Power Lunch - The China Conundrum, and From Hitting the Boards, to Hitting the Boardroom 1/17/23

Episode Date: January 17, 2023

China’s economy slowed in the 4th quarter, as its population shrinks and Covid cases rise. Is the nation really ready to emerge from a 3-year lockdown? We’ll explain what it all means for the global economy. Plus, Coach Mike Krzyzewski spent 40 years leading college players. Now the legendary Duke Men’s Basketball coach is teaching a Masterclass on leadership. We’ll talk to him about his lessons for business executives. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody, and welcome to Power Lunch alongside Morgan Brennan today. Welcome Morgan. I'm Tyler Mathis and glad you could join us as well. Coming up, China's economy slowing in the fourth quarter, population shrinking, and now it's ready to really emerge from a three-year lockdown? Are they ready and what it all means for the global economy? Plus, he spent 40 years leading college basketball players. Now Coach K. Mike Chishevsky is going to teach a master class on leadership. We're going to talk with him about the lesson.

for business executives. But first, a check on the markets, which are mixed picture this Tuesday afternoon with the S&P up slightly and the Dow down 318 points. Let's check in with Don 2 now for a fuller detail on where the markets are headed. Hi, Dom. All right, so Tyler Morgan, lots of news to lots of movers here. We'll start with the good news first, which is Morgan Stanley, reporting profits and revenues that both beat analyst expectations, helped along by record revenues in its wealth management business. Those shares are up 8%. Now, that helped offset relative weakness in key sales and trading operations, along with a drop-off in investment banking revenues, which has been pretty much universal across the industry. Meanwhile, you've got shares of Goldman

Sacks that are moving in the opposite direction down 7% right now. Currently, the biggest percentage decliner in the Dow after its biggest earnings miss since October of 2011. The bank was hit by falling revenues, higher costs, and a sizable increase. and the amount of money it sets aside for potentially bad loans in the future. But it's not just the banks. Check out insurance giant and Dow component travelers also providing a huge drag on the Dow after it announced preliminary quarterly results that came in below estimates, saying it expects higher catastrophe-related insured losses due to amongst other things, the impacts of recent winter storms. And then by the way, if that wasn't enough for you,

here's a quick check on those U.S. listed China tech stocks lower on data out of China showing a continued cooling off in the economy, paired with stats showing China's first population drop since all the way back in 1961. Tyler Morgan, I know you'll have much more on that coming up. All right. Thank you very much. Dom, we begin with China, where we are seeing a ton of headlines on both the macro and the micro front. Treasury Secretary Janet Yellen meeting with Chinese officials today in Davos, China's economic growth, slowing to historic lows. The cause of that slowdown, of course, COVID. it. On the corporate front, the controversial meme stock investor Ryan Cohen, reportedly building a stake now in Alibaba and TikTok offering up a revamp plan in order to appease the DOJ and keep doing

business here in the U.S. It's a full plate. China proving to be a key topic of conversation among the world's most powerful leaders and investors at Davos. Listen in. The way we think about China, the opening up of the economy, I think it's going to be positive not only for China but for the globe. could be a little rocky as the country opens up. We're now going into Chinese New Year and so on. And I think that a lot of people may be experiencing COVID or have experienced it. But we think overall this is going to be very positive for the global economy and Chinese economy. When we saw the reopening in the U.S., we saw an important surge of activity that came as a result of that. It's entirely possible that we could see something similar associated with China reopening

because, of course, we got the benefit to that in the U.S. economy in 2021 and into 2022. We haven't really seen that same impact from China yet, but it's entirely possible that we're going to see that as a result of their reopening. All right, Steve Leesman here to talk China's economy. Meg Terrell tracking the latest in the country's COVID struggle, Deirdre Bosa, watching Ryan Cohen's move on Alibaba and Julia Borsden swiping on TikTok. There's a theme here. It's China. Let's start with Steve Leasman on the slowing economy. growth there. Steve, they haven't had 3% GDP growth in a couple of decades. That is as low as that. Nor have they had a declining population since the early 1960s. What should we expect from China this year?

No, that's right. This year, I think it's going to be slow growth as well. Tyler, if you start and go sort of short-term out to long-term, short-term what we're seeing in the GDP data, one of the lower ones that they've put up on a quarterly basis. is essentially the effects of the zero COVID policy and the shutdown of the economy. But you move out from the quarterly data and then go to the annual data, the annual GDP data. What you see is declining GDP over time.

And what that is probably your reflection of is the demographic issue. And that demographic issue, Tyler, is one of declining population growth for a country that's trying to do five and a half percent growth, but the best it could do is three. I mean, the population piece of the puzzle is certainly a really big one, and it's going to be a long-term situation that plays out.

Steve, in the meantime, given the reopening situation, I mean, we have not actually seen a major economy reopen in a linear fashion to date. So there seems to be almost as baked an assumption that that could be the case with China, and thus it could be inflationary for things like certain types of commodities, but maybe not, right? I mean, not if history, recent history is any indicator. Well, you know, before you get to the question of, is China reopening inflationary or deflationary? You've got to ask yourself the question, is it even reopening? And when you look at that question, you know, there is not a country that's had a major outbreak that has, you know, gotten through unscathed. I talked to Carl Weinberg, Chief of Global Economist at HFE. What he told me is he thinks absenteeism is going to be a big issue.

He thinks supply chain issues are going to happen. He called the Lunar New Year one of the biggest super spreader events of all time. And so he doesn't think China's through the worst. He thinks the idea of playing the China reopening is premature at best. What do you make of indications that China and Xi Jinping has or is about to loosen restrictions on the tech sector in China? In other words, that sector has been under a lot of pressure for a couple of years, and there are signals now that may be the worst of that, from the point of view of the tech sector there, is over. I'm going to leave reading the Chinese leadership to our great colleague Eunus Yunn, Tyler,

but I will say this. I hope it means that they're reading the writing on the wall that China as an economic superpower does not exist in isolation, and that the moves that she has made have been those that have essentially isolated China, taking it out of global commerce and made it into less of an economic superpower. And hopefully he's learning what his predecessors learned, which is that integration is the way toward economic prosperity, not disintegration. All right. Thank you very much. Steve Leesman, reporting.

Well, now let's bring in Meg Terrell. As Steve mentioned, there are a lot of concerns about how this reopening will go from a health standpoint. Meg, this has not been a country that's been very forthright with the data. to say the least. And certainly investors I've spoken to who are focused on China say that they're tracking things like satellite imagery and crematorium data to try and get a sense of how this reopening is going thus far. What can you tell us? Yeah, it's really bleak. I mean, we're hearing the same things from public health experts. They are also looking at those aerial images of crowded crematoriums. It's absolutely horrible. And I think what Steve said is exactly what I'm hearing

from the public health community, which is they are probably not going to get through this unscathed in terms of a productivity standpoint, because there is so much disease spreading there. And as you said, the numbers that we're hearing from China are not really believed by anybody outside of China. I think the most recent number they gave in terms of deaths was about 60,000 from when they reopened to, you know, a few days ago. And the expectations are that that is probably a lot higher. He also mentioned the expectation that the upcoming lunar New Year celebrations could be the largest super spreader event of all time. That is something that I'm hearing from a lot of folks. They are worried about as well, because it could take a lot of this spread from city centers out into rural communities

where the health care systems are even less able to cope with it. And I think one of the biggest concerns is that as you're seeing so many people get infected, aside from just the stress on the health care system, the severe disease and death we're seeing, is that the more people who have COVID, the more opportunity for the virus to mutate. And the public health community is very concerned. We will see perhaps a new variant arise out of this spread that poses. more of a risk than what we're seeing circling it right now. That's what I wanted to drill down on. I mean, to your point on the numbers, China until Saturday had reported about 5,000 total deaths since the beginning of the pandemic. BS would be a kind way to put that. Now they're admitting

60,000 deaths just since they began opening up. But the concern to me here is with this mutatable virus that coming out of the reopening of China could come yet another or many other strains of this disease that the world may not be prepared for. What are you hearing? What do you think? Just a lot of concern, both that that will happen and that also the surveillance systems are not in place to catch it quickly if it does happen. The WHO is essentially in its polite, offhanded sort of way, imploring China to share as many sequences as possible so that the global community can really try to keep tabs on what is happening with the virus there. There's a major concern that we're not going to see it quickly because we're not getting that data. And of

the faster we know about something, the faster governments can respond, even if, you know, a lot of the public health community think things like these testing requirements or shutting down travel from the affected countries really is not that helpful. But we could be better prepared if we know what's happening. Magdrell, great to see you. Thanks very much. Well, one man betting on China's reopening is Ryan Cohen, famous for his involvement with GameStop and Bedbath and Beyond. Said now to be building a stake in Alibaba. Deirdre Bosa joins us now. Dee, what are you hearing about this?

And specifically, Alibaba is a different size and scale than Bed Bath and Beyond or GameStop. So what benefited him there, namely triggering a short squeeze, is going to be hard to replicate here at Alibaba if that indeed is his play. Well, first of all, I am hearing a good deal of skepticism for those reasons that you just alluded to, Tyler. Alibaba is not Bed Bath and Beyond. It is not GameStop. It is a $300 billion plus company, a company with Chinese characteristics. I mean that in the sense that it already has an activist, and that would be the Chinese Communist Party. This is a very difficult company to get into for the average investor, let alone an activist investor, because it operates a little differently.

There's something known as Chinese shares, which essentially allows Beijing to take a small stake in the company, but gives it special rights like veto power, nominating certain directors, essentially ensuring, that the Chinese Communist Party can have control over sectors for the long term. So anything that Ryan Cohen hopes to achieve will have to come in opposition to that. What he's arguing for are more buybacks. Alibaba is already doing a good deal of buybacks. They have the cash to do more. But I have a feeling, guys, that it's not going to be Ryan Cohen that's going to push them to do that. Raises a question, you know, why is he getting into this?

Maybe it's a chance to get retail investors interested in the stock. But that's not working today. Take a look. stock is down one, nearly one and a half percent. So certainly not what typically happens at other companies that he has targeted, much smaller ones, as you said. Yeah, Deirdre, I was actually going to point out the same thing, the fact that the stock is actually under pressure, at least the U.S. listed shares of Bob are under pressure. To go back to a point that Tyler raised earlier in the show, though, is it safe to say, can we actually say this at this point yet that the tech

crackdown, the scrutiny, especially where Alibaba in particular is concerned and everything we know that has played out over the recent years with Jack Ma. And I realize and financial is kind of the focus now in recent days. But where Alibaba and Chinese tech is concerned, has the worst of this crackdown happen or do we still really not know? There does seem to be this sentiment or this belief among many investors that China is at the end of that crackdown. In fact, you even have senior Chinese officials saying so in certain publications. But I would just say that you never really know. While we might be at the end of this, Beijing took aim at online brokerages just the other week. So there could be more to come.

You never know with Chinese stocks, what's happening behind the scenes. Remember how this all started. It started with Jack Ma taking aim at Chinese regulators on the eve of Ant Group's IPO. And that's where everything sort of tumbled. Previous to that, you thought that this was going to be the biggest IPO ever. So things can and do change on a dime in China. And I think that risk is still there, even if the rest of the market is awesome. optimistic and you have seen these shares, not just Alibaba, by the way, but many names in the K-Web ETF rally and really outperform over the last year even. It's interesting.

In the U.S., it's really personalities where the tech sector is concerned and in China policies, right? Dear Jervosa, thank you. Now let's bring in Julia Borson as TikTok tries to find a way to stay in the U.S. market amid amid increasing pressure, and Julia, it certainly has been increasing. I mean, just last month, the federal government passed a law banning TikTok in in federal devices. Is this going to be enough to calm legislators and other national security hawks where this particular social media company is concerned? Yeah, I mean, look, the stakes are high here for TikTok. Bight Dance's parents company wants to make sure that TikTok can continue to operate

in the U.S. and they've been in talks with regulators, specifically Sipheus, which is part of the Treasury Department for years now. And my understanding is that Sipheus and TikTok came to an agreement back in August about the fundamental principles about what it would take for TikTok to continue to operate here in the U.S. And part of that is what TikTok calls Project Texas. They have currently spent about $1.5 billion to invest in bringing all of the, say, sensitive data, personal data about TikTok's users onto U.S. soil. They're working with Oracle. But what I'm hearing is that Sipheus has not moved forward with this plan. They haven't taken it to the higher power to the president for final approval. And so what's happening right now is TikTok is moving forward with

this deal that they agreed to in principle with Sipheus. And they're already working on sort of creating these systems and making sure that they're going to be in compliance with the U.S. government. The frustration, I think, is that it hasn't become official and it hasn't been announced yet. But a key part of what TikTok is doing is that they are working to create this thing called the TikTok U.S. Data Security, a division that would oversee all TikTok U.S.S. data security. operations that have anything to do with personal data. And what they're going to have with that division is have it report up to Sipheus and effectively a board created by Sifius. But the problem, Morgan, is that until this deal with Sifias is announced, this whole plan cannot be fully

actualized. So the stakes are high, and I think TikTok has been waiting for the official word from the U.S. government for quite some time now. And I'm sure all of the other social media platforms are watching this very, very closely right now as well. Julia Borsman, thank you. Right, we've got a news alert now on Microsoft. Steve Kovac has this story. Hi, Steve. Hey there, Tyler. Yeah, Sky News is reporting that Microsoft plans to lay off about 5% of its staff of 220,000 global employees.

That would equate to about 11,000 employees. Now, of course, Tyler, this is just the latest of the big tech companies that have gone through mass layoffs in the last couple months. Meta did it last fall. Amazon did it last fall and into this year as well. Nothing from Alphabet and Apple yet. But look, this also comes at the same time, Tyler, that Guggenheim has downgraded Microsoft on fears that IT spending is slowing down.

And also those foreign exchange headwinds that we've been hearing executives at the company say was going to be a headwind to growth, too, Tyler. All right, Steve, Steve Kovac, thank you very much. Got it. Coming up, natural gas hired today, but just above $3, down 60% from the record high. It hit five months ago. And down very dramatically in just the past month, we'll talk to gas trader Bill Perkins about why the worst fears about energy prices haven't been realized. And we're talking leadership with one of the great leaders of all time. Mike Shoshievsky. What's his advice for business executives leading their companies through

prickly social issues? Coach K will join us live coming up on Power Lunch. Welcome back to Power Lunch, although up 5% today. National gas prices have been declining down nearly 40% over the last few months, trading at a level not seen since June of 2021. We've got warmer than expected weather is one of the factors that are, weighing on prices right now. To talk more about what's ahead for Nat Gas, though, let's bring in Bill Perkins, founder and head trader at Skylar Capital Management. Bill, great to have you back on the show. And before I dive deep into the Nat Gas market, which is always volatile, even in the best of times, first I just want to talk about SkyFi, this app that you have created that is using satellite

imagery to track things, like, for example, data that could be valuable to Nat Gas. Yeah, so we're democratizing access to Earth observation. We're making it basically trivial for anyone to control the satellite, whether it be an optical image, hyper-spectoral image, synthetic aperture, radar image, to get data in order to, you know, trade. I look at rig counts, and it's particularly bearish in natural gas, which measured natural gas. Other people might look at other ports, agriculture, you name it. Actually, your viewers would have more use cases than I can possibly.

possibly think about once the data is easy and available to them. So we're showing images of Freeport, Texas as well. And we know that in the middle of last year, Freeport, LNG, that big facility, that terminal went offline. And the reopening of it has been delayed. So whether it's the warmer than expected, one of the hottest, I think, on record January's right now that's playing out, or whether it's the fact that you had supply come offline and not be able to be exported to places like Europe last year.

Does that account for what has been a very dramatic fall in that gas prices as of late? And do you expect that to continue this year? Yeah, that accounts for it. But there's one more thing. The rig count is relentless. The producers are very good in bringing supply to market. And they've been planning for the long term. So in the short term, we have free port off and we're monitoring with satellite data, their repairs and when they're going to come on.

And we have our estimates about that. But we have this growing supply that we're ready to feed the world, right? With Europe, Asia, with LNG, but it's staying home. And so we're mismatched on infrastructure right now, which we're monitoring with SkyFai. Why is it staying home? Because they don't need it? No, it's staying home because Freeport, it blew up. And it takes a while to repair these things.

It's not only the repairs and the infrastructure and the steel and the welding, it's the testing. And it's also the regulatory process. LNG is one of the most regulated businesses there are, and when there's an explosion, it's going to take a while for you to get approval to start up, even after you've prepared the facility. So if I were to take a look at some of those images that we just showed there, and I'm an ordinary layman, what can I derive, infer from what I'm seeing that would help me be a better, smarter, richer, trader investor? Well, I'll tell you what I look at. I look at car counts. I look at pipe equipment, new equipment brought in. I look at whether

these cars are leaving to see if their job is done. These are rail cars or car or repair people? Actual cars, actual automobiles. People coming to repair the facility. Yeah, nitrogen tanks, welders, pipes. We're looking at the equipment when it arrives, when it doesn't arrive, when it leaves, and we're looking at change detection to see where they are in the repair process. And that informs our estimate on when they'll be back online. Guessing when the government will give them approvals and stop slapping them on the wrist and they've met all the new procedures that they're going to have to do, that's a little bit more difficult.

But tracking the equipment, that's easy for us to do. So just to wrap all of this up right now, Bill, the fact that you're continuing to be bearish on that gas prices into this year, the fact that we did see Europe build up its supplies, although supplies of Russian gas, which we know are not going to be available to Europe later this year. Do you think producers are going to have to shut in their production, their output? And if so, what does that mean? I guess at a time where we've seen energy stocks, some of the biggest ralliers, despite the bare market? Well, remember, some of these large energy stocks, they don't just produce natural gas. They produce crude oil. So the Permian producers,

natural gas is basically a byproduct. They'll give it away free. Some of the gaseer producers, where we have so much supply in the South Central and not a way out, storage is running high and it's getting higher. In Europe, that's a blessing, right? They pray to the weather gods. It's been extremely warm, and prices have gone down despite the risk. And so here in the USA, we don't have the storage capacity for what I forecast to be the flowing gas that needs to go in the ground.

And so we'll either have a rate issue or a full containment. issue here in the summer. Okay, Bill Perkins. Thanks for joining us. Thanks for having me. Appreciate it. All right, still to come, we're going to take another look at another sector that one strategist says could provide some growth for investors, plus checkout shares of dominoes. Morgan Stanley upgrading the pizza chain to overweight, saying it is one of the few names ready to weather a slowdown. We will discuss in today's three-stock lunch. Welcome back to Power Lunch. I'm Bertha Coombs, and here's your CNBC News update at this hour. The White House says it will respond in good faith to inquiries from the House Oversight Committee

over classified documents found in President Biden's home, and a think tank office. A Biden administration also criticized House Republicans for pursuing the issue only for partisan gain. A former Russian mercenary commander has defected to Norway and is seeking asylum. Anton Medvedev claims he filed his unit after witnessing, he fled his unit, rather, after witnessing the killing and mistreatment of former prisoners who were recruited for the war and sent to the front lines. And 2022 was a record year for guns turning up at airport security checks. The TSA says it confiscated over six and a half thousand firearms last year,

a 10% increase from the previous. record set in 2021. About seven of eight of the guns found last year were loaded. Yikes. Morgan, well, that's a little back over to you. That's a little scary. Bertha Cruz. Right. Who doesn't know that you don't put a loaded gun in your carry on? All right. Well, ahead on power lunch, a master class on leadership. More than ever, corporate America is under the spotlight, whether it's CEO pay, response to social issues, workers rights, now famed form. former Duke basketball coach, Mike Coach K. Shishevsky, is offering business and sports team owners alike. His advice on how to lead in these tumultuous times. That is coming up next.

All right. Welcome back to Power Lunch, everybody. At a time when companies are facing pressures from all directions never been more important to have a strong leader. But how can individuals develop skills to develop into strong leaders? Let's ask someone with the track record and resume to share his thoughts. Former Duke basketball coach Mike Shoshchevich. And the newest master class instructor, his class online, focuses on what is called values-driven leadership. Coach Kay, welcome. We're delighted to have you with us. The master class is live now online. It's dropped as the saying goes so I can go in and find out about values-driven leadership.

In a phrase or two, describe to me what value-driven leadership means, and then I want to follow up. Well, to me, effective leadership has to be based on. on values. To me, that's the foundation of developing relationships with the people that you have an honor to lead. And it creates common ground for everyone who is on that team. And so how do you do that individually and collectively? And for me, leadership is the most exciting profession in the world. It transcends every industry. Every industry needs leadership. Every church. church group, every sports group. And there's really no degree of leadership. It's something that you're constantly learning about, and I'm still learning about it at the age of 75. And the class is just about

things that I've learned. I'm not trying to start a newer witch or anything like that. But there's some, you know, maybe some of the concepts that we go through can help people be more effective leaders. So when you lead with your values, inevitably at some point along the way, society may intervene. There may be a George Floyd kind of incident that strikes your values as a leader. At what point do you, as a value-driven leader, feel that you need to step in and say something, take a stand for something, and how do you then discriminate, maybe a bad word choice there, but how do you discriminate against those times where you just sit on the sidelines and you don't get involved? You don't say what your values might lead you to say otherwise.

Well, I think a word that's really appropriate here in these situations is discretion. In other words, you have to make a decision based on whether you can help a situation by coming forward or if it's best not to come forward at that time, because you can mess up a situation too. For me, though, it gives, when you're in situations like that, it gives you a chance to punctuate a value or values that you have really become yours and your units or your companies and help drive it forward to maybe give a,

some clarity to the solution of the situation and or your support of somebody who is trying to make those decisions. So you talked about doing this, about how you do this, both individually and collectively. How are those two things different? I guess are there are there specific examples you could give to us from your own storied career? Yeah, certainly. It really shows not long enough we could give thousands of examples over. I've been coaching for 47 years. years and head coach and 11 years with the U.S. team. So, one, it's important to find common ground, not just a common goal. How do you get a group of people to use their talents together to achieve a goal and then doing it in a manner in which they would want to do it again

with that group? And to me, that's one of the things that's missing a lot in leadership. Individually, for me, I always tried to coach my best player the hardest because if I could get that message across to him, him through the example of how he worked and how we interacted, set to stage for other people to do that. And also set the stage for him or her in whatever situation you're in to help the others on the team where they know that if I'm coaching the best guy, that hard, that's good. And that gives him a chance to be a leader too. So, you know, in a moment, you might say something to a team before a big, a big moment in a game, or, you know, to the guy who you know the ball's going to go to and said, look, I believe in you, man, it's hard shot, go for it. And I got your back. And to put them in a position where they have a better They have a chance to do it better because they're not alone.

That's a key thing. It's not to what your team, any individual, feel like they're alone, that we have their back. I've always hoped that I would have a chance to speak with you, and I'm delighted that I have this opportunity. It's a real gift of what I do. I've had in my mind maybe the title of a book called Sustainable Excellence, And it would speak to a lot of what your master class speaks to, and that's value-driven leadership. But I look at executives, whether it's Tim Cook at Apple, whether it's Lauren Michaels at Saturday Night Live, who has created almost as long as you, 40-some-plus years at the helm there. Whether it's Gina Oriama or Nick Saban or you, how do you create that sustainability of excellence over generations where your team is,

different year to year decade to decade? Well, I'm smiling when you say all those people because the one common thing is that we're all working with talent. And we get talent that stays there for a while. Some talent stays there for only a little bit. But how do you use that talent? And talent brings out the best in a teacher. And so the sustainability occurs because you're a kid.

excited about what you're doing all the time. And you're not necessarily doing it with the same people all the time, but in my profession, your goal is the same, and that is to win the national championship, win the Olympic gold medal, win the world championship. And it's exciting because you get a chance to do it with different people, different talents. The single biggest thing that has to happen to sustain excellence, like in the five decades I coached at Duke, we were number one in the country in each of those decades. In 21 of our 42

seasons, we were number one at some time. I'm proud of that because that shows sustained excellence. But to get that group to do it is exhilarating. You know, it's the best. And it's always changing. That's the thing because you have to, you know what, like for me, I'm 75 years old. I kept getting older and my team stayed the same age. And how do you communicate along the time? I probably had to change 20 different times and how I communicated because society keeps changing. And you have to kind of dress the part too. I'm glad I got a good Nike contract where I got some good clothes where I look a little bit younger than I am.

at least to them. But really, like in today's world, I found in the last few years, you couldn't talk to kids for too long. So get your message across quicker or have different voices. My assistants might have to interject more and getting eye-to-eye contact and just things like that, just fundamental things that you have to keep changing and the fact that we didn't have them that long. I used to have them for four years. Now I had them for one year. You know, what changes do you have to do?

What do you have to change? Instead of saying, this is how we used to do it, that's good. It was good how you used to do it. Now, how are you going to do it now? That's the cool thing. Yeah, speaking of kids and the talent pipeline and some of those changes in college basketball, name image, likeness, rule, that change, how it's, and I realize it plays out differently.

across different states to a certain degree too. But I guess just your insights on what this means for a $14 billion industry now. Well, it's an industry that needs amazing leadership and structure, which right now I don't think we have. And so like in the name, image and likeness thing, I think it's good. Obviously, the concept of it is great. We're an athlete in any sport can benefit from their name, image and likeness. Now, how is it regulated? How do we make sure that it adds to the new structure, the new thing in college sports, but it's not taking away from it?

And right now, it's really up in the air, to be quite frank with you. I worry about hunger. I think the single biggest thing that a great athlete has, if they want to achieve their potential is that they have to be hungry about that. If you're, you got to be careful if you're getting compensated. Before you really have done that or learned how to do it, you might never have it. And so that's one of the things I'm concerned about. I'm not saying I'm against what I'm saying.

When anything new occurs, it has consequences that you know about. And then it has unintended consequences. And I think dealing with those right now, and that's why you need strong leadership and a great structure from a parent company, which is the NCAA, which I don't think we have that right now. In fact, I know we don't have it. And I think we're looking for government to handle that aspect of it. And if we do, that might be great. but if you let government in for that one thing, government is going to want to be in for other things. Yeah.

And it's that good. So, again, unintended consequences in order to solve a problem that we have right now. It's very complicated. Yeah, it's very complicated. And I suspect, as you are suggesting, that there's going to be lots more regulation down the road of it as we begin to understand it and its unintended consequences a little bit better. Coach, this has been a wonderful conversation. I hope you will come back and join us on another occasion as the masterclass evolves and matures. I went to the University of Virginia.

I spent many nights suffering as your Blue Devils applied weapons to my walkers. We've been pretty good lately. Great to have you with us, Coach. All right. It's my honor and thank you for having beyond. You're very welcome. Well, up next, more on today's market action with just a little over an hour left in the trading day. And what you can see is a mixed picture with a Dow under pressure, but the S&P basically right at the flatline.

So what is taking us lower? A news alert from the Justice Department now, and Aymond Javrhus has this story. Hey, Amon. Tyler, the Department of Justice is announcing new rules to its criminal enforcement policy. That is, the policy around which they prosecute companies for corporate wrongdoing. These new rules are all about incentivizing companies to disclose themselves, any kind of wrongdoing that happened inside. and Assistant Attorney General Kenneth Polite, Jr. is speaking right now at Georgetown Law Center unveiling the new rules before law students there. Part of this is the idea that companies need to come forward immediately to the Department of Justice whenever they have seen any kind of illegal

activity. If they do, they could be eligible for a declination, that is, a decision by the DOJ not to prosecute that case. There are three conditions, though, to that is what Polite is saying today. He's saying that the company will have to demonstrate its met three criteria. One is that its voluntary self-disclosure was made immediately upon the company becoming aware of the allegation. Two is that at the time of the misconduct and the disclosure, the company had an effective compliance program in place. And the third is that the company has to provide what they're calling extraordinary cooperation to the Department of Justice's investigation here. So you have to come forward immediately. You have to provide extraordinary cooperation with the department.

DOJ, and you have to have a compliance program in place at the time of the disclosure. If you check all those boxes, you might be able to get out of a prosecution as a company, but what the DOJ is saying here today is that they want companies to come forward immediately upon discovering any kind of wrongdoing inside the corporate offices, Tyler. All right, thank you very much. Amon Javers reporting from Washington. We've got more power lunch coming up next. All right, welcome back as the markets continue to focus on the Fed's next move.

wobbly today, down 324 on the Dow. Our next guest says we have reached peak hawkishness when it comes to the Fed and seen peak inflation as well. Let's bring in Kevin Mon, President and Chief Investment Officer at Henyon and Walsh Asset Management. You say, Kevin, better days are ahead. Is that simply because the worst days are behind us? Or the better days really are bad? I do believe that better days are ahead, at least for the markets in 2023. As we've reached peak caucusness, we've reached peak inflation, absolutely. And as a result, certain sectors of the stock market should benefit from the recovery that's about to take place because the worst is behind us with respect to this particular right height cycle.

However, I can't say that for the economy, as I believe that there's going to be more difficult days ahead for the economy, thanks in large part to the 425 basis points in rate hikes we saw last year from the Federal Reserve. So if the economy goes into recession, history would show that the valuation, the multiples on the S&P need to come down further, no? Yes and no. what areas the market we're talking about. So one area of the market that I like Morgan during recessionary periods is health care. One area of the market that I like during economic or economic

slowdowns and stock market recoveries is also health care. But two different ways to access to health care sector. One is through your traditional larger cap pharmaceutical stocks like a Merck. The other way is through smaller cap biotech stocks. And I think that's where the real opportunity is in 2023, such as rocket pharmaceuticals. A small cap biotech company about 1.8 billion in market cap that is focused on developing a pipeline of genetic therapeutics for rare pediatric diseases. I think that's a real opportunity for growth in the year. You said just a moment ago that certain sectors of the market are going to do better, and you just mentioned a couple that, one at least that you think will. That implies that there are other sectors that you don't

think are going to do that well. What are they? Yes, for the first half of the year, when I do believe the economy will slip into recession, how long and how deep that goes, really a byproduct of what the Federal Reserve does or doesn't do. I'd be a little reticent to go into technology right now, especially those debt-laden technology companies. Consumer discretionaries can experience some difficulties during the first half of the year. But those are the two areas that could actually do better during the second half of the year if and when the Fed stops. But up until them, look for your quality stocks in the health care space, and the consumer staple space, and even the industrial space. Have rates peaked? Rates have not peaked just yet. I think we got another 50 to 75 basis

points of high coming from the Federal Reserve during the first half of 2023. Are bonds investable again, and specifically I'm going to ask about munis. Yes. I would argue that bonds have always been investable, particularly for income-oriented investors. Remember, they were being zero? I mean, investors invest in municipal bonds. They're in a high tax-free bracket, and they're looking for a steady flow of income and principal protection when held to maturity.

That didn't change last year, and the pullback that we saw in prices because yields went up, creates an attractive entry point now. Yeah, because you can actually get yield, whether it's a Muni or whether it's a treasury or whether it's a high-yield bond, you can actually get yield. Absolutely, and we're seeing the flows now come back into Muni bond funds as a result. We think that continues through the new year. Final question for you. Overall M&A activity, we know that there's just been a dearth of it.

It's affected the bank earnings that we've gotten to kick off this season as well. Does that jumpstart in the second half of this year, too? We actually saw a pick-up an M&A activity towards the second half of last. year in the biotech space. And we see large-cap pharmaceutical companies flushing cash. Their profit margins are being squeezed. Their stock prices have gone up over the last decade, even through last year. And as a result, they might be more acquisitive in the new year, using their stock or using cash to buy these smaller-cap biotech companies. All right, we shall see. Kevin, Kevin, good to see you. Good to be here.

All righty. Kevin Maugh. All right, folks, the Dowdown down 350 points right now. It's been good to be with you. Thank you. Thank you. What a great hour. And nice to be with you all. Thanks for watching, Powerline.