Power Lunch - Stocks little changed heading into key jobs report 12/5/24

Episode Date: December 5, 2024

Stocks are about flat today, as investors await key U.S. employment data tomorrow. The three major averages all saw solid gains in yesterday’s session, posting record closes.Tomorrow’s labor report could influence the Fed’s rate decision at its policy meeting later this month. Fed Chair Jerome Powell said today the economy is strong enough for the Fed to move carefully on rate cuts.We’ll tell you all that you need to know. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch. That was Speaker Johnson, wrapping up sort of the prelude to a day-long series of meetings with Vivek Ramoswamy and Elon Musk and members of Congress from both sides of the Hill, Senate and House, on bringing some more efficiency and cost-cutting to government. Welcome, everybody, alongside Kelly Evans. I'm Tyler Matheson. This is Power Lunch, and today is the day that Bitcoin finally hit $100,000. And it is holding on to that level right now, as you see, at 100,000-191. You can have a Bitcoin for 100,000 today, ladies. Now, do I hear 100,000 one? Some comments from Chair Powell yesterday being seen as giving Bitcoin, Kelly, some legitimacy. At least he didn't trash it. Oh, that's hilarious.

I was thinking the catalyst was the, you know, Paul Atkins at the SEC. But if the Fed chair ends up being the reason that we went over the edge, that would be kind of ironic. We're also expecting to hear from French President Emmanuel Macron this hour. Yesterday, there was that no-confidence vote on the existing government, first one in 60 years. France is far from the only country in turmoil right now as well. And Europe is facing these problems, Tyler, with Germany's economic issues. France, of course, has a wide budget deficit, this political crisis. You know, Besson had said on the podcast prior to being named Treasury Secretary,

he thinks Le Pen will be taking power in France in the next few years. It certainly looks like so much of Europe is leaning right. as so many parts of the world are. I believe it was in Romania overnight where a right-leaning party took sort of charge of the elections there. And also, there are currency issues affecting China as well. Right now, King Dollar is king.

For better or worse. And we've got some great reporting from Amen Javers coming up. Thousands of millionaires don't file tax returns. They don't file. Failing to file is only a misdemeanor. So many are gambling. they won't get caught and they just dispense with it. I don't have, you know, you can hohone's, whatever you call it.

I could never do this. I understand that people want to just say, okay, you have to come and get me. But most of the time they do, although a surprising number of times, people get through the cracks. It's hard to believe that, I mean, golly, if you are receiving a W-2 at the end of the year, that W-2 is being filed with the IRS as well, and it seems strange that they wouldn't catch up with you somewhere. No, a lot of this, I think, to your point, is about self-employment and various business structures that are kind of being used as well.

All right. Stocks are taking a bit of a breather after hitting record highs yesterday, as you probably know, Dow, negative right now, but still up more than 6% over the past month. Valuations starting to be a bit of a concern, but where else could you consider putting your money right now? Joining us for more is Keith Fitzgerald. Principal of the Fitzgerald Ruth Keith. Welcome, good as always to see you. Stocks seem, and U.S. stocks particularly, seem to be sort of.

the prime place to put money. That's where the mutual fund money is going, lots of money going into equities, even though valuations are high. Well, you know, it's funny. We were just having to discuss in the office about that. And depending on your perspective, it's either the best-looking horse in the glue factory or a sign of better things to come. Now, I'm personally going to be in the ladder camp because innovation has never failed in the history of time to put more money on the table. So the key is right now identifying great companies using the right tactics to get into them rather than fear risks you can't control. What are some of those great companies that you're seeing right now? I happen to know some of the names of them.

And why do you zero in on them? What is it that makes them stand out? Well, that's an interesting question. Again, you know, it's all about perspective, Tyler. And, you know, one of the things we look for is do they have a great CEO who has a history of executing? So AMD or Apple or Tesla or Palantir, those are all strong visionary CEOs. Do they make must-have products the world can't live without? If they're nice to have, I don't want to be anything near them.

But if they're something that's going to carry the world forward for the next five, 10, 15 years, I'm very interested. And finally, we want to look for companies that have really got strong metrics. What are their customers say it? Are they running to them? Are they running away from them? If you get all three of those things right, it's very hard to go wrong. I hear you on strong CEOs, Lisa Sue at AMD, Jensen Wong at Nvidia.

I wonder, I mean, Elon Musk has a lot on his plate. Can he really run Tesla? Yeah, I think the answer is yes. And here's why I say that is I've had the good fortune to meet lots of controversial, visionary people during the course of my career. That is always the charge that is leveled against them. It was leveled against Steve Jobs. It was level against Bill Gates.

It was level against Sir Richard Branson. You know, these are the kind of folks who have got minds that never stopped. They're playing chess. Well, the rest of the world is playing tiddly wings. And that is uncomfortable for people who are in the latter camp. So I would submit the answer is yes, he's not only going to be able to do it. He's going to do it in a way that catches people by surprise. Is tidily wings that like jacks?

Well, when I was growing up in the age of the dinosaurs, you would flip these little things around in the dirt or on the table. And, you know, that was the game. I'm going to look that up, actually. So, Keith, we've talked a lot about NVIDIA over the years. Obviously, we're just mentioning Tesla Palantir. What are your highest conviction holdings going into 2025? Well, you've just named three of them, and here's why.

Again, I don't believe you get off a winning horse in the middle of the race. You've got to manage risk. You've got to use the right tactics, you know, all of those kinds of things. But we're continuing to focus there. I'm looking at next order derivatives. I'm seriously into defense. I want some dividends. Energy, for example, Chevron is a big one for me because we are.

are still going to need dinosaurs use for a long time to come. And as the bloom comes off the roads with EVs, that's a logical extension for me. All right, let's talk about Bitcoin. What advice would you give to an individual investor who just looks at $100,000 and says, man, this thing has gone up 25, 30? I don't know what the percentage is since the election. But at any rate, it's been going up a lot, and this is exactly the time that individual investors tend to be pulled in. What advice would you give them? FOMO is not an investment strategy, Tyler. So if you're going to go, into it because you believe it's going to go a lot higher, that's one thing. If you're going to go into it because you feel like you're missing out, that is exactly the wrong thing to do. And this is the wrong time to be buying. So I think you've got to make up your mind as to how you want to approach it, me personally. I don't like it because I don't like the way it functions. But I do believe we're going to digital currency. So I'm hunting for investments that are going to be around Bitcoin. What's Ethereum look like? What's blockchain look like? How do the companies that are involved in digital clearing factor into this? That to me is a real investment.

Bitcoin. Awesome. Love everybody who's on board, but not for me. Bill Miller says it's 2014 still for Bitcoin. So I'll just leave that with you and ask you about Apple. On the way out, Keith. So Apple has not exactly been a momentum stock this year, although we can check its performance. Why do you think this could be a sleeper kind of star going forward? Well, I'm reminded of two instances in Apple's history. And the market's lineup, almost page for page with this. I'm reminded when they introduced the iPhone and nobody thought that was a big deal. steel bomber famously poohed it. I'm reminded of when they introduced services in 2014. People poohed that too because they thought it would take the focus off of the iPhone. But the situation

we are in today is this software system, AI, these things are still early innings. And the fact that nobody is paying attention to Apple again at a time when it's making big changes, to me, is an investing opportunity, not a threat. I love how it's up 26% this year. And I'm like, you know, it hasn't done that well. That's what kind of year. It's not a same. It's not a standout. I mean, it really does. I mean, it messes with your head. It does. If something isn't up 150%, well, it's terrible.

It's crack. I know. I take 26%, and roll that over all the way to the bank. All day. We joke that 26% was a good week. Yeah. Keith, thanks so much. Good to see you.

Keith Fitzgerald of the Fitzgerald Group. Perfect transition to talk about Bitcoin, which finally crossed about $100,000, hit almost $104,000 last 24 hours. This also came just hours after Andrew Ross Sorkin asked Fed Chair Jerome Powell about the digital coin at the deal book conference. Take a listen. People use Bitcoin as a speculative asset, right? It's like gold.

It's just like gold only. It's virtual. It's digital. People are not using it as a form of payment or as a store of value. It's highly volatile. It's not a competitor for the dollar. It's really a competitor for gold. You know, it's, that's really how I think of it.

President Trump announces plans to nominate Paul Atkins. as the next SEC chair, and a move that's seen as very friendly for the crypto market, and all of that might have helped propel us to the six digits we are at now. To break it all down, Michael Bucela, Bucela, joins us. He's managing partner and co-founder of Neo-classic Capital. It's good to see you again, Mike. I've always seen those charts going around that there was this wall of selling that we were going to hit right around this level,

but we seem to have just plowed right through it. What does that tell you? There's always a wall of selling at some point in the crypto markets. I think, again, $100,000 is a price. should not be celebrated. It's it was fairly implied in the all markets. It's not a massive move in a kind of a daily price movement standpoint, but it's more symbolic. So I think $100,000, we all celebrated last night in Miami. There's a lot of crypto communities down here for, for Arpaasel. I was having dinner with the Salana community when Bitcoin crossed $100,000.

It's more just symbolic. The war is over. So the war between U.S. regulators and the global crypto community is done. What is that typically followed by? Subsequently, you have peace negotiations and treatises. And we're working on those now. I think we've laid a lot of groundwork in 23 and 24. I don't think crypto is a top of the stack priority for the incoming administration, but it's certainly a priority. And so it's very, it feels incredibly good to be at $100,000 before 2025. I think on my way out from Goldman, I don't think he remembers this, but I messaged Lloyd Blank Fine saying I think we'd get there by 2025 and we're here. Feels good. Well, we'll bring him on for comment. I don't think he was much, but was he a crypto fan?

You know what? I would always say Lloyd was open to anything where he could manage the risk of the position. So Bitcoin at this point probably would have played into that. How important is President Trump's seeming support for Bitcoin in, obviously in this most recent move, but heading into the future? I mean, the way that I think about the crypto markets and the price movement relative to what's happened in the last six weeks, the opportunity set, yes, it may have grown somewhat, but the opportunity sets always remain the same. We've always been bullish in certain use cases, whether it be stable coins, decentralized finance, you know, financializing certain digital assets like intellectual property, gaming on chain. But the opportunity set expansion isn't as important as the risk reduction. So we've seen a material. really de-risking across every segment of the market. From, you know, obviously the Big Joe Rogan podcast with Mark Andreessen discussed the debanking or choke point 2.0 that happened to the market, that again was one part of us overcoming what was a

stranglehold in our market. And so I think we've never, in my eight years of being in this industry full time, we've never been a situation where we haven't had an oppressive regulatory regime in the US. A lot of that was we were risking brain drain, a lot of very talented people went offshore. And I think this will hopefully bring a lot of that back onshore. Let's talk a little bit about it. Let's say I'm an investor and I am a little bit skittish about going into Bitcoin itself or I don't have $100,000 to buy a Bitcoin. Obviously,

you can buy fractional pieces. But what are other ways to play this trend that you think are worth looking at? Companies, the my, the the, the, the, the exchanges, etc. So you're, your every family member, friend, an ex-college that's texted me in the last few weeks. Let's assume that for this example. So the other thing that I think people still don't really understand is you don't necessarily need to buy, you don't need $100,000 to buy a Bitcoin. Bitcoin is the most stable of all the digital assets currently. And so when people say to me, I want to put X dollars to work in crypto, what should I do?

I say, okay, we'll stagger that over a period of time. Invest along this cycle. So don't, again, euphoria. And right now this is very much a Western euphoric environment. The East hasn't participated. If you look at all the metrics that generally show, you know, altcoin euphoria we've had in 2017 and 2021, we're not seeing that in the East. And so this is very much a Western bid. But within that, you want to basically break it down to, you know, stable assets down to a long tail of more risky assets.

And so, you know, everyone says Bitcoin, so I'm like no regrets earlier, Bitcoin, Ethereum, a bit of Solana. And then I think you basically go in, you say, okay, here's my target allocation. I'm going to own 50% of that in Bitcoin, 25% of that in Ethereum, you know, some percent of that in Solana. And then, you know what? I'm going to play around. I'm going to go into some of these crazy meme coins. I'm going to figure out what these memetic communities are all about, right? The peanut community, the Brett community, the, you know, and then also, I think the other part of it is, I think this will now engage and encourage people to go on chain, to take $10, $25, go on chain, play a game.

All of a sudden, you know, people that traded meme coin. on base were a very valuable asset recently, just for participating on chain. And so I think it's still scary. It's still very scary. I still handhold, you know, I gave my parents a ledger. I handheld them through acquiring some crypto on chain with a ledger. It's, you know, the way to get exposure, you have ETFs, you have Coinbase, you have the, obviously the Bitcoin miners.

And that actually is a, that's actually an important piece people don't talk about much. That industry was under siege. The previous administration was trying to implement very egregious tax regimes on the crypto miners. Now, the incoming president, used it as a national security effort. And so if we're going to be having a Bitcoin Treasury Reserve, we need to ensure that the transmission of that Bitcoin is secure and done when possible on U.S. soil. So there's a lot of different ways to crack at it. I would say over the holidays when you have free time with your kids, with friends, sort of experiment, have fun with it, playing on-chain game, buy some on-chain

meme coins, and just toy around because, you know, getting off zero as Anthony Pompellano used to always say is the most important part. Hi, Michael. Thank you very much. Michael Busella, Neo-classic capital managing partner and co-founder. Michael, thank you. Have a good holiday. Thank you, too.

As cryptocurrencies hit new heights, physical currency facing volatility, The French government, as Kelly mentioned earlier, in disarray. Uncertainty in Germany, weak growth across Asia. We will dive deeper into the currency space next. Welcome back. We've got news out of France this hour. President Emmanuel Macron speaking after yesterday's no-confidence vote. Sima Modi has the latest. Seema?

Well, Kelly, President Macron addressing citizens after a stunning no-confidence vote yesterday that ousted his government and prime minister, he says he will stay on as president for his full term. so that would be till 2027. Macron also adds that naming a prime minister in the coming days is a priority. Someone who, he says, can pass the budget via a special law. Remember, a growing budget crisis has put pressure on French leaders to resolve the situation quickly. But these comments helping lift the euro, and we're even looking at French stocks moving higher as well. Tyler.

Thank you very much, Sima Modi reporting there. In addition to that news, out of France, there's uncertainty throughout the world. Germany also facing uncertainty after its finance minister was fired last month, and economic pressures continued away on China's yuan. So is the dollar still the best bet with all the issues taking place around the globe? Kathy Leyen is managing director of FX strategy at BK asset management. Kathy, what do you say? I mean, is King Dollar likely to stay king for a good long time?

I think that there's many signs to believe that the U.S. dollar, which, you know, has had a very, very nice run is rising for, you know, reasons that are very appealing compared to a lot of other countries around the world. For the most part, it has to do with the underlying strength and outperformance of the U.S. economy. We've seen pretty much back-to-back disappointments in economic data from China, from the Eurozone, for other countries around the world. And here in the U.S., we're actually seeing, you know, mostly data improvements.

Now, we've got a very important report this Friday. the U.S. jobs report, which may not be as lofty as people anticipate or economists are looking for, but it was still, regardless, to show underlying strength in the labor market. And I think that outperformance will keep the market and keep traders buying dollars. How does the strong dollar and the relatively weaker or weakening currencies of other countries, whether it is the Mexican peso or the euro or the Chinese one, how does that play? into the tariff debate? Does it make the tariffs pinch a little less or pinch the same amount? How can we think about these two things in tandem?

That's a very good question. So, you know, the greatest threat for a lot of these countries, as you mentioned, Mexico, Canada, China in the coming years is going to be the possibility of some, you know, very damaging tariffs. And what ends up happening is that, you know, when you have a situation where the dollar, the U.S. dollar in this case, is so strong. You know, it does make the tariffs a little less painful for Americans, but at the same time, though, I think, you know, if we're looking at it from a trajectory of what it means for those countries, it may make it a little less painful, but I think it still poses a threat to overall growth, and it's going to maybe put, make more manufacturing facilities move into the U.S. and at, you know, at the risk of

you know, exports from those countries, you know, being suffering as a result. Kathy, when I think about the dollar the next year, a couple of years, it makes my head hurt trying to figure out where it's going to go. In the first Trump administration, we saw a run up by inauguration. It kind of just went flat for the next few years before COVID hit. What do you expect this time around? Well, I think, Kelly, it really depends upon whether this is just dealmaking on behalf of Trump. And, you know, we've seen him. meet with Trudeau. We've seen him, you know, talk to the European leaders. And if there is a deal or some sort of concession reached before his, at the beginning of his term or, you know,

before anything gets really serious, it may not really affect the currency market that much. And they may actually, you know, benefit those currencies and push the greenback down a little bit. So I think it really depends upon whether it's like 3D test that he's trying to play and trying to get something that's more favorable for the U.S. or it's a serious threat. He's going to move forward day one, the 20% tariff on Canada and Mexico, which I think is unlikely. So right now, what we're seeing is we're seeing uncertainty and volatility. And investors are still, you know, looking at the greenback as a safe haven. And that is the main driver at this stage. One thing I will say is that over the next year or two, you're going to be on CNBC explaining

this a lot more often than you have been. And then we're all going to have to get a little little smarter about the dollar tariffs and the allied or associated issues. Kathy Lynn, thank you very much. My pleasure. Let's turn to the bond market now. I think currencies have pushed the bond market out of the headlines. Rick's been talking a lot about these international issues as well. Rick, the bigger yield moves have really been in Europe lately and not so much here in the U.S.

Yeah, absolutely. You know, when you have countries like France that have political issues going on, they're going to have snap elections, but they can't happen before. the summer. There's a lot of geopolitical issues. When you mix it all together, it makes sense that the tails wagging the dog with respect to what's going on in foreign exchange. And what's going on with interest rates, it really does at some point come down to issuance and debt. And I think that's one of the hot topics that's going to be in Europe, Germany, and particularly in France. You know, last jobs report, we had 12,000. That was the lightest rate on non-farm job creation

going back to Dease of 2020. And what's more, if you look at the most recent spat of inflation data, and specifically the Fed's favorite, the PCE Corps year over year at 2.8 was warm. Everything about it was warm. Traders are split. Are we going to get a big bounce tomorrow? Because non-farm was affected by weather and hurricanes and strikes last month.

That's what we want to know. My traders are split. What say you, Chem? Well, every single time for the last four years that it comes in slightly weak and people start pricing in a recession or slow down, what happens? The Fed stimulates and you get a big bounce, and then we start seeing inflation heat up again, and all of a sudden it's transitory again. Well, here we are.

Inflation's been sticky. If we get a light number, I wouldn't put too much into it. I think you could very well get an acceleration into January and February regardless. Now, let's take a macro step back and make this really easy. If tomorrow we're all looking and we see a rotten-on-farm number, on the light side, which means we didn't get a big bounce, what kind of activity you think we may see? Well, so more important than macro right now at the end of the year are the flows. You have a significant amount of flows that are happening for different reasons. December is where most of the structure

products are tied, and a lot of the put exposure is because December has been a leap and has been on the board for many years. All of that decays as we go into the end of the year, which leads to a lot of stock buyback. That whole never-shorted dull market is a function of that. On top of that, market's about more than 25% when the market's up big that's a big deal it's a big deal there's a re-leverging effect that happens into the end of the year because there's new investment santa claus is not just a magical construct it is actually tied to happens yep and so regardless of the macro you're going to get a little bit of a of a squeeze higher here actually i think ironically if you get a hot number uh you know hot meaning it's a bigger number okay we're going the other side now right uh

you know, in that type of a scenario, the market should fly, right? But if you get a weak number, ironically, the QE or the lowering of interest rates should be coming in. So it sounds to me like you have a bias that if you had to go into this, gone to the head, you've got to have a position. Sounds like you'd rather be long equities. Don't fight the flows. That's what I would say. And don't sell a sleepy market.

That's always a good thing to say. Kelly, back to you. All right. Thank you, Rick. Thank you both. Still to come, if you're looking for protection against surprise risks in the new year, market navigator is for you. We'll delve into that.

Plus, on the day that Bitcoin has hit 100,000, we've got some meme stocks now joining the party. Hope the Fed is paying attention shortly before 2 p.m. Keith Gill, the trader known as Roaring Kitty, tweeted this, a fake Time magazine cover with a computer and a reference to the 420 meme. What it means is unclear, but what is clear is the sharp resulting move higher and both GameStop and AMC at the exact same time. They're up about 10% right now. We'll keep an eye on it. We'll be right back. Welcome back to Power Lunch on a banner and really historic day. We had the Dow close about $45,000 yesterday for the first time. Bitcoin over $100,000. You can see from the other averages there. We could have some other milestones as well still in front of us. And on that note,

Dom, we're looking at what to do about all of this in Market Navigator. So, I mean, specifically other parts of the market besides just the Mag 7 technology, the war on inflation, not necessarily over at this point. In fact, there's mounting evidence. that the battle could continue well into next year. One of our bond experts, though, is fortifying his portfolio right now against any surprise inflation issues in 2025. Joining us now is Manjou Baraya. He's the head of systematic edge fixed income at all spring global investments.

Manju, thanks for being with us this afternoon here on the market navigator. I wonder what's got you worried about the inflation story in 2025 and how exactly do bond and income investors have to prepare for it? Hey, Dom, thanks for having me. It's great to be here. I think if you look at inflation, I think there was the upside surprise in inflation that we saw just a few days ago. The PC number that came out was higher.

But if you look forward, right, from a policy standpoint, I kind of see risks from three perspectives, right? So the three categories of impending policies that we potentially see, one is around deregulation, tariffs and tax cuts. All three are inflationary in nature, right? Given that, I do see that there's potential for the Fed to either pause their rate cut cycle or even change their stance and even hike their rates if there is upside surprise in inflation going forward.

So I think from my perspective, I think the inflation persistence and policy and certainties are going to play a huge role in the future. Now, Monjiu, what exactly do you do about it? How exactly do you ensure that you can have a port- protected against those kinds of risks in 2025? Yeah, so I would say three things, Tom. So one is just, you know, it's better to go up in quality, right? To manage the credit risk, I would say it's better to, you know, essentially a wide kind of

some of the lower quality sectors and kind of go up in quality. The second is to diverse fight, right? So diverse fight across the duration in curve sectors and geographies. And then the third thing is increase your overall. increase your allocation to tips. I think that's the best way to kind of hedge your exposure, you know, if there are potential upside surprises in inflation going forward. All right, portfolio protection for 2025 and the possible looming inflationary threat still. Minds you, thank you very much for joining us, Mindraia and Allspring Global Investments.

We'll see you soon, sir. All right. Thanks for having me, though. Take care. You know what that reminds me of? What's that? Eye bonds. Eye bonds, yes. We were talking to our financial advisor the other day who said a lot of his clients have been cashing theirs in and taking the three-month past.

on interest just to get out of that product, which was supposed to be a big beneficiary of high CPI, have, of course, CPI has come down. Now they're getting 3% maybe, and they're going into, look at the rest of the market. They feel like they've been left on the sidelines. They have been, because everybody who is pretty much allocated to anything besides Bitcoin and the S&P 500 or the NASDAQQ's, has been left behind. And that's why I wonder if he's right, and if inflation is sticky into next year, will we finally see a turn of events where, you know, maybe, okay, we don't really be in fixed income, but maybe it's more of a hurdle point for the the market for even for Bitcoin and maybe not. I just wonder if dividend investing becomes in

vogue again. Right. Exactly. Get that hedge. Dom, thanks as always. We appreciate it. Tie over to you. All right, folks. Coming up, tens of thousands of U.S. millionaires fail to file taxes. Why? Well, to see if they can get away with it. That story is next. Amin Javers will bring it to us. Welcome back to Power Lunch with the Down Near Session Lows. We have heard of a 7.0 earthquake hitting off the coast of Northern California. Kate Rogers brings us the latest. latest from San Francisco. Kate? Hi, Kelly, that's right. Northern California hit with that 7.0 magnitude earthquake in the last hour or so no. The epicenter was in Eureka, California. That's about five to six hours north of San Francisco where our bureau is based. The U.S.

National Tsunami Center says the tsunami warning has been issued and the quake was felt up and down San Francisco in Silicon Valley, even given that distance. Some of us here in the Bureau did feel some slight swaying, ceiling lights were moving a bit. Local affiliate in the Bay Area, KGO reporting water markers near the epicenter are not moving, indicating that a tsunami isn't particularly likely at the moment. Now, the governor's office says California, Governor Newsom has been briefed on the earthquakes off the coast of Northern California and the resulting tsunami warning and is meeting with state officials now. Newsom also tweeting officials with California's Office of Emergency Services are actively responding to the earthquakes

this morning in Northern California. California should follow guidance from local emergency responders, and he tweets a location to get those earthquake, rather, safety tips. We should also note here in the Bay, Bart, one of our public transit services, suspending service under the Bay. And at this moment, the tsunami warning is still in effect. We will give you any updates as we get them. Back over to you. Kate, thank you very much. Meantime, many Americans seem to be gambling with the IRS, not filing tax returns and hoping to get away with it. Amen Javers has those numbers for us in his latest installment of the Javers files. Hi, Eamon. That's right, Tyler. CNBC has learned that tens of thousands of wealthy Americans

have simply not filed tax returns in recent years, and many of them are not complying yet with IRS efforts to get them to do so, according to data obtained exclusively by CNBC. Now, a quirk in federal tax law may be incentivizing millionaires who want to avoid taxes to simply not file their returns. that's because it's a felony to file false tax returns, but it's only a misdemeanor to not file at all. And what's more, a millionaire not filing a return is highly unlikely to face prosecution at all due to limited IRS and Department of Justice resources to go after them.

Now, in February, the IRS sent more than 25,000 compliance letters to people who had not filed returns since 2017 and had more than $1 million in income between tax years 2017 and 2021. Now, of the 25,000 high-income non-fileers, as they call them, with more than $1 million in income who got these warning letters, only 5,460 or just 24% have since filed their return. 76% of them have not yet done so. That's according to data as of August. So far at least, it does not appear that many of the 25,000 non-fileers identified with more than $1 million in income are facing legal consequences for their failure to live up to their obligation.

Now, I spoke to an IRS official last night who explained that these cases, they can take a long time to investigate, and the tax agency, has, he said, made progress. He told me that they've now gotten 26,000 of a broader group of 125,000 people that they reached out to to actually file their returns. That has generated, he said, $292 million in extra revenue for the IRS this year. Still, he said, there is a lot of work to do. Tyler, back over you. You're sort of playing the odds and saying, okay, it's unlikely that they're going to either catch me or come after me. But if they do, not only would you be subject to misdemeanor penalties, but aren't they going to come after the tax that has not been paid plus penalties plus interest?

And so that could be a big number, ultimately. It could be a big number. And you could do jail time for, you know, if you willfully don't file, there could be a misdemeanor. It could be less than a year. but for, you know, corporate executive or somebody making more than a million dollars, think of the professional ramifications of that. So there are potentially, you know, stark consequences for people here. And we should say that there are potentially legitimate reasons why somebody would be unable to file. Maybe they've had a long-term illness or some other adverse circumstance.

So not all of these people in this bucket are doing something nefarious, but the IRS suspects that a lot of them may be and that there's a lot of tax to be collected from a group that is, what they say brazenly defying tax law and simply taking their chances that the IRS won't get to them. And if the IRS gets to them, the DOJ won't bother to prosecute because it's just a misdemeanor. I don't want to take you into an area that veers off into politics or an area that you're not prepared to discuss. But earlier this week, Hunter Biden was pardoned fundamentally for failing to file and failing to pay, right? Yeah. Was he could have been among those.

And there been cases, 25 or 125,000. Yeah, there have been cases where. people have failed to file and have been prosecuted. So it's not as if they're not prosecuting any. But the IRS told the Senate Finance Committee, Ron Wydenstaff, that there are only 62 active cases right now. Out of that tens of thousands group that we just talked about, only 62 active cases now in process at IRS criminal investigation from that group. So you can see what the odds are there that you might even be investigated by IRS criminal investigation, let alone than prosecuted by the Department of Justice.

The IRS official I talked to yesterday said, look, these U.S. attorneys around the country have to make decisions about what type of crime they want to prosecute in their jurisdiction, and often this one falls to the bottom of the barrel. And so, you know, it may be that these millionaires do have good odds, you know, whether you like what they're doing for the country,

whether you like what could happen to them if they get caught, you know, those are other conversations. Amen, thanks very much. Amon Javers reporting in the Javers file. You bet. Now to Whiskey Maker Brown Foreman, it's the best performer in the S&P today. After posting big sales for Woodford Reserve in its second quarter, the stock is up 10%. We'll trade it in three-stock lunch.

Welcome back. Let's do three-stock lunch. Here with our trades is Courtney Garcia. She's senior wealth advisor at Payne Capital Management and a CNBC contributor. Courtney, welcome to you. We've actually got a lot of movers today. Lulu Lemon is up 1% now. They report after the bell today, but the stock, as you can see, down 32%. this year, an opportunity to pick it up on the cheap or are you staying away?

This is something I'd stay on the sidelines of. This company I'm very much a customer of. I like the company, but as a stock, there's a lot of headwinds that I think aren't going away, mainly the fact that you're seeing sluggish sales and a lot of competition. So you're like a same store sales. They were up 3.2% last quarter, which was up from 2% the previous quarter, but a far cry from the double digits it was during the pandemic. I think the question is, is what is going to bring that growth to justify higher

evaluations that it had several years ago. And not only are people focusing away from with leisure and back towards traditional wear, but there's more competition in the space. You see things like Allo and Viori are real competition to them. And I just don't know what that catalyst is going to be. I think long term, the answer to that is abroad. You're actually seeing China, probably one of their biggest opportunities. It was only about 10% of their sales last year. But I don't think that's going to be a short-term answer for them, probably more long-term. So I'd stay on the sidelines here for the time being. Let's move on, Court to Applied materials. Morgan Stanley downgrading that chipmaker from equal to underweight, weak operating

environment, it says, for two of its key segments, what say you? Yeah, and this is something that is not going to be immune to some of the macro and geopolitical risks that are out there. So when you're just looking at the chip space in general, you're seeing higher inflation, you're seeing interest rates that are, you know, probably not going to come down as fast as people hope. That is going to affect some of these cyclical sectors. But this also is a company that is really well positioned to benefit from that artificial intelligence demand. that is likely going to continue here. I mean, this is a big secular story. And they're well positioned not just here, but they have a lot of opportunity in Europe and in Asia, which is great for the

global demand, but also can be an issue for them geopolitically because about 30% of their sales are in China. So that is a big political football right now that can't absolutely affect a company like this. So I think this is something that's definitely worth to hold for the long run, given all the artificial intelligence demand, but it is going to have some volatility here. So keep that in mind. I think you hold it for the long run, but know that there is absolutely going to be some short-term risks there. Let's move on to Brown Foreman then. They make Jack Daniels and other whiskeys like Woodford Reserve. And it's on pace for its best day in more than four years because demand in that Woodford Reserve brand helped fuel an earnings speed.

This is triggering a lot of discussion across the industry, Courtney, about whether spirits, I guess we call them, are kind of going to make a comeback. Would you pick up the stock here? Yeah, I think this is something you want to see as a buying opportunity. Even though it's up almost 10% today, it's still down more than 20% this year. And I think there was a lot of concern of especially younger generations. Are they going away from alcohol towards things like cannabis? GLP ones will affect this also. I think seeing their earnings speed is showing that that's probably not going to be a short-term issue here. There is still a demand for this. And more than half of their sales are abroad. So this is kind of a global phenomenon. So I'd pick this up as an opportunity. All right. She's picking it up. Courtney. Thanks very much. Check it up the Woodford Reserve. Power lunch will be right back. While December is a busy month at the mall, the other 11 months, not so much. And that has led us to some creative solutions over the next few weeks.

We're going to dig into several ways. Malls are being repurposed, starting with Gabrielle Fon Rouge today on the transition from retail to residential. This is happening across the country in many places. It sure is, Tyler. So real estate developers like Mace Ridge and Brookfield are swapping out dying department stores, for housing. Sometimes the apartments are right inside of the mall, built inside a former storefronts, and other times, their standalone buildings built where a Macy's or a JCPenney used to be. As of January 2022, at least 192 malls plan to add housing to their footprint, and these projects

do a number of things. They revitalize dying malls. They provide a built-in customer base for the shops and restaurants, and they increase the supply of local housing. The real estate executives that I spoke to said there's too much retail in the U.S. Square footage per capita is about four times higher than any other nation, and we need more housing than we need more stores. I spoke with a few tenants of these mall apartments, and it's certainly a unique way of living. Here's what one of them had to say. Welcome to the teeny tiny shoebox apartment inside the arcade. There are lots of others in the building just like this. So mine is about 250 square feet. There is a walkway right in front of the the facade because this used to be a shop front and so people had to access all of the shops

in the building. Tyler Kelly, not all of them are that small but that's just one example of 250 square feet. This hotel rooms are bigger than that. I would live in a mall. I would live in a ball, especially if they had a play place like a daycare. Sign me up. Live work, play. There's one near us that's making this transition. It's fun to watch. Camerio, thanks very much for see you soon. All right. Thanks for watching Power Lunch, everybody. See you back here tomorrow. Closing bell starts right now. Thank you.