Power Lunch - The Arrival of ESPN Streaming, Palantir Earnings, A Red Flag in Friday's Job Report? 8/4/25

Episode Date: August 4, 2025

CNBC’s Tyler Mathisen and Kelly Evans take you through the heart of the business day bringing you the latest developments and instant analysis on the stocks and stories driving the day’s agenda. “Power Lunch” delves into the economy, markets, politics, real estate, media, technology and more. The show sits at the intersection of power and money. “Power Lunch” gives viewers a full plate of CNBC’s award-winning business news coverage, plus a healthy dose of personality from the show’s anchors and the network’s top-notch roster of reporters and digital journalists. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch alongside Courtney Reagan. I am John Ford. Also joining us for the hour, the NBC contributor, Surrata Seti. Well, stocks are rebounding to start the week. Wall Street staging a sharp rally after last week's steep sell-off. Dow surging at its highs more than 500 points. It's eased off a bit around 470, recovering all of its Friday losses at the peak, while the NASDAQ jumps close to 2% as investors rotate back into tech and growth. One of the stocks leading the NASDAQ 100 today, Palantir, hitting a record high ahead of its earnings. after the bell. Can it keep the AI momentum going? We will dive in with an investor. Plus, Disney is another key story today. The stock gaining momentum on an upgraded outlook for Morgan

Stanley. They're raising their target ahead of earnings this week, saying it's poised for 20% upside. The analyst behind that call will make his case. But let's start with the market as stock sit near recession highs. Mike Santoli is our senior markets commentator, joins us from the New York Stock Exchange. Hey, Mike? Hey, John. Yeah, first thing to note is that that dip buying impulse is still very active. Bespoke tells us that 2025 has been the second most profitable year for just buying after a down day and having it be rewarded, second in the last 30-something years. So clearly the muscle memory is there. As you mentioned, we at the highs we got back all of Friday's losses, but still not quite. So we're still operating in that range

between where we closed Thursday and where we finished Friday after we got that reassessment of a slower labor market. I do. Do you think it's changed the bull case just a little bit from, hey, the economy looks resilient enough to deal with a wait and see Fed, even if we don't get rate cuts soon, to, hey, it looks like the data are going to usher in a September rate cut, so it's okay if we go through a little bit of economic weakness. Sounds like, you know, heads eye when tells you lose. That's sometimes how bull markets are. I would point out it could just be a seasonal shakeout, August, a tough month, but I wouldn't necessarily bet on the fact that it was a one-day wonder in terms of this pullback. It was an overheated market going into last week. And there's not a lot of macro data to feed on this week. So it's all about, okay, let's assess earnings season in total and decide whether the lower treasury yields and lower dollar have taken some of the pressure off of valuations. Okay.

Mike, thanks. Surat. How much did the revisions in particular and the jobs data on Friday change your view of the market, if at all? I think the lagging indicator, the data coming in that we all expected finally at home. after Doge and all the unemployment. So I don't think it was that much of a surprise. I think the other surprise was, hey, inflation is not coming down. So that really puts the Fed in this quandary as to, you know, three days ago they were saying,

hey, we're not going to do anything. Now what are you going to do because you've got offsetting data on each one? And now you've got the market kind of telling you with rates coming down, maybe something needs to be done. Why do you think the market is finding strength here today? Well, I think people are looking to say, hey, listen, we're going to get a safety net. If things get really bad, then what will happen? A, the Fed would come into play.

Secondly, maybe the pressure from tariffs will come off, and maybe the administration will say, hey, we can't really push forward as much as we can. Given kind of quote happened on Liberation Day. So the market's given the benefit of the doubt, and you're seeing money flow back into the growth stocks. You're seeing money flow back into kind of where people took the money back out. But, again, this is the slow period.

So you get another hiccup or you get some more of that. And you've had some incredible earnings on the AI side, but on the other side, things haven't been that great when you talk to some of the industrials, et cetera. So I think the next two weeks is going to be important. We've had probably, what, 320 companies report earnings, and we've got the rest coming now. Mike Santoli, in the market so far this year, every dip, it seems, has been worth buying. Oh, he's, well, he's gone. Zarott, every dip has been worth buying in this market, it seems. That's been the mentality.

Is there anything in what you've seen in the market this time, in how you're seeing investors, traders react, that makes you think that that's wearing off at all? No, I think you're going to still see that going forward because, again, like we said, you've got kind of the Fed put potentially down the road. You've got an administration that's very focused on markets, and we've learned that a couple of times as well. So where we go with that, but the question is going to be evaluation, and I think also, So how do we diversify away from the top seven, right? When do we get some of that coming?

And the question is not if but when. And I think that could be a tipping point to the market. You might see the market come down, but you could see other sectors kind of do well, especially those that do well with the lower dollar, whether it's commodities or energy or some of the other stuff that you can see. But right now it's buy what's worked, which has been AI and growth. Well, our next guest says that the market is largely ignoring a red flag. Friday's jobs report. It's among the three main narratives he's seeing emerging following President

Trump's firing of the BLS chief last week. First argues the decision undermines institutional integrity. A second, focusing on BLS's data compilation challenges and how they've become increasingly problematic. And a third saying data revisions provide valuable insights and the big revisions down could be a prelude to bigger problems ahead. So joining us now to elaborate is Mohamed L. area, and he is former Pemco CEO and Chief Economic Advisor at Allianz. I mean, you make some three big points. I guess let's start, Muhammad, on the firing of the BLS chief. We were speaking about the jobs report, but you see a number of reasons why this is problematic. Dive into some of those for us. Yeah, this shouldn't be a political move. This is an apolitical institution. It is true that

it had persistent problem on data collection. The response rate has come down. There hasn't been much incorporation of the higher frequency data that was so valuable to everybody during the pandemic. And then clearly there's a problem of methodology, the estimation until you get more data seems to be off. So there are problems on the data collection and the data estimation, but you should not undermine the institutional integrity of the BLS. And so you're saying that firing the head of BLS does that because it's a signal. It's saying, hey, everything you're doing isn't right? It's being interpreted a signal as I don't like what you've released in terms of data, and therefore I'm going to fire you. I see.

Now, Kevin Hastitt said yesterday that the president wants someone that he can trust there, and other people have noted that it's actually very difficult for the head of the institution to change the way the data is compiled because so many people are involved. So you wonder how much is gained and you worry about what it does to institutional integrity. And so can you talk to us then about the revisions? We get them all the time. And it's funny, Steve Leesman, who is our senior economics reporter. And I often look at things like retail sales data, which, again, a government report. And I look at what the retailers are saying. And they often don't agree.

And I've always wondered why. And Steve and I have just come to the conclusion. It's a different way that data is collected when it's done by the government. in some cases at surveys or estimations, as opposed to individual retailers reporting, which of course is individual and not aggregated. So I guess when we're looking at the data itself and the revisions and what we've got so far and what we know, how do we use it to our advantage if we know that it is to some degree imperfect? So the bottom up data that you and I look at, those numbers are particularly valuable at turning points.

If you remember, go back to 2021. The companies were all saying we are seeing higher costs and we have pricing power, but the top-down data wasn't picking up the inflationary impulse until it was too late. Similarly, now, the bottom-up data has been signaling weakness, not recession, but an economy that's weakening. We've seen that in terms of pricing power for those who sell to lower-income household. We've seen it in terms of net income growth away from the top 10. It has struggled. We've seen what has happened to employment in the public sector.

So for those of us who look at micro indicators, they were flashing yellow. But the big data wasn't flashing yellow until we've got these massive revisions. And these are massive revisions. We're down to job creation that we haven't seen for four years in terms of three-month moving averages. So I think the macro data is finally catching up with the microdata, which is now, of course, making everybody change their mind about what the Fed should have done last week. Muhammad, at the same time, you said you think that Fed Chair Powell should resign, which Trump would want, President Trump would want, to protect the independence of the Fed. But you're saying that Trump shouldn't have fired the head of BLS because it threatens the independence of that data collecting and discharges. a branch of government. So does this shift your view at all on whether Powell should resign?

Because it seems that perhaps the president just wants to fire whoever's not giving him the numbers he wants. That's a great question, John. So the common theme here is preserving the institutional integrity. That is so important. What differentiates us from other countries are the strength of our institutions. In one case, he fired someone. I've never said he should fire Powell, But I do think that with Powell's term running out in May, and he will be a lame duck way before, we may get an announcement as soon as this week as who the next Fed chair is, with him stepping down and with his presence until then being such a magnet for political attacks that are widening. It's not just the president. You have the Johnson in Congress.

You have Secretary Bessent. The attacks on the Fed are in. expanding and deepening. And I really worry about the financial integrity of the Fed, much more than the financial of the integrity of the BLS. If we lose the institutional integrity of the Fed, we're going to step back in a major way in terms of good economic outcomes. Mohamed, what do you think the administration is going to do if inflation reports are higher than they expect?

Because there's really who's there to blame at this point, right? You can blame right now on the unemployment. But what happens then, other than you just kind of look at the mirror and say, hey, we're causing some of this inflation? or are the other things that they can do to kind of say inflation is really going to come down? So I don't know who they're going to blame, but you raise a really important point. How you look at the inflation rate depends on what your metric is. If your metric is a 2% target, then we have been way above that for four years,

and we're going to continue to be above that for another two years, according to the Fed. If however your metric, as it is for me, is stable inflation, then we are very very, stable at 2.5 to 3 percent, and there's a good reason why the 2% isn't there, and that's because we are rewiring the supply side domestically and internationally. So we should expect somewhat high inflation. As long as it's stable, it's not a problem. It's when inflation becomes unstable, and when inflation expectations are unanchored, that it becomes a problem. And that's why I think the Fed should have cut last week. I've said it. And it's not out of question by the way, that they cut 50 basis points, exactly what they did last year.

They did nothing in July, and then come September, they did 50 basis points. It's not totally out of the question that they may do that again. Okay, yeah, the major averages aren't far from where they were on Thursday, but a lot of other stuff looks different. Mohamed, thank you. Mohamed Alarion. Well, stocks are rallying today. The economic data is coming in line, and U.S. yields are steady. R. Rick Santelli is tracking the action at the CME.

Rick? Hi, John. You know, Friday was a huge, huge day in the markets. A 25 basis point drop in two-year yields. Over a 20-bases point drop in 10-year yields. Look at the two-day chart. But yet, look at the right side. We are hovering very close to unchanged.

Two-year is mostly unchanged, and the tens are down a basis point in a half or so. I respectfully disagree with Mohammed because if there was an issue that was serious, that was sparked by the big, huge revision we had on Friday, or the firing of a BLS person, we would see much more volatility. And if there was the notion that we have to now be suspect of every data point,

what about inflation data points, the markets will let you know. Markets are pretty grown up about it. They understand this president. They understand hyperbole. They understood that there was a political rationale not to like tariffs. They saw through it. They continue to see through a lot of.

of the issues that are very interesting and in the news. But maybe pointing out that Friday should have a negative residual effect is every bit as political as what the president did. And as you look at the longer term charts, we're hovering at the lowest yield closes, basically, since early April and something else big's going on. Our yields are the closest they've been with European boon yields since the beginning of April. That's something to pay close attention to. John, Courtney, back to you. Thank you, Rick. We appreciate it, as always. Lots more to come on the show. Here's what's on the menu. First, a payday for Musk, plus a power call on Disney and August angst for retail. Details on all this and more when Power Lunch returns. Welcome back to Power Lunge. Palantir is the big earnings name after the bell today.

The software company has been on a meteoric rise over the past year. As you can see here, shares are up more than 6x as it's benefited massively from the rush from investors to find AI place. And that run-up has led to a sky-high forward price-to-earnings ratio. It's actually the highest of any company in the S&P 500. Joining us now is Clockwise Capital CIO James Chuck Muck, Surat's a team. He is with us on set as well. Both are in a lot of tech names that we regularly talk about it. And James, to start off with Palantir, this is a run reminiscent of Nvidia, say, starting

sometime in 2023, but maybe faster than that. What do you have to believe about Palantir and its invidia-like potential to keep buying it here? Yeah, I mean, it's a historic run that we've seen out of Palantir. You know, when we first bought it back in the $20 range, you know, the way we thought about it then was that every new contract that they received added about 3 to 5% to the top line revenue growth. So you could back into a multiple that was much cheaper than it appeared on surface. Obviously, now in the 160 level, you know, that's, it becomes a little more difficult. You know, it's a position that I believe you have to own in your portfolio, but at a smaller size than what it would have been, call it, six months ago. But as far as the importance of the company, you know, this is a company that's going to permeate every single aspect of corporations around the world.

Sirot, how are you treating it? Look, I mean, I think we're more value-based in terms of cash flow-based, so it's hard for us to get our arms around it. It's a great company, but, you know, you get any bump in the E where something kind of hits it from the left side. We just worry that valuation is so far ahead of itself on its price to sales. And we've seen these stories before. So to get off the train when it's about to go down is very hard. But those who are on the ride, it's great. Look at this, though, up about 550% in one year.

I want to ask you, James, if we can, about Tesla, Elon Musk again. And the news about getting this new pay package, at least sort of this interim agreement internally. But of course, there's some asterisk because of the battle over the last pay package, which is still being debated in court. But I guess a key part of this also stems that in order to get it, he's got. to stick around a CEO. And if you are a Tesla lover, you probably love to hear that, right? Yeah, I think it's a good thing. And I think, you know, he deserves it, as controversial as he may be. You know, I think it's a good thing for him to remain at the helm of Tesla. I know there are differing opinions on that.

But at the end of the day, Tesla is actually one of those only companies, one of the very few companies, I should say, in our portfolio, that you have to take a longer-term view because of so much of optionality embedded into the company. and kind of look past the near-term kind of challenges as it relates to auto sales. And challenges, there are many. So, right, what do you think about this name? Short-term, long-term, you pick. Yeah, I mean, I think the days of the car Tesla are past us. So, yes, it's optionality, whether it's on robotics or it's on, you know, they're going to compete with Waymo. So, yeah, it's a speculative part of the portfolio.

And I think if you want to play that part, you can. But just knowing that sometimes there might not be a future or, you know, he's such a smart person. something could come out of it, but no, it's speculative at this point. James Apple had a bit of a narrative shift, arguably, last week with earnings, did better than a lot of people expected despite their AI issues. When did you buy it? Why did you buy it? We bought it a couple of weeks ago. Basically, we had sold it the day before we were on your show, and we bought it back a week or two later because the earnings estimates overshot, so much to the downside, we saw that the risk-reward balance was much more favorable.

But I'd say, you know, bigger picture as it relates to tech, you know, the valuations, this entire run has really been about multiple expansion and not earnings expansion. So things are really, really starting to get frothy here. So as we think about that dynamic in the market, you know, where are the places that you want to hide? It's the companies that have the most visibility, the most recurring revenue, and the ability to sustain the growth rates that you're seeing. today and that's companies like Apple, Spotify, Netflix, and so forth.

So, you're not hiding an Apple. You're still selling it? Yeah, we've been using it for more source of funds because one of the things, I mean, multiples at 27 times earnings, which is pretty rich. And yes, you can consider it a staple company. But the fear is that it has such high margins, and we've talked about tariffs before, and if they're not going to actually be able to avoid all the tariffs, because to be able to build in America is going to be very expensive. So I think you're going to, it's not that I don't believe that they can grow forward. I think the expenses and the cost of goods sold are going to be very hard for them, at least in the next in the near term. Well, thank you very much for you're able to

go through a lot there, gentlemen. James Chuck Muck of clockwise capitals. Surrod, obviously thank you, but you're sticking around with us for the entire hour. Well, coming out, copper, down 13% in a month. Tariffs causing some erosion. Our next guest will share his two cents. That's next. CryptoWatch is sponsored by Crypto.com. Crypto.com is America's premier crypto platform. I mean, believe that copper is a pretty reliable indicator for global economic activity, but after a strong run-up over the past few months, at least copper saw its biggest one-day drop on record last week

after the Trump administration narrowed the focus of its tariff policy. Joining us now is Phil Strebel. Thank you very much for being here with us, Phil. I mean, I guess I have to ask you, when we've seen at least some volatility, as we noted, that has been somewhat unexpected for copper. How should you look at this or play this if you're looking for it as a indicator of what's to come in the global economy? Well, I look at it more like the Great Copper Reset here.

I mean, futures have really returned back to stability here after extreme volatility last week, which was driven really by the persistent buying ahead of the tariffs and created that supply squeeze. So the administration, that reversal on refined copper really alleviates the near-term supply worries and closes the arbitrage between Comax and the LME. So now futures come back down to that balance of more traditional supply and demand. But there's really, there's some new factors here that have come about that are going to continue to drive. And I think upward price momentum, higher in copper. And really, you know, while the above ground inventories are ample, it's

a growing demand. China's ongoing modernization and industrialization continue to drive that copper consumption. You've got data centers with all the AI talk, massive expansion and data centers. construction. And those centers, they rely on heavily on copper for power distribution, connectivity. And then finally, electric vehicles, I mean, they require significantly more copper than any kind of traditional vehicle with the wiring the batteries. And that's where I think that this copper demand, this story, it's, it's been knocked down. But the reality is the floor is continuing to arise on copper consumption. Do you have a target for where you think prices are headed? It sounds like all those factors you noted, at least suggest you believe it's going higher from here and not maybe

in the short term. Yeah, we really believe that there's a lot of unplanned distribution or disruptions with the supply outages. And then also we believe that, you know, if you look at demand versus supply, it is outstripping it. So we think that prices could return back to the five, five-twenty area here. And the way we would play is looking at buying any kind of dip back down to $4.35. $4 is going to be your line in the sand. That's where your stop loss would be. Risk about $875 on that mini and micro contract. And then you really want to target that 5-520 area, which would be about a $2,000 game. What would be your takeaway for investors if we do see sort of another drop like we did in

response to an administration policy, which again are somewhat fluid and fast-changing and hard to handle? And then how do we frame that up with the perspective of its role in the global economy? So now I believe that the possibility of them putting a tariff back onto that imported refined hopper could come back into the play. And that's where, you know, if you look at analysts, they're putting about a 25% chance that the administration does put a 15% tariff back on. That's where we think the headwin and the knee-jerk reaction would be back to the upside in the markets here. I mean, global demand is just expected for copper to the demand to double over the next decade here.

And, you know, another way to play it that we do like as well, if you're not going to have pure price play with the commodities, look at something like Freeport MacBarran or a U.S.-based copper miner and it's got that. some of the best margins in the industry. They also have a lot of gold as a byproduct. So that gets you that efficient exposure to gold and copper as well. And you can see gold prices rising nicely here over the last couple of trading sessions. Giving us some actionable insight. Thank you very much. Phil Strebel, Chief Market Strategist at Blue Line Futures. And they grow up so fast. Disney Plus, about to turn six years old. The streaming industry has changed a lot in that time. So how does the platform stack up against the competition? We'll take a look. Next.

Welcome back to Power Lunge. Disney shares on a tear for the past few months, up more than 30% since early May. Analysts over at Morgan Stanley think the stock has room to run even higher. Firms out with a new note today, hiking Disney's price target to $140 in reiterating its overweight rating. Morgan Stanley says that as long as the macro backdrop remains healthy, they see Disney generating double-digit EPS growth in the years ahead. Join us now to discuss all the details. It's the author of that note, Ben Swinburneberg. and the head of U.S. media research at Morgan Stanley. Good to see you. So the two big questions for me are Disney Plus costs and theme park pricing.

Have they got each of those things in the right balance? And that's why you think it can keep running? Well, thanks for having me. I would say yes to both of those questions. On the cost side for Disney Plus, you know, Disney's really been rationalizing their spending across the business over the last several years, really since Bob Beiger came back as CEO. In fact, we've had real positive earnings revisions over the last two years, largely driven by lower than expected costs on the streaming front.

So that's in a very good spot. And then on the theme park front, the way we look at it, post-COVID, there was just a surge in consumer spending, kind of revenge travel, all the things you know about. That had to be digested, which we think happened last year. And now we look at this and it's back to kind of a normalized trend line. So we think experiences segment growth can be the big growth driver for the earnings growth of overall Disney over the next couple of years. I know you own this one as well. So I got to try to push back a bit on the concept of pressure test your position here with AI coming through.

This is a big IP owner. It stands perhaps to get either taken advantage of or for the value of its assets to diminish. Why won it? Well, I think one of the things that has such a real. original content that we've all grown up with generational, you know, over time. And I think as the younger generations look at it and you kind of add to it, the cost of the goods again there is much lower than kind of creating new content for Disney. And I think combining all their streaming services and really focusing on the costs and growing kind of the streaming, I think that's

going to add a lot of cash flow to a company that, you know, during COVID had a really hard time just trying to get meet that, you know, they cut their dividend, et cetera. So I think that's going to be interesting. I think it's a cheap stock. There are two things that concern me. One is what are they going to do with ESPN and how are you going to monetize that? And then the other one is the succession, you know, who is going to take over? I know they're focused on that and James Gorman is running that for their board, but that's going to be an interesting kind of next leg for the stock because it's come back. It's, you know, it's not cheap. I think it's fairly valued, but it can compound and if it has earnings growth because it's one of those stocks that I think can do

really well for the next few years. Ben, I'd love to pick up on that point because that was exactly what I was going to ask. Bob Eiger sort of has brought back some reassurance in that top seat at Disney. Who's going to replace him? It doesn't look like he's going to be there forever. And if you're an investor, what are you looking for? Well, I'm not going to make a prediction on the next CEO right here, that's for sure. But I would say that we have tremendous confidence in the board and the Succession Committee. We think it's a real process. I think they're looking internally and externally. and as they've announced publicly, we should hear early 2026 who the next CEO is going to be. And so I think having visibility into the timeline is actually quite helpful for the marketplace.

But there's a lot of talent on the bench at Disney, and we think there's lots of good options for the company to choose from. What do you want them to do with ESPN, to Surat's point? There's been so much discussion over this and really no resolutions at this point. Yeah, so when we pitched Disney to try to simple, things, we talk about this being a theme park company that owns media assets, where it used to be a media company that owned theme park assets. And when we add streaming and parks together, you're getting an earnings contribution 60% plus and growing. So that's really what drives the business. Of course, ESPN is important. In fact, one of the things, you know, you mentioned the

lead in Disney Plus turning six years old later this year. They're going to be bringing ESPN into the Disney Plus Hulu bundle in the next couple weeks. In fact, when they report earnings on Wednesday, I think you may hear an official date for when ESPN will be sort of set free from the bundle for the first time ever. And you may hear from them a transaction with the NFL, which has been written out in the press with the NFL taking an equity stake in ESPN. ESPN's about 15% of the earnings. So it matters, but it doesn't matter as much as it used to. But I think having the NFL as an investor, if that's what they actually announce and then bringing ESPN fully into Disney Plus will give ESPN the best chance it can get in thriving in the new streaming world.

So, right, I worry about the sports landscape in that. I'm not a big sports guy. I don't watch ESPN or any of that, but the sports content I see is put out by the leagues on social media. That's where I see it, largely. So how much margin can you expect to get as a sports presentation, sports content brand if you're not the league itself and you're in a way competing with or cooperating a league that wants its own margin. And you are, but the key is live TV, live sports. That's where the ESPNs of the worlds make their money or Major League Baseball or NFL network. It's really, it's not the replays of the sports centers. It's that live action that people will pay money for, whether it's on Hulu for, you know, for ABC or, you know, that's what you're going to look for.

It's not just playing, you know, hey, this was, this happened last year. So people are going to pay for that and that's where ESPN is going to have to make their money. Otherwise, it's this declining asset, which you're talking about. You're not going to pay for the growth. That's how works in our household. Wherever the games are, those are the services we buy. Thank you, Ben Swinbner. He is Morgan Stanley, head of U.S. Media Research. Appreciate you being here with us to go through that one. Let's get over to Bertha Coombs. She has a C&BC News Update. Hi, Bertha. Hi, Courtney. States and cities that boycott Israeli companies could have their federal aid for natural disaster preparedness pulled.

The requirement was announced in grant notices last week. According to Reuters, it applies to at least $1.9 billion in aid from FEMA and includes aid for search and rescue equipment, backup power systems, and more. A federal judge ruled today that Rhode Island's gun permit system is legal. It requires residents show a need to openly carry a firearm throughout the state. A coalition of gun owners filed. a lawsuit in 2023 claiming the law violated their Second Amendment rights. An attorney representing gun owner said they did not believe today's ruling is in line with a

2022 Supreme Court decision and they plan to appeal. And Amazon is laying off roughly 110 employees in its Wondery Podcast Division. The head of the group is also leaving as part of a broader reshuffling of the company's audio unit. The move comm's nearly five years after Amazon acquired Wondery, which made a name for itself with hit shows Dirty John and Dr. Death. Courtney? I did listen to Dirty John. That's one of the podcasts. I actually followed all the way through. Thank you, Bertha. I'd never heard of it. Oh, you haven't. There's a Dayton, Ohio connection in there, which, you know, was piquing my interest. Thank you. Well, how the other half trades, that's after the break. We'll speak with one money

manager with unique insights into how the wealthy are managing their money. Power Lunch will be right back. Welcome back to Power Lunch. High net worth investors are navigating a complex landscape, seeking diversification and managing risk, but also exploring new opportunities beyond traditional stocks and bonds. So joining us now is Jeff Meskin. He's a partner at Brown Brothers Harriman to break down how alternative investments can play a key role in well-balanced portfolios and where the savvy investors are putting their money today. Jeff, we love having you. We always want to know how the other half is living. So I guess sort of first of all, as we work through this environment of so much fluidity when it comes to the macroeconomic environment and how that may

or may not be influencing the market, what are your wealthiest clients asking you worried about? What keeps them up at night? What's the key strategy? Well, we look at the market through the lens of our clients. And essentially, they're managing money mostly on a generational basis. So while there's price volatility in the markets all the time, we're really focused on value. We're focused on finding value and growing value. And so if we think about different ways to construct portfolios, we have sort of a traditional approach in that 30% of our portfolios are fixed income related, about 40, 45% in public equities, diversified across both the globe and market cap ranges,

and then a real focus on alternatives. Alternatives and what we call independent return vehicles is sort of where we are really focused these days. And that's what our clients are interested in. So a question for you, when you look at the alternative side and you look at fixed income and the spreads are so tight, where do you find opportunity in the alternative space there? Because if you go out three, five years, corporate spreads are so, especially in investment grade. So where are the opportunities there? That's right.

It's a very good question. And we're finding value in an area of the fixed income markets that we call structured credit. So if you think about structured credit, it goes by a number of. acronyms, asset back securities, CLOs, CNBS, RMBS. And they're sort of difficult for mainstream investors to access. They're really done on a private basis. And it's buying into a pool of loans, either hundreds or thousands, of commercial loans, or corporate loans, and consumer loans. And it's really the way that the financial markets are funding themselves.

If you think about non-bank lending now, it's larger than bank lending. And these vehicles are important. And why we're finding value to Surat's question is that if you take these loan syndications, the interesting thing is that you can buy various tranches equivalent to the amount of risk you want to take. So if you think about this, you can take AAA risk, you can take AAA risk, you can take junior equity risk. But if you just think about single A for a minute, the structured credit vehicles are delivering 200 basis points more return than their corporate equivalents. and doing so with historic track records where there's preservation of capital. So staying in fixed income to something that's very, very traditional, I guess, municipal bonds.

What's the role of munies, given this interest rate environment, given the sort of tax relief that the very wealthy just got? Are they still that important? And how do they perhaps provide a kind of risk counterbalance to some of the other alt moves you want to make? Yeah, historically boring munis are actually very exciting in this environment. If you think about this for a minute, municipal bonds in the duration of four to five years, we're funding America's infrastructure. That's hugely important. So that's a plus.

And then when you think about how investors are earning returns, if you happen to be a high-income earner in a high-income tax jurisdiction, high-quality munies can generate returns of around 7 percent. on a tax equivalent basis. So those yields, when you gross them up for their tax equivalency, we think are really attractive on a long-term basis. And we've been extending duration right now with our clients. If Kelly Evans were here, she'd be really excited about that.

She loves mayonnaise. Jeff, I know there's some names that you and or your clients like, and we love to name names here on CNBC. So can you give us some that you're excited about? Are you MAG-7 fans? Well, we are invested in some of the MAG-7. The way we look at is we are buying long-term durable businesses with massive competitive advantages. And so those yield a number of answers.

Microsoft has been one of our largest holdings, and of course their earnings last quarter were terrific. The growth that we're seeing in the Azure component of AI, I know you were talking about that with Sarad earlier. Fantastic. We like network businesses like MasterCard and Visa, and then we've had a long-term holding in an arrow. space named Transdime that we've owned forever. And Transdime is one of the most interesting companies out there. I know you all that. So we own four of those stocks.

Okay. And I think those are fantastic. We call them serial compounders. Okay. Because over time, these are companies that have moats around their businesses, especially Visa MasterCard and Transdine. So if you look at kind of Transdine, you were talking about that. It's after markets for airplanes.

So as Boeing has more trouble producing, and we can't keep up demand, these airplanes are being recycled, and you get those parts. And if you think about trans-diamid IPOed in 2006, it's compounded in excess of 30% since then. Pretty nice. Pretty nice. That's the thing we don't talk about that often. Thanks for the insight, yeah. We'll have to have you back for sure.

Jeff Naskin of Brown Brothers Harriman. Well, up next, August angst for retail. Back to Schools, usually bad news for kids, but good news for parents and very good. retailers. This year, though, could just be bad across the board. We will explain why. Next. Welcome back to power lunch. August brings back to school angst for many kids. And this year, angst for retailers navigating through tariff policy changes. And while the majority of imported back-to-school supplies and most seasonal clothing came across the U.S. border months ago, new so-called reciprocal tariff rates ranging from 10 to 30 percent on top of any previously existing duties will

hit on August 7th. So most retailers don't report their earnings until later. this month. But anticipation of tariffs, now hitting this week, Decker's, Nike, Levi, Walmart, they're among the names that have said they will have to raise at least some prices on some items to help offset the cost. Home Depot said it doesn't intend to raise prices. Tapestry is a name that says it's non-price increase mitigation tactics can actually absorb most of that hit. And Bath & Bodywork sets a rare example of a U.S. retailer that's insulated as it produces mostly domestically. And while international, manufacturing means longer lead times.

It can also mean a lot of that holiday merchandise is likely in the United States already, which turns out to be a good thing maybe to avoid tariffs. But obviously, if you've got reorders or you're conservative in what you ordered, you might be in trouble if you decide to buy a little bit more. You're going to be paying higher prices. And what I find interesting, Surat, is that it's going to be hard, I believe, for consumers to really tell how tariffs are coming through in prices. because many retailers are going to employ this portfolio approach.

Basically, just because this pack of paper has a tariff on it, it doesn't mean I'm going to increase prices on this pack of paper. Because if I do that, you might not buy this pack of paper. So they're going to identify the price elasticity of every item. They can do so with software and AI, but it's going to be tricky for us to figure that out. 100%. And I think those companies that are using AI,

those are using technology that are understanding what the customer really wants are the ones they're going to win. So something like an Amazon in that place. When you get on Amazon, are you going to go to six different websites to buy things? Or once you get to the point where I bought these four things I definitely need, oh, these two things are a little more expensive, let me just buy them. Right. What about a Walmart?

I mean, they did catch a lot of flack from the administration for coming out and saying, look, we're going to do what we can. But there are some prices or some amount of a tariff increase that we cannot entirely absorb. And when I look at it, Walmart is the low price leader. That's at least what they say they want to be. So I would imagine they don't want to increase prices. None of them want to do it, but I think it's going to be part of the cost of doing business, where how much can you absorb?

And to your point, so say they've bought 100 widgets and they need 50 more, the average price of that widget is going to be a blend of those 150. The question comes what happens next year, because a lot of that inventory has already been bought for Christmas. So you'll see that now. Does that mean reciprocal tariffs go down next quarter or in two quarters? But that's what I've been kind of saying. That's going to get embedded into our system of inflation.

Because you can't just get rid of that unless somebody's absorbing it completely. But the other thing is you have your dollar's prices are down too. So if you're buying overseas, you're spending more too. So that adds to it, you know, unless you get transport costs coming down, but it's not like oil prices are super low. So there's going to be an embedded cost. And remember what caused deflation for 10 years was the ability to import from anywhere in the world at a much cheaper price. So that's a question to be answered.

Just got to buy a fewer Barbie dolls. Yeah, that's all you need to do, right? All right, we're going to get some final thoughts from Sarat next. We'll be right back. Before we go, I want to make sure you know about a big interview. We have coming up on Power Lunch tomorrow. Our colleague Andrew Ross Sorkin is headed out west to the Aspen Institute's Economic Strategy Group meeting where he'll interview many thought leaders, including Bank of America's CEO, Brian Moynihan. That's tomorrow.

2.30 p.m. Eastern, Sarat, you own Bank of America. You've been trimming it. It hasn't been performing as well as some others. Is that because of the relative middle class exposure that Bank of America has? So I think that is correct. It's also, I think, a little too diversified because it has got exposure everywhere. And where I really think the exposure you want to get with the tailwinds of deregulation are some of the M&A banks or the banks that are in wealth management, like a Morgan Stanley, that's 70% recurring revenue wealth management, or even a JP Morgan that can benefit from IPOs, from credit markets, you know, where they are, and also capital markets, right?

So that's kind of where you get the next Lego growth. BAA is, you know, a great company. I think they've got some consumer exposure there. That's going to be interesting to talk about and see what the CEO says. They've got lending exposure in terms of real estate. All right. So I think those are kind of some up to exposure. Exposure to stocks and businesses, it sounds like.

So, Rod, thank you. Thanks for watching Power Lunch. Closing bell starts right now.