Power Lunch - The Fed Minutes, Commodity Chaos and Retail Deflation. 7/6/22

Episode Date: July 6, 2022

The Fed released the minutes of its last meeting reaffirming its commitment to bringing down inflation. Fed members said the July meeting would likely see another 50-75 basis point move. Plus, a breakdown of the chaos in the commodity sector. And, why the retail industry is seeing deflation as others see inflation. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

And welcome to Power Lunch. I'm Dom Chu in for Tyler Matheson with Courtney Reagan. In for Kelly Evans this afternoon. We are just moments away from the release of those Federal Reserve minutes from the last interest rate meeting. The Dow, the S&P 500, and NASDAQ right now. You can see there just about hovering near fractionally down territory. We'll see what happens. Let's get right out to Ilan Muay with the latest there. Elon. Well, the minutes of the latest Fed meeting show that officials agreed that another rate hike A 50 to 75 basis points would likely be appropriate at its meeting later this month. Officials also acknowledge that there could be an even more restrictive stance.

That could be appropriate if inflation remains high. Now, the minutes showed that Fed officials will worry about inflation becoming entrenched. That was debated several times in this document. Many participants viewed that as a significant risk. Officials believe that the Fed's credibility had helped shift market expectations toward a tighter policy stance and they viewed raising rates as required to meeting the central bank's legislative mandate. Now, Fed officials also repeatedly highlighted the disparate impact that inflation is having on low and moderate income households. Officials also noted there could be some clouds

on the horizon as well. Some pointed out that the pressure for additional wage increases appears to be receding. There were anecdotal reports as well of consumer sales starting to slow and businesses delaying investments because of the cost. of rising costs. Now, officials said that low and moderate income households are spending more of their budgets on food, energy, housing, all sectors that have been strongly impacted by those rising prices, but they also stress that persistently high inflation could stand in the way of achieving their maximum employment mandate. Still, the committee did acknowledge that higher rates could result in slower economic growth and dampen the labor market. That is why the Fed removed

language in the statement that indicated the Fed could both return inflation at 2% and deliver a strong job market. So, guys, that's just a sign that Fed officials are acknowledging and understanding that that soft landing could be very difficult to pull off. Back over to you. All right, Alon, please stay right there, if you will. Let's get some reaction now in analysis from our panel of market experts. You have Ethan Harris, B of A Securities, Global Economist, and Emily Rowland is co-chief investment strategist at John Hancock Investment Management. Emily, Ethan, thank you very much for joining us both. Ethan, maybe we'll start with you, first of all. We kind of understood the backdrop with which that three quarters of a percentage

rate hike went into effect when for June. Is there anything here that suggests that the Fed is still trying to play catch up right now, or do you feel like they have a good handle on just the kind of macro picture that we are all dealing with right now? Well, I think this is a watershed meeting. This is where the Fed does the big capitulation. They say, you know what? We're behind the curve. We can't play around with 25 basis point hikes. We can't do a hike, see how it goes, then do another hike.

We have to move in chunky 50 or 75 basis point moves. I think it was the right thing for the Fed to do I felt for the last year. They were kind of slipping behind the curve. But I think this puts them on track. It's kind of a sensible approach. to a very serious inflation problem. You can't cure inflation without risking a recession. So that recession, that possibility is coming much more into the discussion, Emily,

certainly over the last maybe two to three months' worth of time, in large part because of things arguably outside of the Fed's control, wars in Ukraine and Russia and everything else. But do you feel as though the markets have been adequately prepared for this? I mean, this idea of a rate hike has been going full steam for quite some. sometime months now, it's the three quarters of a percent and perhaps in subsequent times, that same level of rate hike as well that had markets a little bit scared. Are they as scared now, in your opinion, than they were, say, three or six months ago? Well, it depends on the market

that you're talking about. So as the likelihood of a technical recession increases here, of course, we had negative one and a half percent GDP growth in the first quarter. And the Atlanta Fed has the second quarter tracking at negative 2%. But we've got to think about where is it priced in. So the equity market, of course, has fallen into bear market territory looking at the S&P 500. The typical bear market sees a decline of 34%. So frankly, we could be two thirds of the way there in terms of equity prices. But when you look at the bond market, it simply is not pricing in a global economic slowdown or a recession.

Typically, what happens in an economic slowdown is that bond yields actually come down. And what we've seen over the course this year, of course, has been this relentless backup in bond yields across the curve. So we're looking opportunistically right now at treasury yields close to 3%. The aggregate bond index yielding 3.7%. You haven't been able to say that since about 2010. And we think this is an attractive opportunity to add to quality within fixed income positions. and frankly, to pick up quality on the equity side in areas that have been thrown out with the bathwater. Elon, I'm wondering if there's any indication in the minutes about how the Fed is feeling about balancing their two items on the dual mandate.

You mentioned that they removed the language about hitting towards that 2% inflation goal with full employment. It does seem as if the employment picture has not markedly deteriorated while we are still facing stubbornly high inflation. So how is the Fed managing through that inflation while keeping employment levels high? I mean, can we have a recession with high employment rates? Yeah, I think that is giving the Fed a little bit of breathing room here and maybe giving the Fed the confidence that it can continue to raise rates, at least for the time being. They recognize that the impact on the job market is certainly a risk here.

But I think more broadly, what stood out to me in the minutes is that the Fed, repeatedly pointed to China and Ukraine, Russia, as other factors that are impacting inflation here. There was a little bit of finger pointing in the minutes where the Fed said, you know, raising rates is just one tool to combating inflation. There are other things that need to happen in order for those prices to come down, including seeing supply chain bottlenecks ease, seeing the labor force participation rate increase, and seeing that pandemic fiscal stimulus starting to wear off. But in the minutes, the Fed said that the timing and the magnitude of those effects are uncertain, what they can control is raising rates. And right now, the

argument the Fed is making is that the best way to sustain a strong labor market over the long run is by reining in inflation and addressing inflation with a tool they have, which is higher rates. So, Ethan, I mean, the market is maybe cooperating. This is maybe a little bit of a chicken and egg discussion, right? You have this idea that the Fed controls money supply. There is more talk of a recession, the soft economic data and surveys all say that everyone expects one. Could we be talking ourselves into a recession? Is that then reflected in falling oil prices and copper prices and metals prices and everything else commodity related? Or is this a scenario where maybe this is just a blip and we get back towards that inflationary pressure that we've

seen over the course of the last three to five months? I think we're in the beginning of a major weakening that could very well culminate in a recession. question where we are to some degree talking ourselves into it. No question that confidence plays a big role in downturns in the economy. And I think the Fed's kind of whistling past the graveyard when they say, oh, we're going to have a strong labor market, but we're going to get inflation back to Target. I'm sorry, but that's not true. They have to raise the unemployment rate. Now, they don't have to raise it to 10% or something, so you'll still have a okay labor market. But it has to be much weaker than it is. right now. And they can't blame it all on Ukraine or supply chains. The Fed allowed a record-tight labor market to kick in, and they had plenty of advanced warning. They waited too long, and now they're having to play catch-up. So you know, you blame inflation on a lot of different groups here, the Fed, the Biden administration with too much fiscal stimulus, and then all these supply chain issues. They all are part of it, and they all have to be part of the solution.

And Emily, we'll give the last word to you here. There's been a big discussion with regard to this recessionary narrative. What does better? Is it large caps or small caps? Which one has more exposure at the same time? We haven't even talked about the strength of the dollar and how that weighs on multinational profits. What's the best way to position from a stock perspective in your mind? For us, it's all about quality and defense and staying away from unprofitable growth companies,

high cyclical, higher beta sectors and parts of the world. International equities is an underweight for us. If you want the poster child for quality, which is great balance sheets, good return on equity, lots of cash on the balance sheet, good earning stability. You're going to find that in the U.S., frankly, in the more traditional parts of the technology sector. So again, not those companies that are overly relying on the capital markets in order to grow,

but higher quality tech companies. We also like areas like health care. And we want to get defensive here. We look to parts of the market like utilities, which are focused on the things that consumers need versus the things that we want. And that's a lot of that is based on the discussion we just had about how consumers are really feeling to pinch right now. So utilities, healthcare, and traditional technology stocks in the U.S. Going on defense.

Emily Rowland, Ethan Harris, and of course our own, Elon Moy, thank you very much. We appreciate it. Thank you. Well, as investors debate, a recession versus inflation, there's one question. corner of the economy that's seeing deflation. That's retail. I'm a next guest says promotions are growing, even freight costs are starting to come down. And that's making it tougher to invest in the sector. Let's welcome in Simeon Siegel. He's managing director and senior retail analyst at BMO Capital Market. Simian, it's great to have you here. So give us some examples. Where are you seeing

deflation in retail when so many of these retailers talked about their higher freight costs? Target put a really big number value on it to just drive that point home of how much more it's costing them to run their business. You're seeing this reverse? Yeah, so great to see you. Great to be here. Isn't it interesting when we use macro terms? They're scary. When used micro terms, they seem to just make more common sense. When there was an incredible amount of demand during the pandemic, there was no product, there were no promotions. Now all of a sudden there are promotions, and promotions are deflationary. So you have this back and forth where the logical, course of events are retailers over inventory because they tried chasing levels of demand.

Certain ones did it better than others. And now we're seeing the other side of that. I think to the point your prior guest just made, the way we're looking at it is there's no such thing as a durable. It's all how long is your replenishment. So the faster your replenishment, i.e. a box of cereal or gas, the more you'll have that inflationary element because people are still chasing that level of demand. But you know what? A lot of people bought a lot of sneakers last year. So the further that replenishment, the more discretionary that item is, I think that's where we're starting to see promotions come back. But are some of these promotions, Simeon, are they unplanned? I mean, Victoria's Secret often has these semi-annual sales. And that's about the timing we're seeing right now. Are you talking

about the level of promotion and not just the fact that they exist at all? Yeah, so it's a great point, and it's both. So the semi-annual sale, Victoria's Secret hosts right now. That's normal. We track how it did right now versus last year, and they've added certain elements of promotionality there. None of us should be surprised that promotions are more than last year. The question ultimately is going to be, are they more than 2019? So far, they're not. But when we think about inflation, we're thinking about inflation versus the prior year. So the same thing happens with deflation.

I think it's really important to remember that retail led the way up with inflation. In 2020, companies decided that they could pull back on promotions, not that they had to. So because of supply chain, inventory scarcity, listen, you and I talked about it. The reason retail did so well the last two years was because they had phenomenally higher prices and they didn't have that cost element. So everyone raised price. Two years later, we're calling it inflation, but two years earlier, we just called it lower promotions. Now I think we're seeing the same thing. And so I can't speak for the broader economy. And to be fair, if you look at CPI, apparel has a percent of the CPI is a very small percentage. But it's just very interesting that when you call something

a promotion or when you call something inflation, it carries different connotation. So I think keep watching that. But think about it anecdotally, right, which is what we're never supposed to do. Are you buying more or less clothes right now. The answer's probably less. I mean, I've been thinking a lot about pricing and retail and exactly to your point, we saw this pullback on promotions when we saw the consumer maintain strength and decide to buy, at least in certain categories. And it seems as if we've all been accepting these higher levels of inflation, we somewhat understand as consumers that businesses are having to pay more to get us those goods. And so I guess my big question is, is as we see inflation peak, I don't know if it has yet or not, will we actually see a permanent

level of pullback in pricing or will it just continue as the promotions that we use to see? Meaning, if you're still used to paying a certain amount for a certain type of sweater and a retailer can convince you to do that, are they really going to knock that price back down once the cost of getting you that sweater, making that sweater actually comes down for them? So for better or worse, the unfortunate answer right now is, yes, they are. I mean, we can see that they are chasing that. And I don't know that that should be a surprise. Not everyone is, but a lot of them are.

Of course, you and I talk about this. I make this joke, if you don't know something, you make up a term to kind of describe it. So we made up this term reverse inflation. But the way that we look back over what's happened the last several years looks very different than normal inflation. And I'm not an economist. I don't pretend to be one. So this could be completely wrong.

But normally the way we think about it is the cost goes up. then the companies respond by raising price and then the consumers pay for it. The CPI hits when the consumer pays, not when the cost goes up. This all happened backwards. It all happened in reverse. Two years ago, everyone raised price because they could, like we talked about, and now cost is coming to meet them. The problem is they already raise that price.

So I think there's going to be this element where if we look at things in tiny snapshots, we look at things in this monthly or yearly point of view versus the prior year, promotions are going to be up, deflation is going to be up, and we're going to see right now demand is down. If we look back a year from now, I think we're going to look back and say, you know what, prices went up, so did cost. It happened backwards. Now the question is, who's healthier post-pandemic than pre-pandemic? Because I don't think we should take for granted that the pandemic did cause. For two years, everyone talked about silver linings. There are silver linings for those that maintain them. And I think what you just alluded to is the fact that there

are companies that found consumers willing to pay more. Keep doing that. Sell product that you think they'll want. And you can sell less charge more and make more money. It's just a hard thing to do in the heat of the moment. Got it. Well, Simeon Siegel, we're going to have to let you go. Of course, we could talk about this much more for much longer. We've got a lot to cover. Thank you for joining us, BMO Capital Markets. Good see you. All right. Coming up to the show, the energy sector hit a record just less than a month ago. It's now about 25% off its 52-week high, and nearly every stock in the sector is trading below its 50-day moving average price.

So how do you invest in the sector as things shift around? Plus, the battle for sports rights. When it comes to the NFL, it's Disney, Apple, Amazon, all in the running. We are, of course, in Sun Valley talking to a power player about the future of that business, sports and streaming, and all the money at stake. Keep it right here. We'll be back after this break. Welcome back. Baseball fans on Twitter have expressed some real frustration this season about finding their favorite teams games, whether it's on Apple TV or Peacock or some other platform.

but they better get used to it. Because streaming sports is likely to get even more common and rights fees are getting even bigger by the month, it seems. Julia Borsden is live in Sun Valley, Idaho, with one of the heavy hitters in that space. Julia will send things over to you. Thanks, Tom. I'm joined now by Casey Wasserman, CEO of Wasserman,

which owns the largest sports agency as well as one of the leading music agencies representing the likes of Billy Eilish and Coldplay. But I want to start with sports, Casey, because there's so much talk here about the future of sports. All the sports commissioners are here. And a particular attention right now is being paid to the NFL rights. NFL Sunday ticket is up for grabs. What does it mean if those NFL rights go to a buyer like Apple?

Well, I think it's the beginning of a transition to what people think the future media is going to be like. And what's amazing about the NFL is by far the biggest sport in our country. the audience is so significant. Sunday ticket sort of is a precursor to streaming given it was on direct TV and subscription, and it gives someone like an Apple or an Amazon or whoever might buy it hundreds of games a year

to deliver to their fans in a very meaningful way, ways to experiment around those broadcasts, and it's a really powerful platform to really monetize what is the most important league in this country. So do you think those NFL rights are going to end up going to a tech company?

Do you think Apple is the most obvious buyer? I do think they go to a, a tech company or someone who's solely focused on streaming those games because that's the next generation of monetization of those fans and given the number of 100 plus million fans of the NFL, a streaming platform that has the ability to direct the focus to those games to those fans is a really powerful platform. So what does that mean for athletes, for your clients, and for the TV business, is this going to drive more cord cutting? I'm not sure it drives more cord cutting. It's certainly going to drive more revenues for

sports leagues and for our athletes and our clients who are frankly participants in that revenue stream, it's a really powerful opportunity for the next 10 years. And, you know, what sports is is predictable and unique in a world where almost nothing else is. Yeah, the power and the value of live sports, certainly there's been a lot of attention to that in the past couple of years, as we've seen a lot of these big deals, I'm hearing a lot about how this fall, two of the major broadcasters of NFL games, you know, NBC with Peacock and CBS with Paramount, they're going to be putting those games on streaming. Do you think that's going to change the kind of viewing numbers we get? And could that accelerate cord cutting, which is something that would have long-term implications

for your athletes as well, because if they're profit participants in the success of this whole industry, if we see a big drop-off and revenue from the TV bundle, that would make an impact as well. The games will be simulcast on both CBS and NBC. important. I think what they've realized as broadcasters in the league is that providing the games to fans where they are, whether it's on traditional broadcast channels like NBC and CBS or on those streaming services, actually makes the audience bigger. And my guess is, obviously, the NFL and the rights holders aren't going to allow that transition to happen unless it grows the revenue, not decreases the revenue. Now, here in Sun Valley, there's a lot of talk about recession,

the health of the consumer. You have insight into that in terms of the purchasing of tickets and consumer products around your clients, both musicians and athletes. What are you seeing right now? Today we've seen no drop-off. I mean, concerts are full. Ticket prices are, frankly, where they were pre-COVID, and people are excited to be back in person, experiencing what they love live. And frankly, the two things that matter live are sports and music.

And it doesn't mean it's not going to change in the fall. But traditionally, sports and music have been recession-resistant. Obviously, nothing's recession-proof, but recession-proof. resistant because people still crave those experiences, crave those opportunities to be together, and crave those opportunities to see the artists and athletes they love. Now, speaking of that relationship with athletes, some of your athletes, golfers, a number of golfers are getting a lot of blowback for leaving the PGA to go to Saudi Arabia's new tour, the live tour.

What's your sense of what the long-term implications of this are going to be? and if those golfers are going to see potentially a damage down the line or if they're just going to do this for the money? Well, right now they're clearly making monetary decisions and they're entitled to and some of our clients have. But the PGA Tour, I think it's important to remember, is the largest charity in America. And so those 36 golf tournaments every week around the country are donating tens and hundreds of millions of dollars a year to those local communities based on those golfers, that golf tournament, and that participation. And I think it's a really powerful platform. It's also the platform that developed all these golfers that are now leaving. And so the PGA Tour is here to stay.

It's got the best golfers in the world today. And they're making the appropriate changes to adjust to the world. And in the end, golf is a healthy sport. And I think you'll see the PGA Tour continue to thrive. Well, fascinating times for your industry. We'll see where all those sports rates go. Casey Wasserman, thanks so much for joining us here. Dom, I'll throw it back to you.

I know you are watching all of those golf tournaments. I am watching that, and I got to tell you, Casey, Julia, my wife and mother-in-law are looking forward to that big Kenny Chesney concert later on this summer as well. Julia Borsden, thank you very much, Casey Wasserman as well. We'll head on Power Lunch, Wall Street's signs, analysts cutting their price targets on Big Tech, why they're taking aim at Apple, Netflix, and Google. Plus, three calls highlighting some key issues in the market, crypto, energy, and consumer spending. Power Lunch will be right back. Welcome back to Power Lunch. Let's get to check on some of the markets post-fed business.

minutes. They haven't shifted all that much. We are still showing fractional declines. The Dow is down about one quarter of one percent, about one-tenth of one percent decline for the S&P, and the NASDAQ, a similar percentage move. So again, still that wait-and-see mentality. Two of the worst-performing sectors on the day so far are energy and financials. The biggest laggards in each sector for energy, EOG, also Diamondback Energy as well. And then the laggards and financials, check out what's happening with Invesco and Wells Fargo, those two amongst us. of the biggest losers in that financial sector trade so far. Let's now get out to Sima Modi for a CNBC news update.

Good afternoon, Sima. Dom, good afternoon. Here's your CNBC news update at this hour. A jury found a California man guilty of killing Grammy-winning Los Angeles rapper Nipsey Hustle in 2019. 32-year-old Eric Holder, a former acquaintance of Hustles, is convicted of shooting him outside a clothing store. Peloton is increasing their incentives for its workers with one-time cash bonuses and changes to its stock compensation plan as it fights to hold on to employees and fix its struggling business.

The changes come a little more than five months since their new CEO took over amid financial turmoil. The number of confirmed monkeypox cases in New York City has doubled in the past week from 55 to 111. Starting today, Lab Corp will begin testing for Monkey Pox as health officials in New York City received a fresh batch of monkeypox vaccines. And Netflix announcing it will be developing a spinoff of the science fiction series Stranger Things. No details on the story or characters were provided, but the story will come from the Duffer Brothers, the creators of Best Show, Stranger Things. Cort and Dawn, back to you. I've got to get into that. I haven't put it on my Netflix queue yet.

I've watched some of the seasons, but I'm not all the way caught up. on it. Yeah, not for me, Corey. All right. Thank you very much, Simamodi. Ahead on power lunch, call it EV Street. Electric vehicle sales are climbing. Soaring gasoline prices, fueling that demand, will the fast-growing sector accelerate even more? Plus, those sky-high commodity prices finally falling back to Earth, whether it's oil, gas, soybeans, or copper, we're going to break each of those groups down. That's coming up next. Commodity collapse. After months of surging prices, commodities across the board from energy to grains to metals are lower. We're going to run you through each part to find out why.

And what happens next, of course. So let's start with the energy space and Pippa Stevens. Hi, Pippa. Hey, Courtney, Courtney. Well, U.S. oil is dropping again today after falling below 100 bucks yesterday for the first time since May. The main driver here is recession concerns and what that means on the demand side. We've also got the stronger dollar and an uptick in COVID cases in China. number of analysts, including UBS and Goldman, saying yesterday's drop was overdone.

They said oil is responding to a deteriorating economic outlook rather than fundamentals, which points to a tight market. And to put this move in perspective, we've seen a lot of volatility lately. Back in March, Brent crude nearly hit 140, and then one week later, it was under 97. So swings like this have been happening. Miller, Taborx, Matt Malley, noting that WTI is still above its 200-day, moving average of 92 50, which is also the intraday low from March and April. So that is a key level to watch. Let's check on prices here. WTI down three quarters of 1% at 9874.

Brent crude down nearly 2% at $100 and 79. And the energy stocks once again, the worst sector down more than 2%. APA, Marathon, Oil and Devin, among the biggest losers recently, all more than 35% below their recent. highs in June, Courtney, this has been a very fast fall. It has. Those numbers are still pretty eye-popping, though, to see some of those moves that we have seen over the last month. HIPAA, thank you. Let's focus in on crew prices and energy stocks, which are off their reason highs as we just ran through. With us is Paul Sanky. He is the lead analyst at Sanky research. So Paul, you know, there are a number of fundamental factors at play on the demand side. On the supply side, we have the strong dollar, of course, recession fears, everything that's going on

with the Russian oil supply. Goldman Sachs, though, still saying they believe that the sell-off has been overdone. What do you think? How do you weigh all of these factors against each other, where we are for oil prices now? And what you think we're going to see here in the short term? Yeah, I mean, you're quite right. The first concern we always have is the dollar. So the dollar has been strongly implying lower prices. But we've sort of rationalized that because historically the U.S. was such a huge importer and a much smaller producer of oil and gas. But now we're really a net exporter. So we sort of put the bill. dollar to one side. The second problem, as you know, is that we ran out of refining capacity.

And, of course, refining capacity is the primary demand for crude oil. And then at the same time, as you mentioned, Russia kept supplying oil. In fact, supplied more crude oil post-Ukraine invasion than before, believe it or not. And the final thing, which, of course, you didn't mention, but I'm sure you're fully aware, is, of course, the SPR, the Strategic Petroleum Reserve, is being released at a rate of a million barrels a day, which is an awful lot of oil. And, of course, that's added to the pressure. When we added all up, we were looking for 110 to 150 Brent through summer. We've obviously broken the downside by breaking 100 today.

I think we still think that the back half of the year will be very bullish, especially when the strategic petroleum reserve stops being pulled down, which would be in October, right when we go into winter, when we can easily see a major energy crisis, particularly in Europe. And so you're talking about a bullish forecast going forward. Of course, you're talking mainly here about the commodity, but you also are looking at some equity plays that we could potentially benefit from as investors. Can you go through how your theories play out through that based on the commodity itself and then what ends up happening to the players in the industry? Yeah, we got a little bit hung on our own argument.

We had argued from 2020 onwards that inflation would be, if the Fed wanted inflation, it would get oil inflation and that would be bullish for the oils. If you look at the collapse in the oil sector, it actually coincides exactly with what could be the peak inflation print, which would be around June the 8th. And ever since they collapsed, I think what shocked us is that some of these companies have very big buybacks. And there really hasn't made any difference. I mean, a huge buyback company like Marathon Oil has just got destroyed with everything else. The other theme that we've been on is to buy the bottlenecks. So we like refining. Fining margins are still around $50 a barrel, which is absolutely all-time historic highs.

And yet that group has also got absolutely whacked. And finally, Exxon had outrageously positive profit guidance Q2, and it got whacked. So everything has been whacked. But broadly speaking, we like refining. We like the LNG gas plays. And we're sticking with this trade because we think the long-term megathems all remain in place. So, Paul, it's Dom. As you look at the structure of the futures market for oil right now,

there was a case made that there was a so-called carry trade for crude oil. prices in the future or less than they are currently right now for the spot market. If you have that kind of a scenario, do you feel as though there's still a constructive reason to just buy crude and hold it for that, some of that carry? And what does that tell you about kind of where we are for crude prices, say, six, nine, twelve months down the line? Yeah, I agree. And I think what people also forget is that the futures price for crude is nominal.

That is to say, it's not inflation adjusted. So to me, there's almost a double carry. And so I think if I'm talking about the SPR release ending in October and a very tough winter ahead for Europe, I think, yeah, if you were buying, say, for example, December, January crude and holding it, that would be a good trade. And I genuinely think there's real value in the big oils as well. I think that these things will come back strongly. Basically, we've proved that oil demand is not going away, notwithstanding what you're

mentioning about EVs and electric vehicles, that's going to be a 10 to 15 year trade. But in the meantime, I think we're finding. fundamentally short oil supply, and that's a major issue. And as long as demand holds up, I think 100 is about the right price to discount these stocks. They're probably discounting 60 to 70 right now. Probably a rude awakening in many ways with regard to how long the runway could be before we transition to full clean energy. Paul Sankey, thank you very much. We appreciate it, sir. Thank you, sir. Now over to the metals and grain space, agricultural commodities like wheat and corn are down more than 20% just over the course of the past month. And by the way, the hard

ones like copper, those prices are down 23% fueling some of those recession fears. Remember, we used to call it Dr. Copper for a reason that Ph.D. in economics. Let's bring him Bill Baruch, president of Blue Line Futures. He joins us now. Bill will start now, perhaps, with that metals trade. Does copper still have a PhD in economics? It absolutely does. I mean, you're seeing it here right now exuding those recession fears. you know, what this market is, I think it's down about 12%, 8% to 12% here on the week, depending where you looked at it. You know, it's a great, great way to get a pulse on the economy. And, you know, copper is an electrical conductor. It's used in construction. So houses are

being built, infrastructure is being done. Copper is going to be used. And that demands there. It's also a proxy, you know, through the green space a bit as well, a lot of untradable metals that might be used. So it's a great way to keep a pulse on the economy. And right now it's telling us that those recession fears are very relevant. However, you know, I want to shift the conversation because in the West, you know, the U.S. and Europe, those are the relevant recession fears. But for China, they're arguably coming out of a recession that took place in the second half through the second half of last year. We're watching the Chinese credit impulse very closely. And that bottomed in Q4. And copper tends to lag that. So we got a really strong.

right now, recession fears in the West, I think copper, because China's they consumes 50%, more than 50% of the world's copper, they're going to be a leading indicator right now for the move in copper to come. So I think there's a lot of support down here. But yes, Dr. Copper is telling us what's going on in the economy right now. It's interesting because it's almost a diversion view between the world's biggest economy and the world's second biggest economy at that point. Let's shift to the grain side of things, the soft commodities. Could we expect any kind of relief in the grocery store in the future based upon what you're seeing in the grains prices? You know, that's one of the things that we really, you know, we're curious how long it's going to take.

I mean, because CPI numbers, I mean, you had the hot print for June or for May in June. And I believe that we're going to start to see some of these numbers come in a bit. Shelter is the big question. But food and energy, even though the Cleveland nowcast, CPI has come into about, I think it's 5.6% right now for June. The headline number, that's core, but the headline number is still hanging at 8.6, which includes food and energy. So the question is, when will these food and energy prices coming in have an impact on CPI?

And I think at some point, I mean, it's going to, but it probably will take a little longer than one would expect. I mean, the stores can keep it up there for a bit. Just the same way, once they move gasoline prices up through May, it stays there until the kids go back to school. So I think right now you've had a big move down in these agriculture prices. The market's going to digest it, but you're not going to see it at the grocery store really soon. There's still a big planting season ahead, too. So this is a liquidation, as it is across all commodities, crude oil in the energy space, down to the eggs, down the metals. And a lot of this can happen due to, I mean, there's the Fed, there's the dollar, but also July contract roll-offs, I think, has had an impact on it, too. So it's a cleansing in the market. Wheat has a lot of support as you move into seven bucks. And like I said, the planting season is still getting started. It was a long way to go.

And early on in planting season, the weather was wet and cold. And then we had these days of really hot, dry weather. So it became very, very opportune for planting. And so that's where we are right now. But I think it's going to continue to be volatile. And this cleansing right here is going to bring a bottom. I'm not calling it here today, but I think we're very close to it. And again, you see the Fed minutes today.

the Fed's talking about spending, you know, business, fixed income spending is picking on, sorry, falling back a little bit. And that's going to pave the way, I think, for them to lift their foot off the pedal sooner than people may think. All right. Those commodities telling you a big story now. Bill Baruch, Blue Line. Thank you very much. We appreciate it. Thank you. Well, coming up, electric vehicle popularity climbing, but will a streak end when gasoline prices come back down? And look at the major indexes, which are now at session high. Is this following the release of the Fed Minutes, Dow Jones Industrial Average higher by about six-tenths of a percent. That's where the NASDAQ is to the S&P 500, a touch higher, higher by seven-tenths of a percent.

Power Lunch will be right back. Cheers of Rivian, soaring more than 10 percent today after reporting strong sales numbers. Let's go to Phil about for more details. Hi, Phil. Hello, how are you? You know, the real thing that you want to watch, Courtney, is the production numbers from Rivian. The deliveries, yeah, they were a nice improvement, but the production is what people are focused on. starting in the first quarter where they were lackluster and people were saying what can you do for the year.

Nice trajectory here up to 4401 for the second quarter, better than many expected. And they reaffirmed guidance for 25,000 vehicles being built this year. If you take a look at Rivian and a three-month chart of this stock, the key thing to keep in mind is that CEO RJ Scournage has said that they see the supply chain and the production cadence improving. And that's exactly what Rivian investors want. want to see. This comes at a time when we're seeing EV demand continue to grow. J.D. Power's initial assessment of the second quarter shows that EVs are now 5.8% of the market. Ice still

dominates gasoline-powered vehicles, now 82% of the market. Take a look at EV sales and the trajectory that we're expecting through 2025. Keep in mind that the industry is in the midst of a major investment here. At least $56 billion is going to be invested into the EV space. over the next couple of years, and that's why you're expecting EV sales to top 2.2 million vehicles being sold here in the U.S. by the end of 2025. Quickly, take a look at the auto stocks. And we're showing you just Tesla Ford, GM, and Toyota. It hasn't been a good chart to look at guys over the last couple of months, in part because people are saying, all right, people are rotating into EVs. But when do we sense that we're going to see the real transition into electric vehicles take place? and that's still a ways off.

It does still surprise me, Phil, that it is a ways off. It seems like by now we would have been at a higher percent than that 5.8 that you cited. And of course, Rivians higher today by about 11 percent, but it and the rest of the EV makers well off their highs. What's it going to take to sort of recharge those stocks higher again? When will they be able to turn a profit consistently? Tesla does it. What about all the startups?

We're away from that happening. All right. Profitability. So key in business. Right, Dom? Is it, though? You know, I think these days it is. Just saying. All right, Philibault, Bo, thank you. Crypto Brokridge Voyager Digital, filing for bankruptcy.

What does this mean for stocks like Coinbase? We'll hit that and other names in today's three-stock launch after this break. Keep it right here. Welcome back to Power Lunch. Today's three-stock launch focuses on three big movers. You've got Coinbase downgraded to neutral over Atlantic equity, citing crypto-price volatility and a collapse in volumes for trading. DoorDash shares are lower after Amazon struck that big partnership and possible equity stake with rival Grubhub. And then shares of Shell are falling

today along with the price of crude oil. So let's bring in now, David Traynor, CEO of new constructs and investment research firm. And I guess maybe we'll talk about this David first with Coinbase and crypto. That 20,000 area for Bitcoin has been key for a lot of folks out there. That same note from Atlantic also pointed to some problems maybe attracting and retaining talent in the future, is Coinbase in your mind after its precipitous fall a stock you'd be buying? Not at all. Look, the business is headed in the wrong direction. It's already become terribly unprofitable and management has already guided down on pretty much every single KPI. So we're going to be going from unprofitable to even more unprofitable.

So we think the stock has another 50% plus downside. We're looking at around $17 a share. And that even assumes that margins stay positive and the company grows at consensus rate. So, yeah, we think there's a lot of downside from here. Speaking of downside, obviously the price of oil, the base commodity at least, has really fallen pretty sharply here. Goldman Sachs argues it's overdone. But we're talking more about an equity play.

So Shell is our next name on our three-stock lunch. What do you think? Can we dive into this one? The one of the things we love about this stock is that it's already trading at a price and implies profits will permanently decline by 50%. Like a big contrast to Coinbase, which is whose stock price implies enormous amount of both revenue growth and margin expansion or improvement. Shell's the opposite. And what most people don't understand about these energy companies is that, even that IEA and its best case estimates is assuming that fossil fuel demand only drops by 18% over the next 20 or 30 years, right? So fossil fuel demand is not going away. It's used in all kinds of things other than cars. And so the idea that this greenwashing has led people to believe that

these traditional energy production companies are going to be basically going out of business is just a false narrative. Not to mention the fact that Shell is very well invested in alternative fuels and has a very good platform for distributing energy no matter what form of energy it is. All right. And let's talk about the final name we have on our three-stock lunch. David, that's DoorDash. I mean, this is a stock that maybe hit its heyday during the pandemic when everybody was getting takeout. Is there a future for this? Is this a buy right now? No, we don't think there's any future for this. I think, look, the fact that Amazon went with one of their big competitors. Obviously, at a price that's not very attractive, otherwise you'd see

Dash going up on a day when one of their competitors took a got, had a bit hit for it. Look, I mean, this is a food delivery service. Tell me what the competitive advantage is, right? Margins are negative. We don't think they'll ever be positive. Right now, the current valuation applies that they're going to have like margins equal to where FedEx is and grow at some ridiculous rate and own like 40% of the entire delivery market, a total address. market. You know, the valuation is absurd now. It was even more absurd when we put it in the danger zone back in 2020 when we called it the most ridiculous IPO. All right. Two cells and a buy. Bys for fossil fuels. David Traynor, new constructs. Thanks very much for joining us for three stock

lunch. Thank you. Well, coming up Wall Street targets tech, some key price targets that's coming up next. We're going to talk about the big names. Well, some big tech names that you probably own getting their price targets got by analysts today. So let's go to Steve Kovac. He has the details. I Steve? Hey, court. Yeah, three big, triple whammy, let's call it, of price target cuts. First off, we have Apple. Apples with a price target cut from Goldman & ILS cutting their 12-month price target, 17% to $130 a share. Now, the main reasoning, they kind of lay out this ultimate bear case saying demand is just going to fall off a cliff if we hit a recession. We'll get a test of that demand for the very first time, by the way, when its new MacBook comes out next week.

Then we got Alphabet, Guggenheim cutting that price target to $3,000. It was well over 3,300 before now, saying headwinds from a bunch of stuff, tough pandemic comps, the Russia situation, and of course, foreign exchange, like we've heard from Microsoft and so many others. Also, there's going to be trouble here with YouTube. We're going to be looking at that segment for any signs of weakness in advertising or consumer demand. That hurt the gross last quarter. And finally, we got Barclays cutting its target for Netflix to 100. 170 a share. That's a significant cut. It's trading around 180 today. A slew of negative factors, including, but most importantly, losing subscribers here in the U.S. and competition with Disney Plus. Tons of things working against Netflix, guys. The one thing they all have all have in common, an uptick in the last hour in terms of stock price. There we go.

That out. Maybe the Fedman has helped some of those big names. All right. Well, thanks for watching. Power Lings. Thank you very much, Steve Kovac.