Power Lunch - The dollar threat, central banks breaking things and stocks that are too cheap to ignore. 9/30/22

Episode Date: September 30, 2022

The strengthening dollar could threaten big tech earnings. A top analyst explains why he’s cutting estimates on some key names. Plus, are central banks breaking things? That’s the subject of a new CNBC op-ed and it could force the Fed to blink. And, stocks that are too cheap to ignore. 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, everybody. Along with Contessa Brewer, I'm Tyler Matheson, and here's what's ahead. We've got dollar damage Nike. He says the greenback strength is one of the reasons why margins are under pressure there. So will Big Tech be next? We'll talk to an analyst who is slashing estimates and cutting price targets and too cheap to ignore, just like me. A veteran investor says the bear market is growing tired, and he's buying stocks that could benefit from the next market's upleg. Will it be in October, as Sully's history lesson seemed to suggest?

Contessa. Well, from Sully side up to Bad News Brewer, look at the Dow Jones Industries now off almost a percent. It's a topy day of trading here as the markets look to close out this rough week, rough month, rough quarter. I told you about the Dow Jones Industrial's down 259 points. You've got the S&P 500 off by half a percent and the NASDAQ composite down a third of a percent. Carnival, Norwegian cruise lines, Nike, the worst. worst performing stocks in the S&P. We'll have more on those names here in just a moment.

And a number of fresh 52-week lows this afternoon, including Mondalese, Dominion, Southwest Airlines, off almost 2%. And Norfolk Southern off almost 2% as well, Tyler. Rough crowd here. All right, Contessa, September has lived up to its reputation, the Dow and the S&P. Down more than 7% for the month. The Dowland pays for its worst monthly performance since back in March of 2020. That, of course, pandemic month, worse September since 2002. NASDAQ headed for its biggest monthly loss since April of this year.

Now, those declines driven by rising yields. The 10-year yield started the month at 3.19%. It broke through 4% this week before pulling back just a bit. It has been a violent month, frankly, for bond yields. Dollar index, fresh 20-year high, causing the tech sector to come under pressure. The NASDAQ 100, down 9%. led lower by chip stocks, which are trading near 52-week lows. Our next guest says the market route is making some stocks too cheap to ignore.

He's Jerry Castellini, Chief Investment Officer of Castle Ark Management. Jerry, always good to see you. You say in the notes that I was given that the bear market is getting tired. What's your evidence for that? Well, one of my trusted staff members, Dylan Hoover, walked in my office today and said, I can't take this anymore. I can't listen to one more story about the Fed. And all the problems it's caused. We're beat up by this whole macro thing. And it makes sense. It's gone on now for well over a year. The market's been down. And what's interesting is just kind of all we've got

left. Well, the next year would be good if. And then some narrative about the Fed. And what I what I find fascinating is it's such a dramatic change from where we were a year ago on the macro level. what it's done is completely confused and set out all the micro level, company level stories that have really become intriguing investments here. And that's why there's an opportunity. And let's just start focusing on stocks. I'm not sure you answered my question, Jerry. I am, I am definitely sure that there are some intriguing stories in equities right now. Look at Netflix. It's had a very, very good month. And there are other examples of individual shares. that have done well for particular reasons, biogen among them.

But I asked about the bare market and your claim that it is getting tired. Where, again, is the evidence of that beyond a colleague of yours who says, I'm sick of hearing about the Fed? Consumer non-durables have stopped outperforming. Utilities were one of the biggest down groups in the down market yesterday. When you look at the places where you've gone to hide, where you look at the flows of capital, it's leaving bond funds now. It's not leaving stock funds. In fact, the flows into stocks have increased in are accelerating. So the things that would let you believe that there's more stocks

to be sold, then that would give you more long-term evidence of a bare market. Those are starting to go away, and they're giving rise to all these interesting green shoots. All right. Let's talk a little bit where you see an attract. risk reward. I want to go first to Las Vegas Sands, which is a company that I cover, and it's a company that I know a lot about, but I just want to lead into this. Las Vegas Sands is part of a broader group in gaming where there's been generally a real disconnect between what the companies are reporting in their earnings and what the stock price shows. So, Jerry, talk a little bit about Las Vegas Sands. What do you like about it? Yeah, I mean, like a lot of these stocks right now,

they're trying to discount 2023, mid-year 2023. If you look at what is on the horizon, so in this case, this company doesn't have to worry about Las Vegas, even though it's in the name. They're focused on Singapore and Macau. They just announced

last week that one of the provinces would open for people to go to Macau and the stock went up six points. You think about the number of provinces are on China that you could open up, and you get the feeling that unlike the rest of the global economy, China could be in great shape a year from now, nine months from now, and this would be one of the great names to own. Well, Las Vegasans missed out on that huge

rebound in Las Vegas by selling it. But what they got was a lot of cash to sit on to tie them through this rough spot. If we see a rebound in Macau, like we've seen in Las Vegas, they're set up well. What about PayPal? Why do you think that the bad news has already been baked into this? And it could just be upside from here? Yeah, so PayPal, two years ago, is one of these glamor growth names that was going to capture every part of connecting payments to all sorts of things, including crypto and everything else like it. The company even looked at heart at an acquisition that would have really sent them in the Satisfar. In the course of that process, they have now decided to go back to their core business. focus on a 20, 25% growth area that throws off a ton of cash and stocks down 65%. So we don't have to

look at this as a company that needs to grow 30 or 40% anymore, but a really powerful cash machine at a 20% growth rate. I acknowledge that there are interesting stories like that. I conclude with one more of the notes that I have. It's time you say to gear up for the next big market upleg. What is going to trigger that when you've got a a strong dollar that companies are now saying or impacting their margins, when you have profit challenges, when you have rates rising, and you have a war in Ukraine that is not getting better. Okay.

How much of all of that has not been discounted? That's the big question. I don't know about the war, Jerry. I do not know about that because I don't think it has been sufficiently discounted personally. Because I don't know, because none of us know what. Putin may be capable of. Yes. And that's why you look at all of the risk that's been priced into this market. You look at what's potentially going to come, which that includes. But you also have to balance the names like we just talked about. And the things the Fed can affect is not going to affect

the tightness in the global oil markets, not going to affect people going to Macau. It's not going to affect, Lily or some of these great drug companies who have really interesting therapeutics right now that haven't been priced into their stock. So if we do it stock by stock and not worry about some of these overviews that people are taking the worst view of, I think you'd find that there is a lot underneath in this market right now to focus on. And why not do it? Instead of focusing all of our time on the Fed and the war and the dollar. Let's talk about individual stocks because that's really in the end what we own. Jerry, always good to have you on. It wouldn't be fun if I didn't push back a little bit. Jerry Castellini, thanks so much. You bet. Appreciate it. A little hardball

with Tyler Mathis and I like that. The strengthening dollar, top of mind, of course, for corporate America highlighted in Nike's earnings. The company says headwinds from foreign exchange shifted significantly in the last 90 days as the trend of U.S. dollar strengthening has accelerated. Nike makes half its revenue from outside North America. And look, it's not just the retailers to be squeezed by the strong dollar. Also, big tech. Our next guest is cutting estimates on Amazon, Google, and meta, partially because of currency headwinds. Yusuf Scully as managing director at Truis, it's good to see you today, Yusuf. Talk to me a little bit about, you know, you just heard Tyler going back and forth there with Jerry about whether this bad news is already

baked in. Do you think the specter of a strong dollar is so new that it's not affecting these companies and their stocks quite yet? Yeah, so contest, I thank you for having me on again. So to direct answer your question, I think the answer is no. I think we're still in the process of digesting the move of the dollar, the potential recession we're going to see next year, the high likelihood of that really. And so, If you look at consensus expectations for the three names you mentioned, Alphabet, Amazon, and Meta, we believe that whether you're talking to second half this year of 2023, we're way too high. A couple of days ago, we came in, lowered our expectations for the group, but for these three in particular.

Now we're sitting somewhere like 10% below consensus for meta and about 5% below consensus for Amazon and for Google. or alphabet. And the reason for that is two fools. One is FX. In the last two months since these companies guided, FX is already a 200 basis point headwind to growth that they didn't take into account. And the other is clearly, 2023 is going to be a year of economic contraction. And our group is highly sensitive to that. So we think numbers have to come down. And stocks tend to have a hard time moving up when estimates come down. You say that you're lowering your price target, but you still have a buy on Amazon, Google, and meta.

I want to be more specific here. Your price target for Amazon has dropped by $10 from $180 to $170. There's still a lot of upside there where your price target is. Google, you've lowered from $145 to $136 for your target and for META, $240 from $260. Again, a buy. Who's best positioned to whether the currency issues and, if you're right, and there will be a recession, the coming recession? Now, that's fair. That's a fair pushback.

So just to put it, take some perspective, we'll cover about 15 names. So those are three or four. You didn't mention Snap. Snap is part of that as well. So I would say that Google and Amazon are best position. Amazon, you obviously have AWS that continues to grow around 30%. You have the advertising business, which has continued to grow at 25 plus percent. And those are increasing component of the overall. Google clearly searched with 90 percent of the revenues being derived

from that is a steady eddy. It's utility, even in this economic environment or even if we hit the skits, frankly, economically, we still think that's still a mid-single-digit growth business. Digital advertising or, I'm sorry, display advertising is a different story. And we think on a relative basis, meta gets hurt more than these other two.

You know, you mentioned cloud for AWS. I'm curious whether you're going to see an impact there from the stronger dollar, because even domestically, we already heard Netflix saying, in this move to cut costs, we're going to have to look at how much we spend on cloud. 100%. I think you will have some deceleration, but on a relative basis, I think EWS is going to do better. Remember, the vast majority of EWS's revenues is books in U.S. dollars. So that's one. Two, there is probably more of a risk to EWS from a rising energy prices, particularly in Europe.

I think that people are not taking into account. Well, thanks for raising that specter. There's another thing to think about. Yusuf Squally, thank you so much. Thank you so much. All righty, coming up, central banks are breaking things. That's the subject of a new CNBC op-ed. The question is, will it cause the Fed to blank plus Florida,

one of American homes for rent's biggest markets? The CEO is with us as the company assesses the damage from Hurricane Ian. As we head to the break, take a look at Alcoa. The stock went from being up 54% year-to-date in late March to being down 42% for the year today. Welcome back to Power Lunch. I'm Dominic Choo. Let's get a check on shares of Carnival right now at this hour, down 21 plus percent firmly in negative territory after the company posted a wider than expected loss with revenues also coming in below analyst expectations. Now, it was rough seas for the company, especially when it came to confidence.

costs, those fuel costs were up 367% year over year, while food costs jump nearly get this 500%. The company says it's sitting on about $34 billion of debt and $7.4 billion in overall liquidity. The CEO adding that advanced bookings were also below its historical range. Now, today's trade has brought fresh lows for that stock, which at one point was trading at its lowest level going back to 1992. Carnival is down over 60% alone this year. And the drop today is also weighing on other cruise line operators. Check out what's happening with Norwegian, Royal Caribbean.

Both of those stocks also taking a big hits tie. Both those names are down more than 40% so far in 2022. Back over to you. All right, Dom, thank you very much. We'll see in just a bit. Fed Chair Lely Brainerd says the Fed should not pull away from its inflation fight prematurely, adding that monetary policy needs to be restricted for some time. Her comments come as the Fed's preferred measure of inflation.

Core PCE came in hotter than expected. Our next guest has long maintained that the Fed will raise rates until something breaks. In a new CNBC op-ed, he says we may very well be hearing the sound of breaking markets. Ron Insana is a CNBC senior analyst and commentator, also a senior advisor. To Schroeder's North America, he's a senior. He just is a senior. is. How are you, man? Not official. So what is the sound that you're hearing

that is breaking apart from what I would call the dissonance and the gear grinding that's going on with the Bank of England and the new government there? So Tyler, we all go back to these points in history, whether it was the Latin American

debt crisis in 1981 or Mexican Pacal crisis in 94, Asia and long-term capital in 97-98, whatever it was when the Fed was it wildly restrictive, something broke. And I think the UK is the canary in the coal mine here with these liability-driven investment programs that caused a great deal of illiquidity in the British bond market so much so that when the Bank of England intervened, it drove long-term interest rates down over a full percentage point.

And we're hearing, at least a reading that, you know, to some extent we're seeing similar exposures in U.S. pension funds. And had that situation in London gotten out of control, you would have had a massive and potentially systemic British financial problem that would have had some contagion effect. So I think we're getting close. You've got, I guess, in Britain, if I'm understanding it correctly, you have a new government that's coming in and is saying we are going to borrow hundreds of billions of billions of pounds, in part to subsidize energy issues and help average Britons get through the winter.

Okay. At the same time, the Bank of England is trying to raise interest rates. And at the same time, the Bank of England now says, well, we've got to come in and buy, we've got to do quantitative easing here. Buy up these bonds or else there's going to be a problem. It's all seems to be working at violent cross purposes. Absolutely. You've got to a certain extent the same problem at the European Central Bank, which is buying the debt of peripheral countries like Italy, Spain and Portugal, all of which are heavily indebted. And so on the one hand, they too are engaging in a form of quantitative easing while also engaging in higher interest rate policy

and quantitative tightening. So yeah, cross purposes for for sure, but this is the type of environment. And again, again, we've seen this time and time again through financial market history where you get aggressive actions by central banks that literally break a financial market. The contagion spreads or is in, is very much in the risk of spreading to other nations. And that's when central banks stop. And we've seen this. I don't really care what the Fed says. I don't care what they're planning. I don't care how many times they say that no factor will stop them from raising rates. And I know folks like Larry Summers and others, a former Treasury are pushing them to be even more aggressive than they are now, something will break and they will

have to change course. Ron, Richmond Fed President Tom Barkin is speaking right now. He's reiterating what Lail Brainerd said earlier today, saying the risk of stopping this inflation fight too soon is a bigger risk and that it is possible to control inflation without a significant downturn. We got this week, initial jobless claims falling less than expected. We got the consumer confidence rising more than expected. We got new home sales more than expected. We got home prices moderating more since April of 2021. Rents declining. Durable goods orders rising. And the Richmond Fed saying that regional manufacturing was zero, but again, better than expected. There's a lot of silver lining here. So what do you know that the central bankers,

including our own Fed presidents, do not? Okay. I guess that's a fair question. I think, first of all, I think they're misreading history. I don't think this is the 1970s. I don't think there's a risk of Jay Powell being Arthur Burns or G. William Miller or another central banker who made an extraordinary mistake during an inflationary period that lasted over 15 years as opposed to 15 months. Secondly, all forward-looking inflation indicators have already broken and gasoline is down significantly. Housing prices have turned lower. Mortgage cancellations are up at near record levels. And so we're saying, as Nike said, a huge buildup of inventories, which is also emblematic of the fact that supply chain constraints that have been driving up prices are easing dramatically.

So I think they're going too far. They're going to risk something blowing up in financial markets. And again, whether it was 94 where everybody said they achieved a soft landing, Mexico had a debt crisis that we helped to fund. Orange County went bankrupt and the Fed stopped raising rates. So this is not unusual and it's not out of line with historic norms. Again, whether they're seeing this or not seeing this is an open question. But I really think, based on history and my study of it, is that they're just plain wrong at this juncture with how far they want to go. Or maybe Jay Powell is just waiting for Orange County to cry, Uncle.

Ron and Sana, it's great to see you, friend. Well, it might be a pension fund rather than Orange County. Or that. Yeah. The man knows his history. Ron and Sana, thanks. Coming up, the real state of real estate, the Invesco Real Estate, ETF, down 12% in September closing out its worst month since March 2020 when it was down 21 percent. This marks

its third straight quarterly decline. And up next, we'll take a look at the outflows from other funds tracking that sector. Plus, we'll speak to the CEO of Home Rental Reef, American Homes for rent, about the impact of rising rates on the housing economy. All right, welcome back to Power Lunch. We've got what a little more than 90 minutes left in our trading day and trading month. And for that, we can be thankful, can't we? Time now for our weekly ETF tracker. This week we look at real estate ETS, $330 million of net outflows over the past week alone. The biggest reason, of course, is mortgage rates.

They are going up, 7%-ish recession fears. They are going up as well. And specifically for the mortgage reets, fears about dividend cuts. And why do you buy a nice reet? Well, because the dividends are generally pretty plump. Real estate ETFs from Vanguard, Schwartz, Schwab and the sector spider all down about 4% this week. Let's take a look at them.

There they are. But look at the I-Shares mortgage reed, down about 16% right now. As opposed to the equity reits, which actually hold property, mortgage reits. Ah, the clue in there is the word mortgage, right? They invest in mortgages and mortgage-backed securities. And many of those names are getting crushed this week on fears that their dividends will get cut. The data come from our partners at Track Insight. It's all one word, track insight.

For more information, you can look on the F.T. Wilshire ETF hub. I shares, Mortgage Plus, mortgage reits, not property-owning reits. Let's get to Brian Sullivan. He's everywhere, man. CNBC News Update. Yeah, you tossed to me. I toss to you, Tyler. Thank you very much.

All right, here's what's happening right now. Hurricane Ian near Georgetown, South Carolina. That is just south of Myrtle Beach. Now, the storm still powerful. It's 85 mile an hour winds. Myrtle Beach already dealing with four foot of storm surge. Tropical storm winds extending more than 270 miles out from the eye of Ian. President Biden urging people in South Carolina to heed all warnings from state and local officials. About two-thirds of American adults do not plan on getting a COVID booster shot soon.

That according to a new poll, around 12 percent say they definitely won't get the shot no matter what. And Nevada Governor Cicillac has done. demanded and receive the resignation of the state's prison chief. This after a convicted bomb maker's escape was not reported for four days. The inmate was recaptured on Wednesday earlier this month. Some medical staff at two prisons complained to the governor about a hostile and abusive behavior from the prison director. Who is now out?

Back to you. All right. Thank you very much. Brian Sullivan. Ahead on power lunch. An energy emergency. Europe's energy crisis continues between pipe. applying issues, growing tensions with Russia, will EU countries have enough supply to make it through the winter?

Plus, a worry for workers. Would a slowdown in the economy hurt union movements? We'll be right back. 89 minutes left in the trading day, and we want to get you caught up on all the day's actions talking about in the power rundown, stocks, bonds, commodities, the European energy crisis. But first, let's get to Bob Bassani. So we have the Dow now at session lows, Bob. What a way to go into the weekend. end. Yeah, but I say that an awful lot. You and I, don't we, in the middle of the day, new lows. But we'll see. It's not as bad as it possibly could be. 3,000 to 3,600 is where a lot of people are. We're down 4% for the quarter folks. We're down 8% for the month. This is the worst month for the S&P since 2008. That was the financial crisis. Now, Nike's at a two-year low here, but I'm encouraged by the fact that the retailers have bounced. They had an awful

open. A lot of them were at new lows, but gaps off of the lows. Chikos was terrible this morning, but actually went positive. So these are pretty washed out sectors. A lot of comments, of course, about the currency issues in Europe, how that might translate. Have you noticed these consumer staple stocks? What happened to defensive stocks here? They've been terrible performers this week. In fact, most of them are down as much as the tech stocks are. And once again today, look, Philip Morris, McCormick, Kimberly Clark, Procter, and Gambles, these are new 52-week lows. Remember, this is supposedly a staples as a defensive group, not holding up so well. Same thing with the transports, but here you at least have the other side. This is a

cyclical sector, not a defensive sector, but we've been hitting new 52-week lows on the railroads all week, and the transport, Dow transports also a 52-week low. Finally, I've had a lot of people messaged me, whatever happened to end of the quarter rebalancing, because we're down 4% for the quarter. Shouldn't there be some move into stocks from people rebalancing their pensions? Well, yeah, theoretically, if you look here, the SEP is down 4%, but a lot of sensitive, economically, sectors, materials and semiconductors, and reits in particular, just have been clobbered. Not a lot of interest in buying at this point. I want to show you a bond fund here. People ask me about these end of the month, end of the quarter rebalancing.

See, Contessa, we're down 4% on the S&P, but the bond market is also down 4%. So you don't necessarily have a lot of pressure to rebalance here when both of these are down about the same amount. Guys, back to you. All right, Bob Pisani. I'm sure that Rick Santelli's going to have something to say about this. Let's go to the bond market, another volatile session for yields. And Rick, you're tracking the action now from the CME. What are you seeing?

You know, the third quarter rebalancing is rather substantial when it comes to what's going on with respect to treasury yields. Just consider. Look at a two-week chart of tens. Now, I'm switching things up, control room. Go to the second chart. Two-week chart of tens. 401 was the midweek high. You see what we're trading now at three-and-three-three-year.

quarters. That indeed shows us that there has been some buying coming in. Will it show up back when we go into October? That is the question. And if we think about the quarter, two year yields are up 121 bases on the quarter. Now let's look at tens quarter to date. They are up 73 basis points. They were at 301 or at 374. But we need to turn to Europe. You know, as the temperatures keep dropping, I fully suspect you're going to continue to see more problems in Europe, especially considering that Putin probably has a plan. We see that sabotage, we see cold weather. I just don't think these are all things he thought of like spur of the moment.

So we need to continue to pay attention energy. Look at what's going on when the guilt. Guilt yields are up, buckle up, 186 basis points for the quarter. Boone yields are up 78 basis points for the quarter. And I could have picked the dollar index for a quarter to date chart, Contessa, because it's up 7%. but I chose to do the pound versus the dollar, which is down 8.5% historic drop. Back to you. Wow, Rick Santelli, thank you for that. And oil closing for the day, crude prices just below 80 bucks a barrel.

Pippa Stevens at the CNBC commodity desk now. Pippa, tell us about the close. Hey, Contessa, well, oil is falling today in a move that really symbolizes how it's performed all quarter. WTIs dropped more than 24% over the last three months. That's the first negative quarter. Q1 2020 when the pandemic began to sap demand for crude. Now, the weakness over the last three months has predominantly been driven by demand-side concerns. Lockdowns in China and global slowdown fears have weighed on prices, even though many experts say the physical market remains tight.

Let's check on prices. WTI at 7959 for a loss of 2%. Brand crude is at 8790 down about 7 tenths of 1%. And in a down week for the broader market, one area that stood out is refining stocks. Marathon Petroleum, Valero, and Phillips 66, all higher, refinery outages in Ohio and California are supporting those shares. And finally, not something we talk about often, but Orange Juice futures on track for a sixth straight positive quarter. Price is currently hovering around the highest since January 2017 after Hurricane Ian hit Florida. The state is the largest

orange producer in the U.S. Contessa. All right. Thank you for that, Pippa. Always good to get an update on orange juice. The European Union agreeing to a windfall tax on energy firms. The cash raised expected to go to businesses and families. Europe is, of course, bracing for this difficult winter amid a real shortage of energy supplies. Let's bring in Jonathan Maxwell. He's CEO of Sustainable Development Capital. It's a UK-based energy private equity company. Jonathan, it's good to see you. We know that the energy crisis is driving inflation. We know the countries are gathering together in talks to try and see how they control the price crunch that's hitting energy. How do we go into October, November, December with any sense of confidence that it doesn't continue

to spiral down? So Europe is doing quite a good job to start building up its energy stocks earlier this year. And in fact, all during 2021, energy prices started to climb. Low wind, the air, low storage. This year, the beginning of the year, low gas storage in Europe, has been. big problem. Europe has now mandated by the 1st of November, 80% gas storage. It's very likely Europe is going to be able to model through this winter. The big question is what happens over the next couple of years. And we're here to talk about the power lunch. Power is a

component of the problem in Europe, most of which comes from natural gas. But the real question is going to be about heat and transport fuels. And I think that's going to be a persistent problem for the next two or three years in Europe, driving up, demand prices and creating further problems. And can you talk a little bit about currency impact on this situation as well and how that plays into what was already a difficult scenario? Yeah. I mean, obviously energy has been a very large component of inflation. Inflation, therefore, is destabilizing currencies, interest rate increases reacting, you know, to try and stabilize inflation.

So we're in a difficult spot. I think one of the things that we've seen, though, is how Europe is going to react to this. Now, the immediate reaction was we'll double down on new production. You know, let's find new nuclear power gas, you know, renewables. I think what's now happened in Europe is a fundamental understanding that perhaps one of the only ways out of this is to start using less energy. I don't mean being less productive for the economy, just less wasteful. actually, it turns out in the United States and in Europe, roughly two-thirds of primary energy is lost somewhere between the point of converting it, generating energy, transmitting it,

distributing and that is one of the most fundamental problems that this huge wake-up call that Europe has now had, I think will bring to the surface. And the policy response in Europe actually now is about not just adding energy supply, but actually starting to say let's cut demand. Let's reduce gas. It's reduce electricity, 15 and 5% reductions in each case. That's be more efficient and productive with the economy. And this way cut coal could translate to that.

I don't want to bog down on it, but that was a fascinating thing you just said there. The two-thirds of the energy potency or power in gas is lost from the point at which it comes out of the ground to the point at which is delivered to the home. Why is that quickly? Very quickly, roughly 10% of energy, primary energy gets lost, converting it to something useful for pipelines or from crude oil to petrol or diesel. We put the gas molecule into a turbine. About 50% turns into electricity. The rest is heat. If you're generating energy right away from the point of use, the heat gets dumped.

That's 50%. And then another 10% of energy is lost between transmission and distribution networks. It's extraordinarily inefficient. The United States is about 70% loss. Europe is two-thirds to 70%. And last point I'll make on that is the last time Russia invaded Ukraine in 2014, the European Energy Commissioner said that every unit of natural gas we don't use, every one unit we don't use, is 2.6 units we don't have to buy from Russia.

Why? Because two-thirds they knew was being wasted. It is shocking. Fascinating stuff. I learn something every day, and this is a prime example of that. Very quickly, let me ask you this. in a nutshell. Is this crisis an opportunity?

I think to the point I just made, this is one of the greatest opportunities we have, energy getting lost in the system because we've built a centralized energy network, a big opportunity to start to decentralize, bring energy to the point of use, reduce the amount of energy that buildings waste, they typically waste 20 or 30%.

We now know energy is one of the most valuable commodities in the world. Everybody and everything depends on it. But most of it is wasted. What a fantastic opportunity for productivity. Fascinating. And that, I think, is the big lesson of this energy crisis. Jonathan, very interesting.

Thank you so much. We'll have you back soon. Jonathan Maxwell. We appreciate it. Thank you. Up next, 2022, major gear for the worker. The great resignation wage fights drives to unionize at some of the biggest Fortune 500 companies. But could we see workers hold back in the year ahead if the economy slows down?

We'll explore that and more. Power Lunch returns. Welcome back to Power Lunch, everybody. It's been a landmark year for unions, but will a potential recession slow down the movement? Kate Rogers takes a look now at whether workers can hang on to their power or maybe even eke out a little more. Hey, Kate. Hey, Tyler. Well, 2022, as you said, was a banner year for unions with NLRB data showing nearly 900 more petitions this fiscal year over 2021.

Key industries, including retail, food service and warehousing, have a collaboration. collective one million more open jobs today than they did pre-pandemic, giving workers more fire to flex their power. But does a downturn change that dynamic? Workers like Hannah Smith at the recently unionized REI store in Berkeley, California, say our recession makes better benefits and job stability even more important. So now is the time to push. If I had coworkers who lived through the 08 recession and had a really tough time finding jobs then and creating a union now, it felt like a way to for that in the future. And worker advocates say that downturn or not, workers' mindsets have shifted due to the

pandemic and that this momentum will be hard to slow down. I think it's the collective action that you're seeing that isn't going to get stopped by whatever the recessionary forces are because working people have walked through fire during this pandemic showed up every day to work in many cases risked their lives and they're ready to expect more in their work life and demand dignity and respect on the job. Now it remains to be seen if that prediction, of course, holds. Tyler, back over to you. So, Kate, are we seeing any slowdown at any companies in the unionization drive?

So one we've been watching very closely, of course, is Starbucks, and we've seen something interesting kind of playing out. In May, the company announced these enhanced pay hikes for non-unionized stores and extra training for baristas that went into effect in August. This was after holding these feedback sessions with employees. They've not been extended so far to union shops because the company says that contracts need to be negotiated first with the union. So organizing petitions have actually fallen in recent months from over 70 in March to just about 10 so far in September. Some baristas we spoke to say that some may be holding back due to wanting those benefits,

while others have been angered by the fact that they haven't been extended, and that's kind of fired people up to organize. So that's one definite trend that we've seen play out so far. Kate, thank you very much. Kate Rogers in San Francisco. Still to come, Florida is still assessing the destruction of Hurricane Ian, according to Evercore ISI, an early estimate, showing $27.5 billion worth of insured property damage. And imagine that was a good scenario considering what could have been if the storm had hit Tampa. After the break, we'll speak to a REIT with significant property in Florida. Power Lunch. We'll be right back.

American Homes for Rent is a leading owner and builder of single-family rental homes, and thousands of its Florida properties were and are in Hurricane Ian's path. The company currently assessing the damage so far. Diana Oleg joins us now with CEO David Singlin. Hi, Diana. Hi, Contessa. Thanks. Dave, good to see you again. Tell us, I know you're just getting your folks on the ground,

but you have roughly 12,000 properties either directly or indirectly within the path of Hurricane Ian. and still both in Florida and South Carolina to come. What can you tell us about the damage you've seen so far to your assets? You know, we were very, very fortunate. We thought that the hurricane was going to take a direct hit right into the Clearwater Tampa area. We have, as you indicate, many assets there, about 3,000 assets. And the hurricane landed south of Tampa. And as a result, the damage so far, and we're very, very early.

in this evaluation process. As you indicate, our people are just getting on the ground today and taking assessment of the damage out there. But what we've seen to date is primarily minor damage, down trees, yard issues, some minor flooding in some of the houses, and a number of the telephone calls coming in are just about things like electricity. How do we get the electricity back on?

But we were very, very fortunate that we did not take a direct hit into Tampa Clearwater. Well, you were fortunate this time, but I believe the first time we met was actually in Houston after Hurricane Harvey, where your homes did sustain a lot of damage. Given the increase in extreme weather that we're seeing, whether it be from hurricanes, flooding, fires, drought, are you changing the company's strategy in where you build and acquire single family rental homes due to climate change? You know, two aspects there. One is we do look at where we are acquiring. We assess the climate risk in those areas. But we're also much better prepared today than we were five and ten years ago. We prepare. We have assets on site. So we prepare with wood and other things to board up houses. So our people started. looking at Hurricane Ian four or five days ago. And we're boarding up homes, creating safe places for our employees to go, sending out communications to all of our residents to provide them stormwatch information, how to reach us in times of emergency and other places to turn the American Red Cross in FEMA, for example.

And Dave, since we have you here, I have to talk about mortgage rates and interest rates. This week we saw the 30-year fix cross 7%. Is that actually good for your single-family rental business because people can't buy homes at that higher rate? You know, you're absolutely right. I mean, the capital markets today are very, very volatile. We're very fortunate. We've got a tremendous liquidity,

and we continue to see strong demand for rentals. It's a program that we have seen from the time that we started, American homes 10 years ago. Demand continues to get stronger. What about the reed atmosphere, though, that we see reits are really getting hammered in this rising rate environment? Yeah. You know, they are. The reeds are interest-sensitive stock as an asset class.

So our cost of capital is going up. And that's going to impact our ability to continue to grow. We're very fortunate in the fact that we do have liquidity. We have a significant amount of retained capital, and we have an in-house development program that's already primed for future growth into 23 and 24. Let me ask you one quick question, David. I'm very happy to hear that you did not suffer major damage in your properties. But for the renter who has found his or her home uninhabitable, what do you do? Do you continue collecting rent?

Do you waive rent? How does that work? Yeah, Tyler, what we first prioritize the human aspect of these disasters over the asset component. No different than what Diana was talking about with Harvey. Tenants that are impacted, we will look for alternative housing for them. If we do not have alternative housing, we will cancel their lease, and we will ensure that they get 100% of their security deposit back in the next day or two. We will forward it to our offices.

Many of these individuals can't receive mail or checks as a result of the flood. So we will work with each and every resident. All right. Thank you very much, David. Thank you very much, David Singlin and Diana Oleg for that report. We appreciate it. Up next, how stressed are Americans about their cost of living? We have the numbers when Power Lunch continues right here.

Welcome back to Power Lunch. Americans are really feeling the stress of inflation here. back with a breakdown of the numbers. All right. So the folks at Bank of America do a study every year about workplace, workforce benefits. And as part of this study, they look at the dynamic between employers and employees. And one of the things they ask is about how good you're feeling about your financial situation vis-a-vis your employment.

What's curious about the results this year is that they've now, maybe not surprisingly, found that 62% of Americans in the workforce feel stressed about their finances, not shocking given the inflationary picture. 80% though are concerned about the inflationary picture, again, not surprising, but 71% of all employees, no matter what level you're at, feel as though that their wages are not keeping up with the costs of inflation, the rising growth of inflation. So that's something to keep an eye on, a lot less comfort. One of the other things, too, is that for the first time in five years, a measure, a key measure of the percentage of people who feel financially well off enough,

five-year low. Only 44% of all employees surveyed feels, they're doing okay, and that's the lowest level going back before the pandemic. You've got to wonder when that's going to take an impact on consumer discretionary spending, too, when we're going to start to see that. And the markets moving towards session lows, 357 points down on the Dow. Thanks for watching, Power Lunch.