperformed the market from late 07 into February 09. We saw that in 1966. We saw that in 1974. And I don't know how long the cycle is going to be on the downside, but I do think we've reached that critical point of relative neutrality that leads to some outperformance as you look down the line. If the Fed goes with 75 or 100 basis points on Wednesday, how do you expect home builders to respond? You know, how we get to the Fed moving to the two-year,

if that's the, you know, litmus tests we want to use. I think, For mortgage rate, it's really important to think about the 10-year, which is different than the front end of the curve. Our title RIP, it stands for real rates, inflation expectation, and mortgage premiums right now, which, you know, the mortgage premiums are roughly 100 basis points, you know, 260, 70 above their long-term average. So I think there are some cards that could be, you know, potential offsets for what's obviously a very difficult fundamental environment as we looked at in our report back to 1963. All right, Ken, we'll leave it there. Homebuilders are trading higher today. Ken Zener. Thank you for joining us.

All right. Now, let's pivot a bit to the mortgage lender, shares of rocket companies and home point capital down more than 45% this year. UWM holdings up one than 35, although some are slightly higher today. It's been a rough year and who can blame it. Let's bring in now BAA Securities Research Analyst, Mehir Batia. Mehir, in one of your notes, you note that mortgage volumes are likely to be materially lower. I don't think that's going to be breaking news to anybody, but how material is materially lower? Absolutely. Thanks. Firstly, thank you so much for having me on today. In terms of mortgage volumes, you know, we rely on the market indices, particularly the mortgage bankers association, Fannie Mae, Freddie Mac.

We've looked at some of their estimates. And in general, you know, last year they had estimates of $4.3 trillion for the mortgage market size. This year, we're looking closer to $2.4 trillion so far. there's some risk to the downside, I think, on those numbers, too. So we're talking about, you know, a $2 trillion cut in the total mortgage market size. Can every company that's public that you cover survive that here? I mean, do some of these companies have to consolidate or go to zero? We've certainly seen that.

We've certainly seen some consolidation already happening. Certainly you look at the way a company like HomePoint is trading. You know, there's certainly some other public companies out there, too, which you're seeing real risk if you will, being priced in off these types of of the kinds of scenarios you laid out. That said, there's certainly companies like Rocket

out there which have a very strong liquidity position. We think a lot of them will survive. It's a matter of how long, that's the real challenge here, is how long these kind of conditions last. Yeah, I mean, there's going to be long-term

survivors, Meher. And if you're an investor in this space and you're thinking 10 years, out. Okay, we're going to have a rough couple years maybe for housing. Some of these companies may not make it. But you want to buy when things look the bleakest. Maybe it's not the bleakest, but you could tell us if you think it is. Is Rocket Dan Gilbert's company, the one that wins? They certainly have advantages. You know, we've pointed out in previous reports. Like in the short term, we certainly think the challenges remain and we, to be clear, do have an underperform rating on them. That said, we do think that longer term that they do have some real advantages on the technology side. We also think they're

doing some interesting things where they're leveraging their technology with other players in the mortgage ecosystem, whether it be community banks or through their Salesforce partnership, also through other financial players, you know, like an American Express or a Schwab. We think that can be an interesting player. We certainly like them, you know, as a low-cost player in the space. We like their direct-to-consumer model as mortgages get digitized. We do think they have of advantages. But again, all that said, I'd come back to, you know, the short term is quite, we're a little skeptical in the short term. It is, it, that's certainly at the bleakest point. Here, is this the bleakest it's going to be, or is it going to get even bleaker? I mean,

rates are going up. They're not coming down for a while. Right. And we think that, and that's really the driver of our performance rating, what you just mentioned, you know, rates going up. We think there's still a little bit of demand destruction, if you will, to come. We also think that the industry is starting. to rationalize, but there's potentially room for further rationalization and cost cutting. Until that happens, you're going to continue to see earnings pressured and margins pressured. And competitive intensity is very high still in the industry. So till we don't get to a point of equilibrium where you start seeing some of those margins

start improving, it's hard for us to say that we are at the weakest point today. Mehir, Bata, it's a real pleasure to have you on. I know it's been a tough space. We appreciate it. Thank you. Finally, residential reed stocks, all down 25% or more this year. Camden Property Trust, Essex property, and Mid-America apartments have yields of about 3% versus 3.5% of the 10-year treasury yield. Let's bring in Alexander Goldfarb, senior reed analyst at Piper Sandler.

Alexander, great to have you on. How would you size up the opportunity in residential reeds as the Fed is expected to get more aggressive? Well, thank you. Here at Piper Sandler on the REIT team, what we're looking at is continued Fed rate action. I think one of your prior guests had highlighted the point that in the early 80s when Volker killed inflation, he was 600 basis points above CPI right now. The Fed is 600 basis points below. Our focus stocks in residential really are either the Sunbelt or suburban. So you mentioned names like Camden and Mid America, which have a heavy presence through what are termed the smile states, sort of D.C. down to Florida across Texas to the southwest.

And then Essex, which, while it's California and Washington State, Seattle, it's 90% suburban. So they have been exiting the urban cores that have been hit hard with COVID and the social unrest over the past few years. And Essex had already migrated to the lower cost suburban markets that are still seeing strong demand in parts of California and Seattle around the major worknotes, but without those social pressures and more affordable rents. As rates rise, do you expect these residential real estate investment trusts to, to grow their dividend? Yes. I mean, if you look, and again, you've had a number of guests who have looked back in history at Piper Sandler on the RE Team. We've done the same thing. So we look back in the 70s at the last

time we had stagnation. And what's interesting is people forget that in the early 70s recession and the late 70s recession, we had good job growth in both of those in both of those recession. Keep in mind different dynamics. But again, the global economy was not meant to be shut off. It's sort of like Jurassic Park. You know, it's not meant to be turned. turned off, turned back on. And with that, there's a big backlog of not only manufacturing and supply for products that people want, but also jobs. People had a chance during the COVID shutdowns to reevaluate their jobs. What happened is a lot of them decided to leave the gateway areas and move south and to lower cost areas. So when you talk about the next 10 years, the Sunbelt has already been,

has for the past 20 years, has been outpacing rent growth of the coast. They've been seeing more economic growth. And they've also seen red. rents that are still affordable there, under 2000 a month, whereas, you know, coming from New York, I mean, 2,000 months, you know, parking spots are almost that much. So the affordability of the Sunbelt can't be overstated. And that's an important driver for earnings and dividend growth. And also underscores the need as an investor to look at the geographic footprint of these residential reeds to figure out if it's a good buying opportunity over the next six to 12 months. Last question on invitation homes. I was just noticing that the single family residential

reeds are performing much better than multifamily. Reitz, why do you think that is? Well, we don't cover invitation homes, but what I will say in a key difference that your viewers should remember is during the housing boom of the 2000s, there were a lot of people, quote-unquote, buying homes that couldn't qualify for an apartment. So there are a lot of people out there who need a home but financially can't afford it. I mean, those of us who are homeowners, there's always something breaking out of home. It's an expensive endeavor.

He's been to my house. Yes, obviously. Hey, look, we just had our air conditioning redone, and we asked for, for the local pricing, not the Fairfield County pricing. So, I mean, taking care of a home is very expensive. And there are a lot of people who renting is better. That said, when you look at housing today, people have gone back to the basics. They're living where they want to live for their life. And if they need a home, they're choosing whether to own or buy based on the financial decision that's correct. That's a big difference from the 2000s where everyone viewed housing as a get-rich

quick scheme. People now know the reality. Yes. No, it's a great point. We're going to have to leave the conversation there. I think a lot of homeowners can relate, and that's why a lot of people like to rent. They don't like to do all those fixes. Alexander, thank you for your time. Alexander Goldfarb. We have a split tea, Brian. Make a good. They call it a split teas? I don't have a banana

split teas. All right, further ahead on the show, a recipe for recycling. Whatever that is. Take a look at one company that uses a massive database to track ingredients and products and grocery stores to help Seema reduce waste. Brian, changing the family off

space, the second richest billionaire under 40, creating a new model for the investing world. Why can't he be first? Why can't he be number one? Come on. Welcome back to power lunch. Take a look at travel and hospitality stocks, mostly higher today after President Biden yesterday on 60 Minutes said or declared that the pandemic was over. Airlines, casino names, also trading in positive territory. But on the downside, vaccine makers moderna, biotech, both down more than 8% at this hour. Those comments making moves in the market. But let's get to Bertha Coombs for a CNBC news update.

Hi, Bertha. Hi, Seema. Here's what's happening at this hour. Queen Elizabeth's coffin is now in the vaults below St. George's Chapel. At the end of her committal service, before her coffin was lowered, the Queen's crown, orb, and scepter were removed. King Charles then placed the banner of the Queen's Guard on the coffin. private burial with members of the royal family attending is set to begin soon. And an American who had been held hostage in Afghanistan since 2020 is now free.

Navy veteran Mark Freericks, his release came in an exchange for a convicted Taliban drug lord jailed in the U.S. Secretary of State Antonin Blinken says Freerick's freedom is the result of months of work by U.S. officials. And while Puerto Rico is still dealing with the flooding and black, Backouts from Hurricane Fiona. Heavy rains in California are also threatening power outages and mudslides there. But the storm is also helping contained wildfires across the state. No growth was reported for the mosquito fire near Sacramento. That allowed some evacuation orders to be lifted or downgraded.

Crazy weather out there. Yeah, from record heat to rainstorms, it's just extreme weather in California. It's extreme weather all the time. I grew up in California. took out our yard in 1984 because it was so dry. The grass wouldn't grow. We put in green lava rocks. And I learned something important, which is don't fall on green lava rocks. They're really sharp. That sounds painful. It was painful. Yeah. There you go. Which, I'm looking at this camera. Cool.

Ahead on Power Lunch. We're going to continue to look at the weight of rates on the market. First, crypto fall into its lowest level in three months, why rates are hurting the digital currency as well. Plus, in today's three stock lunch, we'll take a look at some defensive names that and hold up in a rising rate environment. We want, right? Defensive name, Seema, in a rising rate. Let's get defensive. Let's do it.

Don't tell me what you do. We're back after this. Where is you? All right, welcome back. 90 minutes left in the trading day. I want to get you caught up on the markets. We got stocks. We got bonds.

We got commodities. We got crypto. What do you want? We got it. All right. They're all getting hit, by the way, by rates. Let's begin with Bobazzani at the New York Stock Exchange. Okay, stocks, yeah, they're not moving a whole lot.

Because I was saying, Bob, I mean, you're there. Please, if I'm wrong, say, Sully, I love you. because I know you do, but you're wrong. I mean, is anybody going to take a massive position ahead of the Federal Reserve in the next couple days? No, but we have decent volume considering. So the low print was at the open. Everybody you wanted to sell it looked like sold right at the open,

and we lifted literally right after the open. So 3869 right now, we're basically flat on the day. Remember, we hit the lowest level since Friday, right at the open. So we held the recent low levels. Yes, people are watching technical. So we're at the lowest level since mid-July. at this point. So I think it's important that we held. In terms of movers here, it's sort of a hodgepodge of different groups. The key one to watch, of course, is FedEx here. We're two-year

low on Friday. The transports were at, what, an 18-month low? That's bouncing, but only very modestly. And some of the other transports are bouncing. The airlines are doing a little bit better. Some of the materials, Freeport-Mack brands having a good day, mosaics having a good day. As we mentioned earlier, Pulte's up. We had an upgrade over a key bank. We just saw the analysts on our air. Hope you were watching that. Finally, the downside, Seema was mentioning a few of the pharma and biotech. President Biden said the pandemic was over yesterday on 60 minutes, really, Moderna, Pfizer, BioNTech, which trades here, all notably weaker on that. Finally, you know, Brian, you wanted a sense of how unhappy people are.

We're back to May and June despair over the idea that because FedEx made these terrible comments, all of a sudden the earnings are going to fall apart. So Michael Hartnett had the big comment over Friday night. He said, look, right now I would nibble at 3,600, I'd bite at 3,300, and gorge at 3,000. We're 3,800 and change. So this gives you an idea, Brian, of how pessimistic the street is. This is actually sort of the consensus right now. There's a lot of people circling around the 3,200, 3,300 level of some kind of bottom here.

Brian, back to you. Yeah, I mean, you see those farmer stocks, Bob. I think the president broke some news last night. When you say the pandemic's over, he said it twice, and yet you're at the same time trying to get people to take a new vaccine. that's what happens to the stock, I think. Exactly. All right. Bob, thank you.

I think he broke some news to a lot of people last night. All right. Now to the bond market where rates are once again rising. No surprise there. And some of the stats, I mean, they really are eye-popping. A 10-year yield crossing 3.5%. That's the highest level in 11 years. On the shorter end, it's even more so.

The two-year hitting another 15-year high and just a few basis points shy of 4%, a 4% two-year. Wow. All right. It says Brian Walk. Oil closing for the day. A big intraday turnaround after hitting 80210 per barrel this morning. It dropped. Crude oil rebounding back above $85 per barrel there as well. Of course, a lot of forces of play. We had a huge SPR release again last week. Nearly a million barrels a day every day last week. I mean, they have just been selling, selling, selling from the SPR. But that's going to be coming to an end. Really the first week of November is when it's scheduled to end. A lot of talk about. but also the Saudis in OPEC defending at $80 to $90 range. All right. Now, let's talk about Bitcoin. All right?

You heard people in this very fine network say for a long time that Bitcoin was supposed to be an inflation hedge, right? But it hasn't really played out that way. Bitcoin briefly falling below $19,000 a day. It's the lowest level in three months. So is it higher rates? Is it something else? Kate Rooney knows, and she's here to tell us.

Kate, what's going on? Hey, Ryan, you're right. Bitcoin was really creating. to be digital gold, the safe haven asset, and separate from traditional finance. Really not the case right now as cryptocurrencies become more mainstream. They're sitting in portfolios as the ultimate risk asset and getting sold off the hardest. As Wall Street flees some of the riskier high-growth trades. And with rates going up, you've been talking about that today.

It's all about those safe havens, physical gold, treasuries, the U.S. dollar and Bitcoin has been trading in the opposite direction of those. Take Bitcoin versus the U.S. dollar, for example, there's been a strong inverse correlation there this year with the dollar at a multi-decade highs Bitcoin going in the opposite direction. Analyst, I'm talking to say global macro news is the only narrative right now that matters for crypto. It's driving prices and it's outweighing any positive industry news. A great example of this, guys, the merge. We talked about that on crypto night, Brian.

It was this highly anticipated software upgrade for Ethereum. investors had poured into that trade ahead of time, but it came the same day as the inflation number, the CPI number, which really took the wind out of ether's rally. It's now down about 20% since the merge. Also an example of the old concept, by the rumor, sell the news. Tom Lee's Fundstratt among those firms that are bullish on crypto long term, but they're recommending some downside protection in the coming weeks with these Fed jitters going on. That's usually done through options, put options tend to be those bearish bets. There's also an easier way to bet against crypto, inverse ETF, and it's doing pretty well in the last couple of months, up about 15% or so in the past

few months. Back to you, Brian. Yeah, by the rumor, sell the news or whatever it might be. And I saw your fantastic interview. I didn't watch, what was it, like three hours long, I admit, I didn't watch the entire thing with Sam Bankman-Fried. But it feels like there's some kind of, I don't want to say backstop to Bitcoin itself, but it's been kind of sits at 19 and kind of holds that. I feel like there's some defense force out there protecting the blind side in a football analogy. Yeah, exactly. Well, the Sam Begman-Fried interview is competing with the NFL this Sunday, so you have an excuse for not watching the whole thing. But that's a great point, Brian. So as more institutional money comes in, it's been seen as sort of a bottom, that if Bitcoin goes

low enough, there's a thought that some of the whales or larger investors will come in and support the price. And we have seen it just languish. It's really been between. $19,000 and $23,000. So Bitcoin versus the other cryptocurrencies out there is actually seen as a safe haven. If you look at crypto as a whole, it has been a lot more steady, less volatile than things like Ethereum or even smaller coins. So there is sort of a downside protection built in that Fund Stratt and others have called out, but not a lot of momentum to the upside, which has been a pretty big issue for Bitcoin to really regain that momentum. Not a lot of retail buyers, There's not a lot of positive momentum or bullish news out there.

Bitcoin down 2% today. But it is holding on to that $19,000 level. Kate, thank you. Kate Rooney on the crypto beat. Coming up on the show, today's clean starts, the big money behind one company that is using massive amounts of data to reduce waste. And before the break, we're celebrating Hispanic Heritage Month,

featuring our CBC colleagues and contributors. Here's Zoe Financial founder, Andres, Garcia Amaya. I came to the United States from Columbia when I was 12 years old. My heritage had a huge impact in my success, and you don't have to look that far than the company that I started is Zoe Financial. My parents were looking to hire a financial advisor. The concept of hiring someone and entrusting them with your money outside of the family is a big deal. So I interviewed a number of advisors and kind of gave me this idea of like, well, maybe there's millions of

other families that have a tough time finding someone that they could trust with their money. So it had a huge impact in my career. Welcome to Power Launch. Time now for some trash talk. Food, plastics, toxic chemicals when they're thrown away, they become big climate offenders. From all the methane they emit in landfills to the fuel used to get them there. So how do you reduce your emissions? Our senior climate correspondent Diana Oleg has that in her latest clean start, Diana. Well, Seema, one of the reasons companies produce so much waste is that they don't always know exactly what's in the products they're throwing out.

What can be recycled or repurposed. That's where a startup called Smarter Sorting comes in. We have a huge data set, over 456 billion data points on what products actually are, their physical and chemical attributes. And Smarter Sorting uses all that data to help retailers and brands increase sustainability and reduce waste. while complying with increasing regulations on waste disposal. So when you can use math and data to determine what a product is and if it's actually toxic, then you can handle it in a lighter footprint way through the supply chain and at the end of life. Whether it's food, chemicals, plastics, product packaging. Will this blow up? Is that toxic?

Smarter sorting those. It can identify every ingredient so it can inform a company specifically how to better dispose of it, recycle it, or perhaps in the case of food, donate it to a food bank. Albertsons, Costco, and Wegmans are all clients. It's just one step toward, if not zero waste, at least a reduced waste future. By having all the data digitized, we're able to make informed decisions and speedy decisions that really proves efficiencies. Republic Services is one of the largest environmental waste services company in the U.S. and a partner with smarter sorting.

By reducing the amount of waste we have to pick up, we're reducing our carbon footprint because we're fewer miles on the road, less material to landfills. Smarter sorting's backers include Regeneration VC and G2 venture partners. Total funding so far, just over $55 million. The company continues to grow. its database of ingredients in products daily. This really helps its clients figure out the best and most environmentally friendly way to dispose of or repurpose their waste. Without it, companies tend to take the cheapest alternative, which is to burn it, and that is, of course, the worst

thing possible for the planet. Yeah, wouldn't it be more expensive than just throwing it out, Diana? Well, to use smarter sorting, of course, there's a cost. That's how they make money. But if you compare that to what they're doing on the loading docks, having the manpower to have to sort through all of these many products and have trucks idling and waiting. You have to weigh those costs against each other. Makes sense. Diana, thank you. All right, still to come here on Power Lunch,

finding the best defense. Today's three-stock lunch runs through some names that could protect your portfolio in a, you guessed it, rising rate environment. Is that what we're in? Is that happening? We're back after this. Welcome back.

Market volatility and rising rates are front of mind ahead of this week's Fed decision. So we're looking at some stocks. Our next guest calls defensive plays in today's three stock lunch, Berkshire Hathaway, Wells Fargo, and Starbucks. That's what's on the plate. Let's welcome in Bill Stone. He's chief investment officer at Glenview Trust Company. Bill, let's kick things off with Berkshire Hathaway. Why do you like the stock?

Well, I mean, when we talk about defensive, you can't get much better than this, right? So I'm coming to you not far from Fort Knox, and Berkshire has a Fort Knox balance sheet. You know, certainly the two, you know, with Buffett and Munger, two best capital allocators really of all time. So it can take advantage of tough times. I think the other part to remember is Berkshire at its heart as an insurance company. And insurance companies have this float, which is just really the money that they get to invest while they're waiting to pay out claims. And if yields are going up, they make more money on that float. I think the last thing is valuation.

Typically, even Berkshire, it starts repurchasing shares somewhere between 1.2 and 1.3 times book value. It's currently gotten back down to about 1.3 times book. So I think there's some support here as well. All right. Next up is Wells Fargo, a slightly more affordable stock than Berkshire Hathaway, Bill. True. And not very beloved, unfortunately, you know, as much as Berkshire's beloved, Wells Fargo is probably doesn't bring those warm and fuzzy, but they have a great franchise. So, you know, great deposit

base. They've had some regulatory issues, so they're constrained from growing assets. But that being said, while they're constrained, they've been working on the expense side. They also, in terms of large-cap banks, are one with some of the highest leverage to higher yield. So we talked about, this was partly talking about defense against higher yields. And their earnings generally benefit one of the larger ones to benefit from those higher yields. final name Starbucks with a new CEO coming in. Yeah, and I'm going to say this is kind of a defense by offense. So one is it kind of takes it away from so much the U.S.

Because a lot of what's kind of bedeviled Starbucks has been China. China is really one of their big growth engines. And with all the COVID shutdowns there, that's crimped their growth over there. That eventually will end. I mean, I would have hoped it ended before, obviously. And I'm sure they did it as well. But eventually that'll come through. and it's unrelated to kind of our interest rates.

But even that aside, they've got the new CEOs you mentioned that's going to be starting. They're investing in really what is the new business, which is all people taking away coffee, not sitting at Starbucks drinking it, and also just more efficiency to get you in and out of their quicker and make it to the probably, in reality, they don't have to have quite as many workers. But I think it is a growth engine. I think the last thing I'll mention is they have had no problem passing along price increases and that's important. Bill, just a quick thought on the broader markets here, seeing an intraday reversal in the Dow. We're now down about 60 points. Do you think this is

just some nervousness ahead of the Fed decision, or is there more to it? I mean, I think one of the good things is, you know, a full 75 basis points is priced into the Fed. I personally don't think they go beyond that. So we've kind of digested what I'll argue is a lot of the bad news from the inflation side. You know, plus we were pushing, we're close to 20% off the highs now. So that is historic, at least been a decent bounce. You know, in the long run, it's always been a buying opportunity. But at least in the short run, you know, we might at least get a little bounce here. Bill, thank you. Dow down 30 points. Bill Stone. Thank you. All right. Up next, a rare interview with billionaire family office manager, Sam Walt.

We're going to look at his new model for investing. Lucas Wolfe. Yeah. Sam is no longer with it. Right. I think you're right. All right, welcome back. For many investors, making money just is not enough. You want to do good with that money as well. It's often more important. I mean, if you're really rich, like family offices, which don't have to promise investors a certain return. Robert Frank now with the story of one young billionaire, a second richest person under 40 after Mark Zuckerberg. Well, Brian, there's a recent survey found that half of family offices plan to increase their sustainable vesting over the next three years. years and it's being driven largely by that next generation of investors. Lucas Walton, he's the grandson of Sam Walton, has created Builders' vision. That is kind of a super store for impact investing.

He's got over $4 billion in capital. Now, most family offices, they make money on one side, and they give it away on the other. Lucas Walton has decided to tie it all together to fund solutions to the food supply, clean oceans, and the energy transition. What we're doing here is challenging. And I just start with that every day. We're trying to tie together cultures from philanthropy, from impact investment, and from venture capitalists, right? Not to mention public markets and equity managers.

And that's three different cultures right there. Challenging but successful. He was an early investor in Sweet Green and Beyond Meat. His VC fund is now in the top quartile of return. So they are doing very well as investors here, guys. Today, Builders Vision announcing that a billion dollars in their charitable foundation is now 90% invested in impact investments. That's about five times the average for a typical endowment.

You can read the entire interview on CNBC Pro. Guys, this is the first time that Lucas Walton has given an in-depth interview. So it's certainly worth checking out on CNBC Pro. guys what was it like what was you like personally really humble like he you know he grew up went to college in Colorado stuttered environmental science he wears Teva's and jeans spends most of his time on urban farms or Alaskan fisheries really interesting guy only 36 so he's really just getting started but with 22 billion dollars he's got a long runway Robert thank you appreciate it such a pleasure to do this with you Brian Sullivan my pleasure

yeah it is Thank you.