Power Lunch - Risk of recession, a bargain hunter’s holiday and value plays. 11/17/22

Episode Date: November 17, 2022

A Fed officials suggest substantial rate hikes may still be needed. Has the market fully priced in a risk of recession? Plus, will this be a holiday season for bargain hunters? And two stocks that could provide good value in this market. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome everybody to Power Lunch where we charge a lot less than a ticket to a Taylor Swift console. I'm Tyler Matheson, along with Contessa Brewer. Here's what's ahead. Not backing down, a Fed official says the inflation fight is far from over. The benchmark rate may have to go a lot higher than previously thought. Is the risk of recession rising and is it priced into the market? Plus, a bargain hunter's holiday or will consumers pay up for high-end items? We will see where the money is expected to flow in retail and which stocks. could come out winners, Contessa. Tyler, stocks are way off the lows of the session. The Dow right now in the green just barely, but it's hanging on in there where it had been down

314 points at the low. The S&P right now is still off a quarter of a percentage point and the NASDAQ composite off a tenth of a percentage point. Stocks really pressured here by rising yields. The yield on the two-year trading at about 4.46 percent. And oil prices faltering down more than 4% closing in here on $80.806 right now, down more than 30% from the June highs. Tyler. Contessa, thank you very much.

The Fed rate hikes are having only limited impact on inflation so far. This according to James Bullard, he spooked the markets today by suggesting the worst-case scenario where the Fed hikes rates to as high as, sit down for this, 7%. rising rates are already slamming the housing market, of course. Builders starting to pull back earning season. Well, we're hearing a lot about the impact of inflation and those rising rates. Let's get into all of that with our team of reporters right now, led by Steve Leasman, then Diana Oleg, Mike Santoli, Steve, we begin with you. James Bullard once again, he's not afraid to speak his mind. No, he's not. And he did say that he warned today that his models that he's been using show the Fed funds rate could need to rise as high as 7%. to bring down inflation.

Put a bit of cold water on those investors hoping for an early end to rate hikes. And he said the current funds rate of 375 to 4% is not, quote, sufficiently restrictive to cool the economy and bring down inflation. Here's the chart that he put out under Dovish assumptions in his model. Bullard said the funds rate could potentially stop

around 5%, but under more Hawker's assumptions could go as high as 7%. He seemed to like somewhere in the middle in a conversation you have with reporters later. His comments lead to higher treasury yields markets and a rise in the estimate for the peak funds rate in June 2023 above 5 percent. You can see once again. We'll see where new Boston Fed President, Susan Collins, stands on all this.

I'm going to talk to her exclusively to me tomorrow on Squawk on the Street at 10 a.m. And then Katessa, back to you. All right. Thank you for that, Steve. Well, Bullard says rates may have to rise further from here, but where they are right now has been enough to slow down the housing market. Let's go to Diana Ollick for that piece of the store. Diana. Yeah, Contessa, and you have to look no farther than the home builders after the big drop in builder's sentiment we saw yesterday today. It was single family housing starts and building permits. They're now down to the lowest level since May of 2020 when everything ground to a halt at the start of the pandemic. And it's all, of course, because of rising mortgage rates, not to mention inflation in home prices. Mortgage rates dropped back a little bit last week on that better than expected CPI number, but they're pushing back higher again this week. And that, of course, has builders having to drop prices.

and push incentives. And there was a big jump in those incentives just this month. All of that has the home builder stocks having their worst weekend a while since September. In fact, the ITB, which is the home building ETF, is down now about 3.5% on the day. So not a great picture for the stocks, Tyler. All right, Diana, thanks very much. And if you want to know how the economy is doing, just check out earnings. Why don't you?

The reports to see what big companies are saying. And Mike Santelli has been following all of that for us. Amidst all of this, amidst rising rates, high inflation, a midterm election, we've got a lot of earnings reports. Tell us where we stand, Mike. Well, Tyler, at the very broadest level, the top line of the economy is still growing pretty robustly. In fact, 10 or 11 percent sales growth across the S&P 500 shows you that with 9 percent growth just among retailers. So it does tell you that revenues are not scarce right now. The problem is a lot of that reflects inflation, not real growth.

of it, but a lot of it. A lot of the commentary, especially from consumer goods and retail CEOs, are that consumers might be getting at their limits of their ability to tolerate and absorb those price increases, so they're not betting on too many more to come. Therefore, the focus turns to cost cutting, preserving margins, working down inventories, and preparing, perhaps for this economic slowdown that is broadly anticipated, but isn't really showing up just yet in the overall numbers aside from some areas in housing. Services over good. goods has been a theme as well. And capital spending has really remained pretty resilient, and therefore industrials have done fairly well. People feel as if you have to invest to sort of

make things domestically as the supply chains have been tested. Turn back to Steve. Thank you, Mike. Let me turn back to Steve. Leesman with a question. How out of the mainstream, Steve, is President Bullard when he says seven plus percent maybe the terminal rate for Fed funds? My sense is that most of the consensus on the Fed is somewhere in the four and three quarters to five and a quarter area. You're right. For the median dot or for the, what do they call it, the modal outlook, the most likely outlook, that is true, that most Fed officials are in that 5, 4.6%, I think. And by the way, let's be clear, Powell in the last Fed press conference said that the peak funds rate higher than estimated in September.

We'll get another look in December at where they stand. But here's a thing. Bullard wasn't giving you that modal outlook. He was giving you a range that said if I put these assumptions in or these assumptions in, I get five. If I do another one, I get seven. So, his up around, you know, Tyler, I don't think he's saying it's going to be 7%.

Gotcha. I think he's saying, look out. This is a possibility. Okay. Good to clear that, clear that up because I would have walked away thing. He's saying it's going to 7%. But in truth, he's saying that would be the sort of upper bound of a range of possibilities. Upper bound, exactly.

Okay. So if that's a range and that's a worst case scenario, Mike, how much of this is the market already factoring in? There. And nor would you expect it to be to go to the sort of the furthest extent of where short rates might go. The market has roughly priced in that kind of broad consensus outlook that the Fed has conveyed to us, right? the Fed funds rate getting up toward 5%. Really what's weighing on equity sentiment is the fact that longer term treasury yields

are much lower than the short term one. So what that reflects to some degree is the rising perceived risk that the Fed will have to engineer a slowdown, a recession, something that will not only undercut inflation, but also really erode the growth outlook. And so I don't think necessarily that the market's adjustment has to happen

in terms of where short rates go, as we can foresee them over the next. sub-vermont. It's much more about what is the effect of that policy beyond that point. Diana, where do rising rates pinch the most in terms of home buyers? Well, they pinch the most in affordability, of course, because home prices were already inflated up 41 percent since the start of the pandemic. That is 10 times the historical home appreciation rate. So when you have prices up for the homes that high, even as they start to come back a little bit and they're coming back very slowly,

it's that higher interest rate because everybody buys a home to look at the monthly payment. You don't buy the price, you buy the payment. And with that monthly payment significantly higher and adding to those costs, that's what causing buyers to pull back. Now, as we see prices start to come down,

you would think that buyers would say, okay, I'm going to get in now, but then there's always that fear of weight if I buy now and prices come down even further, then I'm losing money immediately. It's like walking off a car lot, and your car suddenly is worth less. That's not supposed to happen with houses. So that's another fear that's keeping buyers on the

sidelines. I'm just, I'm just curious, though, and you've been looking at the real estate market for a long time, Diana. You know, I remember my parents paying a ridiculously high mortgage rate that I never encountered. When it came time for me to buy a home, I was looking at rates around 5%. Right. And that's what most people in their memories have. It's that 3% range over the last two years or 5% when you bought. But look, I bought it. when it was 9%. But home prices were not this high. But we didn't see a frozen housing market for decades. People just got used to the idea that you were going to pay a higher mortgage interest rate,

whatever the house cost. Because the monthly payment was lower. And that's even if the mortgage rate was higher, home prices were not so high that that monthly rate was not so high. Back in the 1980s, when mortgage rates jumped up to 18%, you did see the housing market freeze. But over the past, you were able to deal with 5, 6, 7, even 9% mortgage rates because the price of a home was lower. So then that monthly payment was lower. And now that rate is what?

6.6% did I just see? Yeah, we were over 7%. Now we're at around 6.65%. It did drop back last week. But again, it is more than twice where we were at the start of this year. All right, Diana, thank you for that. Steve, Mike. I really appreciate the conversation.

What does this say about the state of the economy and the risk of recession here? Let's bring in Bill Lee, chief economist at the Milken Institute for more. Bill. How fast, how high, and for how long do these rates keep rising? Contessa, those are the main questions that Chair Powell wants to focus on. Where's the rate going and how long we're going to have to keep it up there? And the message from the Fed has always been since Jackson Hole, the tune is we're bringing inflation back to 2%. And every speaker that we've had so far has had a different variation, different tempo, focus on different exit notes, but they all are saying the same thing.

Don't expect a pause until we see inflation come back, and that may require that the unemployment rate goes up to beyond 5%. So that's the kind of unemployment hit that the Fed is trying to prevent by being credible and having people believe they're serious about this. And if people are serious about this, that means that they should stop spending. And rather than being laid off to stop spending, they should anticipate the Fed is going to be serious

and keep conditions very tight until we see 2.5. percent inflation. Well, I mean, that's hard advice for all of America to say, hey, if you don't stop your spending, stop going to Las Vegas, stop rolling the dice, that you're going to start seeing these rates go even higher. How much of this is also pressure on the Fed bill? Because they see what happens with the markets. Every time there's an indication that inflation is declining just a bit or softening just a bit or the rate is coming down, just a hint. You see the market rallying. is there sort of a parent's prerogative to say, no, I told you I was going to do this, and now I've got to stick to my word.

And that's one of the difficulties of modern monetary policy is that the Fed has become much more transparent, and the market absolutely refuses to believe the Fed will take on the cost of 5% unemployment rates. And so every time there's a turn in the numbers or we get a good CPI number, the markets are complaining, oh, my God, there's no way that the Fed is going to be raising rates, and they're going to pivot. and that pivot talk has made the Fed policy making so much harder. And in some ways, I think President Bullard has really put a high note out there and said,

look, if you don't cut this out and believe us in our main tune of bringing back 2% inflation, we may have to raise rates as high as 7%. And I think that's the message that is supposed to shock the markets into believing we are serious. We're not going to pivot until we see 2%. Do you wish the Fed and its policy makers would talk less? Well, I wish they would be clear in how they talk. I think the fact that some people have said, well, we need to take into account the cumulative tightening. We have to take into account policy lags.

The markets clearly are interpreting that as a sign of a potential pivot. And I think the speech writers at the Fed have to be aware of that and ease up on use of these terms that imply pivot or at least qualify them very clearly and say, we're not going to do it now. We may do it, but not now. I think of inflation. Have you seen these things called lantern flies, Bill? Do you know what I'm talking about? The lantern flies?

The very invasive species. And you try, you see them there, and they're a very beautiful animal. I think of them as like inflation. You try and step on them, but they're very fast. They get away from you. But when you step on them, you better crush that son of a gun. because if you don't, they're going to get away. That's what I think.

I think the Fed sees inflation as a lantern fly, and they're going to step on it, and they're going to keep grinding their foot in. Beautiful, but in a beautiful, it's a beautiful, beautiful, invasive species. A beautiful metaphor, Tyler, a beautiful metaphor. And I think the fact that we have so many lantern flies now

is because the Fed got bit by these flies during the transitory talk period. And the transitory talk really has hurt the Fed credibility. And I think right now they're trying to rebuild it by saying, forget about pivot until we see a clear path to 2%. Bill, do we have insidious optimism to go along with insidious inflation? I mean, if you're looking at the market and we've been through this, nothing is going to keep us down. We're going to just keep the little engine that chugs away. Do you think that this market participants and the nation at large, the willingness to spend,

even though we may be facing recession, is it just a major? American optimism at work? I think it's also a failure of reporting on what the condition of the American economy is. Everyone's talking about how we have trillions of dollars worth of savings that potentially consumers can spend. Well, you know, those trillions of dollars belong to the upper half of the consumers. The lower half are pulling credit card debt. They're pulling up, you know, they're getting second jobs.

They're barely making ends meet. And I think the bimodal economy is something we haven't focused on enough. There's a lot of suffering out there. But somehow this notion that American consumers are going to spend because they have so much savings is a misnomer. And I think that's the image that we have to get rid of because that's what the market is feeding on. The market is feeding on that notion that, my God, that strong consumer is going to keep inflation up. Well, it's only some consumers that are doing that. And other consumers are being killed.

Yeah, it's a great point. And anybody who walks through a major American city right now can see the other side of this and see where the other half is living. and he raised an interesting point, Bill. Thank you. Thanks for having me. All right, coming up, we are following the money this holiday season. Will the dollars flow into luxury or the discounters? We've got the bulkcase for both of them, plus hunting for value.

A veteran investor found two names that have been clobbered with strong cash flows that he says are worth owning right now. He will name them in just a few minutes time. But as we head to a break, take a look at the shares of Alibaba, which are hired despite a mixed earnings report the company beat on the bottom line, but saw its cloud services revenue grow at its slowest pace on record. More power lunch in two minutes. That stock up 7 percent, however.

All right, the closer we get to the holidays, the more questions emerge about the consumer. Some retailers say they expect spending to be strong. Others see cracks. So where will the money be spent on luxury brands like Burberry, Tapestry, or will shoppers look for bargains at places like BJ's dollar tree, Costco, and more? Here to discuss the outlook for spending is Oliver Chen, analyst at Cowan and Columbia Business School Professor, and Scott Mushkin. He's an analyst at R5 Capital.

Gentlemen, welcome. Oliver, let me start with you. You see a bright sky ahead for the luxury retailers, the tapestries, the others. Why? Yeah, we are excited, Tyler. Great to be here. happy holidays. Luxury is well positioned to continue to win on pricing, power brands. People are going out again. And these brands are achieving pricing gains, and people love it. People

do want magic in their lives. They want handbags and they want fashion. It makes them feel great, and there's lots of great innovation. Our top idea is LVMH, Louis Vuitton. It's a 350 billion market cap company. They spend $7 billion on advertising and marketing. A U.S. brands spend between 300 to 500 on marketing. So that's an idea that we really like. And consumers are bifurcated. They're really buying luxury and they like luxury and we're getting pricing. And they're also looking for extreme value. You know, I'm a big jewelry shopper at Costco and I buy caviar at Costco. That actually has 50% of their customers are above 100K there too. So don't count that out as an idea as well. So you count Costco as as part of the luxury sort of category?

I think Costco has an amazing premise, and all people love value, and Costco's a really fun treasure hunt. They are one of the biggest fine wine importers. They're also one of the biggest diamond retailers, and their quality is second to none, and they have a fixed margin. So you're getting a great deal no matter what. It's a member's only model. Very well thought of merchandising organization, premium jewelry. Darling, I got it at Costco. I was going to say he bought it at Costco.

doesn't have quite the same ring to it, doesn't it? You know, Tiffany's part of LVMH and diamonds are our girls' best friend. So really thinking about value and this treasure hunt, I like them both. Well, Scott, let's talk about the, I mean, in our, I love our headline on this story, Bougie versus Bargain. Are you more of a fan for bargains going into the holiday season? Yeah, I mean, I think, by the costco is one of the best retailers out there. And so, you know, they'll probably have a decent holiday. I think the challenge you have right now, and I think your last guest was talking about,

is the bifurcation that's going on in the economy. I mean, necessities of life are up so much. You know, we do a lot of field research, whether for our consulting clients for research. And, you know, the government is saying food at homes up 12, 13 percent. We're tracking up 20 in some markets. We all know what's going on with some of the utilities, and that's pretty enormous pressure,

particularly on that lower to middle income consumer. So we definitely think like the Walmarts of the world are going to do well during the holidays and other people will struggle. As you get up the income, as Oliver was talking, you know, that's almost a whole different stratosphere. But we do think there are going to be cracks there, too. I mean, we're not optimistic about retail generally. Walking stores with a client of ours, a consulting client of ours last week and

retail runs a retailer and they still can't find labor. Lowe's, you know, saying they're going to raise labor and, you know, look what the Fed is doing. We're likely if history is a guide to push into recession mid to late 2023, and that's just not good for retail. I see on your by list that you have names like Whole Earth brands, sprouts, farmers, natural grocers. When I look at those kind of names, I think, well, those are splurges. in that particular segment, that if you are going to a natural food store and you're willing

to pay a premium for organic or whatever, you're still choosing luxury. Do you think that that's likely to change as we head maybe closer to recession? Yeah, we'll hear from natural groceries today's small cap name based out of Colorado. We were a little bit more cautious on that because of exactly what you're saying. You know, sprouts, we think it's more of a discount. We think there's a lot of work to do with that company. We like how they're running their stores. We think there's an opportunity for them to improve how they go to the consumer. So I'd say it's more of a special situation, special situation rather than, you know, everything is going right for them. But you've got to watch the consumer. There's no doubt about it. We've gotten a lot more cautious on the

food at home sector, especially after what Walmart said on their call about, you know, we could be deflationary. We're a little tight on time, but I notice that both of you have in your coverage versus Target. Oliver, I'll give you the last word here. What happened with Target? And is it a one-off or something deeper? Target had a really tough time. The back half October was very difficult with softer consumer. So what we're hopeful is that they've done a good job further flushing out inventories, offering tons of great value in promotions. And that should be helpful going forward. However, Scott's right. There's so many cross currents right now in October. The slowing traffic is something we're watching a lot. And we're expecting a very promotional holiday season. So shoppers

will get great bargains. What people are doing is waiting. People are waiting to get better bargains. And that's something we're paying attention to. And inventory levels are higher. Last year, we had trouble getting leggings. We had trouble getting necklaces. This year, there's plenty to go around. So we'll see. But handbags are it. Beauty is it. Luxury still lives. You do have to be selective. Now, Oliver has just given you your Christmas shopping. world is grateful that I had trouble getting leggings last year. Oliver, Scott, thank you very much, gentlemen. I'm sure we'll see you before the holiday season is over. Meantime, happy Thanksgiving to both of you. Thank you. Happy holidays. Happy Thanksgiving you too. Thanks. Coming up, the new CEO of

FTX is not mincing words. He calls the company's situation and the former leadership, a complete failure. We'll have more on that next. Plus, further ahead. One startup, the grass is definitely greener. Today's clean start diving into a company making electric self-driving lawnmowers. And we'll be right back. Welcome back to Power Lunch. Some stark new words out today from the new CEO of FTX, John Ray, who was appointed to help oversee the company's bankruptcy. In a federal filing today, the CEO said, never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information has occurred here. from compromised systems integrity and faulty regulatory oversight abroad to the concentration of control

in the hands of a very small group of, and again, I'm quoting, inexperienced, unsophisticated, and potentially compromised individuals, this situation is unprecedented. Well, for reference, John Ray helped oversee some of the biggest bankruptcies ever, including Enron's. Tyler? That's going to take years to untangle. What a mess. All right, let's toss over to Brian Sullivan. CNBC News Update. Hi, Brian.

Yeah, hey, Tyler and Contessa, this could be a mess in Buffalo. All right, winter starting with a vengeance. Parts of Pennsylvania and New York are about to get crushed with snow. Buffalo may get up to five feet beginning tonight. A state of emergency has been declared in 11 counties. In Arizona, defeated Republican Kerry Lake has refused to concede the race for Arizona a governor says she's assembling lawyers and evidence of election irregularities, NBC News, and others have called the race for Democrat Katie Hobbs, with nearly all votes counted.

And a big win for fishermen and some Native American tribes in California. Regulators have approved the largest dam removal project ever. $500 million demolition project will take down four dams on a major river in California. Second biggest, by the way, opening up hundreds of miles of salmon habitat. The dam's hydroelectric power units are outdated and seen as no longer needed with other source of electricity available to return the river to its first free-flowing state in more than 100 years. Now, Contessa, I know you went to Syracuse. Five feet of snow for you was like spring. Yeah, yeah.

I mean, like that, I might go out wearing my high-heeled sandals, no problem. Just tunnel under it. Brian, thank you. All right. All right. Ahead on Power Lunge, hunting for value. We'll parse through this volatile market with Sarat Sethi to find. some names that are just too cheap to ignore, contests.

Plus, the consumer stocks are one such group experiencing pressure as per string's Titan will trade three key movers, Bath and Body Works, Macy's, and Netflix. Power Lunch will be right back. 90 minutes left in the trading day. We want to get you caught up on the markets on stocks and bonds and commodities and a little value hunting. Let's begin with the markets still lower after those hawkish comments from James Bullard. But we did get a sharp leg higher earlier this afternoon.

some attributing that spike to technicals. Only two sectors higher today. We have tech, health care, United Health and Merck and Amgen helping prevent the Dow from even bigger losses. And Alibaba higher, despite posting results that showed slower growth as China's strict COVID policies weighed on consumer spending. You can see it's up more than 6.5%. Hopes that those policies will be eased, maybe behind some of that stock gain today. Now to the bond market where rates are rising following hawkish confidence. comments from Fed presidents, especially James Bullard.

Rick Santelli is tracking the action for us. Hello, Rick. Hello, Contessa. And all you need to do is look at a two-year note, one of the shorter maturities to see how James Bullard's words affected the market. And definitely yields pushed higher. Now, maybe they would have been higher because yesterday was one of those days. There was so much short covering the Treasury complex, we saw yields drop rather dramatically.

But no matter how you slice it, he had a big effect. effect on the shorter maturities. But the further down the curve, you go to less of an effect it had, and if you look at an October 1st of HYG, and I picked a high-yield ETF for a good reason, when there's nervousness in the Treasury market, the high yield or less investment-grade quality securities usually deteriorate, which means you want to see the HYG go down for deterioration, up for less. Well, this chart doesn't look so bad, but when you open it up to 2008 and look at the effects of the credit crisis and what happened in March of 2020, you can really see that the HIG is not doing all that well, but it's trading in an orderly fashion. And finally, three

months to tens, everybody's preoccupied with yield curves and inversions. That particular two-week inversion is the 15 and a half year most inverted spend, although it's less inverted than yesterday. And in the final analysis, James Bullard's comments mean a lot to short maturities. And I'll give you example. If you look at the normal yield curve, what you should see is a steep yield curve, where short maturities to long maturities, the rates keep going up. But what happens when the Fed starts to raise rates is the curve starts to flatten, and then ultimately, the shorter maturities do better and the long maturities do worse. And that's the dynamic driven by James Bullard's comments. Maybe you get a 7% Fed funds rate, but you might only have a 475-10 year.

Contessa, back to you. Rick, that was some pretty amazing use of television props. Well done. Thank you, sir. Oil closing deep in the red right now. Let's head to Pippa Stevens for those numbers. Hi, Pippa. Hey, Contessa, oil is tumbling today with demand destruction, the primary concern here. We've heard from Fed speakers, including Mary Daley, who said pausing is off the table.

And then we have China continuing to take aggressive measures to curb COVID cases. And both of these are demand destructive for oil. within the two largest economies in the world. Let's check on prices. WTI's down 4.7% at 8161. That front month contract, which does roll on Monday, got within less than 20 cents above the January contract. And that's the tightest since December 2021 and really illustrates this drop-off on the demand side. According to Mazuho's Bob Yeager, but he added that it's hard to believe the response given the upcoming December 5th deadline when the EU ban on Russian oil goes into effect. Now, natural gas is moving higher today after a smaller than expected storage build. Plus, colder temperatures expected for this weekend is also supporting

demand. Contessa? But thank you for that. Time now to go value hunting. We may be in the red today, but stocks have been on a nice upward trajectory the past month. Nine out of 11 sectors are in the green. The Dow's up more than 10 percent. So are there still names that you can pick up that look cheap? With us now is Sirrat. at the managing partner and portfolio manager at DCLA. He's also a CNBC contributor. It strikes me. Fidelity put out this note, Surratt, that says on average, 4-1K amounts have dropped 23% year-on-year. A lot of people, even those who are in it for the long term, have got to be looking right now for how do I make up some of what I've lost. Are there plays for them to consider?

Absolutely. And again, one of the things to just know is, even if you're a down this much, what you don't want to do is try and time the market and get out and say, I'm going to come back when it's lower. So we've been looking at a couple of stocks. So, for example, PayPal, PayPal is down over 50% this year. The growth rate of PayPal for the next year and going forward is 15% on its earnings. And the stock is trading it 18 times earnings. It is completely one of those stocks that has been put in the kind of bad basket because they've missed over the last three quarters their earnings estimates. And a lot of that had to do with kind of pull forward during COVID. A lot of that had to do with management, you know, having issues in terms of buying new customers.

But I think, you know, PayPal's got religion now, and they've got a couple new things that just happened. One is a partnership with Amazon using Venmo and then also with Apple Pay. So I think the company now is going to, you know, increase operating efficiency, grow earning 15%. And we haven't seen a multiple of 18 on PayPal. I don't think ever. stock is always traded in the 30s, 40s, and sometimes even higher. Let's move on to SVB financial and why you think that's a value. So, Tyler, Silicon Valley Bank is one of the stars out West. This company, a lot of venture capitalists and life sciences, early tech, use them to fund their

investments. Now, what happened was those companies are now using all the cash to fund their investments. at the same time, rates moved up so high, so the net interest margin hurt them much faster than they could. But this is one of those companies that's trading at 14 times earnings. They have such a huge space ahead of them. And now they're also in the wealth management and investment management business. So it's a really premier company that has been kind of correlated with tech, but they've really diversified their businesses. And I think, you know, you buy this stock here, you look at it, it's down over 60%. They don't have bad loans. They don't have credit quality.

It's just that a couple of things happened at the same time, and you had some growth investors who are in the stock that has now become a value stock and the rest of the financial wall is trying to kind of figure out what they really are. Yeah, I mean, I guess the diversification is they're lucky they did it because the deal activity out there is pretty, it's pretty sparse right now. The deal activity and also the exactly for the venture capitalists, for all the warrants that they had. So compared to where they were five years ago, they're a very different company. but they're being treated as if they're still the same type of company. And I think as the rate stabilized, they're going to make money off that interest margin, especially as more and more deposits come on and they have to lend at a much lower rate than they can kind of borrow out. All right.

Sarat, thank you very much. Have a good holiday, my friend. Sarat Setti. You too. All right, up next, we got gas and grass. Guzzlers, traditional lawnmowers emit as much CO2 each year as 900,000 cars. I'm feeling guilty. but one company has a solution.

Clean start is next. You hate mowing the lawn? Actually, I kind of like mowing the lawn, but let me tell you this. The environment probably hates it more than you might hate it. Gas-powered lawn mowers are just as bad as gas-powered cars. Yes, they are. And electric mowers so far haven't really stepped up.

Until now, Diana Oleg. Dan Oleg does everything here. She's on the real estate. She's on the clean beat. With us with a look now at a company empowering landscapers, literally in her continuing series on climate startups. Hi, Dai. Hi, Ty, and it's because real estate and climate are all connected. Now, gas-powered lawnmowers emit about 40 million metric tons of carbon a year. That's equal to 900,000 cars. But now a startup

called Scyth is making commercial-scale electric mowers that not only cut the carbon, but can run on their own. We enable the landscaping industry to transition from gas to electric mowers by using autonomy to sort of sneak that technology in and eliminate the emissions with a different business model. It's kind of like a Roomba for a lawn. Seith has built what it says is the first fully autonomous electric lawnmower that can run on its own for 8 to 11 hours at a time, depending on the grass length. If the person doesn't have to ride it the whole time, they can go off and do other work

and take better care of the outdoor spaces, which ultimately will lower the cost of maintaining outdoor spaces and help us cultivate more green space which cools our cities. Seith doesn't sell the mowers to landscapers but leases them so clients don't have to make a huge investment while the technology is still improving. The leasing model gives us the flexibility to measure it up against how we normally operate to move it up and down and to really work with it as we learn and develop the kind of the AI and the technology and work it into our operation. Scyth Robotics is backed by true ventures, inspired capital, Zieg Capital, and Lemnos. Total funding so far, $18.6 million. Now, so far, these are only commercial mowers for landscape

companies, but you can imagine the potential here for the consumer market. Morrison also says the recently passed Inflation Reduction Act gives tax breaks that will benefit the growth of his startups. Ty? So it knows where it's been before. In other words, it can see, see where it has cut? It can absolutely see what it has cut and it can see where it's going. And as you saw with the dog, it can be very careful. So if you see something in its path or if it sees something in its path, it will stop. And it's also run off an iPad.

So you can have the person who, you know, is the maintenance contractor there on the iPad kind of telling it where to go or it can follow a model that's already preloaded onto the iPad. So it's not, I guess it's not like powering or driving a drone. In other words, I don't have to sit there and steer it with a joystick. No. No. It knows. It knows. Diana, thank you.

There it goes. A Rumba for your loan. Really cool. Sign me up. That's pretty cool. Still to come, paramounting pressure. Paramount posting some solid subscriber numbers, and it's sending Netflix shares lower. We'll discuss further.

Today's three-stock lunch. Ten minutes to the top of the hour, and it's time for three-stock lunch. We're looking at some of today's big movers. Netflix, taking a pause. from its recent run-up after competitor Paramount said it saw its biggest sign-up day ever this weekend. And Macy soaring on the back of strong earnings. Bath and Body Works on pace for its best day since 2020 is earnings beat and the retailer raised its outlook. Let's bring in Delano Supporo, New Street Advisors founder and CEO and a CNBC contributor.

Delano, it's great to see you today. Let's start first with Netflix. I was under the impression that the later comers were struggling more, and yet Paramount seems to be gaining some steam. Yeah, no, the later comers are not struggling at all. They've been growing pretty rapidly. If you look at what Disney Plus is doing, if you look at what Paramount Plus is doing, Paramount is doing,

they're growing, and that is putting pressure, obviously, on Netflix. More variety is obviously not a good thing in the content space because you only have so much time in the day to watch content. And so with Netflix, you have increased competition, which has hurt the stock. But I do think if you look at where they're trying to penetrate internationally, I think that bodes well. They have high penetration in the U.S. and Canada. And they're looking at APEC. They look at EMEA for their growth.

And I think that's a strong thing for Netflix. And also the ad-supported tier, I think that will also vote well for the company. So still holding on, I think there's still positive trends for Netflix as they did have a strong quarter last quarter. But they don't have yellowstone. That's what I was going to ask. How much of this is Yellowstone, if at all? I know it's a Paramount property, but I don't know whether it's Paramount Plus. You know, I think it's a lot of things.

I think if you look at, you know, what a lot of other streaming companies have done with live sports, Netflix is stuck with the model. I'm just really documentaries. But a lot of other companies are going with live sports. I think that's another area where you see, especially Amazon Prime Video, draw in a lot of people. And that's, you know, going to put pressure on Netflix. Now, I think, you know, bringing content that I usually have a strong slate in that last

quarter, especially over the holidays, so I think that would bowl well for the company. You're positive on Macy's. That's our stock number two. Why? You know, the big thing here is, you know, on two fronts, inventory management and as well as the consumer health. And the big thing management said on earnings was they have increased inventory, so they're ready to meet demand, whatever that demand is in this coming quarter. So I think that's a strong sign for the company. Also, if you look at what the, you know, the national retail federation has as far as expectations for Q3, or excuse me, Q4. for retail sales. They're actually pretty strong. We've talked about the bifurcation of consumers.

We talked a little bit about, you know, if consumers are stronger, you know, we still have employment and all those different things. But, you know, people are still spending, whether it's cash or our credit. And that bodes well for a company that's ready to meet demand. And Macy's has done that, even though comparable sales were down, they actually had 31%, which is digital, which I think, is a strong sign. All right. Final name here, Bath and Body Works. Do you, what do you think of this? You know, this one, you know, is some good things and some other things about this company. It's kind of neutral. It had a pretty strong trading pattern today.

And I think it was, you know, pretty much, if you looked at what their earnings was, they still have a primarily a conscious consumer and demand is kind of going down. They've guided lower. So kind of surprising move with the stock here today kind of volatile. But, you know, I think they're going to be a situation where if they can meet demand and control inventory, it would vote well for the company. But the trading kind of interesting. You know, it's interesting because to me it's like a necessary luxury.

It's one of those things. It's one of those little things you can splurge on is higher-end hand soap or lotion. And for a lot of people, that feels like, all right, I can still indulge in luxury. Delano, thank you. Contestal, Tyler, thank you. All right, thank you. Up next, Taylor Swift, that's all you got to know. We'll be right back.

Taylor Swift is once again telling the world she's a music industry powerhouse. The pop superstar sold more than two million tickets on the first day of her tour's pre-sale. It's a record number, and it came in spite of the Ticketmaster glitches. They caused outrage among her fans and is sparking a lot of warnings from lawmakers. Ticketmaster has faced a lot of criticism about its influence in the entertainment industry. And Liberty Media CEO, which is Ticketmaster's biggest shareholder, blames demand from its 14 million users, including bots for the fiasco. We heard some of that today about the way that. that that just caused a meltdown, I think that there could be potentially a risk.

When you have leading lawmakers saying, hey, here's a reminder, this has outsized influence. It's a dominant industry. Live Nation or Live Nation owns Ticketmaster. So Live Nation is the promoter and the ticket seller and and, and. So it seems to me to be a rather vertically integrated operation that might attract the attention of the Trade Commission. And they have the lion's share of ticket sales in this station. So when things don't go right, when you say that you're going to give fans an opportunity to have a first chance to buy Taylor Swift tickets, and then it all goes wrong, there are real questions about it. I'm not sure.

I don't want to speak out of turn here, but I believe that they are very active in the aftermarket sales, the resale market as well, either through Ticketmaster or through some subsidiary of the same. But at any rate, Taylor Swift sells a lot of tickets. anti-hero. That's right. All right. You'll soon be able to buy stock in the Atlanta Braves. Speaking of Liberty Media, it is planning to spin the stock off into its own publicly traded company. It's a rare opportunity for a pure play sports team stock. Now, Rogers Communications owns the Toronto Blue Jays, but it's part of that broader conglomerate. Madison Square Garden Sports owns the Knicks and the Rangers. And England's Manchester United Soccer Team also trades on the U.S. in New York Stock Exchange. as well. I'm not sure why they would need to raise capital this way, but the Atlanta Braves have

been part of a public and traded company before when they were part of Turner Media, and then I guess they were sold off and bought and are part of Liberty Media right now. At any rate, you buy the Braves, you're getting a pretty good team. Well, then people feel like they have a right to manage the team too, right? If you own shares of the team that you love. What about the Green Bay Packers? You can own by the public. Now, you can't resell those shares. They're not worth anything of value. But it's a big braggie. right in Wisconsin to hang your stock your rebate packer

or stock up on the wall and say... I think they play tonight. I think they play this evening. They play the Titans tonight and they're not doing well those packets. All right. Let's get a quick check here on the markets. You're seeing the Dow turning negative once again now down two-tenths

of a percent. The S&P 500 is off by half a percent and so is the NASDAQ composite after James Bullard offered some potentially hawkish scenarios for where interest rates may end up falling. Oil's falling as well. Energy stock's heading lower. That wraps it up for us on power.