Power Lunch - The Deflation Threat, Utilities Tug-Of-War and ‘Sell’ Roblox 9/12/22

Episode Date: September 12, 2022

Elon Musk and Cathie Wood warn of the risk of deflation. Is deflation now a bigger long term threat to the economy than inflation? Plus, utilities hit a 52-week high but is the sector facing a new set of challenges? And, we’ll talk to the analyst who says sell shares of Roblox. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch. I'm Sima Modi in for Kelly Evans at this hour. Here is what's ahead. Kathy Wood says deflation is in the pipeline. Elon Musk says a major Fed rate hike increasing the risk. At deflation, now a bigger, longer-term threat to the economy than inflation. We're going to discuss all of that. Plus, the utility sector hitting a new 52-week high today, but the headwinds facing the industry are growing, including people falling behind on their bills. We'll look at the stocks that can still provide stable returns. First a Tyler and a check on markets. Tyler. All right.

Thank you very much, Seema. Welcome, everyone. Investors are pushing stocks higher on growing confidence that inflation may have peaked. Let's take a look at the Dow, the S&P, and the NASDAQ, and there you see all three of them. The industrials up three quarters of a point, the S&P by 1%, and the NASDAQ leading the way by 1.22%. Energy, information, technology, consumer discretion. They are your best performing sectors at this hour. And Cigna, genuine parts, ALTA, hitting new yearly highs in today's session.

Alta, right now, the stock everyone seems to love. For stocks to move solidly higher, our next guest wants to see a big bounce in economic growth, but he's got three things that could threaten stocks and the financial markets. He's Matt Maylee with Miller-Tayback. Matt, welcome. What are the three things? Well, there could be a number. I've highlighted three things, but there could always be anything that could really hit us right now

because we're kind of moving into this second wave of the bear market. And that's when these things, I've said, Warren Buffett has said in the past, it's when the time goes out that we see who's been swimming naked. And that's what happens when the second wave of a bear market hits. A couple of things that I've thought that come up could be what would cause some force-selling in not only in the crypto market, but also. also in the which in which in turn cause selling in the in the in the stock market. We also have this big issue of corporate debt.

We have mountains of corporate debt, historic levels of corporate debt. And when you have the interest rates moving up the way they have been and the way the Fed says that they're going to keep pushing them up, that's going to be created, it could create some problems there. And then finally, we have the situation in Europe, which as Brian just talked about, hopefully we'll get better with this, you know, the things, you know, hopefully getting better there for Ukraine and Russia being pushed out. But the problem is if that doesn't happen, they're looking at a recession and a deep recession.

And, you know, it's hard for us to think that we're going to avoid a further slowdown in economic growth at places like Europe and China are slowing down further. What I find very interesting here is your focus on the rise in corporate debt. Let's dig in a little bit deeper and put some numbers on that, if you don't mind, because my impression was that compared with 2007-8, the great financial crisis, a lot of companies are less heavily levered than they were back then, particularly financial companies, but maybe it's only the financial companies that are less heavily levered.

That's it, Tyler. The financial companies are much less levered. But overall, corporate debt is now up to almost $11 trillion. That is an all-time record high. Same with global corporate debt. at all time record highs over 20. I think it's over $22 trillion now. So these are the type of numbers.

And a lot of this debt, you've got to wonder, some of it has been long term, so we won't have to roll it over soon. But a lot of these companies have debt that has to be rolled over in the next two years. And if that's coming on at higher interest rates, that's going to cost them more and have an impact on their earnings.

And in some cases, especially for high-eal-eal companies, could have an impact on whether they be able to keep going as an entity or not. Yeah, in face of, in the face of all of these headwinds, Matt, stocks are extending last week's rally ahead of the August CPI report, which we get tomorrow, where we will learn if the Fed's anti-inflation campaign is starting to work. How should investors be positioned right now ahead of that key economic data point? Well, like you said, CM, it's such an important economic point whether it should be or not, because it's always hard to know what's going to be coming forward. but it is going to be one that the market is going to pay very close attention to.

The one thing that I do think that to warn people about a little bit is the Fed is not just fighting inflation right now. We have to remember they're fighting two things. They're trying to get interest rates and the level of their balance sheet back to what its natural level should be. It's not just the inflation issue. They pumped up or they took interest rates down to ridiculous level because they pumped massive amounts of liquidity into the system.

Now that has to come out. that means that we're not going to be able to keep with those kind of, you know, 20, 22 times earnings, 2.4 times sales. The market's trading at 2.4 times sales. That's higher than it was at the top of the Internet bubble when it was a 2.3 times sales. And so valuations have to come back down as the natural level. I guess my point is as the natural level of interest rates moves up, the natural level of valuations is going to have to come down. And I think that's going to create some headwinds for their headwinds for the stock. So put a sharp point on it.

Bring it home from third base here. You are saying that the rally we've seen in the last five days, six days, is a mirage and that you expect the market to turn lower quicker. I do. I do. I think it's a, you know, with the market, it'd become a little bit oversold and sentiment had turned quite negative. I'm sorry, quite negative. So almost not quite as bad as it was in June, but still pretty low.

And that has created this kind of a short-term artificial bounce. If we get a good number tomorrow and maybe it bounces a little bit more, but again, these valuation levels are too high, whether it be 18 times earnings on a P.E. ratio, price to book, 2.4 times sales. Those have to come down. That's not the end of the world. It's going to be a normal, it's going to be a normal healthy process. But as Chairman Powell says, is going to be a painful one as well, I'm afraid.

All right, Matt. Thank you very much. Matt Mayley, Miller-Tayback. Thanks. Thanks, Tyler. Huckish comments from Fed officials have not held back the bulls. But will that change with the release of tomorrow's inflation report? Mike Santoli with that story for us from the New York Stock Exchange.

Mike, we've seen this divergence between the Treasury market and the equity market. Will they get on the same page? It's interesting, Seema. It's hard to know exactly what is the, quote, correct level for equities as they become accustomed to the 10-year treasury yield and the two-year above 3% right here. And just to put some numbers on what you mentioned, equities up 5% or so. in the S&P 500 in the last week. At the same time, you had half a dozen Fed officials speaking in very hawkish tones and essentially getting the bond market to price in a three-quarter point hike in September.

That's next week. Now, the reason those things can coexist, I think, is investors believe they can see the destination, both in the level of the short-term Fed funds rate and when we get there, and that's probably months away. So, yes, the market has been incorrect before in essentially saying that we've gotten to a point where the Fed can soon pause. But this time, it seems as if there are a little. little bit closer and the linkage between what yields are doing and what equities have done is a

little bit looser probably because economic numbers have come in somewhat better than feared over the last few months. So therefore, the idea that it could be some description of a soft landing is at least not out of the question the way it might have seemed in June. That being said, it's still a trading range market. We've kind of had one of these rallies before into the last CPI number. We extended it and then did roll over a little bit. So nothing is determined yet. And there is some suspense about that number tomorrow. And ahead of that, the S&P 500, holding on to 4,100. Mike, thank you. Ahead of tomorrow's CPI report, there is a growing debate around deflation and whether

it's a bigger risk for the economy than inflation. Tesla's CEO Elon Musk tweeting on Friday that a major Fed rate hike risks deflation, Ark Invest CEO, Kathy Wood, saying leading inflation indicators like gold and copper are flagging the risk of deflation. The surprise could be deflation in the CPI and PCE deflator by year end. Others say key metrics show that it's already here. Five of the nine regions in the U.S. saw outright price declines in July's CPI report. Gas prices are down 25% since their peak. Used car prices have dropped for seven consecutive months. Rents have actually declined since June and China, seeing its slowest growth in August. So is deflation already here? Joining us now for

His take on this debate is Peter Bukvar, Bleakley Financial Group, CIO. He is also a CNBC contributor. Peter, pleasure to have you on power lunch today. Kathy Wood, Elon Musk, are they right? Hi, Seema. Let's separate out goods and services. Goods prices X energy. Well, core goods prices have been decelerating for the last five months,

and we'll see further evidence of that tomorrow. services prices, though, continue to accelerate. When you blend them together, inflation is slowing down, no question. But the question really is, to what extent does it and how quickly does it? Do we go back to pre-COVID 1 to 2% levels of inflation soon, or it's going to take a while? And I still think it's going to take a while. And getting to the point of goods and services, the 20 years leading into COVID, services inflation X energy averaged 2.8% per year.

So there's no such thing as deflation, disinflation when it comes to services. Core goods prices averaged zero. So I think we're in a structurally higher inflationary environment that will settle out probably next year around 3 to 4 percent and this belief that we're going to somehow get to pre-COVID levels anytime soon. I just don't see it happening. You don't see it happening. And then does that make sense that both Bank of America and Goldman Sachs ahead of tomorrow's

CPI report have raised their expectations for the next Fed policy meeting, now expecting a 75 basis point rate hike versus the 50 they had initially been estimating? Well, especially after hearing from Governor Waller on Friday and voting member Mester, they still seem intent on raising 75. But we're now, whether it's 50 or 75 and whether they raise 25 or 50 at the meetings thereafter, we're getting into treacherous territory here with these rate hikes. Keep in mind, it was the fourth quarter of 2018 when the Fed Funds rate got to 2.5 or two and a half, and the markets had a hissy fit.

Well, we're about to take the Fed funds rate above that level. It'll be only the second time in 40 years that the Fed funds rate is going to go above the previous peak in the Fed funds rate. So there is a game of chicken now that the Fed is playing with economic activity and them believing that they're not going to slow it too much and the market's worried that they will. So, Peter, I assume that what I'm hearing you say is that you disagree with Kathy Woods who says the surprise could be deflation in the CPI and PCE deflator by year end.

I assume you disagree with that. She says the leading indicators of that declines in golden copper are flagging the risk of deflation. Let me ask you what the hell deflation is. Does deflation occur anytime prices decline a little bit from already elevated levels? In other words, is what we have been witnessing in the... energy prices, for example, deflation? The better word is disinflation. If oil prices go from 50 to 100, and then the next year go from 100 to 95, that's not really deflation. Right. It's a little disinflation and that prices haven't come off the boil. But that's going to happen. We had a

massive spike. It's going to fall back down again. It's going to correct, right? Yes. So why are we fearing that? We shouldn't fear that, should we? That's more like stock prices getting elevated and then coming back to a more reasonable level? Right. We want prices to slow the rate of gain. I think what Kathy's pointing out is, is that we're getting to the point where the Fed is threatening economic growth to the point that they are going to overdo it with this tightening and that the economic recession as a result will be worse than the inflation that they're trying to contain. Do you share that view? Do you share that view? Are you worried about that?

I think the Fed is now pushing the envelope with their rate hikes. We have, we have become a very interest rate sensitive economy that has been trained to deal with low interest rates with low inflation. Now we are in a higher inflationary environment, I'll be at a slower pace and a higher rate environment that disrupts this, the sort of world that we were in going into COVID and the last year before they started hiking rates aggressively. If you look at the sectors, the companies, some of the biggest names this earning season that I talked about, the threat of rising prices. It was Kimberly Clark.

It was Procter & Gamble, Netflix, many of these consumer-facing names. So I wonder if this trend continues that you're sort of suggesting what that means for these types of companies. Well, I think we're now reaching a point with some of these companies where the term elasticity is being raised a lot in their company conference calls. is how much more can they raise prices before consumers push back? And on the consumer products companies that have some leeway with respect to price increases, they're already acknowledging that they may be reaching the point where customers are going to say,

you know what, we're going to trade down. And we heard that with Kroger on Friday when they talked about their private label is increasing share because people are pushing back on some of the name brands. And instead of buying, you know, the name brand, reason brand, they're going to buy the store brand, reasoned brand just to save a little bit of money because at least the lower-ranked consumer is getting squeezed. Now, the higher-end consumer may not, but Walmart said they have hiring consumers that are now shopping there. So we are definitely reaching that point of customer pushback to these aggressive price increases. Well, they'll get a lot more evidence tomorrow,

or clarity on this tomorrow with that CPI report. Peter, thank you for us. He's basically an economist. He walks us through all the data. Peter Bookbar, a bleakly advisor. All righty, coming up, a utility's tug of war, the sector which is hitting new highs, benefiting from a stronger dollar, but also facing consumers falling behind on their utility bills, a top analyst on what this means for investors. Plus, the Roblox CEO tells CNBC its ad strategy is going to help diversify the revenue stream there. The stock surging 20% in a week. But one analyst says that's not enough, initiating coverage with a sell rating. We'll talk to him about the call. But before the break. A look at shares of Neo, which are up about 10% after an upgrade at Deutsche Bank,

citing growing demand for its EVs. Power Lunch will be right back. Welcome back to Power Lunch. Utilities have been a winning trade so far this year, outperforming the broader market as more investors seek out value plays and a hunt for high dividend yields. The sector also has limited exposure to the stronger dollar. But there are growing headwinds. A growing number of Americans are having difficulty paying their energy bills due to skyrocketing electricity prices, extreme weather, and now the risk of power shutoffs. So how should investors navigate this utility tug of war? Sophie Karp is senior analyst covering electric utilities, power, and renewable energy for key bank capital markets. Sophie, it's good to have you on today. I want to get your

reaction to this data we received from the National Energy Assistance Association showing that 20 million Americans are at risk of seeing their power, shut off across a nation. And of that, three million are anticipated to see their power shut off by the end of this year. Thank you for having me. Yeah, I mean, it is definitely a concern, right? And this is particularly a concern for utilities who just emerged from the moratorium on disconnects due to COVID and already sitting on a large number of deferrals. You know, historically, I think that utilities and the regulators tend to work these things out. Utility companies always offer some sort of forefellations payment plan or form of assistance to their customers and try to avoid the disconnect,

particularly in vulnerable communities. And we expect that this will be the case this time around as well. And in respect to the utility bills, you're correct that we see these headlines about super high utility bills in particular regions. But really in a lot of regions, these increase are a lot more moderate. And we've even seen some regions of the country where utility rates are slightly down every year for DOE data. So I think that's a lot of that those impacts would be largely concentrated in the lower affordability states. So how would that- Just on that specific note, if there are more shut-offs in the coming months, which utilities

specifically do you think are most at risk, most vulnerable? So I think to your point, right, this is a law of affordability states, right? So you would be looking at places like California, for example, or New York State or the northeast in Massachusetts. So the utilities that operate in those states, that would be EIX, Sempera, as they expose to Southern California, could be one of them, Eversource Kennedison in New York, Avondrate also in New York. So those would be the utilities exposed to those lower productivity regions, right,

that could potentially see some impact from that. On the other hand, you know, on the other end of the spectrum, you see higher profitability regions where rates are the more stable or maybe even going down in those middle of the country. You're looking at Colorado, looking at Wyoming, Montana, places like that. And the utility is exposed to those types of regions that that we highlight in our research are, for example, Excel Energy and Wisconsin Energy, right? And so I think those names are the ones where you want to be at this point in time where rates of vulnerability and commodity pricing inflation is really becoming a concern with respect to utility rates. So let's talk about the individual level here in the homeowner or the renter who has to pay utilities this winter.

You've seen gas prices go from $3 per million BTU to, I think it's $8 or thereabouts per million BTU. How can those costs not be passed on to consumers and cause them to pay potentially much, much higher bills and then potentially result in more defaults or deferrals on payment? Right. So there's two sides of it, right? The electric and the hidden bill, right? So with respect to heat and bill, but electric to some degree as well. Some of the utilities that we cover, they have storage, right? So they tend to fuel that storage during the period of lower pricing.

And so they do not buy in the spot market. They do not pass it onto the consumer on the one-to-one basis. Right. And so Wisconsin Energy, for example, has significant amount of gas storage that they can utilize for that and help mitigate those increases. I see. Over time, yeah. So over time, if this situation persists, like, of course you will see that fast onto consumers, right?

But again, that situation will be different because different gas hubs in the country are priced differently. It's not just Henry Hub, right? Some differentials are much higher. So the gas in the Northeast are going to be at the premium to the gas in some other regions of the country. And the Pacific Northwest, for example, can tap into cheaper Canadian gas. And some of the customers in those regions may actually benefit from it, right? So it really does not, it's going to be very original. The impacts are going to be very original. And you really have to concentrate, investors have a chance to differentiate between

in low affordability states with high usage as well, right, versus high probability states where usage is going to be seasonally, maybe not as impactful as we go into the winter. Okay, Sophie, thank you. A lot to digest. I appreciate it, Sophie Karp of Key Bank. And Tyler, this is why a lot of energy advocates are reinforcing. They're saying, look at the risk of a power shutout. This is why we need to switch to solar and renewable energy.

Make that a reality. That's something that all households can use. as opposed to relying on a commodity that can go into short supply. All right, up next, today's clean start, an industrial home revolution. We're taking a look at one startup building energy efficient, 30-story apartment buildings piece by piece in a factory. Further ahead is the Apple credit card growing into a subprime problem for Goldman Sachs. And breaking in just the past few minutes,

Goldman may be on the verge of hundreds of layoffs. We got both stories coming up. The two worlds of Diana Ollick. It sounds like a novel, right? They're colliding today, real estate and climate change, because real estate accounts for 40% of global carbon emissions. When you count construction and operation of buildings, that's why so much new technology is now focused on reducing those emissions.

Diana, the two lives of Diana Ollick, with one look at how those technologies, this is part of her continuing series on climate startups. Hi. Hey, Ty, yeah, look, in order to make a dent in the massive amount of real estate emissions, we need to build buildings better and build better buildings. And that is what a startup called Assembly OSM says it's about to do. We're actually using the tools of aerospace to design these buildings. So we're modeling the buildings at a much higher degree of detail.

Using the same software as Boeing for design and constructing the buildings in pieces in multiple specials. factories, four-year-old assembly claims it can drastically reduce carbon emissions in construction. Where people in the aerospace industry make wings and engines and the fuselage, we have people that make bathroom pods, kitchen pods, floors, walls, and ceilings, and then we assemble them in our facility like this and just clip them together. Stanaforth says the off-site assembly reduces the number of fuel-burning trucks needed on-site by 70 percent. And the buildings themselves are made both lighter and tighter through the high-tech

design, thereby reducing later emissions from heating and cooling. While it may look like just another modular construction company, I think it's a sea change. RSE Ventures is one of the company's investors. What the team at assembly is doing is borrowing technology from aerospace to automotive industry and basically almost starting from scratch. It's similar to what Tesla did and what Elon Musk did. Assembly's costs are about the same as traditional construction, but it's faster, and it's what the market is now demanding. A lot of these nice-to-havs have now turned very quickly into need-to-havs for developers in major urban markets. Assembly OSM's backers include Fifth Wall Climate, Jeffries Group, Manta Ray Ventures, FJ Labs, RSEE Ventures, and Cignia Venture Partners. Total funding so far, $62 million.

The company is focused first on apartments and hotels and expects to build its first projects in New York City, the Bay Area, and Los Angeles. What also differentiates it from other prefab builders is that while others do low-rise buildings, assembly is focused on high-rises, 10 to 30 stories. That will offer the biggest impact on both the housing shortage and climate change. Tyler. All right. Thank you very much, Diana. We appreciate that very much. Let's go to Christina Parts in Evelace now for a CNBC News update.

Thank you, Tyler. President Biden traveled to Boston's Logan Airport to talk about improving the nation's infrastructure and why air travel deserves special attention. The United States of America, not one airport ranks in the top 25 in the world. What are the hells the matter with us? It means commerce. It means income. It means security. And we don't even rank in the top. 25, not one single airport. Ukraine reporting another missile strike on a civilian target. This one hit a police station setting it on fire. Officials say one person was killed and four injured.

The White House repeating today, it will continue to help Ukraine defend itself against Russian aggression. And severe downpours in Chicago and southeastern Wisconsin. Flooding shut down interstate 94 and caused a school bus to roll over. No students were injured. The Milwaukee suburb of Racine set a record. with nearly 10 inches of rain yesterday. Seema, back to you.

Christina, thank you. A head on Power Lunch. An expanding Metaverse, two companies in focus today, Roblox bringing real ads to virtual reality, but one analyst still is not bullish. Plus, Starbucks looking to create a place for customers to grab a mocha, but in the Metaverse. How does that work?

We've got both those stories up next. Stocks are solidly higher, but off the best levels of the session. Take a look at the Dow up 158. points S&P higher by 31, NASDA Composcent, holding on to nearly 1% gain. The biggest gaiters in the S&P, APA, Bristol, and Gilead, so a little bit of health care there. And shares of American Express are just off session highs after the company's CFO said goods and services spending continue to look very strong and that Amex's business is performing well.

Draw your attention to oil, seeing another day of gains back near the $88 level, $87,8.8. 88 traders citing Iranian nuclear talks that are hitting obstacles and an embargo on Russian oil shipments. For perspective, we hit $81 for WTI crude last week. All right, thanks very much. Roblox is looking to make its mark in the metaverse. The stock is up more than 20% over the past week after announcing plans to expand its ad business. That's one thing. Roblox CEO, David Bazuski, Bazuki on Quakbox this morning, shared his strategy to

monetize the virtual world? What we're building at Roblox will ultimately be used many times a day to stay connected. Younger people will stay connected with their grandparents. We're prototyping using Roblox in our office as a communication utility. We have an optimistic view, and we view this ultimately as a not just a playing tool, but a tool where people learn together, where they work together, and where they use our, where they use Roblox as a utility to stay connected. Our next guest initiated coverage of the online gaming platform with an underperform rating

saying the current stock is overvalued. Doug Kreutz is senior research analyst at Cowan. You just heard the CEO with what he admittedly said is an optimistic viewpoint. Is it a practical one? Well, it's certainly a viewpoint that we understand. The Metaverse is being talked about by a lot of companies. these Roblox, obviously being one, but Facebook, Google, Apple, Microsoft, they're all talking about it as being kind of the next iteration of the internet. And, you know, achieving a dominant

position in the metaverse would be incredibly value creative. The question is, you know, can Roblox do it against that kind of competition over the long run? And that's where we're a bit skeptical. Are they, yeah. So basically, it's the ant versus the elephant. Do you see their products morphing in such a way that they can become, quote, a communication utility as ultimately not just a playing tool, but where people learn together, work together, and where they use Roblox as a utility to stay connected. I go back to the question, is that a feasible goal or are they just playing out of their league? Well, I don't know that I'd say they're playing out of the league. I mean, they have some impressive technology.

I think it's possible, right? There are a lot of things that are possible. In order to get people to want to use Roblox as a virtual meeting space, I mean, first of all, you're going to have to convince them that it's better than Zoom. Zoom's pretty good and pretty effective, right? Or other video channels.

Why is meeting in a virtual world space going to be more efficient and more effective? That's a sale that won't be easy to make. particularly if you look at where VR technology is right now, it's just not very consumer-friendly. There hasn't been mass adoption of it for that reason. So I think the technical solutions to that, streaming being another one,

streaming interactive entertainment, is still a ways away. The street seems to like Roblox's plans to jump into online advertising, a way to diversify its revenue, stock up about 1%. What do you make of that move? Oh, it makes sense. Yes, they have a 58 million daily active users. Obviously, that's a lot of people in theory you can advertise you to.

Now, a good chunk of that is people under 13 that you can't really advertise to. We've been covering the video game business for close to 20 years. That entire time, people have been talking about inserting ads into video games. The reality is that other than some of the most casual games on mobile devices that have very short play times, advertising doesn't work in interactive media because It takes players out of the interactivity. It takes them out of immersion. And players don't like that. And Roblox being a virtual world is much more akin to that than it is to, let's say, candy crush.

Underperform rating, just quickly, your price target? $31. And what would give you more confidence to raise that? It's trading at 46 a share right now. Yeah, look, it's a very long-term position. I mean, the competition for the Metaversea. is going to take a very long time. I think they have to prove that they're more than just a video game platform.

And you do that by attracting more users, by attracting a broader range of users and by monetizing them better. And to the extent they're able to do that, we'd certainly reconsider our position. But right now we don't see it. Doug Kreutz of senior research analysts with Cowan, underperform rating on the stock. Thank you very much. All right, Starbucks making its own move into the Metaverse. Yes, the company saying it wants to create the virtual version of its famous third

place using Web 3 technology. Kate Rogers has more. Virtual coffee, Kate? Not just yet, Tyler, but tomorrow does Mark Starbucks first in-person investor day in several years due to the pandemic. The company kicking things off today with a few announcements, this all under the vision of interim CEO Howard Schultz's reinvention of the iconic brand for the future. So first up, as you mentioned, it's building a virtual third place called Starbucks Odyssey. It'll be powered by Web3 Tech Platform Polygon, Starting today, employees and Starbucks rewards members can sign up to be first in line for this launch later this year. It's going to allow them to earn and purchase NFTs to unlock new benefits and immersive coffee experiences, for example. Last quarter, the company had more than 27 million rewards members in the U.S., which gives it quite a large pool to test this out,

also incentivizes people to sign up and gain access. Other restaurant brands have also launched in the Metaverse like Chipotle, while some others are laying the groundwork to do the same. in the future, like McDonald's and Panera, to engage younger customers. More to come tomorrow at the meeting on what this future all looks like. New CEO was just announced earlier this month, Loxman Narasemann, who will be training under Howard Schultz until next spring, the two working together. But this is just the first of many announcements, I'm sure, to come under Howard's new vision. Back over to you guys.

Kate, you mentioned a moment ago some other brands who have tried effectively this. How has it been working out? Well, I think Chipoli's been the biggest success story. I know when it had its Roblox announcement earlier in the spring, it had a line of like 20,000 people waiting in the Metaverse to do its burrito rolling game that they were doing with Roblox. And then there were also some in-person things that you could redeem, like getting that actual burrito to eat in real life. So it's connecting the Metaverse with things that you can redeem in real life those benefits. I think that really work particularly with younger consumers. And we all know all of these brands, restaurants, retail, et cetera, are trying to get younger consumers to stick with them early on.

So it's really important. A burrito rolling game with Roblox. Did I hear you hear that? If our previous get, Seema, had known about that. Maybe he wouldn't have an underperform on Roblox. Kate. Kate, thank you, man. Thank you.

Speaking of Starbucks, Jim Kramer will be sitting down with Starbucks founder, Howard Schultz, live in Seattle tomorrow, along with some other big-name guests. So make sure to tune in tonight and tomorrow for all of the coverage. Still to come here on Power Lunge is a subprime problem growing underneath Goldman Sachs's partnership with Apple plus three big movers you need to watch in today's three-stock lunch. We will be right back.

When Goldman Sachs introduced the Apple card in 2019, it was a huge boost for the company's consumer business. But now, Goldman could be facing a subprime problem. CBC.com Hughes-Sun writing about that today, and he joins us with that story. Hugh, what have you found? So, yeah, the curious thing if you look at Goldman Sachs credit card business is, you know, there's a thing called charge-offs. And that's what happens when a customer doesn't pay their credit card bills for six months or longer. If you look at Goldman Sachs's charge off rate, it's actually the highest in the industry. If you look at issuers with at least $10 billion in loans and credit card loans out.

So it's at 2.93%, which on itself doesn't look that high. If you compare it to Goldman, if you compare it to JP Morgan to Bank of America, it's approximately twice as bad as those firms, which are far bigger books of business. And if you take a step back and ask yourself why that is, you know, their percentage of subprime or below 660 FICO users is actually relatively high. It's a 28%, which is, you know, more in line with companies that are known to be subprime card issuers. So is this because they made the card so available to so many, basically, to Apple customers, iPhone users and so forth and didn't quite put the due diligence in? to credit checking the way they might have? Yeah, I mean, that's what you might think at first blush, Tyler. That's a great question.

I would say, you know, you talk to people who are familiar with this business, and they say, look, our underwriting is proper. You know, it's not like we're taking undue risks. But if you look at any business in the first two or three years of standing up a new credit card business, what's going to happen is you're going to get a lot of people who sign up for a card because they need credit. And so there's a natural, you know, aging process in a credit card book, which, you know, in the first two or three years,

there are going to be worse losses. They claim, the insiders claim, that that's going to tail off as time goes by. Now, the issue is, obviously, is the timing, which we could be heading into a recession. Yeah, let me ask you one other thing. I have this card, and I pay it through my Apple wallet. And I must say that you need to, I don't know where they even send me reminders that I have a due balance. I must say that it is a little bit difficult to remember exactly when your balance is due. And, oh, I better go to my wallet and check it.

Any thoughts there? Are you familiar with how it works? Well, you know, it's interesting. It's, you know, at the onset, this thing was created to basically ping you and to make sure that there was less chance that you would go late and go in default. So the fact that you, you know, might be having difficulty knowing when it's been. I may miss the ping. I don't know. I mean, I don't know.

It's supposed to be a consumer friendly. Right? Hugh, there's actually another story I wanted to get your, that you published today about Goldman Sachs, potentially cutting off or laying off employees in the coming weeks. What can you tell us about that? Well, you know, back in June, you know, we went on this air and said basically, look, if you look at the IPO volumes, if you look at, you know, debt issuance, everything's fallen off a cliff.

And at the same time, if you examine headcount figures at all the major Wall Street firms, they've actually shot up in the past two years. There's been a hiring binge as there's been a bull market and Wall Street talent. You know, you put those two together and the math is inevitable. There have to be job cuts. And indeed, today we're reporting the Goldman Sachs plan on cutting, you know, somewhere in the ballpark of 1, 2, 2% of their 47,000 employee base sometime this month. So we're talking about job cuts across the firm and in the, you know, sort of several hundreds of employees' size. I'm got it.

And I know, as you reported here, David Solomon, the CEO will be coming up ahead of a board meeting later this week where he may be asked about the health of the consumer business. Hugh, for now, thank you. Appreciate it on all things Goldman. Stock down about 10% this year. All right, still to come, Bristol Myers Squibb surging on an FDA approval, is the company's $74 billion bet on cell gene paying off. We'll trade that name and a couple of others in today's three-stock lunch. Welcome back, everybody. Time now for three-stock lunch. Today we sip on some of the day's biggest movers, including Carvana, surging on a bullish up. grade to buy at Piper Sandler, Bristol Myers, hire after getting FDA approval for its new psoriasis drug, and Newmont jumping after being initiated with a buy rating at Goldman Sachs.

Here to help us trade them, David Wagner, portfolio manager at Aptus Capital Advisors. David, welcome. Let's start with Carvana. It's been on a run lately, but you have a somewhat more tepid view of it. Yeah, I'm a little bit more tepid here. So I'd start by saying if I own the stock, I probably wouldn't be selling it. If I did not own it, I'd probably stick on the sidelines. the fact that, you know, use car prices are falling, interest rates remain a risk. And I'm

darn sure that solvency is going to remain a problem in the near future. But I think Piper's report said it best this morning. Can you muster the intestinal fortitude to buy this name? And in my type of language is, hey, do you have the Cahonis to buy here? Because there's a lot of people betting against this name. There's like a short interest of 27%. But it's easy to be a barrier. I mean, the company's paying 10%, 10 and a quarter percent, interest rate on over $3 billion worth of debt. On top of that, their, you know, biggest driver gross profit, the securitization aspect of the business, you know, it's been pretty non-existence, basically since May had their first deal last week, but it's below average. So, yeah, very easy to be a bear here,

but I think that there's a lot of risks to the downside. But right now, given the potential for some type of short squeeze on any incremental positive news, you know, I'd probably, you know, if you owned it, let that ride a little bit. David, next up is Bristol Myers. What do you make of the name? Yeah, you know, I think it's really just showing you some type of fundamental momentum here. I mean, this is a huge positive news for the stock. And that's how you play these pharmaceutical types of names. I mean, avoiding this black box warning is huge. It allows a company to really commercialize this drug, which is now convenient against Amgen's

O Tesla stock, which that stock's down 4%. But, you know, this news really allows a sell site to continue raising earnings expectations into the future, providing that fundamental momentum I just spoke to. You couple that with, you know, the Kamsos stock. You know, I think that's going to have a great quarter coming up here. so there's some short-term benefits here. But outside that, I think the long-term benefit of being in this type of name is, you know, they've clearly shown that they are committed to using their balance sheet

to acquire more assets, patting future growth. So I think you saw that with the turning point acquisition, but, you know, I think we're really happy with the news being long here for a moment. David, Seaman I love the kitchen, but the connection to your voice is a little bad. I'm going to ask you for a quick thought on Newmont before we lose the signal. Yeah, no doubt. You know, I've never really been a fan of owning gold producers or gold themselves. I always get asked a question, you know, why would I own gold?

And most people say it's an inflation hedge. Well, it's not an inflation hedge. Gold has underperformed inflation of the last 40-something years. Or you get people coming out saying, hey, I want to own gold because there's going to be some type of global havoc, you know, in the future. And I think that's wrong also. If you have some type of global havoc where you have to own the underlying commodity, you know, I think I'd probably rather own a firearm of some sort.

I understand that the names have, you know, the equities have underperformed the underlying commodity here in the last one year, year to date. But I'd still be staying away from that type of name. All right, David. David, thank you very much. We appreciate it. David Wagner. Coming up, does Disney have big plans for its streaming business? Find out what the CEO is saying. That's coming up next on Power Lunt. As we come up on 3 o'clock, the Dow is up 212 points here. A couple of other stories that caught our attention. Wall Street jobs once again in demand, it says right here, as layoffs and hiring freezes at tech and crypto firms mount. According to the Financial Times, financial firms are seeing an influx of candidates from tech

startups. More than 75,000 tech-related job cuts have been announced so far this year. That's according to a layoff tracking site. Even the giants like Apple and Alphabet have paused or slowed hiring. Meanwhile, financial firms had been expanding their tech teams as market volatility-fueled trading volumes. But as Husson just reported, layoffs could be coming to war. Wall Street as well, as he pointed out, that Goldman Sachs may lead the way in job cuts. Yeah, sort of a mixed story here.

And what's interesting, Tyler, is if you look at the breakdown of the latest August jobs report, business services actually added the most jobs in the month of August, and that includes financial services. So they're hiring, but also perhaps looking for ways to cut. And my expectation, or my supposition, I should say, is that many of those Wall Street firms that are hiring are hiring tech people. because they want highly trained engineers, people with mathematics, algorithmic backgrounds, and so forth, to do that kind of work

rather than the old kind of bread and butter banking work. That seems to be the case. Here's another story on our radar. The L.A. Times reporting that Disney is looking to merge Hulu and Disney Plus. In a wide-ranging interview, CEO Bob Chapec discussed the possibility of integrating the two, saying the consumer dictates everything in that Disney Plus, consumer wants more general entertainment. He added that once Disney buys Comcast Hulu's steak, they can figure it out the best way to manage that content.

So an interesting move coming. Well, it feels like it's such a fractional, fractured marketplace right now that anything that could make it a more seamless experience for the consumer would be a good thing. He said Disney Plus subscribers, they want more content. So perhaps it is a way to do that. All right. Thanks for watching Power Lunch.