Power Lunch - Stocks rally, ‘Pay Attention to the Yield’ and a Stock Draft update 9/28/22

Episode Date: September 28, 2022

“Pay Attention to the Yield”. That’s the mantra of a veteran market watcher who says investment strategies needs to change along with this market. Plus, why Orlando Bravo says growth at all cost is over. And, Tim Seymour defends his stock draft picks Paypal and DoorDash and gives one more name to consider. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

everybody, welcome to Power Lunch. I'm Contessa Brewer. Here's what's ahead. Pay attention to the yield. Patty is the new Tina. As the 10-year yield briefly broke through 4% for the first time since 2008, is this the start of a new era of investing. Plus, we're delivering alpha. Stanley Drucken Miller sees a hard landing in 2023. J.P. Morgan's Mary Callahan Erdo says inflation is here to stay. And in just a few minutes, Orlando Bravo shares his thoughts on the market, deal activity, and what's next for crypto. Yeah, because if you've got alpha, don't keep it to yourself, contests. You need to deliver that alpha. Don't keep the alpha. Contest, I'll see you in a minute. All right, stocks overall, they are rebounding nicely this afternoon, bear market bounce, whatever you want to call it, driven by a retreat in yields, yields down, stocks up. This after the Bank of England announced a temporary bond buying plan, remember they were supposed to sell bonds? They started buying them back, a little quantitative easing coming back. The Dallas Pia Nasdaq, I'm standing in the way.

the screen getting higher, the Dow up 437 points, a NASDAQ, up 1.3%, all kind of about the same. If you watch the exchange, I don't know, like a minute ago, you would have heard Steve Kovac talking about Apple. Well, Apple is down about 3%. You heard the report that basically said that there might be some issue with iPhone production cuts because of sales there for the new iPhone 14 Pro, debated all you want. Either way, there's no debate that the market is certainly reacting. So Apple shares are down 2.8%. And another dramatic day in the bond market, but for a different reason than we've been talking about lately, the 10-year yield dropping in price the most since 2020, it broke through 4% earlier in the day, which is the first time that has happened since 2008. Now we're at 3.74. So some wild moves here. Let's get right on to Rick Santelli for more on the moves.

What is happening here? What is happening overseas? Because it kind of feels like the bond market in 24 hours. got flipped on its head, Rick. Oh, it did. Because Sully, when I was on the train coming in, the big question, people were emailing me and texting me out was how much the yields had risen. What was the last time you saw yields this high? But really, now the big story is they're down 21 basis points in tens.

And everybody's going, what was the last time we were down 21 basis points in one day? And if you look from the high yields where we're at, it's unbelievable. So let's go through it. Here's a two day of tens that's all he was talking about. And by the way, it's an outside day. We have a higher yield than yesterday and a lower yield than yesterday. Does that mean something? To some technicians, it means trend reversal.

Probably a shorter term trend reversal. And look at it. It certainly seems like maybe a one-day capitulation trade. Look at a two-day of gills. Talk about moves. And basically, it's settled at 4%. Now, let's look at two-day of boons, which have settled right around 2-12. And the reason I bring those two up, the difference between the two,

is about 189 basis points. Go to the charts. That is the widest the difference between those two European yields have been in 32 years. It has credit implications. It makes the UK and the Bank of Lehman's job so much harder.

Despite the fact, they took a play out of Mario Draghi's book, do whatever it takes. They took a spot rate out of the U.S. playbook in terms of printing, printing, printing. The difference is the U.S. is the reserve currency. That matters. Look at a two-day-of-the-dollar index.

The reason I'm showing this? Because it's going down. The darling of the globe during all the negativity the last month or so has been buying going higher. The fact that's going down even temporarily gives you a clue as to the impact the Bank of England's purchases, even though it was only 1 billion pounds that's made and how long it will last is the big question, Sully. Because they showed they will support the market. Now the bond market knows it. The government's going to step in. Hey, they cause the problems. They solve the problems. It's amazing what governments can do. Thank you very much. All right, your first guest this hour says the market is transitioning from being called a Tina. There is no alternative to a patty or pay attention to the yield. Names aside, the markets are turning and your investment strategy needs to change with it. Mike LaBella is Senior Portfolier Manager at Franklin Templeton Investment Solutions. It's the peppermint paddy market, I guess.

We'll come up with any name we want here, Mike. I mean, pay attention to the yield. I can get a 12% yield somewhere, but it means the company. company's probably going out of business, how far down the risk spectrum are you willing to go? Yeah, call it what you will. We're in a new world. I mean, just think about even with yields coming off today on the 10-year yield, a 3.7% yield on the 10-year was almost unthinkable a couple of years ago. And it really left absolutely no alternative, especially with most dead around the world negative, then equities. Well, the world has changed. And we're likely going to be in a period of higher rates for longer, a complete reversal of the lower. or longer language we've used of the last decade. And what that means is you're going to have to

be a little bit more selective when it comes to picking stocks. So what worked over the last decade in a period of a Goldilocks economy with low volatility, low rates, loose labor markets, was growth. And essentially, you want to buy growth and innovation at any price. Well, now you've got to focus on a couple of different things. Profitability matters again. We're going to be in an environment with shorter market cycles. You're going to need profitability and company resilience to navigate that environment. And dividends yield. It matters again. Dividends do really well in periods of market uncertainty, especially in periods of inflation. You go back to the 1970s. You go back to the 1940s, choppy markets, high inflation. Dividing yield was about 60 to 70 percent

of the total equity return during those periods of time. Is this the 1970s all over again, Mike? Please say it's not. I mean, I love ACDC, but the market stunk. Didn't do anything for 10 years. I'm hoping it's not the 1970s. I actually think it feels a little bit more than like the 1940s, a period where you had major supply disruptions, a shift in the economy from a war economy, back to a normal economy. And it led to fits and starts. So there's still opportunity for equities. We think particularly within the equity space, more defensive oriented areas of the market, consumer staples like General Mills. You look at parts of the health care sector like Johnson and Johnson, or even utilities like Duke Energy. Do they have places where you can still get two and a half to almost four percent dividend yields, equity market participation. And these are the types of companies that are going to be rewarded if equity market uncertainty continues. If you think it's more like the 1940s, I'm just waiting for Brian to say his favorite musical artist from the 1940s. But in the meantime, Duke Ellington. Next.

You're the, thank you for that, Brian. You're the second guest in two days to suggest that General Mills is a good play right now. I'm curious, even though it's, a consumer staple, even though people have to eat and they want to eat their Cheerios or whatnot, are you at all concerned that consumers, especially at the lower end, are going to begin choosing, say, store brands and that the conventional wisdom about these safe plays may not hold? It's a great question. It's something that has to be watched extremely closely.

Look, the reason things like utilities and staples tend to rallies because they tend to be a little bit more inelastic, right? People tend to have to eat. But to your point, they can choose what they eat. So it's going to be very important to focus on earnings and profitability and make sure that companies that are able to either pass through some of those inflation costs to the consumer. As of right now, it looks like that's holding firm. But again, that's something we're going to have to watch very closely. And again, why profitability matters a lot more today than it did over the last couple of years. Mike LaBella, it's good of you to join us. Thank you for the advice. Appreciate it. A morning of investing heavyweights at CNBC's Delivering Alpha Summit. We've heard from billionaire investor Stanley Drucken Miller who said he'd be stunned if there's no recession. J.P. Morgan's Erdo said there are opportunities everywhere in this volatile market.

Now we're going to hear from Toma Bravo co-founder Orlando Bravo, who's with Leslie Picker at delivering Alpha. Hi, Leslie. Hey, Contessa, you're right. It's been a wide-ranging conversational, important day here at the, the Delivering Alpha Conference. I'm so glad to be joined by Orlando Bravo, as you mentioned. Perhaps we can start macro, because there's been a lot of talk about recession, the impact of inflation. When we caught up in Berlin, you said that there was more pain to come in the tech sector specifically. I'm curious where your head is at right now with regard to tech and just

the potential for a recession broadly. Well, Leslie, first of all, it's really nice to see you. Thanks for having me. Every single LP is asking the question and every single investor is, are you seeing a recession now in software? Do you see it? And the answer is, with roughly $20 billion of revenue in our portfolio, we currently don't see any slowdown, but we can tell it's coming. We can tell that purchasing managers of big companies are really getting in into the deals. They're slowing things down. They're making more methodical decisions. So we clearly see a slowdown, and software will not be immune from that. It'll be more resilient, but bookings, numbers will slow down. Resilient, why? It has a better business model. When you have almost 100%

of your revenues being recurring, you're not that dependent for your business and your profitability on the next sale. You can get through that. And the second thing is overall, the customers in business-to-business software, they make money with your products. Your product solves their inflation problem because it allows them to take out labor in the form of productivity. And the ROI from buying your products is so high that they have an economic incentive to buy the product. They may take two quarters off from buying or they may take six quarters off, but ultimately they will come back because it is in their economic incentive to do so. I want to ask you about the buyout environment and dealmaking and how this all kind of plays

a role here because over the past week, we saw, you know, over the past year we've seen a big slump in LBOs, but financing has become a lot more difficult with the Citric systems deal. That's a cloud computing company. Wall Street's set to lose about half a billion dollars in underwriting the debt that will fund that takeover. Are you seeing some pain in the financing markets right now? How is that impacting the prospect for dealmaking in this current environment? There is pain in the financing market. You mentioned one deal. The bigger pain is in ARR loans when people borrow on revenue because they don't have profitability yet and the profitability is yet to come through a buyout, which most of our industry does really well. Those numbers are down

from four times revenue to two and a half. So there is pain in that financing. Now, it's very important, though, in tech buyouts, especially over the last five years, it's not about the debt. It's about the equity. Most of the deals at the current valuation environment have been done with about a third leverage and two-thirds equity. So if you want to do really big deals now in software, the challenge is actually getting the equity check from your LPs and your community and other co-investors. The debt comes along in less of a form, but in a more healthy way than it did before. So do you think, though, that given that you're seeing, as you mentioned, the signals that a slowdown is coming, is that a buying opportunity for you if you do

have the equity to underwrite such deals, or does that give you pause? It's such an interesting time right now because on the one hand, you have the public software stocks and most of the index is unprofitable. And you and I have spoken about this before when we said growth at all cost is over, investors want profitability. If you add to this a slowdown in their bookings numbers, what is a company worth that is slowing down at the top line and is not making money? So there is more pain to come in the public markets. On the other side of that, you have what you mentioned, the buyout industry, and we're a significant player in that.

Our industry earns the return. We are into buying one of the market leaders that's currently not profitable, but that has a significant market presence and a great product that we can take to 40 to 50% margin. If you do that, and this conference is called delivering alpha, if you can deliver that operational improvement, now it's a phenomenal time to buy.

And there are so many deals in the market. There are so many public companies looking for a solution to their income statement and to their future, given how difficult it is in terms of the valuation environment. One area where you are apparently taking a pause is that in the crypto space. You've been somewhat active in the past. I think it was last year that you announced delivering Alpha that you were a buyer of Bitcoin. You were a big enthusiast of crypto.

And now you're taking a pause. You've been kind of turned off by what you're seeing with regard to due diligence in the crypto ecosystem, some of the crypto-consum. the crypto companies you've been looking at buying. Why is that? What have you seen in these discussions? My personal view on crypto and on Bitcoin long-term remains the same. Who does not want a peer-to-peer decentralized system that is another store of value that can compete with stores of value from nation states and make those more efficient through competition? Also, crypto is a place where so many young, smart, creative people

are doing some really, really good and interesting things. Now, in the short term, crypto has two issues, and we have seen that more and more. One is there's a lack of transparency that needs to be fixed. Lack of transparency and accountability. And at the same time, given that the industry is so young, people are not only figuring it out, but you also get the land of promoters,

where you get a lot of promoters in that over time, We'll be weeded out because they will lose money, but right now those are two challenges. I would say that we are slowing down. We're not taking a pause, but one of the things we like to do is we like to make sure what we have on the ground is successful before we double down on it. So we're slowing down on it, but we're still looking for the premier assets, where we can partner with managers of our ethical standards that are incredible, that we think are also very operational and have the same set of values as we do.

We will continue to do that, but in a more measured way. So perhaps not stopping altogether, but vetting a little more carefully. That's right. Well, Orlando Bravo, we really appreciate you joining us. I know you are just got off a plane from Puerto Rico, where you were helping communities there in the aftermath of Hurricane Fiona. So thank you very much for taking time to join us here after those efforts. We really appreciate it.

Thank you. I'll send it back over to Contessa. All right, Leslie, thank you very much, Leslie Picker and Orlando Bravo. Coming up, Florida's property insurers are losing money, and that was even before Hurricane I. Ian hit, the CEO of USAA Live from his control room where his team is now monitoring the storm joins us. Plus, UBS says the holiday shopping season is deteriorating. He's cutting earnings estimates for retail stocks and will give us the names he thinks are most at risk. Before the break, a look at shares of docusign laying off 9% of employees.

and you can see there, the market likes it, and there you have lift imposing a hiring freeze. And again, investors like it. DocuSign up almost 4%. Lift up 1.8%. Power lunch will be right back. Hurricane Ian has made landfall as a category four, and the damage estimates vary widely.

One disaster modelers, estimating Ian could cause as much as $45 billion in damages and make it one of the most expensive storms in the country's history. It would be roughly comparable to Hurricane Andrew in 1992, adjusted for inflation. But Core Logic looks at all the coastal homes vulnerable to storm surge in that cone of uncertainty that we saw and estimates it would cost $258 billion to rebuild those coastal homes, assuming they were all devastated. The storm is expected to be unprecedented for Florida's Gulf Coast.

One of the top 10 insurers in the state is USAA and CEO Wayne Peacock. joins me from the company's command and control center. Wayne, great to see you. First, can you give me a sense for the magnitude of this storm and what you're expecting to see for damage? Well, Contessa, thanks for having us on today. First, I wanted to say our thoughts are with all of the Floridians who are in the path of the storm.

We've got 680,000 of our members vulnerable as well. And for us, another 3,500 of our Tampa teammates who are in the path of the storm. So I want to kind of reach out to them. But there's no doubt that this is a very large, a very dangerous, and really an unprecedented storm. And I think depending on the track it takes, you know, time will tell on exactly how devastating and how large the damage will be. I have been reporting on the insurance market in Florida. In fact, I described it on our air as being its own kind of special hell, in part because the property insurers, according to the state regulator, have lost money each of,

of the last five years, the last two years, more than a billion dollars in each year. How can you maintain a presence in Florida and still be profitable, Wayne? Look, we have a singular mission, which is taking care of military families. We do that across the country, really across the world. And we have a tremendous number of them

that are here in Florida. And it's our mission to take care of them. So we're focused on that while we continue to work to make this a healthy insurance market and ensure that USA's operations are such that we can be competitive in the rates for our members, but still make a significant and meaningful profit so that we can continue to underwrite

and serve military families in Florida. No doubt, it's a very difficult market in Florida today. And a lot of your competitors can't make it. I mean, seven have collapsed. 15 have left the state. The state-backed insurer of last resort citizens now has 10% of the market. It's roughly tied for leading market share

because it's the only place that people can go and find insurance. They're paying more in premiums for less coverage. Give me a sense of how you see a way forward for Florida to fix these insurance problems, and especially in the face of increasing frequency and severity of climate catastrophes. Well, that's the first step, right, is understanding severity, understanding the frequency and being able to price appropriately. but it's also about continuing to work on the structure of the markets there. And it's about ensuring that companies that are doing business in Florida are well capitalized as well.

USA's been around for 100 years. We have really significant financial strength. And we use that to our advantage to be able to take care of military families in Texas, excuse me, in Florida. And in Texas and in a lot of other places around the time. Well, everybody, hey, Wayne, it's Brian Sullivan. Great for what you do, by the way. The Navy guy, so thanks for helping out the military. Storms are nothing new.

I understand that we want to talk a lot about climate these days. I don't want to get down that path, but you can go to Galveston, Texas in 1906. Some of the worst storms in Florida history were in the early 1920s and early 1930s. And yet the population just continues to grow. I was just in Sarasota. $10 million homes everywhere right on the water. I mean, it's so vexing for so many people, Wayne, why we're talking about one thing over here. and yet either populations are completely ignoring it,

don't believe it, or don't care over there. How do we resolve this? We just keep blowing houses down every 15 years. You pay for them, and then they build them right back up. Well, look, here's what I would tell you. I think we've got to have good rules around building, and I would say FEMA's done some good work in the last few years to help with the boundaries,

to help with fortified home standards, to help with elevations in some of these tough areas. We've got to continue to work on that as one of the options. And then I think for folks who want to build expensive homes on the coast, there's going to be a price to be paid. And insurers are going to have to price that appropriately. So it makes sense for us to continue to deliver coverage for them. Yeah, and one thing that we've seen is that the underwriting part of this has had to come and advance pretty rapidly because of inflation, what it costs for labor and for material. to repair and replace after a catastrophe of this nature has totally changed.

Wayne, it's great to see you. Thank you very much. We hope that you'll keep us in the loop, so to speak, after the storm clears and we're able to see the damage. Well, great. Thanks, Contessa. This is our time to shine. And we do our best work serving military families and tough times like this.

So we're looking forward to being there for them over the next few days. Thanks, Wayne. You know, I think your point is well taken, Contessa, with the labor shortage here, You're just trying to get a contractor to do just normal work is already months out still. With this kind of damage coming, you wonder how long some of the damage is going to be felt because you simply can't get the people. And by the way, this won't affect just Florida, not just because of where the storm is heading. But what happens is the contractors all go where the work is and where they can charge the most, right?

And so what you see is everywhere else in the nation that was expecting to have projects done with contractors may see their projects delayed as contract. go to the path of the storm. You know, the most powerful storm to ever hit the United States was 1935. It was in Florida. And yet the population of Florida was like a million. Now it's 21. Hurricane Andrew, 1992, 13 million people. Now 21. People just keep going there, despite the fact these storms hit every couple years or every couple decades. All right. Up next. A breakthrough at Biogen. Hopefully new data surrounding the company's experimental Alzheimer's drug has that stock soaring. It's up 35 percent plus. We're checking in on the 2000. 2022 CNBC Stocks draft.

How is Seymour Alpha feeling about his team five months later? You're going to hear from Kim coming up. All right, welcome back to Power Lunch, everybody. I want to show you shares of biogen. They are soaring today. The company's Alzheimer's drug significantly slowed the progression of the disease in a trial. Good news. And this was a phase three trial with 1,800 patients over a year and a half.

That is lifting the entire biotech sector with both the spider and the I shares biotech. ETFs up nearly 4%. Other companies working on Alzheimer's treatments also getting a boost today, including Eli Lili up 7% and hitting an all-time high. All right, let's get a check down what's happening in Florida and other news. The CBC News Update, and CMO MOA. See you. Brian, here's what's happening at this hour. The Eye of Hurricane Ian is just 25 miles from Fort Myers, Florida. It remains a strong category four storm with sustained winds of 155 miles per hour and Gus reaching 190 miles per hour. Ian is expected to slow down when it comes ashore and dump 12 to 18 inches of rain across a broad swath of the state. In the Baltic Sea, the North Stream natural gas leak

may end up being the equivalent of 16 million tons of carbon dioxide being released into the atmosphere. A Danish official says that's a third of Denmark's annual carbon dioxide emissions. And Lehman brothers, remember them? The liquidation of its brokerage unit has ended 14 years and 13 days after the company filed for bankruptcy and helped trigger the financial crisis. In all, more than $115 billion was paid out. Customers and secured creditors received all the money they were owed. Unsecured creditors got about 40% of their money back, about twice what they were originally expected to get. Lehman's bankruptcy remains the largest in U.S. history.

Back to you. All right. Seymouth, thank you very much. All right, coming up on Power Lunch, retailer VF Corporation issuing a strong warning about the economy. Could we see the holiday spending take a major dive this year? Plus FXEffects. The dollar index around a 20-year high. The pound is tumbling despite Bank of England intervention. We'll take a look at those ripple effects. That's next on Power Lunch. Well, less than an hour and a half left in the trading day. Let's get you caught up on the markets,

on stocks and bonds and commodities. And a look at how a potential recession could affect retailers this holiday season. Let's begin, though, with Bob Pisani at the New York Stock Exchange, where stocks are rebounding off of those 2020 lows. Hi, Bob. You know, Contessa, in one sense, this is a very strong rally. We're holding up at the highs, no big attempt to sell off, 10 to 1 advancing the declining stocks. Haven't seen that in a while. That's not a nice reversal. And the S&P is about to break a six-day losing streak. So that's a good sign. Oil is back above $80, and this is a proxy for growth, remember? So we're having a nice bounce in some of the what I call high beta energy names, Devin Energy Hess,

some of the refiners bouncing APA also. These are high beta names. They move more than the overall market, overall energy market when stocks are up or to the downside. Elsewhere, when you get lower yields, of course, that means the potential for lower mortgage rates. And it's nice to see a bouncing home builders, which have also been collapsing in the last two weeks. So nice move up, 5% moves. That's pretty significant in Lennar Horton and Pulte Group. Before you get too excited, I say it looks pretty strong. And yet I follow baskets of most oversold stocks. And the mounts is pretty modest here. Intel has collapsed. It's a new low in the last two weeks. That's all you can muster. 0.3%. Coca-Cola was down seven days in a row. This is the

biggest losing streak for Coke since 2018. And that's all, 0.8%. McDonald's, eh, McDonald's. Visa's collapsed. It was 206 two weeks ago. 206. Look at it 179. Now, that's it. So temper your enthusiasm a little when you see that the market is not going after beating up stock. in any kind of aggressive way. Finally, as you heard there earlier from Brian and Simo, there is a big hurricane bearing down in Florida. There's an ETF for this, believe it or not, FEMA, FEMA, and most of the names in that particular exchange traded fund Home Depot, Floor and Dacore, Masco, which does home appliances, ACOM, which does infrastructure work, all up three to six percent. Contessa, back to you. All right, Bob Pisani, thank you for that, a wild day in the pond market.

with a 10-year yield earlier hit a high of just above 4%. First time hitting four since October 2008, but then you see a big turn lower since then, now sitting at 3.7 3% yield. That turn lower coming off the Bank of England, saying it will buy back long-dated bonds to stabilize the pound. And oil closing for the day, heading sharply higher back above 3%.

Pippa Stevens has those details from the commodity desk now. Pippa. Hey, Contessa, prices are jumping with the Nord Stream pipeline leaks in Hurricane Ian in focus. A regulator said just now that about 158,000 barrels per day of oil production is currently shut in in the Gulf of Mexico, thanks to the storm that is less than yesterday and a very small portion of overall U.S. output. The latest inventory report is also supporting prices after a decline in both crude and gasoline stocks. WTI is up 4.8% at 8224 with Brent crude at 8.2.4, with Brent crude at, 8942 for a gain of 3.7%. And over in Europe, natural gas prices are jumping with a contract

back above 200 euros per megawatt hour. Officials are investigating the cause of the North Stream pipeline leaks with the EU vowing a robust and united response, adding that all the available information indicates the leaks were the result of a deliberate act. Contessa. All right, Pippa, thank you for that. VF Corp trading lower after cutting its second quarter and full year outlook. It says weak demand and increasing inventories and more promotions. Well, it doesn't really bode well for the upcoming holiday shopping season. Our next guest says, in fact, it's deteriorating quickly. Let's welcome in Jay Sol, who's a retail analyst at UBS.

Jay, it's good to talk to you. Are there particular segments that you think are going to get hit worse than others in this holiday shopping season? Well, hi, contestant. And thanks for having me on the show. Really, the entire apparel and fuller industry is probably going to be nice. negatively impacted by the impact that inflation is having on consumers and some of the other issues that are going to make Christmas, this Christmas holiday season, you know, a difficult one for retailers and brands.

And when you're looking at those apparel retailers, are there specific retailers that, you know, if they cater to a budget-minded crowd that will get hit worse than, say, luxury brands? Yeah, well, you're making a good point because we've been seeing that all year. retailers that cater to lower income consumers, whether it's off-price retailers or department stores or especially retailers, maybe that cater to the teen market. You know, these retailers have really struggled this year. And a lot of the reasons that those retailers have struggled are going to continue to be in play as we go through the rest of this year and through the holiday season. Hey, it's Brian Jay. Did they botch their inventory? Did they over-order? They couldn't get anything

forever. Then a window opened up. And all I hear about is people over-ordering, and now they're going to have to discount. Yeah, you know, Brian, that's an important point. One of the other reasons that this is going to be a difficult holiday season for the apparel and footwear industry is because there's way too much inventory out there. You know, one reason that that's happening is because, you know, supply chains have been very congested. Everybody's been talking about West Coast poor congestion for the last 12 to 18 months.

And so retailers had to order inventory much earlier than normal. So when they ordered inventory for this holiday season, it was really about a year ago when before people really realize the impact that inflation was going to have on the consumer. So they placed bets thinking that the consumer would be very strong. We'd have a Christmas season just as good as last year. Now, since that's not the case, there's not a whole lot retailer can do other than try to discount the inventory that they've got. That means gross margin pressure. If they think that the American consumer can't be relied on this holiday shopping season,

do you think that they're going to restrain their advertising and marketing spend? Well, I think the answer to that is yes. I think one consequence of inflation is that we're not only seeing pressure on product costs, but they're also seeing pressure on operating costs. And what that means is the cost of operating stores, the cost of fulfilling online orders, all that is rising. And when costs are rising in an environment where sales are dropping, they have to find other areas to cut costs in order to maintain at least earnings close to what they promised Wall Street. So I think what you'll see is areas that can be cut like marketing and other advertising expenses will be cut. Jay, let's put up your likes and your dislikes where these stores are concerned.

I'm looking at onholding Swiss Performance Running Shoes, Capri, Decker's Outdoor Corporate. which is like Uggs owner, Gilden ActiveWare versus you like those, and then you don't really like Burlington stores, Haynes Brands, Abercrombie, Fitch, Coles. Three of those on your dislike list are budget retailers, which we were just talking about why they might have more problems. What do you like as a group, especially, it seems like you're including a lot of activeware companies in there? Well, we do like active wear as a trend.

You know, some people think that active wear got a big boost from the stay-at-home trend that maybe will be hurt now that people are returning. to work, but we think it's a much bigger trend that'll continue to be successful and drive a lot of growth. That's one reason we like on holding. Contessa, you mentioned Capri Holdings, and we like that company because they own two brands, Versace and Jimmy Chu, that are really catering to that luxury consumer. I call them Capri because, you know, the island of Capri and Italy, you know, just well, you pronounce it the right way, actually. All right, Jay Sol, thank you for the recommendations. Jay Soul from UBS. Appreciate that.

Thank you so much. Cone Tessa. Yes, Kone Tessa. It happens. All right up next, King Dollar, acting more like King Kong, wreaking havoc everywhere, emerging market sitting the hardest. How far could it go? We're going to dig in with Sima Modi coming up.

And as we had to break, throughout Hispanic Heritage Month, we're celebrating our CBC teammates, colleagues, contributors, and frequent guests. Here's former United Airlines chairman and CEO, Oscar Munoz. A bias exists in America. It always will. We just have to be honest about it. And I think for underrepresented minorities in particular, there's an old adage that sometimes you have to work twice as hard to get half as far.

I do believe, from my heritage, we believe we want to earn our place on this earth, on this planet, and our communities. And so, you know, if you look at the statistics, we're not just a growing community, which everyone talks about, but we're a growing economic environment. We are voters. We are purchasers to large, large amounts. I mean, the GDP of the Latino cohort in America is equal to the seventh largest nation in the world. That's how you want to look at us as someone to market to someone to embrace. Back to power lunch.

Maybe call this the bond shot heard around the world. The Bank of England rolling over and going back to buying bonds impact in the UK and other markets. Sima Modi joining us down with a look at how the moves by central banks around the world are playing out particularly in the emerging markets. Sima. Brian, here's the thing. It is not just the Bank of England. Central banks in other parts of the world are using different tools to support their economies.

This morning, India stepping in to buy dollars after the rupee hit a record low of 82 versus the dollar. China unveiling risk reserve requirements to make it more difficult to bet against the yuan. And Indonesia intervening in the FX market to prop up its currency after sliding to its lowest level since 2020. Beyond getting involved in the currency market,

says policymakers could go even further by unveiling measures to boost capital inflows or mandate their exporters to sell in local currency. I asked Krisham Amani, the CIO of Lafayette's endowment, $1 billion in assets under management about what this all leads to. And he says a debt crisis may be premature. At this point, they're holding on to emerging market equities. No plans to cut their exposure, but clearly a larger conversation because many times people say history can repeat itself, contestant, and Brian. You've got the dollar impact to your point.

You've got the bond impact to your point. If you look around the world, SEMA, do you see any markets that are particularly scary right now? Yeah, right now, the frontier market. So you have emerging markets. There are those that are a bit more developed, India, China, Taiwan, South Korea.

But then there's the frontier markets like Pakistan, Ghana, South Africa, ones we don't typically talk about, and our audience may not have as much exposure to, but once they start to crumble if they do, that has a seismic effect on other countries that own their debt. So there's certainly a way where this could all get back to investors. And these are also nations. You just mentioned that are facing food cost crises as well. And food shortages in many cases.

Exactly. Seema, thank you very much. All right. Up next, a stock draft edition of our three-stock lunch. Tim Seymour struggling to gain footing with his picks, PayPal, and DoorDash. Can he make a comeback? We're back in two minutes. All right, welcome back. Time now to check in on the CNBC 2022 Stocks draft. Today we are joined by the currently ninth place team out of 10.

That is Seymour Alpha, DoorDash and PayPal, leaving that team down 21% this year. Tim Seymour joining us now. He has Seymour Asset Management, CIO and a CBC contributor. And Tim, you know, listen, I'm not piling on with a ninth. I started the stock draft. Kevin Flynn and I and Mandy Drury created the stock draft. So I know how you, and I think you were in the very first one, which is you play the game to win, which is you're going for for big alpha stocks that may or may not perform. You're not buying

Boeing because it's safe. Well, that's right, Brian. I appreciate the support. And Contessa, don't laugh because, I mean, this is what we do here. She's laughing. And, you know, 275 basis points higher on the Fed since we had that draft. The cycle has certainly been shortened and the longer duration stocks like PayPal, certainly like DoorDash. But you know what, Brian, this year's different. is a long season. I mean, look, it's different this year for the Mets, right? I'm feeling pretty good about them. And I think Seymour Alpha has a shot down the stretch. We're storing up our resources for a minute. How can you feel good about your pick in DoorDash down 41% since you picked it in the draft? Well, we've gotten to a place where it's all about what multiple are you paying

for companies like this. DoorDash in their second quarter numbers, they actually beat. They have not indicated softness. They are an industry leader in delivery. They deserve a premium to that group. The question is, what are you willing to pay? And three times next year's revenues, not expensive relative to itself. What's the market want to pay for this company? But yes, as Brian pointed out, the strategy was to buy a bombed out company that's still a leader and a company that I think even going from terrible to bad is when you tend to win this thing, although I haven't won it yet. So we'll see. It's hard. It's been going on for a while. All right, let's talk about a bonus pick. A redemption. If the stocks draft were held today. And you live in New York, Tim, I know, so you

probably take Uber's all the time. And if you do, and our audience does, they know this. Uber's gotten really expensive. You could do like an $18 trip. Now it's like 50 bucks. And the driver's not making any more, at least the drivers I talk to. So the company must be making more. You like Uber. I like Uber. And I think transportation as a service, this is the global leader. And I think if you look at the, even the headwinds we have recession or not, this is an idiosyncratic macro play because it's about driver supply, which I think gets better. It's about normalized demand trends, which I think get better, even in a recessionary environment. And I think this is a company that, that again, is not a company that is you're worried about the balance sheet.

They have $12 billion in cash and equivalents right now on the balance sheet. It's a company that will probably do 3 to 4 percent free cash flow yield by 2024. I know we've struggled with profitability here. I think they've turned the corner. Those second quarter numbers were very strong. This is a global leader to be buying this over at least a medium term. And again, the stock drafts one year. If I was buying this stock for two to three years, it's no question. But I think Uber's been beaten down. It had a big bounce. And I think you like this one here. Listen, Tim, it's okay. You're not in last place. It could be worse. Who is, by the way? I don't know. Does it matter?

Do we want to out there? But again, I can only go up. Can only go up. All right. Tim Seymour, thank you. That's it. Thank you. What is it? Year 9 or 10 of the stock? It's changed the lawsuit. I don't like how you say stocks draft. Stonks draft. No, no, I prefer as single. We started it in a room, Mandy, jury and I and Kevin Flynn up at the boardroom, and it was like

somebody had some hats. We made a trophy out of like aluminum foil. I like it. Now it's like a big deal. It's all growns up. This is how founders work. Up next two of the day's most important. You've got, you just gave yourself credit.

So, good job. Okay, two of the most important stories on our radar coming up. Power Lunch will be right back. All right. All right, welcome back to Power Lunch. Before we go, let's get a couple stories that are on our radar. We've got to start to test it with the Nord Stream Pipeline leak. I mean, this could be the most impactful big story of the year outside of the actual invasion. Nord Stream 1, Nord Stream 2,

both blown up, seismic activity. They believe it is some sort of a bomb, device, mine, whatever you want to call it. Obviously, there's been gas coming out, which people are asking, why is their gas coming out when they've been shut off? Well, they're still pressurized. That's why. They don't just drain them of the gas. They just sort of stop it at the beginning here. Obviously, an environmental, potential environmental disaster and the world wondering. who is responsible? Is it Russia blowing up their own pipeline? Is it a Ukrainian sabotage operation to punish Russia? Is it somebody else? This is a giant story. It's a scary story, and it's a big story, and it's one to watch. So we already know that the issue facing Europe this winter

about fuel supplies is a really desperate one. I've heard something about this. So talk to me a little bit about what the impact is of this leak and how much worse does the crisis get for you? Well, the impact right now is not much because the pipeline's been shut off. But we had a guest on in the exchange. It was actually Nikita Khrushchev's daughter or granddaughter, excuse me. So the pipeline leak may be actually a kilometer or too long. It may be parts of the pipeline are blown up and gone. If that's the case, listen, even if somebody takes out Vladimir Putin tomorrow, and let's hope they do, right? Is Russia just going to turn it back on and come back on the world stage and everything's fine? Nobody I talk to thinks so. And are there other concerns? And are there other

events elsewhere, like refinery fires? Am I being interviewed here? I'm just curious. You know everything about it. There's been eight refinery or power plant fires slash explosions around the world in the last two weeks. One in Toledo, Ohio, and Whiting, Indiana. Unfortunately, one of those did kill some American workers, our thoughts to them. One in Venezuela. They blamed on lightning. One in Argentina. One in Poland. One in Iran. There's been a lot of weird stuff going on. I think energy security is national security.

All right. One of the other stories that is on our radar today, Elon Musk is accusing the SEC of unlawfully musseling him. It's an accusation that's related to the 2018 securities fraud settlement. Now, Musk signed it after he tweeted about having funding secured to take Tesla private when, in fact, funding was not secured. In a legal brief now, Musk's attorney contends his free speech rights were violated by that settlement. He says that the provision requiring Musk to get prior approval before tweeting about Tesla is overarching. His attorney calls it an illegal muzzle on his speech before it's even made. The SEC is investigating whether Musk violated the settlement last year when he asked Twitter followers if he should sell his 10% of his, of Tesla stock. I mean, basically

you have Elon Musk saying he should be able to tweet whatever he wants and not have to ask permission for it. And his attorney says, there was no way he could voluntarily sign away that right because he didn't understand how far reaching the SEC would be not only about the tweets, but about just investigating him. It's so bizarre. It's like he, he, He wanted to buy Twitter because he viewed them as in some ways undervalued, but also hampering speech, particularly around COVID. If you said stuff, by the way, stuff you could say now, you couldn't say a year and a half ago. You get banned. Now it's like free flowing.

And now they're fighting about free speech rights of the court. But he's also arguing that, you know, there was a financial impact to him by not being able to tweet. He's the world's richest man. So the SEC is, you know. If there's an impact, how much impact could there be? Right. He's already number, numeral no. Hey, this was fun.

A lot of fun. Yeah. First time ever. I'll see it again. It's only been 10 years in the making. Three or four years. I'll see you. Thanks for watching Power Lunch, everybody.

Closing bell starts right now.