Power Lunch - Seeing Red, C-Suite Scenarios 1/2/24

Episode Date: January 2, 2024

We’re keeping a close eye On oil prices, after Iran dispatched a warship to the Red Sea. Is this yet another sign that tensions in the region won’t end anytime soon? We’ll explore that and the outlook for crude.Plus, it’s not just the first trading day of the year, but the first day for a host of new CEOs at big corporations across America. We’ll break down the key risks and challenges facing the c-suite in 2024. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Happy New Year and welcome to Power Lunch, everybody. Alongside Kelly Evans, I'm Tyler Matheson. Glad you could join us for 2024. Coming up, seeing red, we are watching oil prices after Iran dispatched a warship to the Red Sea. This is the latest sign that tension in the region will not be easing anytime soon. We'll see what that means for oil prices this year. Plus, it's not only the first trading day of the year. It's also the first day on the job for a number of corporate CEOs, including the likes of Morgan Stanley, Kraft Heinz,

Krispy Kreme and others. They may have their work cut out for them will break down the key risks facing the C-suite in 2024. But first, let's get a check on the markets off to a mixed start. The Dow had been higher by nearly triple digits, giving up those gains now clinging on to an 11-point increase, while the S&P is now down two-thirds of one percent, and the NASDAQ is down one-and-three-quarters of a percent back below 15,000. The crypto market, on the other hand, starting the year, quite strong, Bitcoin back above $45,000 for the first time since 2022. More on that ahead. And lots of headlines in the EV market. Tesla beating delivery estimates. Rivian missing. Those shares down more than 10%. We'll trade it in three-stock lunch. And a big downgrade for Apple. Barclays lowering to underweight, saying it's

time for a breather with Apple. Microsoft close to surpassing Apple's market cap. Interesting, given the magnificent seven dominance last year. It begs the question, what names and themes will matter most of markets this year? Let's start right there with Mike Santoli at the NYSC. What do you say, Mike, themes and names that will dominate the year? Well, Tyler, in terms of themes, I mean, I think you have to acknowledge, given the progress made in the equity index is coming into this year, that the market's pleasure threshold is higher. In other words, it's going to take more good news as opposed to just the absence of scary bad news to keep things moving in a positive direction for stocks. But I do still think we're in a moment where good news for the economy can be good news for the

market. I think the October CPI report back in November really was encouraging along this front. It kind of gave leeway to the Fed to basically say good economic news is not something that they're going to have to fight outright as long as inflation moves in the right direction. To that point, I don't really believe the stock market, just because we're at, you know, 4750 on the S&P and the Fed Fund's futures market sees 150 basis points of cuts, maybe later this year, that we need those cuts to justify where the stock market is. One year ago, the market said the Fed was going to be cutting through the second half of 2023.

It didn't happen. The market went higher. So I think that those are two separate things. And then finally, I wouldn't really focus too much on the supposed cash on the sidelines argument. Yeah, a lot of money went into money market and bond funds last year. But that doesn't necessarily mean it's a zero-sum game where you have to watch for those assets to kind of make their way into stocks. People have decent, healthy equity allocations

already. I don't think the stock markets hated. Doesn't mean you can't make further progress, though. All right, Michael. Thank you very much. Stay there as we bring in our next guest, who held on to his growth tech stocks last year and had a net return of some 60%. Let's bring in Peter Anderson, Chief Investment Officer, with Anderson Capital Management. Peter, happy New Year. Welcome. Great to kick off the new year with you. You held on to tech. You said no recession. last year. You were right. You were right on technology. What do you say for this year? Recession or not? Hold tech or not? I don't think there's going to be recession this year. I also don't think that the Fed is going to cut rates. I must be on a different planet, Tyler, because I just cannot

rationalize the thoughts of why we would have a rate cut as opposed to actually even several rate cuts. And I do think tech, some of the themes that you were talking about earlier, let me just add on to that. I think one of the more alarming themes is when AI gets introduced to hackers, that will probably accelerate their capabilities of hacking and will cause far more necessary diligence on protecting data. So data security companies, I think, are going to do well again this year. So that would be a Palo Alto Networks. It could be a CyberArc software. It could be others in that neighborhood. Are you implying a little bit, Peter, that some of the bloom is going to come off of the AI rows to use the cliche because of the reasons you cite, the ability of

bad actors to use it for bad purposes? It's an interesting approach you're using, Tyler. I would agree with half of that, meaning that I do think some of the bloom will come off the AI rose, but not for the reason you stated. Instead, I think what could happen is people will have to refine their expectations of what artificial intelligence can do. So far, we have been drunken sailors thinking that this is going to solve every problem in humanity. But when you do a deeper dive and you look at the actual academic research, they disagree with us. They think that we are far, far from emulating human thought. And until we emulate human thought, we are confusing artificial intelligence with just advanced data production. So to summarize that, I do think that

the AI, we need to refine our expectations. AI is not anywhere where we think it is, ironically, and that there's a lot more work and research to be done before we actually have to be afraid that AI is going to take our jobs, for instance. Well, you're sticking with Nvidia, Peter. You're sticking with the market and you stuck with it last year in spite of all the negativity out there. And you're sticking with it even though you're not even sure we're going to get a lot of Fed rate cuts this year.

That's right. And I don't think that we will be dependent. The performance of these stocks, I don't think will be dependent upon rate cuts. And, Kelly, you know, if we look beyond, say, 20 years, which for some of us, I guess, is a lifetime. But when you look past that 20-year horizon, rates were much higher than the prevailing rates now. So the question comes, you know, how long is a cycle? What is a normal rate environment? And I guess I tend to disagree with the general narrative that rates are unnaturally high right now. If anything, I think they're approaching a vertex where we would think that rates are

normalized in that the Fed will not have to cut rates this year and perhaps even into the next year. So, Michael, let me turn back to you and get your sort of general reactions to what Peter is saying here. 2023 was clearly the year of AI. It was clearly the year of Nvidia. And more broadly to those big cap tech stocks like meta, which had a fantastic year. What do you see on the horizon for 2024? Is AI going to be another dominant theme again this year? Will big tech continue to dominate as it did last year or not? I'm not sure that it's going to move monolithically as it was perceived to have done last year. First of all, Nvidia in particular, it's responsible for a tremendous amount of what we think of as the Magnificin 7 dominance last year. If every other stock did what it actually did in 2023 and Nvidia was flat, the S&PF.

would have been up, I believe, 18% or 16% instead of 24. And the equal-weighted S&P would have been up 12%. We wouldn't be talking about this crazy narrow market. So I do think Nvidia in particular stole a tremendous amount of the auction. My guess is investors are going to kind of look to have that theme splinter out and look for other ways to play it. I'm more interested, though, Tyler, in the fact that cyclical stocks continue to outperform pure defensive stocks. And until that really changes, I'm not sure we have to think of it as a pure secular growth dominated type market. It seems like, you know, we can argue about whether the Fed should cut rates at all. I don't think it's going to be a lot of rate cuts unless the economy buckles, but they think

neutral rates are two and a half or three percent. They're not going to keep them at five and three-a-s if inflation's coming down continually from here. So that's why I think the idea of peacetime rate cuts has gotten a lot of adoption. That's where I'd like to end with you, Peter, and pin you down a little bit, are you saying that a year from today, when we're back together, and I hope you'll be with us on January 2nd next year, that a year from today,

the Fed funds rate will still be at that five and a half to five and a quarter to five and a half level, or will it come down at all? I am hoping against, I guess, general narrative out there that it will stay about the same, because I think even at that level, you can have a normally operating economy, in fact, probably an even healthier economy, flying in the face of what some are calling unnecessarily high rates now.

So yes, I do not think that the Fed is going to cut rates, and I look forward to seeing you this time next year. I do too. Thank you, Peter. Appreciate it. Good to see you again. And may you have a happy and healthy. Michael, the same to you.

Mike Santoli. Now to oil, which is kicking off the year. on a volatile note, rising after Iran dispatched a warship to the Red Sea before reversing course lower. It comes as naval clashes and the critical waterway escalated with the U.S. Navy destroying three boats of Iran-backed rebels. And as tensions rise, how should we expect that to impact oil prices going forward? John Kilduff is founding partner of again Capital and a CNBC contributor. I don't want to skip right to the good stuff right away, John. But I mean, I think your point about watch the Saudis here is really, really interesting. Can you tell us why that's your first thought?

Sure, Kelly, good to see you. So I'm joked to your producer that while everybody's focused on the Fed put this year for the equity market, I'm actually focused as an oil guy on the Saudi tout, I'm calling it, because I'm waiting for them to run out of patience, basically, with their other participants in OPEC Plus. We've already seen OPEC Plus fray a bit on the edges with Angola pulling out of the cartel. And once the Saudis get tired of shouldering, the burden of supporting prices, what happens is what has happened in the past is that prices will fall because the studies will unleash supply to the market that will overwhelm and then look to hurt the higher cost producers out there, some of which are right in our own shale backyard. And they've done this in the past. Maybe you can refresh our memories a little bit as to those key and critical moments they did so and why. Can they afford to this time around? They are constrained to a degree because of their aspirations that they're building their economy, building you've probably heard of Neum and some of these other projects they have going.

But look, I can take you all the way back to 1993 when they got into it with Venezuela. Similarly in 1999, 2000, most other folks are referencing the 2018-2019 time period. I'll also point you to the pandemic, 2020, when they had the most mistimed throat. down ever when they unleash their supply in the market just as we headed into the pandemic shutdown, which sent oil prices negative. So they've done it before. I don't think it's their preferred methodology, but if it comes time to take everyone out to the woodshed and teach him a lesson, the Saudis do have the power to do that. Is the Saudi pout the reason you see oil potentially at $50 a share this time next year? I do, Tyler, for a couple of other reasons besides

But obviously the Saudi power, if it comes to pass, will push those prices considerably lower for a time until the wagons get circled again. But look, with the global central banks on the path to cut rates, they're not just doing that because they've beaten the inflation scare back. They're doing that because they see economic weakness, not only here but in Europe, but also our big problem for the oil market continues to be China, where the economy there continues to be lackluster. They just haven't come back.

They're not coming back. And the problems may indeed even be somewhat insurmountable to the extent they can't get that economy. They're aspiring at least six of the eight cylinders. So why this time, John, in past occasions where there has been tensions in the Red Sea and the Straits of Hormuz and the areas there, oil has generally responded by rising in price. Not this time or not much this time. Why do you think that is true? I think this isn't our first rodeo, Tyler.

We've had so many scares in the past. Look, when Iraq first invaded Kuwait way back in the day again, the first time, oil prices spiked to $35, $40 a barrel quickly fell back. And that's been the scenario every time since. The Second Iraq War, the bombing of Abkhake by the Houthis, that's the Saudi, major Saudi oil export facility. the killing of Iran's general Salome, you would have thought would have been a trigger point for a broader regional conflict. The folks out there, you know, just have a patience or they bide their time or take these affronts in an almost unimaginable extent.

And so to the extent that we're not going to have actual lost barrels like we didn't with the invasion of Ukraine, like we're not seeing now. And if you don't think for a minute that the U.S. Fifth Fleet isn't going to be able to keep the Red Sea and the Strait of Hormuzo, I'll take the other side of that bet in a minute. So that's why, Tyler, you've got to have perspective here. The headlines and the possibilities, yes, are scary. But it's sort of like telling ghost stories around a campfire. You know, the boogeyman comes out, and it turns out, everybody's okay. John Kilduff, we'll leave it on that note.

Thank you. Appreciate it. Have a good new year. And speaking of energy, quick programming note, Brian Sullivan will be live in Miami from the Goldman Energy and Clean Tech Conference on Thursday. He'll have exclusive interviews with, some key guests like the Sun Run CEO here on Power Lunch and continuing with Chevron and Goldman, as Chevron CEO, I should say, and Goldman's head of oil research on last call. Looking forward to

that on Thursday, January 4th. And coming up is this the year of crypto with an ETF on the way, probably we are seeing some expectations for the Bitcoin price to hit anywhere from 60 to, you're not, am I reading this right? $500,000. We'll discuss that one next. But before we hit to break a quick power check on the positive side, Moderna Oppenheimer upgrading the biotech name, citing optimism in its drug pipeline. On the negative side, Norwegian cruise line. I root for my people, the Norwegians here, the cruise lines, continuing to decline from last week along with the other cruise stocks in the space. That's your power check. We'll be right back. Welcome back to Power Lunch. Bitcoin soaring above $45,000 today for the first time since April 22, and hanging on to its gains,

by the way, as we move through the session as the rally in crypto rolls over into the new year, the entire space reaping the benefits of this bull run mining stocks, Bitcoin mine and crypto mining stocks saw huge gains last year, as you can see. And it all comes as traders grow excited about both the possible approval of a Bitcoin ETF in the U.S. as well as the potential of Bitcoin having this spring that people say could catalyze a price rally here to discuss. CNBC.com Crypto reporters McKenzie Segalos and Tenea McKeel. Welcome to both of you. Mackenzie, I'll just start with you. And is it just the first year?

Why so many fund flows and all of a sudden we're off to the races today? What are you hearing? Yeah, a lot of it has to do with the fact that there's optimism that we could actually hear as soon as this week, whether or not some of these spot Bitcoin ETF applications will be approved. The SEC has a deadline of January 10th. They give ARC and 21 shares a decision on whether to approve or disapprove their spot application. And there's optimism that it will be a green light this time. You've got some of the biggest names throwing their hat in the ring.

Black Rock, June 15th, since June 15th when Black Rock put an application in, we've seen an 80% spike in the price of Bitcoin. Wow. And a lot of that has to do with the fact that they think that institutional money will flood into the space once we see some approvals. That's incredible. So they really do face near-term deadlines here for us to know one way or the other. Tanea, what would you add? I would add the geopolitical tension in the Red Sea, I think. Remember, Bitcoin has been in kind of a downtrend for the last three weeks and did December on kind of a low note,

but that uptrend is still kind of intact. And remember, so to Max's point, a lot of this rally is about the potential Bitcoin ETF. But remember that before that ETF narrative came into play in June of last year, it was the U.S. regional banking crisis here in the U.S. that was the big catalyst. From March 5th to April 30th, you know, we were really seeing Bitcoin rise from the ashes at the beginning of last year, and that was its first sort of 30 percent spike. Good point.

Two questions, McKenzie. is are there Bitcoin ETFs in other countries around the world? What do they own? Do they actually own Bitcoin? Do they own some futures? What do they own? And how have they worked? In Canada, we have a

spot Bitcoin ETF. You know, one of the reasons why people think that this is going to be sell the news event is because the flows with that ETF haven't been as anticipated. And I think that that's one of the biggest narratives that we've seen this huge price run up going into this event. But think back to December 2017.

there was a lot of optimism around a futures Bitcoin ETF, and that ended up being a negative catalyst for the space. Even Bernstein that deems a spot Bitcoin ETF as being the greatest financial pipeline ever built between traditional financial markets and the crypto ecosystem thinks that the market will take a pause once these spot ETFs are approved while people wait to see if the flows build momentum.

So when you say spot ETF, you mean they are actually going to own Bitcoin, not future. And that's what's so different about this, because it would mean that people don't have to go to an exchange to custody Bitcoin. Instead, you know, Black Rock Fidelity would work with Coinbase to custody the Bitcoin. And then you have a very, you know, familiar product that you can buy into the space with. And that's why people believe that it will be game changing. What is this, what is this having?

It sounds like the rapture in the Bible. What is it? It's a little in the weeds. I'm not going to go too far down, but this is a technical event that happens about every four years. And this is built into the code of Bitcoin. It basically cuts the reward that the miners get in half. And that is all designed to create a sort of scarcity effect on the supply. So I think that that supply and demand dynamic is...

In other words, they're going to create fewer Bitcoin? Yeah. And I think that's something you're really going to see in play this year. We have all of these big catalysts, the ETF, having... I don't know who they is. You wonder about the miners who've had this big run-up, and yet they're about to face this half. of their rewards. And like, you know, ironically, you're seeing this huge price run up in

these mining stocks, Marathon Digital and Riot, both up more than 10% today. And this cutting of issuance makes the space far more competitive. You know, one other point that I'll make, though, and tonight I was speaking to this, typically we see a run up in price every four years pegged to this market-making event known as the halving. Last time around, the price of Bitcoin spiked more than 560%. So you have these two major events for the crypto ecosystem that are are poised to potentially help bring that price back up. Well, may your having be joyous. Thank you both.

Appreciate it. Thanks, guys. All righty, further ahead, if at first you don't succeed, tax and tax again, tax revenue, declining in 40 states in 2023. We've seen lots of headlines surrounding wealthy Americans bailing from areas like New York, New Jersey, and California to avoid those taxes going to Tennessee or Florida, Texas. But despite that, some of those states are doubling down. explain when power lunch returns. All right, welcome back, everybody. Lots of moves in the Treasury market today, and Rick Santelli is tracking all that action for us.

Hey, Rick. Hi, Tyler, and happy New Year. Yes, the first day of trading, we've seen some pretty big moves, and that isn't actually unusual. If you consider, at the end of last year, there was a lot of big trends right towards the end of the year, dropping interest rates, a lot of euphoria about the Fed, dropping rates dramatically in 2024, the accompanying equity rally, and, of course, the damage done to the dollar. Well, everything seems to have had some reversal on the first day. As you look at an intraday of tens,

you can see that yields are higher. And if you go back to last Wednesday, that was the lowest intraday trade, a bit above three and three quarters, 378 percent to be exact of a tenure, was the lowest intraday level since the 499 high, close for this move. And if you consider that as crazy as it sounds, we settle unchanged on the year at 388 for tens. It's very important to pay close attention to the failure to trade under three and three quarters unchanged on the year and this bit of a pop. Now, when you look at the dollar index, it should be no surprise. It's settled down on the year to have a bit of a pop. And even at these current levels, 102 and change, we're still down a couple of cents from where we close 2022. It's going to be a tough year for the dollar. Even if other economies in Europe are in or close to a recession, the notion of the Fed on an aggressive easing campaign is going to be a

difficult area for the dollar index to hold until we get more information about midway through the second or third quarter of 2024. Kelly, back to you. Thank you, Rick. Rick Santelli. Let's get over to Contessa Brewer now for a CNBC news update. Contessa. Kelly, Israel has refused to confirm or deny that it authorized a strike that killed a top Hamas leader today in Beirut. An advisor to Prime Minister Benjamin Netanyahu told MSNBC's Andrea Mitchell this afternoon, whoever did it made a surgical hit on Hamas rather than an attack on Lebanon. A judge has ordered a former Kentucky court clerk who refused to issue marriage licenses to same-sex couples in 2015 to pay more than a quarter million dollars in court and attorney's fees. The $260,000 ruling is

In addition to the $100,000 in damages, Kim Davis owes the couple who sued her. Davis, who was jailed for five days over her refusal, claimed her religious beliefs prevented her from issuing the licenses. France is sending a team of experts to Japan to assist with the investigation into a deadly accident at Tokyo's Hineda airport. Japanese officials say the Airbus-built commercial plane burst into flames today on the tarmac. This video is unbelievable. It collided with a Japanese Coast Guard aircraft killing five people on board the smaller plane. Unreal. Kelly, I'll send it back to you.

And everyone was safe, right? They were all able to get off? Not on the smaller plane. On the smaller plane, five people were killed, but then on the flaming jet. It's just unbelievable that anyone can survive that. Oh, my gosh. Contessa, thank you. Sure.

Contessa Brewer reporting. Coming up, the view from the C-Sweep, the conference board releasing its executive outlook for 2024. including the biggest challenges facing corporations across America right now. We will break down that list when Power Lunch returns. Welcome back, a slate of new CEOs starting their jobs today. Companies from Morgan Stanley to Costco getting new faces at the helm to begin the new year, and it might not be a particularly easy one. Amid rising geopolitical tensions and ahead of a presidential election,

concern about political unrest sits near the top of CEOs' concerns for 2024. Starbucks, first-year CEO, has already faced down boycotts over unionization efforts and the Israel-Hamas war over the past few weeks. So what can these new leaders expect for 2024 and how can they navigate it? Joining us now is Dean Crutchfield, the Crisis Manages Expert at Crutchfield and Partners, and Steve Adlin, President and CEO of the Conference Board. Welcome, gentlemen, to both of you. Steve, let me start with you. As you speak to and poll CEOs across the country, what are they most worried about in 2024? And is it geopolitical tension or the war in the Middle East or Ukraine or something completely different?

Yeah, it's all the above, Tyler. And remember, a year ago, we had over 90% of CEOs telling the conference board that they expected a recession within the year. That didn't happen. But now they're worried about a slowdown and what that means for the health and the growth of their company. Inflation and higher labor costs are the remnants of what's happened over the last several years, and they're really wrestling with that because there's still a labor shortage, a very unique situation. The global instability that you mentioned on top of it, Ukraine, the Middle East, and now even China and the Taiwan situation, because of huge implications for chips and huge implications for supply chain are weighing on CEOs as well. And when we ask CEOs less than

30% say that their company is ready, either for a slowdown or to deal with the after effects of inflation. So the things that they are focused on is growth again. It's the thing that they think that they've got to grow their way out of it. They can't simply cut costs this time. And so new products and markets, innovation technology, including all of the impact of AI, and then finally trying to get more out of their workforce through upskilling and through retraining. So those are the focus areas for CEOs. So they've gotten over the idea of a full-blown

recession for 2024, but they do see a possible, what, slowdown? Is that what they, what is on the horizon for them? Yeah, you still have about a third of CEOs saying that there's going to be a short, mild recession, but I think the majority of CEOs are now saying, okay, it's just going to be slower. Either way, whether it actually goes negative or whether it's just slower, they've got to do something different, Tyler, and this is where they've got to focus on growth again. Dean, that's an interesting point because it's, you know, I don't know if you've got growth strategies for them or if, you know, in the meantime, there's also some ways they need to think about communicating with employees, getting off to the right start there.

Yes, absolutely. I think, you know, Trotsky family said that war is the locomotive of industry, but for brands, it's often a train wreck, and we've got kind of wars across three fronts. I call them the holy trinity of brands that should never be crossed. That's religion. sex and politics. And we've got all three hot potatoes right now affecting companies across all fronts. And so to Steve's point that 30% of CEOs are saying they're not planned for a slowdown, well, are they planned for crisis? And that's the critical need here. Dean, can I just ask you about that? Those three areas that you said, you know, companies should stay away from, we have seen a lot of discussion in kind of the political realm in recent years.

Do you think that we should expect less of that going forward now? I think you should try to be as little as possible, kind of veer into those fields because they are dangerous fields to be in. So what is the stand of the brand? And I think that's the important thing here is that we've got major companies that have spent millions of dollars on perfecting their brands, but that's the issue. They're packed for perfect, but they're not packed for bad. And what we're confronting here is one, Steve's point of potential slowdowns in the market, but also a rampage of issues of very socially sensitive issues affecting millions of consumers in terms of what's on their minds eye right now. So it's all about pre-planning and taking a preemptive position on it.

And the beautiful thing here, although bad for Anheuser-Busch, is that a lot of companies have been given a reduced learning curve based on that debacle with Mulvaney and Bud Light. So I'm hoping that many companies have sat together in offices with curly sandwiches and discussed their crisis management for those three areas, religion, sex and politics. that are affecting them right across the board. So, Steve, why don't you pick up on what Dean provocatively talks about there? And that is it sort of veers our conversation away from what maybe CEOs are focused on, which is growth and inflation and rising labor costs and so on and so forth.

But increasingly, CEOs and companies seem to be drawn into topics of public controversy. And it could be Starbucks reacting to statements, by its union having to do with Hamas and the Palestinians and, or it could be Disney getting pulled into controversies in the state of Florida. You've been a CEO. Where and when, in your experience, in your practice, does it make sense for CEOs and companies

to take a stand on that unholy trinity of things that Dean mentioned, sex, politics? And I think the third, war or religion. Yeah, this is a really important area because you have CEOs and boards facing this whole ESG area, all of the DEI impacts, you've got this call for CEOs to comment on every social issues that comes up to try to deal with all of these political issues. And remember, we're in an election year, so it's only going to get worse between now and

the end of the year with CEOs being called upon to take sides. And everybody's happy when they do it. and they come down on the side that they're on. But remember, we're a sharply divided country, sharply divided world, and you've got customers, employees, owners, community, many constituencies here, and you have to balance what you say. So boards and CEOs need to establish a framework by which they make a decision whether to say anything externally,

say anything internally, how are they going to make that judgment, how important is it to their core business, but they cannot just simply go out and comment on everything, or take political sides based on a CEO's whim. Very interesting. I forget who it was, but I think it was Michael Jordan when he was called upon to make some comment on something. He said famously, hey, Republicans buy Nikes 2 or something like that. I mean, it shows you the sensitivity that has to be brought to some of these issues,

and some of these issues are far, far, far more consequential than whether somebody buys a pair of nikes or not. Anyhow, Dean Crutchfield, thank you very much. Steve Adelan. Happy New Year to both of you. appreciate your being with us. And still ahead. New year, new tax bill. Some state lawmakers are proposing new taxes on income and wealth amid declining revenues. We'll reveal where that's happening and explore what it could mean for higher earners when Power Lunch comes back.

Welcome back with the New Year upon us. Tax season and changing tax rules are in focus. 2023 actually saw tax revenues decline in 40 states, the biggest losers, New York and California. So lawmakers are now considering new wealth taxes. Let's get out to Robert Frank with more. Robert. Okay, the drop in IPOs and stock sales last year, adding to the fiscal crisis that's emerging in high-tax states. As you mentioned, tax revenue declined in 40 states with the highest tax states hit hardest.

California saw a 25% drop in revenue. That's comparable to the financial crisis and the dot-com bust. The state now faces a $68 billion deficit. that is the largest in California history. New York's tax revenue expected to drop by $10 billion next year. That could lead to a $4 billion deficit, $10 billion the year after that. Both states now battling demands to cut spending or raise taxes. California legislators proposing a wealth tax.

That would be 1% on total wealth over $50 million and 1.5% on billionaires. New York also looking to tax billionaires on their unrealized cash. capital gains as well as tax higher, those of their higher incomes, making more than $450,000 a year. Now, already the top 1% pay more than 40% of the income taxes in both states, and some warn of further wealth flight if tax increases go even further. California lost 27,000 tax filers who made over $200,000 back in 2020 and 2021. Meanwhile, Florida and Texas, which of course have no income taxes, have seen population gains. So Tyler, there's gonna be a lot of pressure

as these deficits, especially in New York with the migration crisis, California, as we see those capital gains dry up, whether to cut spending, they just can't cut that much or how to raise taxes on the wealthy. Don't most states, and I assume California and New York among them, have balanced budget requirements?

They absolutely do, and that's where the pressure shows up at the state level and why we're not to see much tax action on the federal level because there's not political will or the unity to do that. But the states, to your point, they have to. And in progressive states like California and New York, there's just not the momentum by the legislature to cut spending as much as they need to. And so because of that balanced budget requirement, they're going to have to raise taxes somehow. And taking the Willie Sutton approach, you go where the money is with the wealthy.

I'm very intrigued by the idea of wealth taxes and how. they would work or whether indeed they are workable at all. But I wonder, talk me through it a little bit. Let's say I have an unrealized gain of a million dollars on a stock, and I would be taxed under one of these plans on that unrealized gain. And then the next year, the market tanks, and my unrealized gain goes on that particular stock, goes from a million dollars to $100,000. What's the equity in that? In other words, now, are you going to give me back some of that tax that I paid you?

Because my asset is worth a tenth of what it was a year before? You essentially get a loss carry forward. So it's a little bit now where you get investment losses that can offset gains in future years. So in that case, you're right. You would be taxed on the million dollar gain one year that fell the next year. You would get a credit that could roll forward for several years. but that's in effect, to your point, lending the government money on an unrealized gain. And so that's one of the challenges. The other big challenge that the states face if they do this, the reason that wealth taxes never worked in Europe is because people just moved from one country to another

where they could move more easy. Now, if you do it at a federal level, you then have to renounce your U.S. citizenship, pay a huge capital gains tax in order to do that. At a state level, you just move one state over in the case of California to buy. or California, Texas, or New York, Florida, and you get rid of a wealth tax. So at a state level, I just think it makes zero sense because of mobility, especially the wealthy you are, the easier it is to move. All right, Robert, thanks very much.

We'll be keeping an eye on that throughout 2024. Coming up, taking a bite out of Apple, shares of the tech titan slipping after a downgrade to underweight at Barclays, is that a cue for investors to trim their position or an entry point to buy more. We'll ask our trader in three-stock lunch after a quick break. All right, time for today's three-stock lunch. We are trading some big movers of the day here with our trades. Quint Taitro, founder and president of Jewel Financial. Up first, Quint, Apple, which was downgraded at Barclays on iPhone demand falling, sending shares lower, yet Apple is still up 40% over the past year. Your trade, sir, on Apple, down 4% today.

Tyler, thanks for having me. First of all, it's a privilege again to be with you. Apple is a sell in our book. It's not a very popular opinion, but about two months ago or so, we were on your show talking about where to sell and trim and allocate new capital. And Apple was one of those names that we were cutting. The stock is just not cheap at all. In fact, it's very overvalued in our books, selling 28 times forward earnings. And the estimate, if they hit it, it's only going to be. about a 7% earnings growth. I think what's most concerning is they had considerably shrunk their float over the years with incredible share buybacks. So when you add that back in, the growth is even more lackluster. The other challenges is that they've levered up their balance sheet with a debt to equity now over two to one. So we're just not fans here. The sell-off today, obviously, on the heels of the downgrade is unfortunate. But any respite from here, here if somebody has the name and is looking to lighten up, I'd be a seller of Apple here. Wow. Okay, we've got all the big names today, Quince. We'll go from Apple to Tesla.

Those price cuts boosting its fourth quarter sales, they had 485,000 deliveries, bringing the total to just over $1.8 million last year. The stock fractionally lower. Would you be a buyer here? I am. I would be. I continue to do so. And this is a little difficult to talk about right after I talked about valuation because this stock is also not cheap selling 70 times forward earnings. However, they have no debt. And I think that what's going to happen is at some point we see the Chinese economy turning around. And I believe that's going to be a big boost for Tesla and their sales.

And that would translate into a pretty significant boost in EPS. I also bring viewers attention to technicals, which we don't talk about very much, but the stock has been consolidating for the last two years and really looks right for a potential breakout here. So you can put your trading hat on and you could basically look at the recent lows of around 194 as a stop and a pretty significant risk reward for the upside. And we do think Elon pulls another rabbit out of the hat and this stock heads to new highs sometime this year. All right. Let's talk about a pandemic, darling. That would be Moderna.

the shares hire on an upgrade to outperform at Oppenheimer. However, it posted a 40% decline in 2023, which might make it a buying target. Quinn? Yeah, it's not for me, Tyler. This is number one, first of all, a little bit out of my wheelhouse, but just looking under the hood a little bit, I have trouble buying into a company that's just not profitable. I mean, they have a pretty healthy balance sheet, a nice cash position. But I think today's move on the upgrade at Oppenheimer, goes to, you know, kind of reflect people looking for beaten up stocks that they might see some rotation. I would be very careful with that strategy. You're getting a nice pump today, and if you have been trapped in this name, maybe look to lighten up. But it's not a name that we would see

until we saw profitability and, you know, some further fundamental improvement here in this name going forward. Just not for me. Well, thank you. And thank you for your clear opinions. Quint Taitro, happy new year, my friend. Happy New Year. Thank you. So many more headlines to get to, but so little time left. We'll power through as many as we can in closing time next. Two minutes left, everybody, and several more stories you need to know about. So let's get right to it.

Starting with some news on X, Fidelity has marked down at stake in the platform formerly known as Twitter yet again, according to a new filing by its Blue Chip Growth Fund. As of November 30, Fidelity says shares of X are worth just $5.6 million, down from $20 million, back in October, when Elon Musk first took the company private. Many advertisers have dropped the platform to Musk's controversial behavior. Mr. Beast, the YouTube star, just rejected an offer to post videos on X because it wouldn't be lucrative enough. And yet, Tyler, I will just mention the resignation of Claudine Gay at Harvard, shows the power of the platform, Bill Ackman and others using it to kind of push for her ouster. The power still remains, but the valuation is not there.

It doesn't. And this is obviously now private stock, which has to have a liquidity sort of unpremium. because how many, how many non-buyers of non-public stock out there, not as many, obviously, as there are public stock. Right. All right, streamers are struggling to hang on to customers, according to analytics provider antenna. About a quarter of U.S. streaming subscribers have canceled at least three of their services over the past two years. That number is up from 15 percent just two years ago. So obviously, people are looking at their bills and saying, do I need?

watching enough Paramount Plus or choose your streamer. I think it will be one of the catalysts for more media consolidation this year if we do finally get it. And video is circulating online, apparently showing Carolina Panthers owner David Tepper throwing a drink at Jacksonville Jaguars fans. You've probably seen it. During the Panthers, 26 to nothing road loss on Sunday, an NFL spokesperson said we are aware of the video and have no further comment at this time. Tepper and the Panthers have yet to address the matter publicly. According to CBS sports, he could face a substantial fine and potential suspension and frustration could be boiling over as the Panthers had the NFL's worst record at 2 and 14. Going from the worst to the best, those two college football games, I don't know whether you watched either of them. I didn't see them. Were they good?

They were so good, no matter who you were rooting for, both the Michigan, Alabama and Washington, Texas games. They say high school is the new college. Oh, man, they were good. Thanks for watching, Power Lunch.