Power Lunch - Tesla’s critical quarter, a VC power player and three stock lunch. 10/19/22

Episode Date: October 19, 2022

Tesla’s critical quarter. Will the EV maker report near record profits even as the company deals with supply chain snarls, disappointing deliveries and rising borrowing costs. Plus, Khosla Ventures CEO discusses all of the money backing clean tech startups. And buy, sell or hold three of the day’s earnings-related movers. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon. Welcome to Power Lunch, everybody. I'm Tyler Matheson, along with Contessa Brewer, and here's what's ahead this hour. Tesla expected to report near record profits, but with disappointing deliveries and rising borrowing costs, we're taking positions ahead of one of the most anticipated reports this earnings season. Plus, a venture capital power player, Kozla Ventures, CEO with us to discuss the industry dealmaking and the approximately $70 billion that VCs have put into clean energy startups over the past two years. years. The power lunch exclusive, by the way, contestant. All right, Tyler, thank you for that. Stocks pressured by higher yields. Let's take a look at the Dow Jones Industrials. Off 224 points right now are three quarters of a percentage point. The S&P 500 is off by a percent. And the NASDAQ composite has dropped by 1.3 percent in the bond market. The two-year yield hitting a 15-year high. The 10-year more than a 14-year high. Look at that. The yield, 4.115 percent. And the 30-year yields rising to an 11. year peak with the yield now at 4.11% as well. Oil prices rising, even as the president outlines plans to bring them down. The oil services ETF up for a third straight day, led by Baker Hughes

up 5% and Liberty Energy is also up 5%, Tyler. All right, thank you very much. Let's get to Tesla. Earnings report this afternoon could shed some light on the company's growth outlook. The stock down 37% this year and off nearly 50% from its 52 week high. The company coming off disappointing deliveries, now facing rising borrowing costs, production snags, questions about Elon Musk's Twitter purchase and his focus on Tesla. Let's bring in CNBC contributor Tim Higgins, reported with Wall Street Journal's and George Gianakaris with Kanakorgenuity. He currently has a buy rating on Tesla with a $304 price target. George, you're a little more optimistic. than some of your peers.

Look, our view is a 12-month to long-term view, and we think that the company's incredibly well-positioned to take advantage and leverage the EV revolution. But that doesn't mean that near-term, you know, we've talked about in several notes, some of the breadcrumbs that have been out there that we and others have picked up that would lead you to believe there's been a demand slowdown,

at least in China. You know, and we're also worried about a potential air pocket in the fourth quarter, the U.S. from consumers if some of them wait for an EV tax credit to kick in starting in 2023, which, by the way, Tesla buyers haven't had available to them in full since the end of 2018. But, George, this may come back for those buyers, you say, after the start of the year. Correct.

That's the plan. Yes. So we're worried that if some buyers decide not to take advantage of Q4, buying period and wait until that credit comes back, that. that may kick in some demand and push it out to the first quarter of 23. Tim, is the stock being punished overly for the kinds of hairballs that we cited there in the intro? In other words, delivery snags, production snags, questions about whether Mr. Musk is sufficiently focused on Tesla or not. Why is the stock down as much, or is it just basically the market is down?

Or are they over focusing on those hairballs? Well, I think there's a lot of drama around the stock and Elon in general. You've just laid out a whole heck of a lot of distractions and issues before him and the company. But, you know, this is a growth stock. It's long been a growth stock story. And it comes down to the issue of supply and demand. Real concerns about the demand going into the end of this year and into next year. Tesla, for a long period of time, has said it's always,

been a supply issue for them, that there's plenty of demand out there. They just can't make enough cars. Well, now it's really going to be tested. They've got these factories in Germany and Texas coming on the line. They've got China really ramping up. And now we're going to see, are there people out there who want to buy this vehicle, the Model 3, the Model Y, at these high prices that we've seen over the past six months past year? Or will the company have to slash prices? Will the company have to slow down production? Will it be able to keep this 50% annual growth rate towards becoming the world's largest selling automaker? And that's the real question. You know, I'm curious about China because it's largely seen as the growth engine for Tesla.

And yet we just saw Xi Jinping double down again on the zero COVID infection policy, which has hurt the economy in China. We have seen the delay and we don't know when they're going to come out of. new economic reports out of China. So, Tim, what's your sense of how the uncertainty around China plays into Tesla's immediate future? Well, I think we've seen some investor concern over the last week or so trying to parse its numbers, what the level of demand for Tesla vehicles is in country, especially as they've been ramping out production. And, you know, that is kind of playing out in the fact that you're seeing the amount of time of taking to get vehicles to customers

decrease to several weeks from several months. So that's raising concerns that maybe demand is slowing, which could be a huge problem for Tesla if that's really the case going into next year. George Genericus, and I just want to use your last name to show that I can pronounce it, damn it. Well done. Better than my mom.

Give a second time each other. Two-take Tyler. Two-take Tyler, they call me. So let's talk about currency, which you don't think of necessarily as a Tesla. a headwind, but it could be, couldn't it? Sure. You know, we've had a lot of strength in the dollar to put it mildly, and the company

sells plenty of vehicles outside of the United States. And so there might be some near-term issues around currency and the translation there. We don't think it'll necessarily be a profit issue, but maybe some demand destruction or revenue destruction in the near term. I do want to say, though, just to point out about the demand and what the they'll produce next quarter. We think that the whisper or the bars around 400,000 vehicles for Q4 deliveries, we think they'll get that done. But the real nuance here is the commentary on the call, which will be incredibly important to listen to. Orders are not a metric that

Tesla reports. And we'd like to hear from them about what they're seeing out there and how the second derivative of order growth has changed, if at all. And that's really up to the company to tell us about and for Elon Musk to report back to us. And just another final point to make here, too, that what we're debating here is really whether or not Tesla will grow by 50 or 40 or 30 percent, but we have a high degree of conviction that they will grow. And so if we do have a recession or are currently going through a recession, it will likely moderate Tesla's growth.

But competitively, this may be a really good opportunity for Tesla to do much better than their competition, who may have a lot of difficulty going into a recession. All right. We've got a 304 price target, the stock in the 220 area right now. George Genericus, they have even spelled it phonetically for me in the teleprompter. That's how much confidence they have in me. And Tim Higgins. Go ahead, sir? All done.

Thank you. All right. Tim Higgins, thank you as well. All right, the Fed releasing its beige book. Yes, sir, Rhee. Let's get right to Steve Lee. Steve. Tyler, thanks very much.

A very mixed beige book where they said economic activity expanded modestly. That's actually an upgrade from the prior beige book. This collection of address from the 12 Federal Reserve Districts had previously said. Economic activity is unchanged. Now it's saying that it grew modestly. Four districts said activity was flat. Two said there were cited declines due to high interest rates, supply and disruptions. Retail spending was relatively flat across many districts.

auto dealers among those saying that sales were sluggish, part of it was limited inventories along with higher prices. One bright spot standing out with unequivocal language. Travel and tourist activity rose strongly, and you know that's true with the planes being full all over the place. Now, this is interesting as well. Manufacturing held steady due to easing supply chain restrictions, and we haven't heard that in a while, so that's pretty good news.

However, back to the bad side of things I told you this was back and forth, rising more mortgage rates and elevated home prices did weaken housing starts quite substantially. Employment rising at a moderate pace, but there was some cooling reported in labor demand across some of the districts. There were scattered mentions as well of hiring freezes, but labor market conditions overall were said to be tight. Some businesses said wages were rising due to inflation as well as labor tightness. Wage growth overall was expected to continue.

On the prices front, they remain elevated. some easing noted across several districts. Significant input price increases were reported in a variety of industries. And then again, this kind of contradiction. Solid pricing power reported, but also some consumer pushback. Overall, expectations for price increases were that they would generally moderate over time. So I don't know, guys, maybe a touch of progress here in the fight against inflation with some comments about supply disruptions easing.

but you don't want to take it too far because the other side of that story is still also mentioned quite a bit in this report. Your reporting is a little bit like watching a tennis match back and forth, back and forth here, Steve. I'm just curious when you're talking about supply chains, because early in your report you mentioned that a couple of the districts reported some problems because of supply chain and then supply chain easing. You know, what's your expectation moving forward that that will stop being a fact? and what we hear reported. Yeah, so I guess this I'll be respond with my forehand, contest as opposed to my backhand. I think there is some progress out there. I mean, before this, Facebook, we had heard that there was some progress being made.

And if you have manufacturers saying, hey, we can manufacture things because we have the stuff we need to manufacture it, I think that's an important part of the story. Look, this is not going to clear all at once. And by the way, the U.S. economy being a very dynamic one, not everything is going to get better all at once to the extent that it does get better. So I'm not surprised to see a mixed beige book. And I would, by the way, expect the mixed beige book on the cost of things improving. Whether or not this is the one that says, hey, all of these things are getting better at once, well, definitely not yet. But you would expect to see some incremental progress just the way, Contessa, you may not remember.

But we went into this mess. This is the kind of beige book we had as well with the idea of there were scattered supply disruptions that were mentioned by people. That was before supply disruptions became so huge. So maybe this is a part of a turning point here. I don't want to take it too far, but I do want to make note of the progress that's been in here, especially after a series of beige books and all kinds of corporate reports that everything was sort of awful all over. All right, Steve, thank you for that report. We appreciate you jumping on with it.

All right. Pleasure. Coming up is the pain over for Netflix. The stock is up 14% after adding more subscribers than expected. And that wasn't the only surprise. Plus, creative bond offerings. Carnival wants to refinance a huge pile of debt, but this time around there is a catch.

And before the break, shares of the hair care company, Olaplex cut in half, hitting a record low after slashing its sales forecast. More power lunch in two minutes. Well, stocks off their lows on the session, even as Treasury yields hit multi-year highs. Our next guest says it's important to stay invested in equities in spite of the volatility. Let's bring in veteran market strategist, Hugh Johnson, Chairman and Chief Economist with Hugh Johnson Economics.

It's great to see you today. We just had Steve Leasman on with the Fed, Bejew, and I guess the headline here is that there was some expansion, some modest expansion here in economic activity, Hugh. What does that do for your thesis about just staying put in economic activity? Well, it worries me when you start to see numbers that are numbers that are getting a little bit stronger, whether we measure it by GDP or we measure it by employment, because that means the Federal Reserve is likely to be thinking about or considering raising their so-called terminal rate, which really means their terminal rate right now is about 4.4% for 2022, 4.6% for 2023. And when you start to raise your terminal rate or the Fed goes a little bit further than we currently expect, that means longer term rates is measured by the 10-year Treasury is going to move higher, and that means the upside potential for stocks is going to be lower.

So the big risk right now in this market is that we kind of know or we have a good idea what the Fed's going to do, but if they go further, they say they're very resolute. If they go further, that raises a big risk to the stock market. In other words, the upside position. potential gets eroded. We also heard from the Bejbuk report that travel and tourism rose pretty significantly here, strongly is the word that Steve used at this point. To that point, we've seen consumer discretionary among the sectors that have outperformed. So where would you feel comfortable investing in equities right now? Well, I'd still feel comfortable. You know, I think you've got to

kind of contest and sort of split it. You've got to recognize that there's risk now. And so you have to have a little bit on the defensive side. Don't worry about consumer staples and utilities as good defensive sectors. But at the same time, what I'm worried about is that I think in time, we're going to see a hard landing. And not right now, not when the numbers are like Steve is pointing to, but in the first and second quarters, we'll see a hard landing. Under those conditions, we're likely to see at some point a turn higher in stock prices. So you don't want to be all defensive. You want to look at some of the things that are really working, even right?

now, such as industrials. Industrials are performing well on a relative basis. They're high up on the performance ladder as is consumer discretionary. So take a look at those two. You've got to have balance now. You've got to recognize we're getting towards the end of the bear market, towards the start of a bull market, and you've got to be kind of positioned a little bit on defense and a little bit on offense.

So let me ask you a tactical question, Hugh. Let's say I am scared. I'm worried about a hard land. and I'm worried, even though my equity portfolio has been cut by 20% this year, I've lost 20% or thereabouts. And I want to prudently sell right now. How do I go about doing that? Do I sell the same way I might buy, which is to say sort of using reverse dollar cost averaging? If I'm at 70% equities and I want to get to 60, how do I do it smartly?

Well, you do it the same way as you just suggested, Tyler. I think the answer to the question is a sort of a reverse dollar cost averaging. And the main thing you said, which is implied in the numbers you just gave me, going from 70 to 60 percent in order to try to sleep at night, I think that's a good idea. If again, again, you can't sleep at night. But let's do it in stages, do a little bit now, do a little bit maybe at the end of the first quarter and at the end of the second quarter. The one thing you don't want to do, which is what's implied by what you say, is make a significant wholesale reduction in your allocation equities. The reason I say that is because I think we're, obviously, I think we're closer to the end of this fair market and the start of a bowl market. And I would not want you to see you burn too much of your equity position or your upside potential.

That would be a rookie mistake of the sort that I'm most prone to. Hugh Johnson, thank you for the wisdom. We appreciate it, as always. All right, let's go now to our tech rundown. Netflix shares spiking after surprising investors with its subscriber editions and said it was very optimistic about its new ad business. Apple, set to report next week as shares stabilized following a report. The company is cutting, already cutting, iPhone 14 plus production,

and meta, reporting in a week as their recent Metaverse event failed to, well, impress investors. Here to discuss it all. Laura Martin, senior Internet. and media analyst at Needham. Laura, welcome. Good to have you with us. Let's talk Netflix first. The stock has been on a nice ride recently, though off its highs, obviously. What do you make of Netflix's numbers, and what do you make of the fact that they say they're not going to guide in the future, as I understand it, on net subscriber ads? What does that tell you? So it tells us, despite the fact that they're cracking down on password sharing,

and the fact that they should add subs from their lower cost $7 a month tier that they don't think they're going to actually add net subs, which surprises us. So they're going to focus on revenue and on the P&L. But we're very, you know, we're concerned about that because if the $19 tier downgrades to the $7 tier, you need to add two new subs to equal the loss in the monthly premium tier in the U.S., which is their highest arque area. You go ahead, I'm sorry, I beg a part. They're arguing that only $10 subs will downgrade to the $7 tier,

but the studies out from Harris, from Samba, from Omita, all show that 50 to 60 percent of Netflix subs are saying they're interested in taking the ad-driven tier, which would be a huge down draft and revenue for them. So you have a hold on this stock. Is this a hold, meaning you're comfortable owning it here, or is this one of those wink-wink holds that basically, is a sell. Well, on today's strength, we would be sellers answering your question of the prior guest. We'd be selling meta and using it as a source of funds, and we would be selling Netflix

into this strength. All right. Let's talk about Apple then. The company is reporting next Thursday. Investors will get more information on the iPhone 14 production. Spent a lot of time, though, talking about its watch instead of the 14, Laura. Yeah, 14 was very unimpressive. I couldn't think of a single reason somebody should upgrade to the 14. And in point of fact, a lot of people when they got those $800 windfalls from the government during COVID went out and bought an Apple iPhone. So they sort of people aren't in the point that they need to replace those phones that they bought during COVID yet. So I expect the 14 to be weak in addition to the fact we might be going into consumer recession. But I expect it to be a weak sales year for them. I'm going to focus on a real

niche here. They are focusing on their women products. So they were talking about the watch's ability to track ovulation and menstruation and all that. It seems odd timing, given the court's reversal of Roe v. Wade and so many women canceling their apps that do the very same thing. You know, what I would say about that is that I think they're seeing maturity in their watch product. They've been really targeting it on fitness, which is a little more male. So they're really looking for products. What happens when you buy an Apple Watch is it locks you into the Apple ecosystem, right? Because your watch talks to your iPhone. So they're trying to figure out a way to lower churn or have a cheaper on-ramp into the Apple ecosystem. The watch is much cheaper than buying

an iPhone. So sometimes you buy the watch first and then you buy an iPhone. The point is they're going to try to double their total addressable market by adding women. Yay. Good idea. One of the reasons we love you, Laura, is we ask you a question, you give us an answer and you speak your mind. I really got to tell you that. I mean, it stands out. So now here we go. Meta. You quote, admire Mark Zuckerberg's metaverse attempts, but still rate the stock underperform. Explain. 50 buys. We're the one sell.

Our opinion is liquidity only has value if you use it. We have his revenue under pressure because TikTok has taken away his user time and engagement and is actually content creators. At the same time, he's investing a fortune in something that even he says is not going to pay off till 2030. So we're having margin pressure at the same time we have a revenue pressure. Our attitude is liquidity should be used somewhere else. Go sit in something that one of your other guests recommends. We would use meta as a source of funds.

I love it. Laura Martin, thank you for speaking your mind. We appreciate it. My pleasure. Up next, it's been a volatile year for casino stocks, and especially with the constant shuffling within Macau. Reopening, shutting down, license issues, and more. Is it time to cash out or,

double down. Plus Carnival Cruises making a bet of its own, raising $2 billion in the junk bond market, and putting 12 ships up as collateral. They fail? You own a piece of a cruise ship. More power lunch in two minutes. Shares of Las Vegas

sands essentially flat ahead of the company's third quarter earnings after the bell. Three key issues I'll be listening for in the results here. First, the casino capital of the world, Macau, grabbing all of the headlines after announcing its relaunching its e-visa program, this fall. And then Xi Jinping doubled down on the zero COVID infection policy. Next, Singapore,

which has now lifted its pandemic restrictions, is seeing a big jump in visitation. Marina Bay Sands before the pandemic was the world's most profitable casino resort. And investors are going to watch to see whether Singapore and pent up demand there is enough to help Sands overcome the drag from Macau. And finally, another key issue which the analysts will likely ask about on the call, I hope they do, is a New York City casino in the cards here, a license in the city up for grabs, there are sharp elbows out, but it could be very meaningful because remember Las Vegas stands, no longer has Las Vegas, it would like to have a U.S. property once again. Let's go to Brian Sullivan for the CNBC News Update.

Hey there, Brian. Hey there, Contessa. All right, here's what's happening at this hour. The Department of Justice says seven board members of solar winds and four other public companies have resigned. This after the DOJ said it would enforce antitrust rules barring executives from serving as directors of competing companies. Justice Department officials say this is the first and a broader review of potentially illegal interlocking directorates. John Federman, the Democratic nominee for Senate in Pennsylvania, has released a note from his doctor saying he's recovering well

from his stroke in May and that Federman has, quote, no work restrictions and can work full duty in public office, end quote. Republican opponent Dr. Mehmet Oz has accused Feterman of lying about his health and questioned whether the Democrat can serve effectively as a senator. And in Philadelphia, a nonprofit is giving away 2,000 pounds of surplus avocados to people in need. Volunteers are even dressing up as the fruit for the occasion. The giveaway started today and will last through Thursday. Step up.

Get your avocado. Back to you. All right. Thank you very much, Brian. ahead on power launch, is it time to venture out amid rising rates and growing volatility? More and more companies are pausing dealmaking. So what does the VC industry look like right now? And will funds dry up for startups if and when a recession kicks in? We'll explore that and more when we return after this.

88 minutes left in the trading day. We want to get you caught up on the market, stocks, bonds, commodities, and a VC investor focused on climate solutions. First, though, let's begin with Bob Bassania's stock. are sliding right now. Hi, Bob. Hi, and you know, you we like to believe that earnings matter, and indeed they do, but right now, today we're back being slaves to the macro environment, and when the two and 10-year yields start approaching new highs, as they did earlier today, we're all slaves to that. So if you look at the risk-on stuff, this is the classic,

ARC innovation, down almost 4 percent, metals and mining stocks down. Here's something interesting. Semiconductors are actually up. That's a risk-on sector, and that's because, because we actually had some very good earnings reports today, particularly one of the big semiconductor capital equipment companies, ASML. So take a look at the earnings there. ASML is one of the big movers on the S&P 500, Netflix as well, kind of blowing it out there. That's a big move for ASML. That's a Dutch company. Their headquarters are in the Netherlands.

Procter & Gamble also better than expected. Baker Hughes better than expected. So you get the idea. The earnings apocalypse, everyone was afraid of three months ago and even two weeks ago. is not materializing, even though there is some slow deterioration in earnings overall. You can see the influence on airlines with United having an excellent report. It's been holding up the airline sector through most of the American Delta. Alaska was up until a very short while ago.

Energy, very curious. Oil was trending downward for the last week or so, but it's been trending up today, and the energy stocks are having a nice little bounce here today. Of course, President Biden announced he was released in that final tranche, that 15 million barrels of oil. But I think the market's probably looking forward some other events that are out there. Remember, there's going to be this EU ban

on Russian crude purchases. I believe that is December 5th that starts. So there's definitely going to be some supply issues that are out there. Contessa, back to you. Bob Pisani, thank you for that. Let's get to the bond market. Yield's hitting levels.

We haven't seen a long time. Let's go to Rick Santelli for those numbers. Hi, Rick. As a matter of fact, we are looking at every maturity 23s, 5, 7th, 10, 20s, 30s, closing at new cycle high yields. And today we had a 20-year auction. The yield 4.395. Sounds pretty juicy, right?

It's the highest yield on the Treasury curve. But there were crickets in line for investors who really didn't show up in aggressive moods. I'll give you a couple of reasons why. Four-month bill auction today. Yeah, we have a four-month bill now. We brought it out in May of this year. Yield 4.14. Here's a one-year T-bill chart year-to-date. You see what that yield is? Close to 4.60%. Yeah, those are some of the reasons why so few investors are aggressive at coupon auctions, by biting their time hanging out in the T-bill market. In matter of fact, three months of tenure is really the recession yield curve spread to pay attention to. Let's look at what that's doing. Here's a year-to-date chart. Well, you can see it's hovering just. above 10. It's the flatest it's been since COVID March 2020. And if that inverts, that is one of

the good signals, even though we sometimes look at twos versus tens. Now, if we do go back to that 10 year, let's think about a short maturity. Here's a two year since CPI Thursday. Today's a big day. We finally traded above CPI Thursday's two-year high yield at 452. That's technically significant. Ten-year notes? The all-time low close was half 1% the 4th of August 2020. Look at that chart. It's truly unbelievable how fast we've gone. And today, as we've been saying, all day will be the highest yield close back to July of 2008. And finally, you remember that two-year chart? Well, the dollar isn't the same.

There's a CPI going back on the dollar chart. We have yet to close above its CPI high, and that is key. Remember, 113-92. Watch that for the dollar index. Contessa, back to you. Talk, we listen. Thank you, Rick Santelli. Oil closing for the day higher after the president's comments on energy prices. And Pippa Stevens has that story for us. Hi, Pippa. Hey, contesta. The president announcing the release of 15 million barrels from the Strategic Petroleum Reserve, but these are not

new barrels. It's part of the previously announced 180 million barrel release. Now, Biden's saying the move is not politically motivated, although it does come just a few weeks before the midterms. He also pointed the finger at energy executives, saying oil prices have come down faster than gasoline prices, and that companies should use profits to reinvest in new production. The American Petroleum Institute responding, saying it's, quote, geopolitical instability and faulty policy decisions that have driven fuel prices higher. WTI is up 3% right now at 8543, and energy stocks are jumping on the heels of that move. It's the only S&P group in the green. Baker Hughes is leading the gains. The oil field services company reported earnings this morning,

beating EPS, although revenue missed expectations. Still, orders and cash flow improved, and that is boosting shares. EOG, also a mover following two positive calls. Morgan Stanley upgraded the driller to overweight, while Jeffrey's initiated coverage, Contessa, with a buy rating. Back to you. Pippa, thank you for that. Let's turn now to the venture capital world, a major player in the industry, is putting his money behind some clean energy startups and has investments in housing. Diana Oleg is live from the Breakthrough Energy Summit in Seattle with Vino-Cosla, founding and managing partner of Kosovo Ventures. Diana, good to talk to you.

You too, Contessa. Thanks, and I want to get right to it because there's so much news today. I want to start first with what Rick Santelli was just talking about bond yields, interest rates rising, 20-year highs. How is that affecting the kind of investment that you want to see in, basically, everything but of course in clean energy and clean tech. You know, fortunately, investment cycles in clean energy are very long term. So short-term interest rates don't really affect investment into the category. There's a lot of investment because the world is going through an energy transition

and a low-carbon sustainability transition. So I don't think it's affecting the interest in investing in private companies, which is mostly our business. Not so much the public market. We do nothing in the public markets. And the private markets are mostly unaffected by these interest rate changes. But we're here with a whole bunch, about 80 startups,

climate startups, some of which you've invested in and the deal making that's going on here. What kind of achievements have you seen in the two days here? Because there has been concerned. Bill Gates said to us yesterday that it would be more competitive given this higher interest rate landscape. Well, clearly there's a lot of interest in clean technology. Hence, there's more investment interest, and because of that, there's many more

startups flourishing. One of the seminal things about venture capital is most investments lose money, but more money is made than lost. So a few things end up being very, very large and successful. Think Google and Facebook and things like that in the dot-com era when there was a dot-com bus. That will happen in this area too. And the fundamental markets in clean technology are much, much larger. You know, we are investors in Commonwealth Fusion.

If you solve the fusion energy problem, it's a market much, much larger than Google's market. I think you covered sustainable aviation fuels with Lanza Jack and Lanza Tech. That's a market that's humongous, A billion dollars wouldn't even touch, begin to touch the market. So those are very large markets, cement's the same way, plant proteins the same way. So lots of lots of electric car batteries, markets that are trillion-dollar markets,

and they're all energy in fundamentally societal infrastructure markets. And that's why the interest hasn't come down just because interest rates have gone up in the short term, because people are looking at the 10-year window. And what about oil, though? How do you react to what's going on with the SPR, the Strategic Petroleum Reserve, and given how much money you're putting into clean energy? So, to be honest, the economy, of course,

always makes a difference, and those oil prices affect the economy. But by and large, investment interest in clean technology is not tied to the price of oil, because what we invest in today comes to maturity in five to 10 years. and nobody can predict the price of oil five to ten years from now, so they essentially take the view.

It's hard to account for the price of oil, especially short-term movements, either in oil prices or interest rates. I want to put my real estate hat on for a second here. You're also a big investor in not just clean building, but in a lot of real estate vendors, specifically open door, which is an eye buyer. Given what's going on in the housing market, interest rates, mortgage rates today hitting 7.22%.

Does the iByer model still work if you don't have a competitive market because Goldman Sachs downgraded that stock two days ago to a sell? So I take the long deal. iByer is a fundamentally good economic model and I think somebody will dominate it Whether you're talking about a year from now two years three years from now I think open door in the whole position to dominate the I buyer market and create a very valuable company and Short-term, clearly rapid changes and interest rates affect their business, but I don't think it makes that much of a difference over the longer haul.

And you're investing also in 3D technology for home building, clean technology. You think that's the future we're going to be building homes in 3D? Well, we're building 3D panels with new materials. So sustainable building is a major trend, and I think more and more developers will look for sustainability in their buildings, lower embodied carbon and lower operating carbon out of these buildings. And that's a very important trend. I think it'll be a dominant part of new construction in real estate.

And so that's an exciting new area, and we are doing some radically different things, like 3D printing with new materials. We are printing with photo polymers. I think concrete printing is a bad idea. Only in that it has short-term economic benefits that are small, but they won't keep progressing to reducing the cost of building construction and half, for example, over 10 years.

Okay, because we certainly do need more homes. I'm afraid we have to wrap it up right now. It would be a note Kossela. It was pleasure talking to you. Thanks so much. Back to you guys. Diana, thank you very much, and thank you, Mr. Koslaw, for joining us today. Up next, carnival setting sale into the junk bond market borrowing around $2 billion.

But there's a catch investors need to know about, and we'll be right back and explain it all, you. Welcome back to Power Lunch. Are we finally starting to see a cruise ship comeback Carnival shares up 10%. So far this month, slightly lower today after the company raises more money. Sima Moni now has more. Seema. Tyler Carnival was successful in raising more debt. It set out for $1.5 billion, but ended up raising over $2 billion in its junk bond offering. But it comes at a price, a high yield of 10.7 percent. And it's offering 12 cruise ships as collateral. I spoke to a number of analysts. This is how it's going to work. If Carnival is not able to service its debt at the time of maturity, the ships would be sold

and those bondholders would get paid first. Stephen Carter at Credit Flow Research, he calls the offering innovative, highly unique for a company like Carnival sitting on a lot of assets. And with only five deals priced in the junk bond market this month, Carnival is easily the biggest deal in October. It follows Royal Caribbean's $2 billion raise in Tipco- Citrix. for a billion dollar offering in September. Typically, when Carnival or any major company raises more debt, the stock plunges,

but this time we did see shares spike 11% yesterday. Yes, giving back some of those gains today. But Steeful analysts writing that this debt raise, it pretty much removes a risk of another equity raise, and that, they say, is very important. Tyler and Contessa. Outlook for Travel United Airlines out today, saying the outlook is strong in their category. I assume that bodes well for the cruise lines. It does.

In that conversation, Tyler, with CEO Scott Kirby and our colleague, Phil LeBoe, talking about how there's still so much appetite to travel this fall and winter, certainly positive for the broader sector. Where the cruise lands get hit is on pricing. United also said ticket fares are going up, and with cruise lines tending to appeal to a customer that is cost sensitive, that's going to certainly take aim, especially for that family of five from Chicago,

they now have to spend $1,000 per person to get down to Miami and then spend an additional amount of money to get on a cruise. That's going to be a tough one to swallow. Now, what the cruise lines are trying to do is bring more ships to us, to the customer. For those of us in New York,

if you drive down West Side Highway, you will see there are about one to two cruise ships docking here in New York City per week, so that's something that they hope. That strategy will work over time. And you know what, but this time of year, then you have to sit on the cruise ship

for three days before you get to warm weather. Like, give me there in three hours. It's about less than 48 hours to get down to the creeping. But I hear you. Unlimited drinks. Come on, Contessa. Oh, well, on that hand, you're right. You sold me. Thank you.

Generac, the worst performer in the S&P quarterly results coming in way below estimates. We'll trade that name and some other key earnings. Movers in the three-stock lunch. Time for today's three-stock lunch, and we're looking at a few earnings-related movers. United Airlines and intuitive surgical, both trading higher after topping estimates, but Generac shedding more than 20% of its value after the company cut its full year outlook and said it doesn't have enough workers to install those generators that it does sell. Let's trade these names with Delano Sapporo, CEO of News Treat Advisors and a CNBC contributor.

All right, let's talk about United Airlines first. Do you like it? Would you fly it? I would fly it. So United Airlines, the big thing from Agenda was they still have strong demand. If you look at the TSA checkpoint travel numbers, we're not up to the 2019 level, but we're creeping back up. And as been mentioned in the sector, demand is still there, even with increasing price points for tickets. Demand stays high. They had the forecast and their outlook was strong. I would be buying or at least holding United Airlines here, Contessa.

All right. Let's move on to intuitive surgical. What do you think of that one? Intuitive is interesting. I think, you know, obviously the earnings was really strong. And I think three out of the last four quarters, they beat on earning on the bottom line and the top line. And I think the big thing the investors want to watch for in this stock is actually the growth

in procedures, which is the major metric for them. They're not above 2019 levels, but they are creeping. They've had surgical expectations now have grown for them around 17 to 18 percent. They just recently forecasted. So I like the stock, strong balance sheet, doing a great job. of managing expenses on the hospital side. So I actually like the stock, Tyler. Okay.

And their final name is Generac. What do you think? Should investors power through the news? They should potentially power down on the news because the big thing they mentioned was they said that the end customers still had demand, but their channel partners were not seeing that demand that they needed for their channel partners, which obviously are getting their cues from the end customers. So it just was a tough quarter. They had a large customer that obviously as well dropped off.

So not much looks good on the news front here. But on the flip side for investors, they're looking for a fairly, highly discounted stock that has been trading kind of in a negative light recently. If there's some powering through the next couple of quarters, there could be opportunity for investors there. Is the demand not, Contest and I were talking in the break. Is the demand not there to the people who want generators already have them?

Or is the issue that they can't get them installed fast enough? There was a bit of an issue where they couldn't get installed fast enough. And as you mentioned, that they don't have enough workers to meet the supply. And that's probably going to be an issue going forward if we have a tighter labor supply in the future. So that would obviously be another case for possibly more downside if they're not meeting the demand that they do have there. But the full-year guidance was down across the board. I think this company is trying to work through some of the issues on the demand side as well as just having higher inventory levels. And for those of you listening on the radio, Generac, down almost 25%.

The stock really taking it on the chin. All right, DiLano Soparo, thank you so much for joining us. Appreciate your perspective. And up next, inside Traveler's earnings report, the stock is the best Dow performer this afternoon. We'll tell you why if you keep it here. Shares of travelers rising more than 3% today, despite the catastrophe losses from Hurricane Ian, the company said its total catastrophe cost topped 500 million. in the quarter, CEO Alan Schnitzer called it a disaster on par with Hurricane Katrina.

Right now, insured damage from Ian is estimated to be as high as $70 billion. Those are insured losses. Florida's property insurance market is in meltdown. Insurers are fleeing the state or folding or limiting exposure. And Schnitzer says Florida's broken model, skyrocketing fraud, litigation, regulations that undermine free market principles, translation, it's hard to make money in Florida. He says those factors are as impactful as whether in this challenge to insurers operating in the state. And he warns other states are now heading for a similar insurance morass.

I'm thinking particularly, Tyler, of California with its wildfire risks. Regulators, the insurers, say, have got to let them price accurately what the risk is. And in Florida, that permissive litigation environment means that though Florida accounts for less than 9% of the price, property claims nationwide, it's almost 80% of the litigation. Is that right? No kidding. Yes. A lot of companies pulled out of Florida after Andrew, I assume after others, other storms as well.

And Katrina and Maria and all of those. But the problem is that those that have remained, for instance, Travelers has exposure and auto insurance, they find it very difficult there to navigate the market. it. Fantastic. Thank you. I'm Tessa. And thank you for watching Power Lunch. And closing bell starts right now.