Power Lunch - The ad-pocalypse, car market shifts gears and nat gas prices plunge. 10/26/22

Episode Date: October 26, 2022

Meta shares falter ahead of its earnings, which are expected to underscore the turmoil in the digital ad market. Plus, a record quarter for Group One Automotive. The CEO tells us if the car market is starting to return to normal. And, the reason behind the recent plunge in natural gas prices. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

I welcome both Brian Sullivan and you to Power Lunch. I'm Contessa Brewer. Here's what's ahead. The stage is set. Meta shares faltering ahead of earnings. The results expected to underscore the turmoil in the digital ad market. Could there be more paying for a stock that is already down 60% this year? Plus a record quarter for Group 1 automotive inventory ticking higher. Prices ticking lower. Group 1 CEO is here to tell us if the car market is starting to return to normal. and if there's growing demand for EVs, Brian. Contessa, thank you very much. Well, stocks, they are overall off their highs of the session.

You've got the Dow, which is the only major index of the green, the SMB and NASDAQ are down. But again, silver linings playbook, right? They were down as much as 2.2% earlier in the day. By the way, the spread between the three-month and the 10-year bonds. They inverted intraday. If that holds into the close, it would mark the first inversion of this part of what they call the yield curve since March of 2020. Always like those sort of historical anecdotes. And as some of the afternoon movers, Microsoft, the worst performing Dow stock,

it issued weaker than expected guidance. Seagate and F5 networks, two of the worst performers on the S&P 500, both with weaker outlooks and questions ultimately contessa about demand. Brian META is arguably the biggest earnings report after the bell. It is under pressure to cut costs and concerns are growing about its assets. business after Alphabet reported an unexpected slowdown. Spotify also reporting slowing ad growth, which followed snaps poor sales performance as companies cut their marketing budgets. But WPP defied the downturn and raised its growth target. So is there a storm underway in the

digital ad market? And how can investors play that? What are they going to listen for from metal? Let's ask experts, Evelyn Mitchell. She's an e-marketer analyst at Insider Intelligence. And Ed Lee, New York Times media reporter and a CNBC contributor. Great to see you both today. All right. So first of all, Evelyn, how worried should investors around Meta be about what we've seen from other companies reporting their ad sales? Yes. So things are a little tough in the digital ad market right now. It's reckoning with a host of challenges, including evolving consumer behaviors, difficult macroeconomic conditions and ongoing effects of Apple's privacy changes on targeting and measurement capabilities. Now, these effects can have varying degrees of severity

depending on the area of the digital ad economy where a major player is operating. So, meta, for example, has had a harder time contending with those changes that Apple made to its privacy policy than other platforms, like Google, for instance, because of its reliance on search advertising, which has been insulated from those changes, Google has fared better than meta has. So we're certainly interested in a marketer in seeing how meta's earnings come in after the bell as well. And yet we heard from Google things that I'd probably make you wonder how it's navigating the digital ad spend as well. If companies think that recession is coming, they're looking for places where they can pull back. And if they think that it's not effective

to have their digital ads, is that the place they're choosing to slash? Yeah, for sure. I think right now, with supply chain still being an uncertainty with just that, you know, economic headwinds, they don't really understand where things are going to shift in the next three months, next six months, so they're going to pull back on spending. And the other thing to note, specifically with alphabet and meta, any digital advertiser, you know, advertising is often bought on a spot market when it comes to digital, as opposed to, you know, traditional television or print media for that matter, where things are bought six months a year ahead of time sort of on the upfront market. Digital has been trying to get in on that upfront market, but it's generally been

a spot market kind of business. And that sort of tells you, it gives you an indication of things might be headed in the next quarter or so and also reflects the uncertainty, the macroeconomic uncertainty. So I think it's becoming more of a potentially leading indicator as opposed to a lacking indicator, which is more traditional advertising. And I think that's what, that's kind of what's shaking at right now. Yeah, I wonder also, Ed, if it also just is not necessarily reflective of things slowing as also just a change in consumption. We always hear about the TikTok effect. I mean, it's real. Right. TikTok is is the big bowl. right now or the big new boy on the block in terms of where eyeballs are shifting. But that also

tells you something just about how eyeballs have shifted altogether. For the longest time, Google and meta, they've taken advantage of the fact that there's been this big lag between traditional advertising and digital advertising. In other words, you know, marketers sort of were behind the curve in terms of where they put their money. Eyeballs had shifted to digital, but marketing budget hadn't quite done. So there was enough of a gap there. There's enough of a delta that meta and alphabet could sort of take advantage of that. Now what we're seeing is that, you know what? Chances are if a digital advertiser really wants to spend on digital, they are spending on it. So the pullback we're seeing now is just sort of part of the economy,

part of sort of the broader, you know, secular situation. And I think there isn't that Delta anymore that they can exploit. I don't know. Ed, Brian, do you think that maybe TikTok is the big girl on the block? I think it's possible. I think it's possible that she's the, I misspoke. Are you looking at me? I was just, I just want to put it out there. I just said the TikTok effect. Evelyn. Evlin, help us out here. Digital, digital ads, though, I've always been under the impression that if you're looking to target your ad spend, that your digital advertising works because it can be so niche and you get feedback on how effective it is through clicks. Yes, that is absolutely one of the key benefits

of digital advertising. The amount of data that historically advertisers have had access to in digital advertising has been monumental, certainly more than in traditional channels. But so is it, let me just, can I just interrupt? Isn't that why Facebook and YouTube shouldn't they have more opportunity if you're looking at a broad ad pullback in terms of spend? If that were the only thing at play, absolutely. But because we have Apple's ATT policy changes as well, that is.

a huge influence in this marketplace. The targeting and measurement capabilities that are available on Facebook and on YouTube have changed significantly in the past 18 months. And the digital ad market is contending with those changes as these macroeconomic concerns are coming into play. It was always my understanding, Evelyn and Contessa, that if you clicked on a digital ad, it meant that your mouse button stuck or maybe you'd been drinking. Because I don't, I don't know what the, I mean, you know how they do it now. They pop up. You try to get to the little X, but then they move it.

So then you click on the ad. Evelyn, do we, I'm trying to make a serious point in a funny way. Do we know how actually affected these are? I mean, yeah, they know everything about me, okay? That I'm a long-suffering San Diego Chargers fan. That doesn't mean I'm going to buy a hat. Yes. So there are a lot of different factors at play that contribute to an ads or campaigns effectiveness.

one of them is the data that goes into targeting that ad. And there are a host of different signals that advertisers can use to decide whether you are the person that should receive that ad at that point in time, whether it's, you know, it sometimes can feel like our phones are listening to us. But there are a variety of signals that are taken into account in order to arrive at the conclusion that this is the ad that should be served to you in this moment. And of course, TikTok is a really, really, the algorithm that they have at TikTok is so phenomenal. It's really good at detecting what users want to see and what point they are in the journey.

It must be female. Evelyn Mitchell, thank you for that. Ed Lee, I'm just, I'm just yanking your chain. Thank you. No, hey, I'll take it. I can take it. Brian. Listen, the Chinese government is really good at those algorithms.

Somehow they know through TikTok what we all want, remember, who owns ultimately TikTok. All right, technology, by the way, once the stalwart of the market may be losing its dominant role. And our next guest says investors should look to energy to protect their portfolios, bringing Jerry Castellini, chief investment officer of Castle Ark Management. Jerry, I may know something about energy. And we talk about oil and gas all the time, but here's the problem. There's a whole section of the world that says we're not going to invest in oil and gas, the ESG movement, etc. And you can agree with that, by the way.

But if you do, you might be leaving a lot of money on the table because there's only one group that appears to be consistently growing its cash flow, and that is energy. Yeah. Brian, you hit the nail on the head. I mean, first of all, all we're doing right now is reviewing these big tech company earnings and tearing them apart and trying to, piece out what could happen over the next couple of years. And we're going pretty far down that road, right? We've knocked these things down a lot. A lot of investors are just worrying, is there one more shoe to drop? I could argue either side on that. I personally think we've kind of washed out most of them. But what's also missed, and the two biggest earnings estimate, or the biggest earnings

announcement this week are going to be two companies that you'll get very little coverage from, Exxon and Chevron on Friday. You talk about things that matter. You just nailed it. Exxon is the global dominant oil and gas player. They have operations all over the world. They are going to report one of their best numbers ever. And investors are going to, they're going to hate the fact that one of the biggest companies is doing this well, leading the market, breaking out to an all-time high, as a matter of fact, in the last six or seven-seventh-seventh. That is a warning for folks that want to cling to old views of the industry and avoid owning them. All right.

Not only are you a buyer of Exxon, you like Schlumberjay or SLB and Hess and Diamondback. Can you talk a little bit about why? Sure. So, you know, it's a picks and shovels things. A lot of folks will favor a slumbergerie because there are the guys that dig the holes. And we have no problem with that. It's a global technology leader in oil and gas. And by the way, technology is one of the few areas in energy that could use a huge ramp.

If you think about all the things that have 30, 40, 50-year-old technologies attached to them, Slamerge is right there for solutions. And the multiple you would put on Slegerie, if you believed in the longevity, the cycle, is probably 50% higher than the one you're paying right now. If you go to a name like Hess, again, it's all about low cost. Hess and again, Exxon are the two developers of the world's most profitable oil field in Equatorial Guinea. And that field just is planning on coming on each year by an increment of 100 or 150,000 barrels a day. That would put Hess as the most efficient producer of oil in the world and the most profitable one,

just because it's such low cost. But, Jerry, you know, obviously on that side, the bull case has been known for a while. But like every stock in any industry, there is a bare case. I mean, what if we get a global recession? The price of oil, you know, we're releasing more oil from the SPR. We don't know what's going to happen with the EU sanctions on Russia. Maybe OPEC does something crazy. Who knows?

And we end up with $60, $40 oil. Well, it changes the game. Glad you asked that, Brian. As far as world recessions go. China is in one. Their global, their oil consumption has been declined, has already dropped to recession levels because of the pandemic. It's unlikely they could get worse, right? The U.S. is the second largest oil consumer. We are, quote, in a recession as well. It could probably get worse. But think of all the sturdy things around the U.S. economy that would push back

against a really severe recession. And I would argue, ultimately, the recession in global oil demand has been more than made up for by the release of the SPR, by the cuts in OPEC, and by what looks like another cut coming in Russia. So when you think about all the supply that has already been pulled off and the balance of the market, even in a crummy economy, you'd still vote for stable to rising oil prices. Jerry Castellini, Castlelark. Jerry, it's a pleasure to have you on. Make it a case for SLB and some of the big oil players, Contessa. Coming up, Group One automotive reporting record quarterly profit and a slight increase in inventories. Can Americans afford new cars even as they come back in stock?

Plus net gas prices plunging down 40% over the past few months. What is driving the decline here and in Europe? And before the break, a look at health care and pharma stocks hitting new highs in today's sessions. You've got Eli Lilly up 2%, Humana up 1.5% as is Molina Health Care and Merck up a little more than percent. More Power Lunch in two minutes. Welcome back to Power Lunch. Group One automotive rising nearly 7 percent this week after the company beat on the top and bottom lines recording record quarterly profits. The company noted a slight increase in inventory but said declining used car prices require them quickly to sell through that inventory in order to maintain margins. For more on the auto market, let's bring in Earl Hesterberg, the CEO of Group One. It's great to talk to you to this. today, Earl? Thanks for having me. Brian Spone's going off because I didn't even know it was on. I got so excited talking about cars, but I saw the Astros jersey in the background. It's probably

Tillman-Fertita calling. Who knows? Listen, Earl, let's talk about it. I don't know how that happened. It just does sometimes and then you just roll with it, Earl. Can you tell me whether, has something changed where you're seeing the used car prices go down and why you've had to work through that inventory? Well, we expected use car prices to go down at some point because they were at all-time highs and quite frankly, those were unsustainable. So we've been preparing for this, but when use car market prices decline, we keep a very lean inventory of about 30 days. We have to flush that retail out quickly so we can rebase our price level at the latest market prices. So we had to do a bit of that last quarter,

and we're pretty clean again, I think. We're talking to a lot of CEOs. across industries about the way they're looking at their business and what it indicates about the broader economy. Where are you seeing signs of weakness? Are there customer patterns of behavior that you're paying especially close attention to? Yeah, for sure. And some of these economic factors aren't ideal for retailers. But it's in the more price sensitive parts of the market, lower price used cars. Now, historically, we sell a lot of corollas and lower price new cars, but that's not where the market has been in recent years. You know, you see the average sale price of a new vehicle for Group 1 is almost $50,000. So our sales and our waiting list, our order bank, these

tend to be big pickup trucks, big SUVs, and luxury brand cars. So our business is in a different place right now than it was three years ago in terms of the merchandise we're selling. Yeah, and you wonder, Earl, if this could be a good time for new car sales. I know it sounds counterintuitive, but typically banks are tighter on lending unused cars, the older the car, the tied to the lending. Some cars you may not even be able to get a very good loan. Those rates could be 10, even 12 percent, depending on the age and credit score of the car. And a lot of people have not been able to get cars over the last couple of years. And I personally know a lot of people that have been waiting, waiting for prices to come down just a bit, driving old beaters because

they're waiting. Do you feel like there is any pent-up demand in the system? There is definitely. We've been operating in both the UK and the U.S. now for three years at recession sales levels. So there is pin-up demand out there. And interest rates have impacted monthly payments. They're higher. And we've seen a little bit of a couple of auto manufacturers buying down some interest rates recently, you know, not to zero or 1%, but down to 3.9% or something like that. And we'll probably see a little bit more of that. But they're still an order bank for many of our brands. Earl, you made some acquisitions this summer, a collision center, I understand in Louisiana and then three dealerships. What about, for you? For you? For you?

you? Is there still appetite for you to do acquisitions in the current environment? Yes, there is. That's the best use of our capital, but we have to be much more careful now with a higher cost of capital and higher interest rates. We need to make sure that what we purchase is in a great brand and great market. For example, this year we purchased a Toyota dealership in Austin, great brand, great market. So we have to be a little bit more careful in these kind of market conditions. First off, there's two things. Number one or all, this is your last quarter with the company.

You've been there forever. Congratulations on your retirement. I know you got to ask, you'll probably be at the game coming up soon. Congratulations on everything. And always appreciate you being such a long-time guest on CNBC. I also would like to ask you about buying habits, about people buying electric cars. Still a lot of questions out there. I've got a lot of questions.

What are you hearing from your deal? dealers. When people come in, is it, I want an electric car and nothing else, or do you have people that come in, they ask a lot of questions, maybe do a test drive, and then go traditional? What's the sales cycle like for the EVs right now? Well, it's much slower in the U.S. than the U.K. The U.K. market's about 14 percent of battery electric already. The U.S. more like six. They tend to be early adopters who are the main purchaser. in the U.S., higher income people, higher education level, you know, it will come as the vehicle availability increases from various manufacturers and some of the price points get a bit lower.

But most electric vehicles are still quite expensive for the average consumer. Earl Hesterberg, thank you so much. And I echo Brian's congratulations on your retirement. I understand it is New Year's Eve this year. so starting 2023 with a bang. Is that a Nolan Ryan jersey behind you? Is that Nolan Ryan or was that not the right year? Yeah, maybe Justin Berlander snuck that in here.

I have to start locking my door. Maybe Justin Verlander snuck that in. You know, I couldn't tell if they had the star on the Creamsicle uniform. That's what they called them. You know your baseball. Well, because I'm an Angels fan too and Nolan Ryan played there. All right, Earl, appreciate that. Thank you very much.

You know, that was probably an angry Phillies fan calling me. All right, after the break, playing the union card. Election season this year follows a wave of union efforts across corporate America. President Biden promising to aid the working class more. Will it work on election day? Plus, a major chip hazard, more semiconductor companies issuing warnings. We're going to lay out the latest red flags when Power Lunch return. Politicians make a lot of promises, and they don't keep all of them.

But now workers feel that President Biden did on living up to his promises to unions. That could be a key factor in some big races. Two weeks now from the midterm elections. Kayla Taushy, joining us now with more on this story. Kayla. Brian, major unions that endorse President Biden praise him for prioritizing labor issues and passing signature legislation, and they're now deploying hundreds of thousands of volunteers to pound the pavement for down-ballot Democrats in the midterms.

The issues at the top of their wish list, $15 federal. minimum wage, the Pro Act, which makes it easier to unionize, and better coverage for child and in-home care. Despite union jobs declining in Mr. Biden's first year, labor officials point to the infrastructure bill as singular proof that more of those jobs are coming. Mark Zandi at Moody's estimates that funding alone will yield 800,000 jobs, about 90,000 of which will go to unions. Today I spoke to Mary Kay Henry, who runs the Services Employees Union, and in between her four-state door-knocking spree, she says those efforts are seeing results.

Because we've targeted four million infrequent voters of color in the battlegrounds like Wisconsin, Michigan, Pennsylvania, Georgia, Arizona, in those states, we're feeling increased momentum, both on the doors, on the phones, and through text messaging, which we know is going to be required to produce record turnout. Henry says her union's members have turned out up to 7% more early voters than the general public. And the largest national union, the AFL-CIO, says their members are backing Dem candidates in such volume that it could end up being a deciding constituency. Brian?

All right, Kelly, union workers like just about everybody else, are getting hit by rising prices. Who are they blaming? I know you can't speak for all union workers, but you get the premise of the question. Who are they blaming for just skyrocketing inflation? Well, it depends on who you ask, Brian, and it's no doubt that inflation is seen as the rhetorical fly in the ointment of what they feel is an otherwise strong economic message. But earlier today, I talked to Sean McArvey,

who runs the largest construction industry trade. He acknowledged that inflation may sway some votes to the right, but that ultimately he sees jobs as more important. McGarvey tells me his members are already contracted to build the new Intel factory in Ohio. staffed on airport projects in Michigan. And he says that there's more to come. And he says that 10-year job security outweighs price sensitivity today, although there's no dismissing that it definitely hurts on the bottom line.

Yeah, for sure. Kayla, thank you for that. Let's get over to Christina Parts of Nevelist for a CNBC news update now. Hi, Christina. Hi, Contessa. Here's what's happening at this hour. In Iran, as many as 10,000 mourners ignored government warnings and went to the cemetery where Masha Amini is buried.

Her death occurred in the custody of the country's morality police and sparked protests that have gone on for weeks. Other large protests have been reported across Iran. Today, though, is the 40th day since Amini's death, the traditional end of the morning period in Shiite Islam, I should say. Ukraine's military leaders predicting a difficult fight to drive Russians out of the key city of Kersen and nearby regions in the south. Ukrainian troops on the front lines say they have watched Russians fortify their defenses and reinforced with new. mobilized soldiers. And with less than two weeks until the midterm elections, President Biden is announcing an effort to crack down on so-called junk fees, including ones charged by banks, resorts, concert ticket

sellers as well. Federal regulators estimate the move will save Americans about $3 billion a year. Fingers crossed, back to you guys. All right, Christina, thank you very much. You're right on deck. Why are natural gas prices sinking so much lately, Contessa? We're going to dive in. Plus, a lean hog, Harley Davidson, soaring after strong results.

Shipping more bikes than expected, we're going to trade that name and others in today's three stock lunch. All right, welcome back, everybody. There are just 90 minutes left in the trading day. We want to get you caught up with the market, stocks, bonds, commodities, and a look at global energy markets as Europe braces for winter, which is still fall. Let's begin with Bob Pisani at the New York Stock Exchange, where stocks have been losing a bit of steam. Bob, what's going on? Well, we were doing very well until about an hour and a half ago. What's happened is tech and consumer discretionary, which had been on the weak side,

really just kind of moved to the downside here. But look at the five biggest decliners here today. Alphabet down 8%. Think about that, how big that is. Microsoft down 6. Again, Texas Interimates and Boeing. Boeing has swung in a 10% range today. It was 150 earlier, 135.

That's like a 16 or 17% range. That's astonishing. are accompanied that big, huge volume right there. Now, if you look at this, and I said this earlier, you'd think that the S&P 500 would be down 100 points on this, but it isn't. And what we're seeing here is some other companies, like Universal Health, FISA, Bristol-Myers,

are balancing off the weakness and consumer discretionary in tech, so energy is up, health care is generally outperforming right now. So if you look at the S&P 500, you see midday, we were up earlier. We're now been drifting lower here on concerns, obviously, about what's going on with, the tech stocks. Kraft Heinz Visa, Bristol Myers, and Hilton Worldwide, also sort of a mixed picture there. In terms of the macro, this goes to show you how the macro is dominating things.

The two-year yields down, essentially four days in a row, and the S&P 500 is up 5%. We are moving on macro. Yes, sectors like tech will move on poor earnings, but overall, it's still macro-dominating everything here. Finally, Brian, I just want to promote out. The VIX has been down for two weeks in a row here. And, of course, we had two big things happening. We have the Fed meeting. know what the outcome of that is, and we have the elections, and most people believe the House of Representatives will flip to the Republicans. Big move down there in the VIX. Brian, back to you. All right, Bob, thank you very much. Now to the bond market where bonds are getting bought, yields are falling, and traders are watching the inversion. It sounds like Rick Santelli like a bad

horror movie. The inversion, part two, three months to 10 years. It's amazing what's going on today. And it's very interesting because if you're a technician or you like to look at graphs, a picture speaks a thousand words. Look at a 24-hour chart of January 23 Fed Fund futures. You see the way it popped right at 10 o'clock Eastern. That was when the Bank of Canada raised 50 instead of 75. The numbers don't really matter. What matters is the move and the direction, because we're seeing it in every market. Central banks, especially the ones that have already been on the move aggressively are now potentially slowing and markets are responding. Now, we had a five-year auction today. Many of the auctions, you well know, Sully, have been on the weak side. Today,

it was on the strong side. Look at one week of five-year. And what's notable, not only was it strong, as it was on a strong auction on the day, yields were already down, prices were already up. As a matter of fact, we're on pace for the fourth session in a row where we're trading below the previous session's lows. That is a very big momentum. building issue to pay attention to. Now, quickly, three months to tens. I didn't know anybody who's paying attention, Sully. 24-hour chart, twine with inversion. Year to date chart says it all. And finally, the last time it inverted, well, it was COVID, basically March of 2020. And the dollar is another compelling reason along with many in the FX markets, many different

charts that are showing the dollar rolling over on pace for the lowest close since September 14th, First time to close under the 50-day moving average since mid-August. Sully, back to you. And we got Bank of Canada getting a little dovish, the Bank of Mexico maybe getting douged. We're getting squeezed in the middle. All right, energy markets. They are closing for the day, and we're seeing some big moves in oil. Pippa Stevens with the details and the trade.

Pippa. Hey, Brian, oil jumping following the latest inventory report. Stockpiles did rise more than expected, although exports hit a record high and gasoline demand rebounded. WTI is up 3% at 8788, although the big mover today is heating oil, which is a proxy for diesel. The contract earlier surged more than 7%, although it's since pulled back from those levels. Stockpiles heading into winter are at record low levels. New York Harbor diesel prices touched $200 per barrel once again last week, with Goldman noting that there should be more focus on product shortages, since these are the prices consumers ultimately face

rather than the underlying oil itself. Now, there are a couple of notable movers in the energy sector today has hitting a record high after third quarter net income rose more than 300% year over year. Halliburton also on the move following an upgrade to overweight at Wells Fargo. The firm said Halliburton will benefit Brian from higher upstream spending. Back to you. A big run for many of these oil stocks in the last three weeks. Pippa Stevens, thank you very much.

All right, so why don't we stay squarely there in energy? Now, we talked yesterday about the supply demand and balances in natural gas with an unusually warm start to the heating season, particularly in Europe. But what happens now? Joining us down is Emily McLean, Rice Dad, North American gas markets analyst. Don't worry, Emily, I'm not going to ask you about the weather because we don't know what's going to happen there. Although I will say we've been really lucky one of the calmest storm seasons in Texas and Louisiana in 70 years. Okay, that said, why have national... natural gas prices absolutely collapsed in the last month or so.

Hi, Brian. Yeah, thanks for having me again. So just to start here in the U.S. domestic prices, so we've seen prices drop mostly on an improvement in supply. So supply has been growing throughout the year and really on a year-over-year basis, as well as an improvement in storage inventories. So we've seen triple-digit inventory injections over the last five weeks. And we expect by the end of season to be in a very healthy position in terms of storage levels. So that's on the U.S. side, on the European side, kind of a similar story, very strong storage injections and LNG imports into the region really all year. So that's really enabled Europe to be in a good position going into this winter. Plus, like you mentioned, you know, the weather's been on our side.

and we've actually seen kind of a delay in the winter, colder temperatures. Yeah, I mean, it couldn't get more lucky. It's literally like 62 and perfect across much of Europe, Emily. But the thing about Europe is that we say their storage is full, which is true, but they don't have a lot of storage. So it's easy to fill up. And now you've got all these LNG tankers sitting off the coast. Some of them may be considered floating storage, although that might be considered extremely expensive floating storage. what happens if and when China decides to start buying up all that LNG again?

They've been reselling to Europe. Now they just banned that. What if they fully open back up? Well, if they do fully open back up and we're in the situation where it is, you know, midwinter and we're seeing colder temperatures, so increased demand for gas, we very well will see prices increasing, possible bidding wars. But to this initial part of your question around storage inventories, you know, in Europe, we are seeing very healthy levels. They're at 94% in terms of storage targets.

And we're, you know, seeing close to 100% utilization rates for European regassification facilities. So there's a limitation there. That's why we're seeing cargoes waiting outside of Europe and looking for that better price signal. So absolutely, if Asia's interested in those cargoes and willing to pay that price, cargoes will be redirected. You know, over two million tons of LNG is tied up in this so-called floating storage that's current. Which is expensive, Emily.

And finally, you know, all that floating storage, all those ships offshore, that's going to be, I think for the most part, good news. But at the same time, it highlights the extreme lack of infrastructure. I know some new floating regasification ships are apparently on order or on their way. What is the longer term outlook here for natural gas? Is it more likely we get two or more likely we get 10 in the United States? Because they're still paying five times more in Europe than we are. So it's actually positive when you think from a long-term perspective, you know,

in terms of investment, we need more investment in an infrastructure from an energy security standpoint. to mitigate the market volatility that we've seen this year, that could potentially be worse next year, depending on how this winter season plays out, and the available cargoes in supply that's out there, it is limited. So, you know, in the near term, we're going to see extreme market tightness. But as we progress through this decade and really through the middle of 2026, 27, that's when you're going to start seeing a lot of infrastructure projects coming online.

And so those projects and that technology is really going to help to offset and really balance markets. So it is a positive outlook long term. Yeah, building all those new units, infrastructure ports, ships in Europe. Been a huge win for them. Emlyn McLean of Rice, Ad Energy. Thank you very much. Thank you, Brian. All right.

Up next, between chip shortages and restrictions on sales to China, the semiconductor sector is raising a lot of red flags to investors. We have more details when Power Lent returns. All right, the SMH semiconductor ETF is down nearly 40% this year. A lot of that decline was driven by chips for computers. Some other areas of the chip industry, though, have held up. Could that be about to change? Christina Partsenevelas is here now with more on that.

It may not be all right because it's happening. It's happening. The weakness is spreading beyond PCs and smartphones. Texas Instruments makes analog chips that go in everything from calculators to cars and warned, quote, weakness is broadening. The chip maker was considered more resilient given 62% of its revenue comes from auto as well as industrials. But management warned customers are cutting orders and that auto may be the only vertical to grow next quarter. But the rest of the chip market is feeling the pain.

S.K. Hynix, the world's second largest memory maker, showed quarterly profit plunge 60% while warning of, quote, unprecedented deterioration in market conditions. And then you have United Microelectronics. They said that they see semi and foundry industry declines coming in 2023. Lastly, you got data storage firm Seagate. You guys talked about this earlier, cutting over, what, 3,000 jobs and slashing its outlook, setting the tone for another chip company, Western Digital. And soft, hard disk drive demand could impact storage revenue at suppliers like Marvell as well as Broadcom. Demand for chipmakers has turned sharply lower recently by weaker PC and handset demand.

We know that. We've talked about it a lot. But now that weakness is spreading to industrials, which means the bottom may not have settled in just yet. All right. So here's what I'm looking at. The chip market, especially for cars, seems like it's resilient. Is it? Seems like it's resilient because it's the only one that hasn't really been hit yet by the chip shortage.

And maybe I shouldn't even call it a chip shortage. Maybe I should say that this is an example of how the auto industry failed in its planning. In the heart of, you know, pandemic 2020, they cut their chip orders assuming that cars weren't going to be purchased by. Americans across the country. But, you know, everybody bought a used car, everybody bought a new car, but they had already stopped their orders. So suppliers had shifted that capacity to other companies. So when the automakers came in, they were behind the line

because that capacity had already been given out to the others. And so now they're reaping the benefits from that. You had that with the GM CEO saying that they're still facing a chip shortage, yet I've just talked about every other company that's not saying that for every vertical aside from auto. So that's the reason. And maybe it's more of a question of the just-in-time system and how there are some flaws sometimes. What's happening geopolitically? I don't want to put you on the spot, but there's a lot of talk about

China American workers in the chip industry in China. The U.S. is what, saying don't, you can't work for them? Yes, so these are U.S. persons, which is a really big deal. And it also doesn't get enough attention because. That's why I just brought up. Yeah, it's not. We are. We are. We are. I mean, that's a show at seven.

That is why people are watching us because we hope. You have people in China, workers, that either have an American education, have dual citizenship, and they have to decide right now, are they going to give up their American passport and continue to proceed? But quickly, that's a huge story. So basically, they're being forced by who to do what? They're being forced by the American government. The American government. Correct.

They're being forced by the American government to make a decision because they can no longer work in the artificial intelligence-related chips. So really that high, it's a very small portion of the chip population, but it's still a small portion. It affects a lot of companies, and those people need to decide are the allegiance with China or do they come back to America or decide to go elsewhere? Christina, thank you for that. Really appreciate you. You're lending some perspective. Thank you. That's an unbelievable.

I mean, government forcing people to give up a passport to stay in an industry. Wow. All right. Still to come, another big day on earnings. We're going to run you through today's trade. It's called three-stock lunch, not three-dog night. No, got it. Free-stock lunch.

We'll be right back. It's three-dog night. Time now for three-stock lunch. And today we trade some of the days. movers, Boeing, Harley Davidson, and the Chinese Internet, K-Web ETF. Let's bring in Todd Gordon, founder of New Age wealth advisors, a CNBC contributor. Hey, Todd, good to see you today. Let's talk Boeing. First up, would you fly it? Hey, Contessa. Maybe, maybe. It's encouraging. You know, they miss that EPS pretty significantly. Revenue was only lower by 10 percent, but the big story

was free cash flow. Strong reading there. It's only been positive once in the last three years. technically speaking, to answer your question, near-term resistance, technically speaking, about 158. If you can get through there, I'm interested. Right? So you break it down from two sides, right? You have defense and well-publicized. There was a lot of challenges with this fixed cost, government dealership dealer. But, you know, I hold two stocks.

I think it's like a little bit better than defense side, Lockheed and Northrop Groman. On the commercial side, you know, big orders from Alaska. There's rumors of a Saudi public investment fund putting a big order in. look at the consumer discretionary, a lot of industries, people are traveling, look at the visa report. So I think there's going to be demand on the commercial side. I'm encouraged. All right now, Boeing off 9 and a third percent on the day. The next one, Hogg, I've got a special place in my heart for Harley Davidson given my Milwaukee ties. What about you? Would you write it? Have you been on a Harley contestant? Yes, I have. Wow. Okay. All right.

Another one that looks really, really good. A lot of relative strength here. If we can get above 43 looks like a good technical breakout. It's like a five top there. Above all the daily moving averages, they just beat estimates and they actually said in their earnings report, the retail numbers were lower by about 5% of North America because of retail dealer inventories. But if you look at the retail numbers in their earnings presentation, their earnings have actually, sorry, their inventories have come up. So they're starting to get a little bit more supply. I'm encouraged there. Okay, Harley Davidson up 11.5%. Now, our final name, the K-Web, ET, Would you buy it?

I wouldn't. I've been bearish on Chinese stocks just because underperformance has been in play really since 2007. Since then, Chinese stocks specifically K-Web and FXI has been underperforming. No reason to do it. No reason to diversify. Dollar yuan just broke new highs, which means Chinese currency is breaking down. Chinese government has been vocal about sort of the evils of capitalistic influence and they don't want too many people succeeding in this digital information age.

And you can't help but notice the third term from President Xi and what happened to the former president. So for now, underperformance from the technical point of view remains, I can't touch it. Todd, great to see you today. Thank you. Thank you. All right. Up next, Elon Musk brings in the kitchen sink. I mean, literally.

We're back to you. I want to show you this video. This is a guy named Elon Musk. right, it's pretty rich. Tweeted a shot of himself, walking into Twitter headquarters, writing, entering Twitter headquarters, let that sink in.

And if you're driving in your car listening on the radio, he's carrying a sink. Let that sink in. I love it. He's a dad. He has like nine kids. That is the ultimate dad joke. It for sure is. He also said a beautiful thing about Twitter is how it empowers citizen

journalism. People are able to disseminate news without an establishment bias. He's been pretty clear that he thinks that there's been too much control over free speech and tends to work. You went down a serious road. I had my own dad joke that I came up with where I said, if you were going to have a 1970s model, right, 1980s model with that video, who would you have?

Farah Fawcett? You laughed. It did. It worked. By the way, can I just say one thing that I'm watching today, Chubhead, earnings. This is the biggest global, publicly traded property and casualty insurer. You know what they said? We're firing on all cylinders. You've got the tech companies grabbing all the headlines. What's Chubb doing right in the risk of geopolitics that the others aren't? I hope Nick Chubb is.

Go Browns. Thanks for watching Power Lunch. Closing bell starts right now.