Power Lunch - The Bull Case for Chinese Tech, Spotify & McCormick CEO on Growth Drivers 10/22/24

Episode Date: October 22, 2024

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.

All welcome to Power Lunch, everybody, alongside Kelly Evans. I'm Tyler Matheson. Glad you could be with us. Stocks have turned a little bit higher this afternoon with all three averages. Evidencing small gains. I do mean small there. Six-one-hundredths of one percent in the case of the S&P 500. It doesn't get much smaller than that. Big moves are in the bond market as yields continue to rise. Price is falling after last month's Fed cut. And it's not just U.S. rates. Rates are moving, Kelly, around the world. problematic for places like Europe where the economies are much weaker like Germany's and they're still seeing long-term rates move higher. So an uncomfortable position to be in maybe even so here in the U.S. with those Paul Tudor Jones comments this morning, but we'll circle back to that. About indebtedness. Exactly. He's long gold.

He's worried about inflation and so forth. Speaking of which, there's lots of concerns about China's economy as well. The IMF today cutting its forecast for China's GDP growth, notwithstanding a lot of their recent stimulus efforts. Yeah, they have, you know, obviously they're trying to get things going there, but the growth rates seem to be coming down in China. We'll hear from one contrarian who says China is very much investable these days. He'll tell us where and why. Yeah, looking forward to that. And we're going to chat with the CEO of McCormick, the spicy company, always an interesting company to talk about

because of the insight into what people are eating and therefore buying. And today, a particularly good day for it, because a new article on CNBC.com talks about the growing swicy trend. That's a combination of sweet and spicy. We'll explore that with the CEO. of McCormick. But let's begin with earnings. Excuse me, several big-name companies are making big moves following their results. Let's lay out the moves and get the traitor reaction in a deluxe edition of three-stock lunch. So deluxe, and we're bringing it up from its usual place in the back half of the show right up here to the very top. Our reporters have the details on three earnings movers. Phil LeBow covering GM, Sima Modi on 3M. You got the GM, your 3M,

and Diana Olik is watching pHM. That would be Pulte. We'll get the trade from Chad Morganlander, senior portfolio manager and co-CIO at Washington Crossing Advisors. The first stock up, Phil, is GM. The company easily beat Wall Street expectations for the third quarter. Shares surging today. Let's get to Phil for more. Phil. line estimates were blown away, solid sales and strong pricing, especially in North America.

That's the profit driver for GM, especially internal combustion engine vehicles. Their profit in North America up 13% compared to the third quarter of last year. And it's one reason why they lifted their EPS guidance on the lower end, brought up the lower end of what the minimum will be, also raising their 2024 profit guidance as well. Look at the stock there, up almost 10% on the day. If there is one area that people might sit there and say, I'm not real crazy about this. What's going to happen? It's China, which used to be a big profit driver for the company. Not the case anymore.

Look, they lost $137 million in China in the third quarter. They are going to be restructuring their operations. They have some meetings coming up over the next several weeks, certainly sometime in the fourth quarter. But guys, very few people are focused on that. What they're focused on right now is the fact that General Motors, they've got it going. in terms of pricing and demand. And they're in the sweet spot of the market when it comes to trucks, SUVs, et cetera.

All right, Phil, thanks very much. So let's go to Chad Morgan and ask him, what do you see is on this stock? It's up 9% today. Chad, are you joining in on the rally? Well, not likely. Let's just say that this company historically has very volatile earning streams

as well as unpredictable revenues. One of the critical things about this company is that they are going to compete with Chinese automakers over regarding the global side over the coming not only two years, but five years and seven years, where the pricing of sensitivity is going to be pretty extreme. So you're really in a competitive environment.

The stock is up 50% year-to-date. We would be fading this trade. All righty, thank you. Then let's move along to 3M, shall we? Those shares are trading slightly lower. after reporting a better than expected third quarter, but the company's turnaround plan may not be going exactly as analysts hoped it would. Let's get to Sima Modi for the full story there.

Sima? Yeah, Kelly, the initial excitement around 3M's better than expected earnings and raised outlook is wearing off shares initially hit a two-year high this morning. RBC Capital says the source of the selling is the market's assessment that the whole turnaround at 3M is much likely to be a longer grind. Incompassing multiple quarters, if not a couple years. also take note that its consumer business this quarter reported weaker than expected numbers. Now, the industrial conglomerate is going through this big turnaround,

recently spinning off health care, embracing big cost cuts, and settling multi-billion dollars worth of lawsuits tied to toxic chemicals. That's allowed investors to slowly warm up to the name, which shares gaining almost 38% under its new CEO, Bill Brown, who came over from L3 Harris in May. Brown said on the conference call this morning that the company is exploring the sale of smaller businesses in its portfolio. About 48%, 47% of analysts have a buy rating, 11% with a sell, and the average price target at around 148, the stock currently trading at 133, Kelly.

All right, Seema, thank you very much. Chad, what's the trade here? What do you do with this one? Which, as Seema mentioned, was at a two-year high earlier today, so there has been a lot of optimism. Right, Kelly, this is up around 30-plus percent year-to-date. It is a turnaround. We would again, you know, stay on the sidelines with this. We are constructive on many industrials like Emerson Electric. The valuation forward-looking is p. multiple of 17 times. They still have some headwinds to get through. And I do believe that the turnaround is fully reflected in the stock price at these valuations. Again, we are constructive on certain industrials. We would see that seem of opportunity within Emerson Electric. All righty. Finally, we got the Pulte group. The company

beat third quarter estimates, lower mortgage rate. drove housing demand just a bit. But the shares are slipping today. Let's get to Diana Oleg for the details. Diana. Well, Tyler, Pulte beat on the top and bottom lines for Q3, but the stock is taking a hit down nearly 6 percent because gross margin was lower than the year before, dropping from 29 and a half percent to 28.8 percent. Home closings were up 12 percent year over year and revenue of 4.48 billion, not only topped estimates, but was a company record. The average sale price, though, dropped to 548,000 from 549. in Q2, unchanged from a year ago. Pulte CEO Ryan Marshall said in the release that the Fed's

recent rate cut provides a powerful tool in helping the, helping to address the affordability challenge faced by today's home buyers. But mortgage rates are actually up sharply since the Fed cut rates, more than a half a percentage point, in fact, with the 30-year hitting 6.85% today. On the analyst call, CFO Bob O'Shaughnessy said third quarter margins impacted by higher incentive costs. He said, given competitive market, dynamics, higher incentives were needed to help ensure we could continue to sell homes and turn our assets. There was also commentary on the recent hurricanes. Marshall said the biggest impact will be loss of construction time and power as well as delayed inspections. Tyler.

Okay. Diana, thank you much. Are you a constructive person on this construction company, Chad? Well, you know, we are on the long-term tailwinds of the housing industry and building, do in part because housing formation continues to rise and you don't have a lot of inventory there. With that said, this stock is up close to 50% year to date. This is more of a beta play on interest rates. So as interest rates go higher, this equity price will suffer. That's the factor exposure to pultate. I would suggest buying Home Depot as a replacement here.

Less volatility, higher quality company, more. durable earnings consistency with a rising dividend. So I would be void this one and just stick with Home Depot. I like the buy this, not that sort of subtext today, Chad. I think that's a future segment brewing. Thank you, Kelly. Chad Morgan Lander. Chad came very close to calling it Chipotle, didn't he? I think he did. Very close, very close. That would be a good name for it. Ahead on Power Lunch. We're going to get a bit more macro on the economy here in the U.S. and around the globe. Let's get some insights into the consumer and restaurant space first with the CEO of McCormick.

They're holding an investor day and showing some positive signs for long-term goals. That over in the Treasury market, the yield on the 10-year shooting above 4.2% for the first time in months. Jump 12 basis points just yesterday, and it's not just here. We've got yields spiking across the globe, even as things look a little better in the U.S. and China, but investors wonder, will the Fed back off on rate cuts? Speaking of China, President Xi and India's Prime Minister Modi reaching a border deal that could ease Hussein. in the region. It comes as China's government works to reboot its economy. Are all signs pointing to a turnaround or no? And what will it mean here in the U.S.? We'll dig into all of it when

Power Lunch return. Welcome back to Power Lunch. Bond yields are once again on the move today. Continuing this climb we've seen since the Fed cut rates in mid-September. The 10-year yield today popping for the first time in three months. Let's bring in Rick Santelli in Chicago with more. 4.2 we haven't seen since what, July, Rick? Yeah, since the end of July, absolutely. And what's more, as you pointed out, it's a global event, and it should be a global event. I heard you bring up growth. It's fascinating because much of the growth that we're talking about is at the epicenter,

why interest rates are going up. Think China, think Germany, think the U.S. Many of these countries have overspent on stimulus to create the growth. the IMF is starting to measure maybe bigger down the road. But it's the cost of that growth. It's the return of our stimulus money with regard to that growth. And all roads lead to more debt to create the funds to create the growth. And therein lies the problem that every large economy is playing the same card game.

Rick, I think the question to ask is, is the U.S. in a meaningfully different position? Is our economy stronger? you saw the cover of the economists. Recently, we know about the problems with Europe, but their bond yields, the long-term bond yields, are rising as well. So what does that tell you? Well, you know, despite what the economist says,

despite the fact that we seem to have the best economy, let's not lose sight of a couple other facts. We've spent more during and post-COVID than any of those other economies, A, and yes, we are doing a bit better because we're the locomotion, locomotive, that has a good head of steam, and even if you have policies that aren't pro-growth,

it takes a while for that engine to slow down. I think the real issue here continues to be how much growth is it going to take to overcome the overhang of debt or the cost of putting more debt out there to keep replenishing the funds that we need to keep the lights on? And you could say, you know, taxes and all the promises the candidates are making,

But the issue with that is, is if we don't start thinking outside the box, trying to find new ways to create growth, and we just stay with the same trying true static comparisons of things like tax policy, we're going to be chasing our tail down a path that ends with significantly higher rates to find buyers to buy our debt. So what would be an example of a thinking outside the box of what you describe as the same old sort of static reliance on tax? tax policy to spur growth. What would it be?

All right. Okay, so listen, I don't mean to get political here, but, okay, take one of the candidates talking about things like no taxes on Social Security. What I think of here is, is an immediate look at how those would be expensive just the way you look at tax cuts being expensive. But what is not considered is how it alters behavior from an investment, from a saving side. Now, I'll give you an analogy, Ty, let's say you didn't get a tax break on buying munis. And all of a sudden, we wanted to give a tax break on buying munies. There would be a lot of inertia that that's going to raise the debt of the future.

That's going to cost us money. But think about the benefits for having that tax benefit. We build roads, bridges, sidewalks that might not have gotten done otherwise. We need to think outside the box. And we have to quit thinking about the fact that we're overspending. That doesn't sound like you're thinking outside the box at all to me, because what you're really relying on here, once again, is are tax incentives of one sort or another, right? No, I'm talking about, well, yes, yes, in a way. Well, yes, pretty much.

How does the government get the money? You're saying don't tax social security as a way to spur growth or, you know, the idea that making municipal bond interest tax. tax-free is an incentive to build, those are traditional, those are pretty traditional uses of the tax code to incentivize activity. Tell me the last time we had any tax policy, it's so traditional, both sides of the aisle agreed that by lowering taxes, it would be beneficial. See, that's the part I'm talking about thinking outside the box. You and I both agree that maybe all roads lead to less taxation, which is the way governments grab money. and spend it much less efficiently. So the new thinking outside the boxes is to look at those areas more honestly and realize that just because we overspend our savings

doesn't mean the issue that gave us those savings is a bad deal. Yeah. I guess I just thought that when you said we need to think outside of the box of traditional tax policy that we weren't going to talk about tax policy, but we're really talking about tax policy one way or another. Anyhow, thanks, Rick. Appreciate it. I guess we are. But there's no other way governments get money.

How else do they get money? On that point, both Paul Tudor Jones and Gary Cohn this morning said that the path of least resistance might be to let expire the personal tax cuts in 2025. Wrong, wrong, wrong, wrong, wrong, wrong, wrong. Tell me the path around it then. Listen, if they want to do that and there's no growth in the system, we're all going to go down together, trust me. Because there's no way. And here, you want to really talk about thinking outside the box, okay? The Federal Reserve is lowering interest rates.

These are not unintelligent people. What does the markets do? It's flashing back that central banks can't control everything. The point here is, is maybe central banks are going to lower rates for reasons that they can't say out loud because it would be heresy. Sure, but if they all know. And markets, Rick, if there's only one way. They can try. There's only one way to grow out of this, and that's to inflate out of it in addition to tax changes.

That's what Petey J said. That's what the other fib. That's what he said. That's what he said gold, Bitcoin. I didn't listen to you. I didn't listen to the interview, so I apologize. He said exactly this. My classmate from UVA?

Indeed. Paul Tudor Jones. Yes, indeed. Rick, thanks. Thank you, Rick. All right, coming up, Netflix seems to be the be-all and end-all in the streaming space, especially as the other media giants struggle to turn a profit. But our next guest says one good alternative to Netflix could be a different kind of streaming stock, and it's up 105% this year.

We will reveal that name in our Market Navigator when Power Lunch returns. All right, welcome back to Power Lunch, everybody. Let's give you a quick check on the market. Stocks have turned a little bit, and I do mean a little bit higher this afternoon, fractions of 1 of a percent. Dow Industrial's pushing in on 43,000. Domchu, what's you got to today's market navigator, sir? All right, so Tyler, could bigger gains come from smaller packages? That's what we're going to navigate today.

Spotify is actually hanging just below its record highs at this point, and our next guest says the streaming service could ride the coattails of bigger entertainment rival Netflix. Now, Spotify is due to report earnings later on next month on November 12th. So to get ahead of that trade, joining me now is Todd Gordon, the founder of Inside Edge Capital. Todd, let's talk about whether or not Netflix now sets the stage for, even more outperformance on a relative basis from the likes of Spotify. They're not direct competitors, but you get the idea.

No, you're right, Dom. They're part of the same sector and industry, not industry, group within communications. But Spotify is, it looks great. As you said, it's hanging below the highs. I've held the stock since I first added it in Feb of last year, added sub-Feb. This year just added a little bit more. And if we can break above this all-time high, probably after earnings dom i'd like to add to it so the technical chart if it's up you've got you know the old high from 2021 set to go and this isn't a market that's still kind of hesitating i mean the earnings in this company dom are insane um i'm looking over at my notes here forgive me i don't have it memorized but in 2022 they lost three dollars and nine cents a share 2023 they lost

295 this year they're going to make about six and a half dollars in next year they're looking for nine dollars right so they're generating a ton of free cash flow last quarter, they blew away expectations. I think they've won the music streaming war over Apple and Amazon, Pandora, and also TikTok just closed their music streaming service. As I mentioned, Netflix just beat part of the same sector. Their ad-supported tier was very strong in Spotify is using AI to generate, you know, this ad platform so they can increase revenue there. But also, it's just indicative of increased advertising and I think a stronger space. So I like it, probably looking to add after earnings.

Again, this would be my fourth I add on Spotify. So, Todd, if that is the case and you're looking to make this catalyst-type trade, what exactly is the strategy? You mentioned trying to add after earnings. Does that mean you're expecting a pullback on the heels of those results? Why not add right now? And how exactly would you play it? Yeah, what a great question, Dom.

You know, there's certain stocks in here, namely some large semiconductor, a couple large comms, as already mentioned. You can't be afraid of momentum in this market because the tape collectively is quiet. We have some macro influences that are affecting the indexes. But there's some stocks, some large-cap stocks that are just trending, momentum. Institutional money is flowing in. You can't be afraid to buy. So if I have to buy it up, Dom, 5%, 8% after earnings, I have a good cost basis. you should be riding stocks that are generating significant profits in this market,

can't be afraid to buy strength. So if it's higher down, we'll buy it. How did they turn the corner on profitability? Really good question. They have really cramped down on their costs. They're generating a lot of free cash flow. They're adding a lot of subscribers. And I think just that momentum is it seems that people are turning away from Apple.

Amazon didn't work. Pandora, uh, serious. And then the big one is TikTok, Tyler, as they shut down their streaming service out of Bight Dance, you know, the efficiencies, the free cash flow generation. I think last quarter, Tyler, they beat free cash flow by 50%. I think they were looking for like 350 million of free cash flow came in at $5.50. My numbers are probably off, 20 or $30 million, generating a lot of free cash flow. And, you know, it's a wonderful product. They're big in music.

Yeah, they're big in podcasts. They're big, you know, they're sort of the dominant name. Kind of the dominant name there, as you mentioned, some of the other competitors that are not, just don't seem quite as robust as Spotify. Sure. All right, Todd, thank you very much. So it's interesting about this, Ty. If you look at the reason why Netflix did so well, part of it was that whole ad-supported tier growth.

In a stretched consumer environment, which is what many people are talking about right now, and people are making decisions about where to allocate their money, many are trading down, right? They're not going to pay the premium. They're going to go for that ad-supported side of things. So that's going to be a kind of key for a lot of these streaming services, the discretionary income, whether or not people trade down and take the ads. And how many you have? How many you carry? Do you carry Spotify and Apple and Amazon Prime? What do you carry? And what can you afford to jettison? Well, for right now, the consumer is good. But if it gets worse, then those are going to be tough choices, I think. Oh, true. Thank you very much. Kelly.

Thank you both. Still to come, the billion dollar question. Vice President Harris has been trying to walk a fine line when it comes to taxing the wealthy. She won't directly rule out attacks on unrealized gains, but she is happy to let the likes of Mark Cuban say it will never happen. We'll run through what the campaign might be planning exactly when Power Lunch returns. Welcome back. The Harris team has a serious balancing act on these final days of its 2024 campaign. Can they come up with the plan that derives some additional revenue from the wealthiest Americans?

Can they do it without alienating rich donors or frustrating? Other middle class voters, Megan Casella, is here now with that story. So what is their plan exactly? That's exactly right, Kelly, that's the balance that they're trying to strike here. And the proposal that we've heard the most about when it comes to taxing the wealthy is this pretty controversial idea of taxing unrealized capital gains. Campaign surrogates like Mark Cuban have been out this week telling everyone that Harris won't pursue it. And the campaign isn't pushing back on that, but they're also not taking the proposal off the table.

So top Harris advisors tell me now that the root of the issue for Harris is this belief that she has that billionaires need to pay their fair share. That's the language she uses on the campaign trail, but they say that she's open to different ways of getting there. And there's one alternative that's rising to the top. I'm told some of her close advisors have been writing memos and pushing for a tax on billionaires borrowing. So that is when someone takes out a loan against their own wealth, using their assets as collateral, you would put a tax on the value of that loan. It's similar somewhat to a consumption tax. It's also sort of like a down payment on your tax bill because you're not then taxed a second time once you do realize those assets.

It is pretty small potatoes here. One estimate puts the revenue raised at about $100 billion over a decade, and most of that comes from solely the 400 wealthiest Americans. But the advisors pushing for it say they see it as both politically somewhat palatable and logistically more feasible. So that is why we're seeing more discussion about it now. It's the one that they're pushing for. Why would a billionaire take a loan against their wealth?

In other words, I guess so they don't have to realize a gain to get income that they need or want to support their lifestyle. That's exactly right. And a lot of these folks don't take an income. If you're finished working, you're just taking that loan out to finance your lifestyle. I talked with one economist who said whether that's to pay for a mortgage or to buy a yacht, whatever it is, if you're taking that loan out right now, it's not subject to any tax at all. And that's where they see a loophole. The supporters of this tax see a loophole that could be taxed. Very interesting. I'm curious how the campaign might be feeling in general right now. I mean, if we look at which polls should we trust that say this is actually narrowing or going

in Trump's direction versus which are those that say, no, those can be influenced by whoever's making these online bets. And so, I mean, just bring us up to speed here. We're two weeks out. This is the final. This is the final stretch. This is the final stretch, absolutely. And what I would say is that nobody is overconfident right now.

I talked to somebody today who said they feel like it's 2016. It feels a little bit similar to 2016. It feels like there's a little bit of premature finger pointing, which isn't really a sign of confidence. But also, nobody wants to get overconfidence who they like being the underdog. this Harris campaign sort of likes the idea that maybe they need to scare people to the polls, but they're not going to project a sense of overconfidence or a premature sense of victory because they want people to realize every vote counts, every step of the way.

And so they're still kind of approaching it that way, whether they really feel scared or they're just acting like it, you know, you'd be the judge. But that's sort of the sense that I've been picking up. It looks like every one of the so-called swing states are within a point, with the exception maybe of Georgia, which looks like it's a little more red than blue this time around. But it is incredibly close. All within the margin of error. So you can't make any assumptions from that.

Some people think that based on how 2016 and 2020 went that Harris or any Democrat would have to be up by several points to correct for some error that might be there, it's harder historically to poll Trump supporters than it is to poll Democrats. So they're even more scared because of that. The other line of thinking, though, if you want to be a little bit more optimistic, is polls got a little bit better between 16 and 20. Maybe they'll get that much more. Maybe they'll improve that much more between 20 and 24. We just don't know yet. maybe the writing was always on the wall

and she'll win comfortably and she was always up by one or two points or maybe she just wasn't ever up enough in the polls and this was always clear that Trump was going to win. What's your bet on when we will know the winner? I think I'm thinking... It ain't going to be Tuesday. I don't think it's going to be Tuesday. We're making

all these plans. I'll take the Tuesday night. I'll put my money. I'm going to say Tuesday night by midnight? 9 p.m. Wow. Let's go. We don't even need the West Coast polls. Do you remember when Trump, I forget what exactly we found out And the market sold off a thousand points. Yeah.

I mean, we have to remember how much changes in those early hours. Yes. Came back the next day. I mean, this is probably what. You know, there's so much that's going to happen that night that we think we know what's going on. And we still, even if we think we know, the outcome have no idea what's going to mean for markets. Absolutely. No idea what it's going to mean for markets.

The Harris campaign I've also been told is sort of preparing to combat some what they're worried about messaging from the Trump campaign. What if he comes out and declares victory? And they're not sure yet that it is victory. Right. What do they do? So there's so many things up in the air. really plan for it. All right, Megan, thanks very much.

Let's get over to Sima Modi for a CNBC news update. Sima. Hi, Tyler, U.S. intelligence officials warning today, foreign adversaries could stoke post-election violence. The officials say they have intelligence showing Russia, China, and Iran are intent on dividing Americans and are highly likely to conduct disinformation campaigns to create uncertainty and undermine the democratic process. Meanwhile, two campaign sources confirmed to NBC news that the presidential hopeful Donald Trump

will tape an interview with Joe Rogan this Friday. Rogan's podcast is one of the most popular in the country, especially with young men. The news comes after Vice President Harris was said to be considering interviewing with Rogan as well. And American Airlines testing a new boarding system that turns away people who try to get on the plane before their designated group, also known as gate lice. According to the Washington Post, the technology gives an audible signal when someone is too early and tells the agent they're in the incorrect group.

America and is currently testing the system in Albuquerque and Tucson and plans to expand soon. Kelly? Thank you very much, Sima. We appreciate it. All right, after the break, a bull in the China shop. Loop Capital upgrading one Chinese tech stock saying it would benefit from the country's stimulus, but will China's recovery plans hold in the longer term? We'll discuss when Power Lunch returns. Welcome back, everybody to Power Lunch.

Chinese markets are higher today as the country's economy is showing some signs of improvement. Last week, third quarter GDP growth came in slightly above estimates, but this morning, the IMF cut its forecast for China's growth. Our next guest says there are major risks and challenges that remain. Sean Ryan is founder and managing director of China Market Research Group. Sean, always good to see you. Good to have you back. On a scale where one is flat and 10 is bubbly, where is the Chinese economy right now? I'd give it a one, Tyler. So as you know, I've been in China for 27 years. There are only two times that I've been really scared about a systemic financial risk in the economy. The first was in October of 2022 when we were dealing with the madness of zero COVID draconian laws in China. At that time, if you were considered a close contact of a close contact of someone with COVID, you'd be sent away to a quarantine hospital for 15 days. So people didn't go out to restaurants. They didn't. go out to shop because they were scared of having their family members taken away. The second

time I've been very nervous was in August and September of this year. The business sentiment, consumer sentiment collapsed. So company stopped hiring. That's why there's an 18.8% youth unemployment rate. Basically, Chinese youth are facing a lost generation. The second reason is it's very difficult to fire people in China. If somebody's been working in your company for nine years, you have to give them 30 days notice plus nine months of severance. So instead of just outlight laying off workers, what companies started to do was cut salaries. They actually started clawing back bonuses from previous years, and they started demoting people. So what ended up happening, Tyler, is in August September of this year, a very toxic, scared workforce permeated throughout the entire country.

And that's why retail sales were only 2.2% growth in August. And everything hit a standstill. So the government had to launch a monetary policy, and that's why what I call a mini-stimulus, but that's why you've seen the Chinese equity markets boom in the last three to four weeks because the government realized- What has caused, Sean, this collapse, if I may call it that, in sort of the economic animal spirits of the Chinese consumer? That's question number one. And when you say something like this, when you say that this economy is a one on a scale of 10, Do you feel vulnerable to any, you have any fear of retribution or that somebody's going to knock on your door when you say stuff like that?

Well, I think everybody knows I tell the truth. And so I'm going to be very balanced and very objective on what the economy is. So it's a very bad situation, which is why I'm calling for the government to launch more incremental, targeted fiscal stimulus. We need to get not just the equity market's booming, but we have to get the unemployment market back working. We need to get jobs into people. We need to have reforms to help small business owners be able to feel comfortable that they can invest. Because Chinese households have doubled their household savings, more than that, actually, from $8 trillion to $20 trillion in the last eight years. So there's still a lot of money in China.

But we have to get those animal spirits back in order for the Chinese to go out and purchase fixed asset investment for companies, hire people, or to go out and buy more Nikes and Adidas and iPhones again. If I'm a U.S. investor where if, and I am persuaded that there is a turnaround that will come eventually, where would you recommend I put my money today? Would it be in Chinese internet stocks or things that are more prosaic and closer to the ground, so to speak? So the economy is bad, but because of the targeted stimulus, we start to see a slight upkeep. So in the medium to long terms, I'm actually quite bullish on China. investors should be looking at the internet stocks, companies like Maytuan, companies like Pinduwa Duo. They should also be getting the cheap consumption plays like MayD, which is a household

appliance company. They should be buying CATL, which is an N.EV battery maker. And they should be looking at things like Luckin Coffee. So the trade down is still a really good play for investors to be looking at because consumers are scared about the geopolitical overhang. To go back to your question from a few minutes ago. Why is the economy so bad? In the run-up to the presidential elections, the Biden regime is increasing the number of sanctions and tariffs on China. He slapped 100% tariff on Chinese N-EVs. He's trying to ban all auto software coming from China into the United States. So in August, September, in the run-up to the presidential elections, Chinese just got nervous and thought, we're going to be dealing with 20 years

of oppression from America, so we're not going to buy big-ticket items. Does the Chinese rather see Trump in office then? I think in many ways, Tyler, they would rather see Trump because I'll give an example. Trump said, you know, I don't want to see Chinese automakers exporting to the United States. I want them to build factories in America and hire American workers. Now, Tyler, that's fair. That's what the Chinese did to America, to Ford and GM when they first tried to enter the lucrative Chinese market. So that's true reciprocity.

Trump has also said that he most likely won't defend Taiwan. Biden on three occasions said he would defend Taiwan militarily. I think Trump is more likely to launch tariffs. So basically, I think Chinese would prefer to see Trump because they feel that he's transactional, business and nature, and a deal can be done. It's not an ideological fight between liberal democracies and communisms, which it is under Biden and which the Chinese fear would be under Harrison Wals.

I mean, Wals is a pro-democracy zealot that the Chinese are scared of. All right, Sean, thanks very much. Always good to see you, sir. Sean Ryan. Thanks for having me. New book, The Split. There we go. Meanwhile, some of the Chinese tech stocks are in the green today,

and our next guest feels optimistic about the Chinese tech sector. He upgraded JD.com from hold to buy, citing the company is a top beneficiary of China's consumption stimulus. Let's see if he still feels this way after our previous discussion. Loop Capital's Rob Sanderson is here. Sean makes some good points, Rob. I mean, you're still saying you see, opportunity, though. And we should not, you know, let people lose sight of the fact. The macro

debate is what it is, but the argument for owning some of these stocks that they're trading it two or three times, and, you know, they're trying to do things to engineer higher stock prices. Yeah. I mean, that's it. It's where are we going next? And we've been in a period where these have been very far from favor for a very long time. And valuations have been in, you know, historic lows, rightfully so. And now we're looking at things, you know, moving forward. You know, they came with a lot of policy initiatives that were announced in late September on the monetary side, a coordinated effort across, you know, many axes. That was obviously a trigger for revaluation. The stocks ran 30 percent of given back. And now we're in sort of no man's land.

And we're waiting for fiscal stimulus as a follow-up to what they outlined on policy measures. Now, that's been a little bit frustrating for investors. Like, interpreting the Chinese government is always opaque and it's clumsy and it's sort of blunt instrument. And it's not how global investors are accustomed to dealing with your government intervention in action. So anyway, I think that one of the major points that your previous guest brought up is that the Chinese consumer does have buying power. And the problem has been crisis of confidence. That crisis of confidence actually started back in April of 23 when the Shanghai lockdowns were really, you know, extreme and causing a lot of consternation. And they have not recovered since.

That's what we're looking for now. The government is definitely stepping up. And we will hear, in my opinion, we will hear more fiscal stimulus probably over the next several weeks. That's going to, I think, be a catalyst for confidence to begin to improve. I'd love to know if Tepper is still long, the whole thing. If you were to say here are the areas that are sort of the surest thing to own, are they 10 cent JD and the like? Yeah, I think the reason we had upgraded JD is because it was in the worst position for the consumption downgrade and has been, I think, you know, if we look at some of the targeted stimulus, it's in things like home appliance and consumer electronics and things that they sell. So I think that one is positioned to maybe rebound more than others because it's been impaired more than others on the way down.

I think they will all go up. It's going to be, as Teper had said on your program a few weeks ago, buy them all. I think that is probably the call. It's all of them will see the same outlook. But those that have underperformed, I think, will, and those that are exposed most directly to consumption, will, I think, outperform it. And that leads us to JDD. All right. Rob, thanks for your time.

We'll dig in more in the future. But for the macro call, we still appreciate it. today, Rob Sanderson with Loop Capital. And head on Power Lunch. We want to add some swice to your life? A new trend exploding in the restaurant space. Sweet and spicy all at once. Could this benefit the likes of the spice giant McCormick? I would guess it probably would. We will speak to the CEO. Welcome back to Power Lunch, everybody. Yields jumping in the U.S. and around the world, specifically here at home, investors are balancing some good economic numbers with concerns the Fed may cut less than aggressively.

On the consumer front, specifically, things look okay. Employment's strong, discretionary spending, lifting retail sales. In the food and restaurant space, the spice giant McCormick seems to be holding strong. Shares up about 13% this year. The company holding its investor day today laying out where it sees its business heading. Joining us now is Brendan Foley, president and CEO of McCormick. Welcome back, Mr. Foley. Good to have you with us.

Good to see again. I see you have a big jug of my favorite sauce, Fred's hot sauce. right there. Just put it on anything. It makes everything better. As you look forward to the rest of this year in 2025, what are you seeing? Healthy consumer? Well, you know, we're looking forward to a great holiday season. We've got big plans for the holidays. And we're even launching new products in the holidays like our finishing sugars. But, you know, I think about looking forward to the year. This is a big time of a year for McCormick. And it's one of the biggest times a year for us. We're talking about this concept of Swaycy, which is sweet and spicy. And Kate Rooney, who was just

here suggested we take some of your old base seasoning and put it on a sweet potato and it would make it really good. Tell me about Swisey. Is this is this something that's made up out of whole cloth or whole spice or is it really happening? No, it's really happening. Think about this as the combination of heat and sweet. You know where you see this today is in cuisines like in Mexico or Thailand or Korea? This is very reminiscent of what you might find in those cuisines. And we identify this in our flavor forecast in 2022. And it just shows you that we're able to as a company, as a flavor company, predict what we think is going to come forward in the next three to five years. And we're finally starting to see this right now on menus. You know, Tyler, you can buy

Frank's Red Hot with Honey. So we call it hot honey. It's another example of heat and sweet together. Yeah, that's interesting. Do you focus group all these various flavors or is it, do you do it by observing what's going on in restaurants or in regional cuisines around the world. How do you come up with the idea that sweet and spicy go together? All year long, we crawl over the world looking at culinary trends and what's happening around the world. And we have a really strong culinary team and food scientists and product developers. And they all get together every year to create the flavor forecast for the new year.

In fact, the new one's going to come out here pretty soon the next couple of months. And it starts to predict what we're going to see is flavor trends in the next three to five years. But these are really globally informed. But also social media and kind of mining that data tells us what's happening and what's going to be breaking through pretty quickly. But we spend a lot of time focusing on this because it creates the next level of innovation for us. Brendan, in some way we were talking earlier about Old Bay on French fries, which is delicious. You would think that McKesson and Lamb Weston would go hand in hand, but you're outperforming them by 42 points this year. Lamb Weston keeps talking about restaurant weakness.

You know, we're not quite there yet. This post-pandemic adjustment is still happening. But you seem to be telling a very different story. What accounts for that? You know, we're focusing right now and meeting the consumer with where they are. And we still see a lot of growth in our business. Even as consumers, you know, apparently are eating more at home. We see a lot more growth right now in the grocery store around the perimeter.

They're buying more produce. They're buying more protein. And they have to flavor that with, you know, for those meals. And so, you know, we see a lot of growth in spices and seasonings and condiments and sauces. And consumers are looking for value. And this is a great way to put a meal on the table. Flavor, no one ever sacrifices on flavor. And that's why we see a lot of growth in our business right now.

All right. That's fantastic. Brendan, thank you very much. We appreciate your time today. Continued good luck. Thank you. Appreciate it. All right, Open AI, beefing up its executive ranks, announcing a new couple of hires.

And Kate Rooney is joining us with the details. Good to see you guys. Thank you for the tip on the old bay and the start. sweet potato. I got a full front-roastita. Very good. Very good. Some other spicy news for you, though. Two major hires at this AI, darling, OpenAI. So first we got Scott School's new chief compliance officer. He was Associate Deputy Attorney General at DOJ. Most recently was Chief Compliance Officer at Uber, where he loved the company's efforts to navigate complex regulatory environments. Open AI says in the release that quote, that builds on some of the ongoing efforts to responsibly advance AI. And then another hire,

Chatterjee, this is OpenAI's first chief economist. So this tire, they say, is going to help them understand AI's economic impacts and make sure the benefits are widely distributed. It is something Sam Altman, the CEO, has talked a lot about, argued for things like universal basic income. Chatterjee, right now is a professor at Duke's Business School previously served as a senior economist in the Obama administration and the Council of Economic Advisors. Also chief economist at Commerce under President Biden. These are seasoned executives from outside of Silicon Valley in that tech bubble. They both worked in Democratic presidential administration. It does align really with some of the more experienced hires opening I has brought on lately. Think of names

like Chris Lehane, who joined from Airbnb and Han Ventures before that. He was a political veteran, worked in the Clinton White House and leads global policy there. Sarah Fryer, also CFO, was the CEO of a public company. They are really beefing up these establishment hires. At the same time, they're losing some technical talent. They've seen this exodus in recent weeks, Most notably, Mira Murati, who is the chief technology officer. It's also reportedly raising capital for a new startup, but she left recently, guys. Just tells me, I don't think you hire a chief economist because you really need it internally. I think this is all kind of public positioning for a company that sees itself increasingly as a target and trying to not become one.

And Google and Facebook did this. So it is quite common in Silicon Valley in the early days to hire at Oconomo. So I think you're right about the broader implications, not just to find out what's going on at Open AI. But if AI has the big global implications that they do, argue, you know, this is going to be key, but they're really people in policy, people in government. So it's interesting. It kind of matches with the flavor of executive that they're bringing on. And who was that first hire, and I think it was in compliance or was a legal? It sounds like a legal. Scott School, so he's going to be the chief compliance officer, but comes from

Uber, which is interesting. So that's a complex regulatory environment. I mean, they really had to jump through hoops to get into all of these different... Novel. Yeah. So AI is probably similar, just in terms of the complexity, obviously a very different business model, but a similarly complex, also kind of tense regulatory environment where they were not, Uber wasn't welcome in New York City, for example. Yeah, or in O'Hare in Chicago, you couldn't go

there on an Uber. And Open AI now has to make the case and deal with all these publishers who say we want to be compensated for our up-to-date information. Oh yeah. So that's going to be a big battle that we talked about yesterday as well. I mean, they're fighting the regulatory front. It's very much a global company, the way they've positioned it. So these are going to be key hires

and it does match up at the same time on the technical side. They are losing some key players. So you're seeing this kind of barbell effect. Right. All right, Kate, thank you very much. Why don't we take a quick look at where the market stand here with a remaining 25 seconds, shall we? The industrials are two one-hundredths of a percentage point higher. That's a big move, baby. 7.65 points higher, 42,000, 937. There's the S&P turning negative by just a little bit. Nasdaq higher by about 110th. And let's just say impress a six-week winning streaks, rates doing what they're doing, and they're still turning green this afternoon. That's right.

All right, thanks for watching, Power Line. Closing bell starts right now.