Power Lunch - The Blame Game, and More Tech Troubles 3/20/23

Episode Date: March 20, 2023

Stocks are higher today, as UBS is rescuing Credit Suisse from the brink. But bond holders are getting wiped out, and they’re not happy.And unhappiness is a common theme here: Europe is now upset with the U.S., and a lot of people are blaming capitalism as a whole. We’ll explore all those issues.Plus, Amazon just announced it will do another 9,000 job cuts. While Apple is making other cuts to try and remain the lone tech titan not to make layoffs. We’ve got the latest details. 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, everybody. Alongside Kelly Evans, I'm Tyler Mathes. I'm glad you could join us on a Monday. Coming up, stocks higher as UBS rescues, so to speak, Credit Suisse, but bondholders getting wiped out there and they are not happy. The Credit Suisse bondholders, that is. The unhappiness is a common theme in this story. Europe, upset with the U.S. and a lot of people are blaming capitalism, capitalism. We will explore all those issues and more. And more including tech layoffs. A short time ago, Amazon saying it'll cut 9,000 more jobs, Apple making other cuts elsewhere, trying to remain the only tech giant not to have to cut head count. Before we get to all of that, though, let's get a check on these markets. Dow is up 400 at the highs, about 100 points off that now. The NASDAQ underperforming today, interestingly enough, Russell rebounding after energy and financials have been weighing hard on that index of late.

Let's get to Dom Choo now to kick things off for us. Hi, Dom. All right, so Kelly, Tyler, will kick things off with what's happening. with a big global banking story, Credit Suisse and UBS. There will now just be one major publicly traded Swiss bank, and that's after UBS agreed to take over smaller rival Credit Suisse, as Tyler points out. It was a government and central banked broker deal over the weekend. Now, CS shares have lost over half their value,

dropping dramatically after the $3 billion deal was announced. Certain bondholders wiped out equity holders actually getting a fraction of what they were worth on Friday, so a little controversy building there. Now, on our banking front here in America, New York Community Bank Corp jumped roughly 32%. Now, you can see there, just up about 34%. The Federal Deposit Insurance Corporation, FDIC announced over the weekend that the bank subsidiary Flagstar Bank will assume nearly half, nearly all rather, of signature bank's deposits in some of its loan portfolio, as well as about 40 of its former branches. So NYCB, you can see up 34% on that big deal to get some of those assets from at least what's

happening over here with a signature bank. And let's get a check on the biggest gainers in the Dow Jones Industrial Average Caterpillar Honeywell Dow leading the way higher. As you can see some of those older world value industrial type materials companies. By the way, United Health is the biggest point contributor to the upside Tyler. I'll send things back over to you. All right. Thank you very much, Dom. The saga in global banking, the market there doesn't seem to go more than a day without another major headline or update. The latest being, of course, that deal to save Credit Suisse, if you can call it that. But let's first start from the beginning. It all started with the collapse of Silicon Valley Bank a couple of weeks ago, spreading contagion fears here in the U.S. until the Fed

stepped in to backstop depositors there. But the contagion spilled over into Europe and Credit Suisse losing its chief backer leading to a financial sell-off there, both the Fed and the European Central Bank, desperately reassuring investors that the system was sound. Major U.S. Bank stepped in to deposit at 30 billion into another struggling regional bank here in the U.S. That would be First Republic and now UBS buying Credit Suisse to prevent its collapse. Here now to discuss a view of the banks and more is Stephanie Link. Stephanie, glad you could join us today. Great to have you with us.

Thanks for having me. So is the Fed to blame for this because they made money too cheap for too long and then lots of banks got caught holding long-term mortgage back? in Treasury securities that turned out not to be worth what they thought they were going to be? Yeah, I think a lot of it is the Fed's fault in terms of the speed of the rate hikes that you talked about. But, Tyler, if you step back at the three failed banks, they're kind of company-specific issues going on, right? I mean, if you look at Credit Suisse, we have all known for 15 years that company and that bank was in trouble because the regulators overseas didn't really regulate.

and the capital levels were so much different than that of the U.S., right? So credit suites has always been kind of a problem, and it has been for a long time. On Silicon Valley, it was a concentration issue, right, a mix issue. 62% of their deposits were venture capital, and that's really risky. In addition, they didn't have a risk officer, which is incredible to me. And then, of course, they had a mismatch on their bond portfolio, and that is directly tied to the Fed and them raising rates quite quickly. And then finally, signature bank, it was really crypto.

And they got it to crypto in the kind of the ninth inning, if you will. And so that's not that surprising. Now, I'm not going to say that there's not going to be more and the contagion cannot happen. It certainly could happen. We're all watching First Republic to see how that whole thing happens. But I do think that the SIFI banks, the systemically important banks, the large banks, are very well capitalized. They have almost excess of 400 billion in excess capital.

And I think they're gaining share, unfortunately, from the regional banks. Do you think people understand that when they put money in the bank, it's really not there? I think it's very confusing, for sure. The bank sector is a challenging sector to follow as an analyst and a portfolio manager, and I've been doing it for 30 years. It takes a long time to understand. And certainly people that put their money in, maybe not. are as familiar with how the whole thing works, how the plumbing works, if you will.

But as I mentioned, I mean, the large-cap banks, they're very well capitalized, they're very diversified, and they're very technology savvy, by the way, as well. And so I think that's, if you're going to look for an opportunity in terms of investing, I would absolutely encourage that part of the bank sector. Or by the way, some of the preferred in the large banks are really attractive

in terms of the yields that you're getting, Yeah, yeah. If you look at PNC and you look at P&C, you look at Wells Fargo, it's like 6, 7%. Right. But is that now in question, Stephanie, after what happened with the additional tier one bonds and cocoa is whatever you want to call? I mean, now people are going, well, wait a minute. If the capital structure isn't what we thought it was, would Preferreds potentially be next? Well, I don't think preferreds are going to be to be next. I think, if anything, the common equities probably will lag. but I think the preferreds are fine, at least sort of a large banks. That's why I talk about the excess capital, Cal, because that's so important. That's so much different than the regional banks and what their excess capital was.

Right. Stephen, you're so good at stock picking, but where, you can use innings, you can use cycles, whatever you want to call it, what's going on with the market more broadly, right? Are we looking for stocks that can do well in a bare market? Are we looking for stocks that can do well if we're seeing reacceleration of tech, because of Fed liquidity and the pivot. I mean, I don't even understand what paradigm we're in right now. It's really, really hard this year, Kelly.

It really is. And you know I've been doing this a really long time. Here's the issue. We have three to three and a half percent GDP growth right now in this quarter, right? I mean, the momentum in the economy actually has accelerated, driven by core retail sales, some better housing data, which is tied to lower interest rates, as well as jobs, initial claims, right? They're stubbornly below 200,000. And that's actually a great thing, right? So that's the good thing. The bad thing is we've got 5.5% headline core, headline inflation, right?

And the Fed we know wants to get that to two. So then you have to factor in what the Fed is doing. And that's why I think this week is so incredibly important, Wednesday is so incredibly important, because we don't know what they're going to do. Usually Fed meetings are very well telegraphed, and that's by design, because we know Powell wants, doesn't want to surprise. the market. But this one's a tough call. Whether they pause or go 25, it doesn't matter. The underlying momentum in the economy and the inflation is still there. And that's something they have to deal with. And so I think you're going to continue to, even if we have a pause on Wednesday, I think we're going to continue to see them raise rates down the road. And that, to answer your media question,

is what makes it so hard because there's so many push and polls here. So I just think you want to have, you know how I talked about the barbell approach, having some cyclicals and having some defensive. A couple of years ago, I started with that theme. Last year, I went all in cyclicals because I thought we were going to see kind of the recovery, and it worked. But this year, I think you want to have a little bit more of a balance. I think you do want to look at some of the beaten down technology stocks, which they're not even beaten down anymore. But at the same time, you want to have some exposure to some of the industrial companies because they are benefiting and they're going to benefit from better cap-backs and on-shoring and that kind of a theme. And so I think

there are a lot of areas where you want to have exposure. I do still like the consumer. They've hung in amazingly well. And in fact, a new position I bought last week was TJX. Talk to us a little bit about real estate, because that seems to me to be a vulnerable area at a time of high interest rates. I looked at mortgage rates this morning, and they're above 6%. And I think in the portfolio of First Republic, which is today's problem child bank, they got a lot of real estate exposure. if I'm if I'm not mistaken. What do you think is going to happen to prices? And obviously there's real estate, there's housing, there's apartments, there's commercial, there are malls, there's office building. What's going to happen there? Well, I tell you, Tyler, I worry a lot about the office real estate, right? That market was really struggling because we're not going back to work 100% of

the time. And so I don't think that's going to ever change. I think we're going to have this hybrid model. that's going to hurt the office part of the market. In terms of the malls, I think the malls are going to be just fine, and they've kind of reinvented themselves, right? Instead of having stores in the malls, they actually have experiences in the malls. And I think traffic has actually remained pretty resilient. So I think there are going to be some pockets in terms of where you can have exposure. But I also think within housing, I do think you're going to see if rates continue to kind of level

off here and we have a terminal fed funds instead of at six percent, maybe it's five or four and a half or whatever that is, rates overall, if they come down, I think you're going to see better demand. And in fact, as I mentioned, we got pretty decent housing data in the last week, week and a half because rates came down. There is demand there. And you know, there's a lot of pent-up demand because we've had years, 13 years of underproduction in housing. We're five million homes short in the country. So I still like housing for the long term. I think you pick your spots in terms of which way you're playing it. And actually, back to TJX, that's also a hidden housing play because, you know, they have home goods.

They have home goods. You get a little bit of consumer and a little bit of housing. My wife's favorite store. I know your wife likes that. Yes. I'm telling you, I sit in the car. It's all good. It's all good.

I look at the sports scores. She goes in and looks at the pillows. All right. Steph, thanks very much. That's awesome. Stephanie Link. All right, coming up. A huge jump in crypto prices, even with a small decline today, Bitcoin.

still up 66% this year. Maybe all it needed was a global banking crisis. We'll talk to Jack Mallors about the sudden resurgence there, and Amazon lays off more workers. Apple tries to do everything, but we will discuss the pinch big tech companies are feeling right now when Power Lunch returns after this short break. Welcome back to Power Lunch.

We spoke about it last hour, but Bitcoin has been rallying pretty hard lately. It's up more than 70% just this year. And our next guest says this is Bitcoin's moment. This is why the asset exists. Let's bring in Jack Mallor, the founder and CEO of Strick. I was going to say, have we seen your hair before, Jack, or has the hoodie typically bent up? I'm waiting, you know, for the business suit, for me to know that the crisis is over.

So I can see we're not there yet. Kelly, I got luscious locks, but I'll toss the hood on for you. How are we? The Fed has blown up our financial system. A hell of a Monday, huh? So do you think, okay, let me ask you to you this way, or put it to you, this way. A banking crisis is deflationary. And so when I see Balaji and others saying Bitcoin's going to go to a million dollars, it may go up, but that may be because of the Fed's response here.

The 2010s were not hyperinflationary. There's no obvious reason why now would be hyperinflationary either. Yeah. So, Kelly, it's actually not that complicated. And I'm excited to try and convey that to America. There's a market term that's used here in Chicago a lot is demand finds supply. What do I mean by that? If Ken Griffin is going to want to buy the most expensive condo in America, someone will build it for them. Someone will put a 200 first floor in Miami's tallest building. If silver's going to 1,000 X, I will walk into my kitchen right now. I will melt all my silverware and I will sell it at market. If gold is going to rally, Elon Musk will find more on Mars. Bitcoin is, this is a super important point. Bitcoin is the only monetary instrument in the history of our species that is fixed.

It does not matter how much more demand comes into the asset class, Kelly. No one will ever be able to make more of it. There are two things I can guarantee you in my life, one that I'll die and the other that there will only ever be 21 million Bitcoin. And those are the two things that I can only value as my life and my Bitcoin. So it is the only fixed supply asset, Kelly, it's not that complicated. it's going to go up because everything else can be issued more. Does that make sense? You've got to explain to me one thing. Why is the supply fixed?

And is that because someone says it's fixed who could change their mind? No, it's a great point in question, Tyler. It's because it's written in the software and the software is distributed. There is no one person to ask. There is no one person to trust. The whole decentralization, is it decentralized so that you could put pictures and NFTs on the blockchain? Is it decentralized so that you could fix gaming?

No, it's decentralized so that the defendants of the monetary policy are distributed is so that it's a network of computers that actually defend the policy and instrumentation of the monetary asset. That is not the case for Ethereum. That is not the case for any other altcoin. That is not the case for the US dollar. That is not the case for Miami real estate. That is not the case for precious metals.

It is the only monetary instrument that has its monetary policy distributed and defended. forgive me for being dense. But if you say that it's because this is the way the software is written and it is immutable, it is unchanged. Why couldn't the software be rewritten or why couldn't the authors of the software or the guardians of the software write a new software that creates Bitcoin 2.0 with another supply of fixed supply of Bitcoin? Yeah. So, Tyler, I run Bitcoin software, and someone tried to do this. I want you to Google Bitcoin cash after this interview is over. someone said, I want to change the rules of Bitcoin.

I may want to create more of a supply. I may want to make it faster. I may want to make it do a backflip. I may make it want to store pictures of monkeys drilling on themselves on the blockchain. And they created it and they created new rules and they called it Bitcoin Cash. It's a different asset. It's a different instrument. And when someone tries to pay me in it, my software rules that I run in my home in a room over there says,

nope, that's invalid. That thing is a piece of poop and I don't accept it because it is invalidating the rules of the system that were set out by Satoshi Nakamoto over a decade ago. So you can create whatever you want. You want to create FedNow coin, flip a dokey coin. I don't care. There's 21 million of the things that I run and that I protect and that I save in. And those rules were started a long time ago.

And that's what the network runs. So if you change the rules, you're creating a different monetary asset and a different instrument. It doesn't matter. Jack, did you guys have any effect from SVB's collapse? I know like you said, you're in Chicago. I don't know if you had any exposure there as sort of a startup or obviously I would imagine maybe some other, you know, colleagues, clients, you name it. What do you make of all this?

Well, it doesn't matter, right, Kelly? Because the U.S. government, you either got to default on it or deflate it. And so they're backstopping everything. The spigots are wide open. Money printers going burr. So it doesn't matter where your monies are held is that the government's going to make you hold on it no matter what. Who cares?

The only thing that's clear to us and clear to our customers is you cannot hold and saving dollars anymore. I think that there's going to be a new era of the U.S. where inflation will enter a normalized 5, 6, 7, 8, 9, 10%. The days of 2% inflation are over. What if you're wrong, Jack, because the market is telling us we've gone from having expected 3.5% inflation last year to just over 2% now for the next five years. Again, it doesn't see inflation accelerating and picking up from here.

Look at the swap lines we just instituted over the weekend. It reiterates the dollar's dominance in the global financial system. And if anything, we're going to be averaging inflation for the next decade. It probably looks a lot more like the 2010s we just came from. It was not inflation. And Bitcoin still did very well, by the way. It was not an inflationary period. Yeah, but Kelly, the swap lines and treating these assets at par that these banks are holding is a load of crap.

It's a politically correct way. The swap lines over the weekend were a politically, politically correct way going into an election year for the Federal Reserve to bail out foreign big institutions and not take care of the little guy in the United States of America. Those things aren't trading at par. If they're trading at par when I walk down to my bank on the corner and I said, I want my money, they'd be able to hand it to me. They can't, Kelly. So this is just a masquerade load of nonsense. They have to backstop these things with new money.

And you're seeing risk on assets. You're seeing scarce assets actually be big winners here. So you call it inflation because the CPI is a load of nonsense, right? Like the government's going to tell me how the dollar is inflating based on a basket of like my Netflix subscription or my Caesar salad doesn't actually tell me. how well the dollar is doing or how much it's being devalued. Miami real estate does. Bitcoin's up over 50% this year. You're telling me that the dollar's not inflating. You're out of your mind. I'm not listening to that. The Fed and the whole monetary system is based on trust. And they constantly,

they constantly break that trust. It'd be the equivalent of there's a fire outside of my house. I smell the smoke and someone's telling me, no, no, no, it's just a bunch of teenagers putting on a bonfire. Okay. But I hear one one siren. I hear one police siren. Are you sure it's Bonfire. Yeah, yeah, it's a bonfire. Now I hear 10 sirens, 100 sirens. Now my whole community is running out. I'm not going to get up and look outside the window, Kelly, and see what's going on. I don't believe them for a second. You've got to be absolutely crazy to believe the Federal Reserve right now. They're full of it, and I don't have to because I own Bitcoin. There's no one that could deflate my instrument. I get to hold it, save in it. I know the monetary policy. I sleep like a baby, like the baby face that I am. I think you're crazy. Believe the Fed and these swap lines and treating these assets.

It's at par. It's a gimmick. It's a scam. We appreciate your time today. Jack Mallor's of strike. All right. He's still to come. The banking backlash. Corporate America has had its share of black eyes over the past few years. But the fallout over SVB could be one of the worst yet. Plus a new report from the U.S. revealing that global warming has made irreparable damage to the planet. Power Lunch will be right back. All right. Welcome back to Power Lunch, everybody. Mark, Mark, it's losing a little bit of steam. up 326 right now. Nasdaq turned a negative there for the settlement on the street ahead of Wednesday's Fed meeting. Let's go to Bob Pisani at the New York Stock Exchange. Bob.

Well, the good news is Europe closed near the highs. It was up about 1%. And we're not that far from the highs for the day. I think that there's really only two big issues that are actually being debated down here at least. The first one, of course, is this deposit insurance matter. That's front and center. Unfortunately, that isn't going to be resolved this week. So the other big issue, of course, is the Federal Reserve and what's going to happen there. And that's really an interesting question because everyone, Tyler, has essentially moved to the dovish side of this issue. So you're either in the camp that you're going to have a pause now, or you're in the camp that you're going to raise, hike, and a pause here. So what the market really wants

is they want the Fed to prioritize the banking crisis instead of inflation. And the way to address that is to essentially have some kind of pause. What's very funny is to see that the more hawkish position has actually become what used to be more dove's position, and that is what we call the dovish hike here. So the Fed would raise once and then essentially imply that there is going to be a pause here. We saw that last week that helped the belief that might happen, help tech stocks. Bonne yields were lower here. But that's, again, what's odd is that's slightly more hawkish position. A lot of people have moved to where Jan Hotsius is at overnight. Goldman at Goldman. He said, we expect the Fed, the FOMC, to pause at its March meeting this week because of stress in

banking system. So, Kelly, it's a big food fight over where the Fed's going to go, but it's amazing how much people have moved away from the idea of the Fed talking about combating inflation and more about addressing the banking crisis. At least that's what the market wants. So the big surprise is potentially if Powell essentially stays with the hawkish inflation rhetoric. Guys, back to you. True. Bob, thank you. Meanwhile, over in the bond market, let's check on yields. Rising after UBS bought out credit Swiss was forced to, the 10-year yield, though, still below 3.5% down sharply from where it was just a couple of weeks ago. It was about 4% on March 9th before the collapse of SVB sent jitters across the market. And oil is once again lower, just

above $66 a barrel down more than 10% in a week. The banking crisis also weighing here. OPEC plus sources telling CNBC the price decline is temporary and oil isn't currently trading on supply and demand fundamentals. Meantime, let's get to Contessa Brewer for a CNBC news update. Tyler Kelly, good afternoon. French President Emmanuel Macron has survived a no-confidence motion in the country's National Assembly following a contentious debate that included a walkout by opposition lawmakers. The margin about an hour ago, just nine votes. Another motion by a far-right group is expected to get even less support, and that would allow Macron to go ahead with his unilateral decision to raise France's retirement age to 64. Four members of the oathkeepers, a far right-wing group, have been convicted by a jury in Washington of conspiracy in connection with the January 6th attack on the Capitol. And a legal advisor to Michael Cohen is testifying before the New York grand jury, considering a potential indictment of Donald Trump. Robert Costello arrived just a little more than an hour ago in a government vehicle

and a source familiar with Costello's information tells NBC he will call Cohen a liar who embellishes stories and has been angry at Trump for years. Cohen, who has been a key witness in the probe of hush money paid to Stormy Daniels, is also at the courthouse as a potential rebuttal witness. We're keeping our eye on that situation as it unfolds. Kelly? Thank you, Contessa. A head on Power Lunch, and Apple a day keeps the layoffs away. Big tech continues to make cost cuts Amazon the latest with big layoffs.

Apple's working hard to avoid exactly that. Details when we come back. All right, welcome back to Power Launch. Amazon telling employees it's going to cut another 9,000 jobs in Apple, reportedly trying everything it can to avoid job cuts of its own. Joining us to discuss the latest tech distress, Annie Palmer, CNBC.com tech reporter and CNBC tech correspondent, Steve Kovac. Welcome to both of you.

Annie, let me start with you. what's going on at Amazon, and these cuts are not merely coming from, well, let me put it this way. These cuts in some cases are coming from the more growth-oriented portions of Amazon's business like AWS. That's right. So Andy Jassy, the CEO of Amazon, put out this note to employees today, informing them that they are going to lay off 9,000 employees over the next coming weeks. And that's on top of the 18,000 rules they've already eliminated over. the past couple months. And you're right that these cuts are landing heavily in Amazon's, you know, profit engines, which are AWS and advertising. In addition to that, they're expected

to land in human resources and their live streaming unit Twitch. So, Steve, it's not just Amazon, obviously. It's a lot of companies. Is it as simple as they simply added too many people during the pandemic? Yeah, that's a big part of it, Tyler, is they just hired way too many people as a percentage of what they had before the pandemic started. Apple is the outlier.

Let me just give you some numbers here real quick of the total number of mass layouts we've seen across Big Tech. Amazon, with today's numbers, 27,000 gone. Meta, 21,000. Alphabet, 12,000. Microsoft, 10,000, Apple, Big Fat Gooseeg.

Well, apart from profitability, what are they doing differently? and why do they seem not immune, but maybe a better word is averse to cutting heads? Part of it is they've always operated for a $2 trillion company. They've operated much more leaner than a lot of these other companies. We keep hearing from Zuckerberg and today, Andy Jassy. Lean and efficiency is the name of the game. Apple already operates that way.

Now they have a lot of their hiring was also in retail, which are cheaper employees. But look, when I asked Tim Cook this just a couple months ago, how are you cutting costs if you're not laying people off? They're just not hiring as much anymore. They eliminated a lot of open roles. They're really only, if they are hiring, they're really only focusing on the engineering roles, and even then, the engineering roles are their top initiatives.

You also look at the fundamentals of Amazon. They have lots of warehouses with lots of people in them. I know you also got robots in them. But Apple outsources all its manufacturing. Those are not payroll employees of Apple. No, and those are Foxcon jobs mostly for creating the iPhone, and they flex those. So, you know, during the holiday season, when they sell the most iPhones, they'll bring in tens of thousands of more workers and then scale back when times are leaner. Right now they're going through this unique thing because of the COVID shutdowns last fall.

They actually kind of had to scale up at a different time than they normally would. But again, sales are still going to be down, Tyler, year over year. We're done with these pandemic booms, and so Apple's cutting costs to make up for that. Sales were down 5% last quarter. And, Annie, just to circle back to Amazon, we were talking about this with Deirdre as well, but is there, you know, the shares are down today? Is there some concern that they're cutting from things like AWS, which are, you know, that's supposed to be the behemma?

Yeah, I mean, it's hard to tell, you know, why the stock is down today, because usually when, you know, companies make these layoff announcements, we see the shares go up. So there's kind of two sides here that maybe the stock is down because investors feel that they just didn't cut enough. They need to cut more. Or you're right. be that there's, you know, seeing that they're cutting from AWS and ads, these two growth engines could be an indicator that there's something wrong fundamentally with the

underlying business. I'm not really sure. Or even a macro slid on if you think about it. If AWS is getting cut, that means customers aren't, or even startups. Startups might be going belly up. Is Jesse vulnerable? Is he vulnerable? That is a really good question. He's only been, what, it hasn't even been two years yet since he took over. Bezos is still the executive chairman, And so it's not like he's totally out the door. I think Annie could probably speak better than that. But for now, I think he's making the right moves that investors want to see. All right, we'll leave it there.

Yeah, Annie, go ahead. Quick word. I was just going to say, I think Steve is right. I think that the jury's still out on how much of this lands at Jassy's feet and more. Is it just him responding to the macro concerns? Yeah, and maybe what was done, the bloat that was there that he's trying to fix. Thank you both. Annie Palmer, Steve Kovac.

We appreciate it. After the break in new UN report showing the increase in natural disasters here in the U. is one of the many side effects of global warming. We've got more details. And as we had to break throughout the month, we're celebrating month of March, we're celebrating women's heritage. Sharing the stories of women leaders in business

and those of our CNBC teammates and contributors. Here's Lynn Martin, New York Stock Exchange President. What I would love others to learn from my personal journey is don't be afraid to take risks. Don't assume your career has a linear path. Mine certainly didn't. As someone who started their career coding, I never thought I would be president of the New York Stock Exchange and leading the world's largest global exchange. So don't be afraid to take the nonlinear path in your career.

A new report from the United Nations this morning warns global warming has already caused irreversible damage and the risks are now greater than previously thought because of how sensitive infrastructure and economies, those growing, threats to people in poverty had never been factored in by the mortgage industry before, but that's about to change. Diana Oleg explains in her continuing series on the rising risks from climate change. Hurricane winds are getting stronger, common storms are getting wetter, wildfires are spreading faster, and millions of U.S. homes sit in the path of all of it. But the housing market currently doesn't factor that climate risk into home values, leading one set of researchers in a new report to claim U.S. homes already exposed just.

to flood risk are now overvalued by roughly $200 billion. That has profound future implications on the nation's nearly $12 trillion mortgage market. Do you think that mortgage underwriting in general is taking into account the risks from climate change? To the full extent, no. No, I think there's still more that we have to do, and I think we just don't have the analytics yet to do it. So Fannie Mae, which backs more than 40 percent of all residential mortgages, just launched its defense. hiring climate risk modeling firms like First Street, Jupiter, and others to figure out how to factor climate risk into home values and mortgage underwriting. We really are interested in not only what current state is of natural disasters

and the impact of our book of business, but also what does U.S. housing look like decades in the future. First Street, for example, looks at climate risk from floods, fire, even wind, and brings it down to an individual property level. Jupiter studies neighborhoods and communities. So far, Judge says they've learned that climate impact varies widely across the country, but impacts vulnerable communities far more than affluent ones. He agrees climate risk is not priced into the market and consumers are not aware of potential future costs.

Mortgage lenders are also struggling to figure out the financials. It is a massive challenge for all of us to really think about. But as of now, Wells Fargo does not factor climate risk into its underwriting. So to date it hasn't. I think it's something that we're evaluating like the industry is. Wells Fargo's Christy Furcho just finished a term as chair of the Mortgage Bankers Association, which issued a special report from its Research Institute in 2021, saying climate change may increase mortgage default and prepayment risks, trigger adverse selection in the types of loans that are sold to the GSEs, increase the volatility of house prices, and even produce significant climate migration.

It's certainly impacting how we're thinking about mortgages and what we need to do. The problem is the models from the different firms as well as from government agencies like FEMA all vary widely. And Judge says that has made the project harder than he expected. So you're not at the point yet where you're saying I'm not going to back the mortgage on this home because the risk from climate change is just too high? No, we're not there yet. The first step is understanding what the damage will be to each property. The second step is how is that going to change our behavior and how is that going to change valuation of

That's a lot of the work we have to do. Is it five years away? I'm not sure. But it can't come soon enough. New research from CoreLogic shows that on the current climate trajectory, the estimated number of U.S. homes that will be significantly impacted by climate-related disasters goes from less than a million in 2030 to over $62 million by 2050. In value, that's losses of just under $200 million to close to $9 billion in any given

year. Back to you. So maybe I'm not understanding something. The person from Wells Fargo there who said we weren't really taking climate into account, is that in part because to write a mortgage you have to have full insurance coverage on a home so that the lender would then be protected? Well, we're talking about homes that are not necessarily in a FEMA floodplain. So if you are in a flood area designated by FEMA, of course you're required to have that insurance. But there are so many more homes at risk now. That's what they're really trying to calculate. All right, Diana. Thank you very much. Diana Oleg reporting. And still to come, the growing schism over capitalism, public outrage over the billions being spent to save

failing banks and tech startups with many pointing out their renewed frustrations with the system in general. Could this mess be corporate America's biggest PR disaster? We'll discuss that next. Welcome back, everybody. Let's finish things out here with three stock lunch. trading some of the big movers of the day like Amazon, which is lower after news of those 9K extra job cuts. Also was named a top e-commerce picked by Morgan Stanley. AMD is higher after Raymond James upped its price target to 115 from 100. And Raymond James also upgraded and phased to outperform for such rating for that in a decade, saying it's, trying to quote, catch a proverbial falling knife.

It's up 4% today, but down 27% on the year. But let's turn to Ava Ados. She's chief investment strategist at ER shares. She's going to trade these all with us. Ava, welcome. Let's start with Amazon down mover on these job cuts. What do you do with the stock? It's a buy. I think this is an overreaction to us. It's not bad news that they have additional job catch. We need to recognize that no other company in the U.S. has created as many jobs as Amazon. They went from 56,000 jobs to 1.6 million in 10 years. And in the last five years, they increased jobs by five times.

And in fact, in some of these years, they had more jobs than the rest of the S&B 500 combined. So it's not bad news to us. We also need to realize that this is a company that has the second highest revenues globally, only after Walmart. They have $515 billion in revenues, strong revenues. And in this market where we have a banking crisis and people are looking for a safe haven, I think it's not a bad stock to own. Also, given the fact that the stock right now is high. near its three-year lows.

All right, Ava, let's move on to AMD. What do you think of that one? AMD is a hold largely because the stock appreciated 50% in the year today that I love the sector, actually, but I'm concerned regardless the recent appreciation and the fact that they have the weakest, among the weakest margins in their category. So they have an EBIT margin of 5% compared to the rest of the category of 30%. That's a big differential. And I'm also concerned, given the strong appreciation here today and how much that can continue going forward.

So I wouldn't encourage to add to this position, maybe hold or even if you have made a good return in this investment, take some profits off. All right. Then end phase, which I think is a buy for you, Ava. This is a name that people always say is perfectly positioned to benefit from the energy transition. But the stock struggles, it's high beta, whatever you want to call it. Why would you pick it up here? So I agree with the analyst report today that it's attractively priced, and the stock has dropped 40% in the last four months. That corresponded with a decrease in oil prices.

But I think we haven't factored in the fact that the European market, Europe, is going to continue to buy solar energy regardless of the low oil prices. So if you factor that in and the fact that they have among the strongest fundamentals in the category with the revenue growth of solar energy, 68%, EB margin of 21.6% compared to minus 2.1 for the rest of the category. And in fact, given that regardless of the strong revenue growth, are able to double their margins, their fundamentals look great. And I think I'm still bullish on solar regardless of the low oil prices. All right.

Ava, you want to offer a parting word about the market? Is this just the calm before the storm renews or what? I think we're all looking at the next Fed meeting. So I think we'll probably see 25 bases phone rate hike this time. And so that's largely factored in the valuations right now. So I think, you know, things are not looking that bad regardless of the banking crisis. All right. Ava Ados, we appreciate it very much today.

Very interesting day. And boy, will Wednesday be interesting. Yes, it will. Fed meeting starts tomorrow. On this show, we will get both the decision and the press conference. And I think we get the dots, the famous dots that. Oh, that's right, this time around. told bankers that the Fed wasn't going to hike rates a lot and then told bankers that they would.

And good luck to them in the meantime. Well, it will be a fascinating day as all of them have been so recently. Thank you very much for watching Power Lunch. Glad you could join us on this Monday. Closing bell starts right now. Hey, it's just a spring. Happy no room.