Power Lunch - The global energy crisis, debating Meta and the Fed pivot. 12/5/22

Episode Date: December 5, 2022

The global energy crisis enters a new phase. Two energy experts on where prices go from here. Plus, Meta’s mega gains. We have the bull case and the bear case on this battleground stock. And is a Fed pivot on the horizon? 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 Lentch. I'm John Ford in for Tyler Matheson, and here is what's ahead. Russian oil caps kick in. The global energy crisis enters a new phase, and it comes as China signals a broader relaxation of COVID rules, potentially triggering a new wave of demand. Plus, meta's mega gains. The stock is up 35% over the past month, trading above its 50-day moving average. A bull, a bear, and a debate over the future of this battleground stock. And Kelly Evans, welcome back. To power lunch. John, thank you very much. It's great to be with you today. Hi, everybody.

Stocks are at session lows right now. We have the Dow down more than 500 points right now. That's a 1.5% drop approaching 2% for the S&P 500 under 4,000 and more than 2% for the NASDAQ. Meanwhile, the gains in the oil market aren't holding this trade putting pressure there as well. We started in the green. Now we're in the red today by 3% WTI around $77 a barrel. Now we started higher following the embargo by Europe of Seaborne Russian crude. and that price cap that went into effect.

But it does seem like the macro trade prevailing here. And VF Corp is the worst performing stock in the S&P. VF lowering revenue and earnings expectations for the back half of the year. CEO also retiring. It's down almost 11% and it's dragging down other apparel makers. Ralph Lauren, PVH, down about 3%. All right. Stock's taking a leg down as investors fear the Fed's going to continue to tighten into a recession.

Our next guest expects the Fed to pivot and see some opportunity. in big tech, but cautions against companies in transition. Let's bring in Michael Yoshikami, founder and CEO with Destination Wealth Management. Michael, you expect the Fed to pivot if there's a recession. But, I mean, even with a mild recession, it just sort of seems like the Fed's been signaling they're not going to cut. They're going to hold things at a certain level for a certain period of time, no? That's absolutely what they've been signaling, but I don't believe that's going to be the case. The Federal Reserve tends to make these pronouncements, and then they adjust as they go along. And I think if the economy does seem to be slipping into

recessionary territory, there'll likely be some overlap in terms of interest rate increases as the recession occurs, but I think the Fed would very, very quickly pivot. And I expect that to happen sometime in the first quarter of next year. So what kind of bets are you placing, based on that assumption that a pivot's going to happen? I take it you also think there will be a recession, or are you more inclined to think there's going to be a soft landing? I think there's not going to be a soft land. And I think there is going to be a recession.

And I think you're already starting to see economic activity be significantly impacted by what the Federal Reserve is doing. Reets are a perfect example of that, as Kelly just said. So one of the opportunities, I think, first of all, on the fixed income side, the Fed is going to continue to raise rates for the time being. So I think you need to be a shorter duration on fixed income. And I think it would be the time to be dripping into equities. I wouldn't go full bore into equities right now. But I think there are some opportunities. I think if you drip in, I think you're going to on a dollar cost

average basis be rewarded. And Michael, Disney is one of the stocks you actually like here? Yeah, a little controversial to say the least, Kelly. But I think that Bob Aguir is going to take the bull by the horns and make some hard choices. He's a little. He's kind of in a perfect situation for him. He was actually gone during the worst three-year period we can all imagine in the pandemic. Now he's coming back to clean things up. So I think sentiment is so negative right now. I think it can only get more positive going forward.

And I think that'll be good for the stock. Do you watch crypto as any kind of leading gauge for the rest of the market? You know, the fact that Bitcoin is still wherever it is 17,000 despite everything, some of the, you know, ISM services was better to that kind of thing. I mean, is there a case to be made for the relevant still of that asset class or no, do you think? Not for us. If I can't explain why something's moving in price beyond manipulation, I just don't see how we can buy it. I was having lunch with someone the other day that said they had a FTX account.

What did I think, what do I think will happen? I heard you just talking about the topic you're going to be talking about more in the show. I just think crypto is just a real unknown. And I just, I'm just too conservative for that. It just, it makes me nervous. I mean, can you make money in it? Yeah, I suppose. It went to 60,000 or 70,000. But I don't know that you can predict what the price movement is based on. And if that's the case, you're not buying based on fundamentals. You're buying based on momentum and speculation is something I'm not really terribly interested in. Michael, I think it's something investors tend to do in times of uncertainty is think shorter term, right? So I know people are saying right now, only stocks with companies that are profitable, et cetera, et cetera.

But over the past few days, there have been some interesting earnings from companies like Samsara, right? IOT company does sensors and cloud monitoring for logistics. Popped 20 percent. Smart sheet. Productivity software, similar pop, into it. Larger companies serving small and medium business, still growing nicely at the core during this period of uncertainty. But I'm more curious about the smaller stocks. Should investors dip into those, given how far down they've been beaten, if the company's got unique technology that has good prospects in the longer term? Yeah, that's a great question, John. It really is a tale of two investors, right? One is fundamental,

long-term cash flow eventually rewarded on stock price. That's sort of the Buffett philosophy. And then we have this momentum strategy. One of the companies you mentioned has reasonable earnings, but you have a lot of companies that don't have any earnings. And they're actually based on, their stock prices based on momentum and sentiment in terms of what their technology looks like. So if you're a speculative investor, or I should say this, if you're a speculator, how about that, and a what I would call pure growth investor. And the fundamental strategy seems way too boring. Sure, you can dip into that.

But I would be very, very cautious about putting too much in that sort of name. We sort of like a mix of maybe 70% large, 15% mid, 15% small. The significant percentage of the investments we're making a more large cap that are more predictable. But that's who we are. We're fundamental investors and we're more long-term conservative investors. For speculators, you know, people can watch fast money has all kinds of great ideas in terms of what people should be doing on a shorter term basis. It's just not what we do. And I think investors need to ask themselves, can they live with that kind of risk?

Not just will it go up. Can they live with that kind of risk? All right. Michael Yoshikami from Destination Wealth Management. Thank you. Thanks, Carl. Now, Chinese stocks were gaining today on hopes that long-awaited reopening is finally going to happen, or at least is being seriously talked about. Let's get out to Sima Modi with more on this deepening selloff back here at home.

Seema? Hey, Kelly, well, those protests may have worked over the weekend, multiple cities relaxing COVID-19 restrictions. In Shanghai, specifically, residents do not have to present a negative COVID test to enter an outdoor venue. And Wall Street is taking notice. Morgan Stanley upgrading its outlook on the country, analysts there writing, quote, multiple positive developments alongside a clear path set towards reopening warrant and upgrade and index target increases for China. And that's once again fueling shares of Chinese tech stocks from large-cap names like Alibaba, Baidu, J.D, to Tencent and Pinduwa. They've come off the highs that we were at around 5 a.m. Eastern time. I was up at that time.

The Hangsang Tech Index, which does represent the 30 largest technology. companies listed in Hong Kong surging overnight. It was up as much as 9%. And that's the Hangsang Index, you can see, closing up by 4.5%. The rally in Chinese tech stocks and just the broader index started back in November when the K-Web Chinese ETF posted its best month ever since inception. You can see up about 55% from early November. And of course, follows months of underperformance, even with the rebound that we're seeing

over the past couple of weeks, guys, the Shanghai Composite down about 12% for the year. Clearly, Wall Street watching any signs of a reopening. And I'm surprised, FEMA, that the good feelings aren't lasting longer here as we, you know, obviously move throughout the afternoon of the U.S. trading session, dows down more than 500 points. All weekend, there was talk about how, hey, this is going to be, you know, bullish development for stocks, bullish for crude, even crude, now lower on the session. Yeah, clearly, as much as we're watching for any signs of a reopening in China,

it's going to take time. And with other reopenings that we've watched around the world, including the United States, Kelly, these reopenings require multiple stages. So in addition to no longer requiring citizens to present a negative COVID test, there's the reopening of indoor venues, indoor dining, as well as allowing people to travel with ease across the nation. And while we are seeing some restrictions, ease in certain cities, the other question is when will we see it across the broader nation? So still watching for any signs of this full reopening underway, Kelly. True. Perhaps got a bit ahead of ourselves in that regard. Seema for now, thank you.

Arceem Modi. As I mentioned, let's take a quick look at the market action where we're at session lows with the Dow down 525 points now, John and the NASDAQ down more than 2%. Yeah, I mean, even the S&P down almost 2%. Things are moving quite a bit. Rates not helping the move in equities as yields continue to rise. The 10-year yield back to 3.6%. One month ago, we hit 4.15% and oil near session lows as well off about 3%. All right, we'll continue to keep a close eye on it. Also coming up, Meta's mega turnaround. The stock up 35% over the past month. It's back above its 50-day trading average.

Two analysts lay out where the stock goes from here. And Delta, Royal Caribbean, MGM, all up about 10% in the past month, all named top picks for 2023. We'll trade those names in today's three-stock lunch. As we had to break Silvergate down 8% after Morgan Stanley cut its rating to underweight, citing too many headwinds following the FtX collapse. The stock down 53% over the past month. Welcome back to Power Lunch.

Shares of meta, get this, are up 35% over the past month after earlier being crushed. This is despite no change in fundamentals or CEO Zuckerberg's big bet on the Metaverse. I mean, the stock is still down 60% this year, but it also just crossed above its 50-day moving average. So is this recent rally for real, or is it better to stay away? Here to make the bull case is Mark Kelly. He's a steeple analyst with a 185. price target. In the bearish camp, Barton Crockett is over at Rosenblatt. He's senior analyst and MD there, and he has a price target of just 104. It's great to have you guys both here.

Mark, make your case, how does meta get to 185 with the myriad challenges and cost-cutting moves they're facing? Yeah, sure. Thanks for having me. So I'd say the first thing is, you know, there's a lot of focus on the metaverse investment, rightly so. But I think, you know, the underlying business is actually doing a lot better than people would expect. So there's a points there that I want to make. One is that, you know, we're lapping the changes that Apple made last year that really made it hard for advertisers to become very measured in terms of who they target and how they actually look at their return on investment. That's getting a little bit better. Met is making some changes to their ads manager in terms of, you know, having a longer

look back to see what the attribution is for some of your advertisements. You can get more granular. So there's reason for advertisers to come back to the platform that, maybe, you know, didn't spend as much over the past year. And then lastly, you know, the Metaverse investment is definitely important. But I would say our expectations are that they're going to march down their total expense growth throughout the year, which means numbers should revise higher as we progress throughout 2023. Mark, I just can't get past the Metaverse investment, though.

So you're saying you think that Zuckerberg's going to blink. Even though it's a controlled company, he can do what he wants. I mean, he says he's going to spend another $10 billion plus. on the Metaverse, you think he's going to go, actually, I'm not going to, because it seems like no matter how well the underlying business is doing, he's spending the bulk of that on the metaverse. Yeah, that's fair. I mean, to be clear, I do not expect him to completely reverse course. They changed the name of the company to Meta after all. But I do think, you know, the company put out an 8K shortly after they reported Q3, which already brought down their OPEX

assumptions a little bit for, for 2023. So I don't expect him to completely reverse course, I do expect him to listen a bit more to investors, you know, as he gets deeper into that investment cycle. Okay, Barton, on the other hand, Facebook meta, does have a history of sort of sandbagging their expenses and then saying, oh, well, actually, we're not going to spend that much. So even though you've got this bear case, isn't there a likelihood that Mark Zuckerberg might, in fact, say, well, actually, we're not going to spend that much, even though I said so. and then there goes the bare case, up in flames. Yeah, look, even if you spend less than the initial guide at the degree they did last year, you know, the low end of their guide for expense growth

is up 11%. Last year they beat by 5%. So you're still up, you know, 6%. You're coming into the year with revenues down. You know, the fourth quarter down 3 to 11%. You know, good chance that we're going into a weaker economic backdrop, maybe a recession. So, you know, I think you have to believe

that the revenue bias is more to the downside than the upside from that macro perspective, certainly in the first half. The consensus has 5% revenue growth. I think that's too high if we have a recession next year. So I think you've got down revenues, you've got rising expenses, you've got a consensus that's too high on earnings and on revenues. And I think that's a great setup for the stock here near term. Later on top of that, questions about audience. They've been flattish and reported overall metrics, but I think everyone understands that they have a youth challenge. And I think that there is, you know, also this question about the impact of their kind of new revenue initiatives, you know, click to messenger is an area of great excitement, nine billion

annual annualized revenues recently. But even with that, the revenues have been weak. So it just tells you that the other stuff is even weaker than people were, you know, perhaps expecting. You know, so I think you've got a company that's transitioning and it's a difficult time to want to be, you know, overweight at this point in meta. You say that they are, you know, the Reels transition is rocky and perhaps challenged. I'm spending a lot of personal sweat effort trying to figure it out. So is it worth it? Isn't that cannibalizing TikTok, especially given the rhetoric coming from Washington lately, where even Janet Yellen made it sound like perhaps TikTok could be banned? And if so, isn't that hugely bullish for meta? Look, I don't expect TikTok to be banned. If it is,

yes, that is very bullish for meta. You know, I do think that, um, you know, I do think that, um, You know, what meta is trying to do with Reels is bolt on a recommendation of content format that takes you away from getting what your friends and the celebrities that you're following are recommending, which is a change in what they're all about on Instagram and on Facebook that, you know, there's some reason to suspect that their audience is rejecting that, that it doesn't feel authentic. And that's, I think, you know, you're seeing a lot of the innovation money in advertising is no longer going into. social media. That's going into connected TV. That's going into TikTok, and social media seems to be a source of funds. You know, so I think, you know, there's a lot of questions. If that's the case, Mark Kelly, then maybe this is capitulation that we've had. I mean, anytime we're talking about dollars, as much as I love TV, and I do, I mean, TV is my life. If we're talking about social media being a source of funds for TV advertising, I mean,

I mean, Facebook meta's model isn't broken, right, Mark? No, I don't think it's broken. In fact, you know, when we talk to advertisers, which we're doing as we speak, because we get ready to think about, you know, next year and put a finer point on our expectations, you know, one thing we're hearing is that money is flowing back to Facebook and Instagram. So they did see some share over the past year. I think it's pretty evident in their numbers. But we see that reversing for, you know, the reasons I described before in terms of just the platform getting better.

whether it's changes from meta or whether it's just, you know, moving beyond the changes that Apple enforced on the whole ecosystem, you know, a year plus ago. I don't think it's broken, and I think, you know, I expect them to gain a little bit of share back next year. All right. Thank you. Mark Kelly, Bart and Crockett, they debate. You decide. Up next, a Peloton of Holiday Spirit, one firm getting bullish on the struggling company based on its holiday sales. And further ahead, FRIE, multiple agencies investigating FTX founder Sam Bankman-Fried. And when it comes down to it, he could face years in prison if they ever finished building their cases.

As we had to break, check out shares of Boeing, a bright spot in today's down tape and the leading the Dow. That stock up 54% this quarter. Powerlunch will be right back. Take a look at shares of Peloton here. Down a little right now, well, a little for today, but about 2%. aiming for an eighth straight up session. The stock up 40% in a month.

Today, credit Suisse, adding to the optimism saying that early returns from the holiday season look good. Black Friday and Cyber Monday promotions seem to be working. As a result, the brokerage is raising estimates for subscribers and sales, but keeping a $10 price target and a neutral rating. It's trading at $13 today, so a $10 price target mixed. I know how optimistic that is. I tell you, though, Peloton's a $10. hardware company. No matter what the current CEO says. How dare you? It is. Like, you can love subscriptions all you want, but if all they're competing on is workouts and they're competing

with Apple and Amazon and whatnot, they're going to get smoked. They need to have hardware with margins. Meaning the argument by those who say they need to get rid of the hardware to boost profitability, you think would actually take them into precisely the sort of, the worst competitive place to be because then any old software, really good software company, can just come in and eat their lunch. It's like the medieval castle manager saying, the real problem is this moat that we've got and our water costs.

Get rid of that and we'll be great. Okay. Fair enough. Let's get to Christina Parts of the Medalist now for a CNBC News Update. Christina? Thank you, Kelly, and here's your CNBC News Update at this hour. North Korea firing more than 130 artillery shells

in a continued show of military force in response to joint U.S. South Korea drills. The Allies have some. stepped up joint military exercises this year saying they are necessary to deter the nuclear-armed north, which has resumed testing of its long-range intercontinental ballistic missiles for the first time since 2017. Hertz announcing it would pay millions to settle an erroneously filed criminal reports against customers who did nothing wrong. The rental car giant will pay $168 million to settle 364 claims after customers said they were falsely arrested. Some people were arrested for

auto theft after they had returned their cars. And the police chief of Tampa, Florida is resigning after video surfaced of her flashing her badge to get out of a police stop. Mary O'Connor was traveling in a golf cart without a license plate when she and her husband were pulled over. The responding officer let them go after seeing the badge. John, back were you. All right, Christina, thank you.

Now ahead on Power Lunge, big, big week for energy, OPEC deciding to keep its current policies ahead of some key geopolitical decisions about Russia. Plus, while the world focuses on fossil fuel, one company is working to reduce carbon emissions using limestone. Those details in today's clean start. Welcome back, everybody. As we're near session lows, we have 90 minutes left in the trading session, so let's get caught up across stocks, bonds, and commodities, and a very busy and crucial week for oil. Let's begin with the markets, which are lower across the board. The Dow's down 555 points right now. That's one point.

It's 2.1% drop right now for the NASDAQ. Maybe in part because we got that strong data this morning. ISM services triggering worries the Fed could still overtaken and cause a recession. That's overwhelming the positive news that we had coming more out of China. Now, Salesforce is also a big drag on the Dow today, adding to its recent slide. And Citigroup and Credit Suisse are lowering their price targets on the stock and CEO of Slack, Stuart Butterfield. He is now leaving the company. So Salesforce shares down 7.5%. Tesla also down about 6%. today denying reports their cutting production in China, saying in fact they've delivered more than 100,000 vehicles from the Shanghai Gigafactory in November, a new record not doing much to help a stock, though, that's down 48% this year. Now to the bond market where Rick Santelli is back to track the action for us. Hi, Rick. Hi, and welcome back, Kelly. You know, if you look at the post-strong jobs Friday number, a lot of things are moving in very interesting directions. Let's

look at a two-week of two-year note yield. They're starting to come back up. And that 440 yield has sliced the action over the last couple weeks. Traders are going to use that as a pivot. Now, look at that chart. Now let's look at the same time period, two weeks, with July Fed Fund futures. I picked July. That's the fulcrum.

That's where prices stop going down and start going up. It's exactly the opposite because the Fed wants rates higher as a two-year demonstrated. And when that happens, it's bringing Fed fund prices back down, which brings more Fed in. for 10-year, Friday they close at a two and a half month low yield close under three and a half percent. They're coming back a bit today. What I want to really point out, and on the left side of that chart, is August of 2020 when that was the historic all-time low yield close at half of 1 percent. But right under three and a half percent at the end of June, you see that point? Traders are going to be watching that carefully. When it comes to foreign exchange, the Euro versus

dollar on Friday closed at a five-month high. The dollar index closed at a five-month high. The dollar index closed to a five-month low. And another currency that's really putting pressure on the dollar is to Chinese wand. Offshore and onshore. This happens to be the onshore closer to two and a half month high to the dollar. And we all know the potential reopening of China and some of their COVID issues. You want to watch this chart very closely. Kelly, back to you. A whirlwind. As always, Rick, thank you. And there's also a lot going on in the oil markets today. So let's get over to Pippa. Stevens looking at that for us. Pippa? We do have a volatile session for oil with so many moving parts right now.

First up, the EU's ban on imports of Russian seaborne crude going into effect today. Then we've got the EU and G7 agreement on that $60 per barrel price cap on Russian crude. Now, this means that anyone who wants to use, for example, European insurance or European tanker, in theory, has to abide by this cap. Although there are still some questions around how it will be enforced. Meantime, OPEC and its allies meeting yesterday deciding to roll over their current cuts of 2 million barrels per day. The alliance saying in a statement that it will remain, quote, proactive and preemptive. So in other words, it could shift policy based on market conditions. Now, U.S. oil have been up more than 3% earlier, but giving back those gains and then some alongside a dip in the broader market,

currently down 3.6% at $77, with Brent crude right around 80 to 84, a loss of 3 and a quarter. percent. Kelly? All right, Pippa, thank you. So where do crude prices go from here? And is the Russian energy gap forcing substitution into coal? With us as Francisco Blanche. He's head of global commodities and derivatives research at B of A global research. And Kevin Book is managing director at Clearview Energy Partners. It's great to have you both here. Francisco, we'll start with you. Are you surprised that crude is back in the red today after what supposedly we're going to be some bullish developments here? Yeah, frankly, it's a little surprising the sell of today, but of course in general with the with a broader sell-off in equity markets and in-risk assets.

So certainly I think the oil market remains concerned that the Fed will tilt the global economy into recession by hiking rates as fast as they have and potentially beyond. But remember, everything that is cooking in the background is still constructive for oil. So we remain positive into 2023. We think lower availability of Russian barrels coupled with China reopening. And what we continue to believe will be a Fed pivot in the first quarter of the year will eventually trigger higher oil prices into the summer and second half of 2023. Kevin, do you agree with that that there's still upside for oil prices? Are you surprised that they've been so tame lately?

Well, you know, downside risk because of markets cooling off in tandem or because of recession risk. That's one thing. The cap itself introduces some degree of upside bias. There's frictional supply risk because you have tankers going further than they had gone before. We have a lot of questions we don't know about enforcement, of course. But if folks stay out of the market because they don't want to be in the services market when they don't know that they could be busted for doing something wrong, that could tighten supply. And of course, Russia gets a vote as well.

So for all those reasons, it may be that what we saw in the OPEC rollover this weekend was really letting the cap do the work. There's a potential long supply in one queue relative to the OPEC call, but if the cap is going to push oil off the market, maybe that'll take care of the slack. In Francisco, where does this leave global supply and demand? How is the price cap likely to work and to affect that balance into next year? Well, so our initial assumption is that we're going to lose about a million barrels a day

of Russian oil after February 5. Because remember, there are two stages to the cap. First, there's the crude price cap, and then there is the petroleum product price cap, which kicks in on Feb 5. So we think we'll lose about a million barrels a day. We've seen a range of estimates, including the U.S. Treasury, which believe the range will be between half a million barrels a day and 2.2 million barrels a day. That's a very big range. It's a range that could make oil swing by $30 a barrel or more. And I think also the other factories, we continue to expect China reopening, which will add about

half of demand growth to the global oil market next year. Remember, we do expect OECD economies, namely U.S. Europe, Japan, to essentially add zero, big fat zero to demand growth in 2023, as these economies are going to be bordering recession. Hmm. Kevin, I find it remarkable how few people actually believe Fed Chair Powell. Like anything that he says about what they're intending to do about rates. What about the scenario? And I understand optimism of all that where we have a bad economy coming out of Q4 because holiday spending in part is not what people hope it is. It doesn't hold up for the next three weeks entirely. And there's no Fed pivot, right? They just kind of keep raising rates and then hold them

where they are. What does that do to oil? Well, fundamentally, crushing the life out of an economy means crushing the life out of oil demand. And if that's how we're going to go, then that's going to be probably pretty bearish. But you have a supply side of the story as well. And so as Francisco is mentioning, there's a wide range of outcomes on the supply side because of the cap. There's still, again, it's important to remember that if you have Russia cutting off gas westbound into Europe, Russia is also cutting BTUs out of the global supply mix, which means that oil could burn to replace that gas somewhere else. More demand there, too. So generally speaking, as dismal and gloomy as it might look, there are offsets on the supply side that we're still watching.

And there we'll leave it. Francisco, do you have a parting word on what you tell American consumers? Should they expect then to be paying higher gasoline prices into next year? I think so. I think we'll see an uplift from current levels. I don't think we'll see the record prices that we saw in 2022 necessarily, but I do think we'll see higher prices and also I'm still particularly worried about energy supplies in the U.S. Northeast throughout this winter.

I think it could be challenging to keep the Northeast well supplied, and consumers will have to pay high prices there for both diesel as well as power. Yeah, fair enough. Guys, thank you. Francisco Blanche and Kevin Buck. We appreciate it. Thanks for having us. Now, still to come, today's clean start.

As more industry players emerge to help capture and reduce carbon emissions, one company is employing a unique method. We'll be right back. Welcome back. As just about every industry out there is working to reduce future carbon emissions, a new and fast-growing industry is aiming to remove carbon that's already been emitted. Diana Oleg joins us to explain in her continuing series on climate startups. Diana.

John, in order to keep global warming below 1.5 degrees Celsius, we need to remove about 10 to 20% of the CO2 emitted globally each year. And that's why carbon capture companies are getting so big, so fast. New companies are capturing carbon in various new ways from the air with massive fans. Out of agriculture, converting biomass into oil, even directly from smokestacks. As the need to curb global warming intensifies, so too does this business. We need to be removing billions of tons of carbon dioxide out of the air. And, you know, it's a space that really requires lots of companies, lots of different approaches to go after.

California-based startup heirloom uses limestone to capture CO2 from the atmosphere. CO2 is an ingredient in limestone. So heirloom removes it by heating the limestone into a powder. The remaining powder is then thirsty for more CO2. So it's spread on trays in a modular system where a roll. robot determines location for maximum CO2 absorption. A process that naturally takes years is reduced to just three days. Once the powder is full, they start the process again. We basically just give superpowers to limestone to pull a lot more CO2 much, much faster.

Airloom takes all that captured CO2 and stores it safely underground. It's relatively cheap compared with other types of carbon capture and removal and highly scalable, which made it attractive to investors like Microsoft. We identified that Airloom's enhanced mineralization approach used widely available materials and passive airflow technologies

that mean it has a potential to reach a low cost trajectory. Airlooms backers include RN Innovation Capital, breakthrough energy ventures, carbon direct, lower carbon capital, and Microsoft. Total funding, $54.3 million. Airloom says it plans to

employ its first site next year and aims to remove one billion tons of CO2 by 2035. Of course, it also sells carbon credits. Buyers include Microsoft, Stripe, Shopify, and Klarna. John? Diana, billion tons sounds like a lot, but how long before we're at the point where we're removing as much carbon as gets admitted? Because it seems like it's probably a pretty big divide. Yeah, John, we're not even close, to put it plainly.

I mean, any CEO you talk to and you say, well, we're doing this much carbon capture, but there's just so much more carbon emissions. They say, well, you've got to start somewhere. But then critics say if you're selling carbon credits for these, then it just allows companies to admit more carbon if they buy the credits. What we really need to be doing is emitting less carbon and doing more carbon capture to reduce it overall. We're just not there yet. Diana, I also can't help but think as I watch these massive operations, does the production of carbon reduction itself use more carbon than harvest, if that makes sense? No, and I do get that.

So, no, these are designed in order that they not produce more carbon emissions. So it does look like a big, you know, the stack and the sheets and everything like that looks like it might use up more energy. But they're very careful to make sure that it is negative in the carbon emissions. All right, had to ask. Diana, thank you very much. It's fascinating. I had no idea that limestone had such capabilities. Coming up in the cruise ship's face, finding a winner could come down to a battle of balance sheets.

Wells Fargo says Royal Caribbean is their top pick. We'll hit that name and some other key travel calls in our three-stock lunch. And take another look at the Dow down 558 points, fresh session lows, so to speak. We'll keep a 1.6% decline in perspective, but it has been picking up throughout the day here. NASDAQ down more than 2%. We're back in a moment. Welcome back, everybody. We're trading three big travel calls in today's three-stock lunch.

So Morgan Stanley's bullish on the airlines. They named Delta, a top pick for 2023, said it could be a Goldilocks year. Wells Fargo says Royal Caribbean is a stock to own, and Truis is upgrading MGM to buy from hold and raising their price target to $50 from $40. Let's bring in Delano Sapporo. He's New Street Advisors, founder and CEO and a CNBC contributor. Delano, great to see you again. We're showing that Delta chart. It's still down 8% this year. Do you like this call here? Do you like the stock? Yeah, I do like this call, and I like the stock. I'm holding the stock. One of the reasons why is there's still plenty of growth opportunity. If you look at the traffic, obviously that had solid traffic for airlines over Thanksgiving. And the prediction is that they still have another leg higher to go.

Consumer spending as it relates to GDP on air traffic and leisure has actually been around 20 to 30 billion lower that we saw in 2019. So there's still opportunity there. If you look at their outlook for December, they're trending on the top line at 5% to 6% higher. And they're also looking at the bottom line as higher training in the right way as well. So amid the higher cost, Kelly, I think there's still opportunity with with, Delta Airlines. Next up, Royal Caribbean. Delano, how exposed is that stock to perhaps a weakening consumer in an iffy luxury market? I think pretty exposed. If you look at it in comparison

to obviously airlines, there's a different level, different consumer that would kind of look at that cruise line vacation. And if you look at their operating costs, that's the biggest line that I'm focusing on. And that grew 140% last quarter. And if you look at the main component of the operating costs, that's obviously payroll, food, fuel. Those have always been hit by inflation and running hot. So I think it's a hold here because you do have a consumer that we still have an employment rate lower, but that could be trending in another direction. And so that could be a concern in the long term.

And that's why I'll be holding this stock for the near term. Interesting. So as much as you see Delta having opportunity, not so much for RCL. What about MGM, Delano? How do you feel about the casino play? The casino play is interesting. And I think, you know, the one area that I like, obviously, when it comes to MGM is the BetMGM, obviously, their online gaming sector. You know, I'm high, just bullish in general on the online gaming and gambling sector.

And if you look at it, the kegars about 5% year-over-year-over-year projected over the next five years. And I think that's a big, big, strong upside for the three biggest players in that space, which is obviously Draft Kings to be in the number one and bet MGM are about third, number three right there. So I think that's the best part if you look at the company at the whole, if you look at what the economy is the whole, if you look at what the economy is the economy is the number of the economy. the scale will happen when they continue to lower the marketing spend and build up subscribers that are, you know, betting the handle. I think that's a positive play for them. So I do like this and I'm holding this company. All right, Donna, while we have you, what do you attribute today's market drop to?

I think it's the services sector data. I think that kind of, you know, had some investors, you know, taken a little bit back after the euphoria of last week's, you know, hearing what the Fed said about moving towards 50 basis points. And I think when you see that we're still, the services sector picked up, And you actually had higher employment in that area and the higher spend on the manufacturing side. That kind of had investors braced a little bit and getting taken away from that euphoria. And that's okay.

I think, you know, we've had a good run of a month on the Dow and on the S&P. So I think some of that's being baked in here. I do think we can kind of take what the Fed is saying as far as where they're looking to kind of go with, you know, lowering the rate of hikes and then potentially maybe pausing late 2023. So this is to be seen, though. Yeah, it's good news is bad news. It reminds me of what Michael Darta said last hour where he thinks the strong labor market

could end up sending us into a deeper recession because it's keeping the Fed from maybe tapping the brakes more right now. 100%. 100%. Yeah, and that's exactly right. If you look at, you know, we're still at a very low unemployment rate, which is obviously good for all of us and all consumers. But if you look at how that's still a factor that the Fed's looking at

when it comes to their policy, that's going to be the biggest factor. I think it's holding on with consumers still spending. And we saw the holiday numbers that came in despite inflation, maybe looking at on a unit basis might be lower. But there's still a spending going on. And that's going to have effect policy going forward. It will. Indeed.

Delano, thank you. We appreciate your time today. Thank you, Kelly. Delano Sapporo. And up next, Bitcoin is stuck well below 20,000. In fact, it's back below 17,000 this afternoon. The ripple effect of FTX's collapse still wreaking havoc. We're going to check in on the whole crypto space next.

Welcome back. Bitcoin today, down slightly, down below 17,000, still down nearly 20% in a month as the FTX bankruptcy has unfolded. Sam Bankman Freed could face years in prison over the collapse if he does get arrested. The fate of SBF, the talk of the crypto world, maybe even at a major crypto conference in Ghana, where our McKenzie Sigales is reporting. McKenzie. Is that what people are talking about, what's going to happen to Sam? Or are they just busy trying to distance the rest of the industry from him, like they did from stable coins and other toxic topics? Yeah, it's definitely the latter, John. And frankly, there's more relief that a Black Swan event has removed, what some now consider to be a damaging aspect of the industry. That being said, crypto Twitter has wondered why the ex-CEO of FTX hasn't yet been charged with any sort of crime when he's a U.S. citizen who allegedly defrauded other U.S. citizens.

So I spoke with trial lawyers and former federal prosecutors to try to answer that. And they say SPF faces three distinct threats. You've got criminal, civil, and private. Now, criminally, experts say that a fraud charge, bank, wire, or mail is the most likely. Given the size of FTX's losses, that sentence could be like. in prison with no chance of supervised release. Now that scenario apparently unlikely, but it is the theoretical worst. Of course, law enforcement has to arrest him first. The Bahamas has an extradition treaty with the U.S., but we'll see if they cooperate with U.S. action, which could take years.

In the meantime, SBF is running a PR blitz appearing at Deal Book and on ABC News, claiming that he was unaware of how bad it was, saying that he was not a crook, just bad at business. That is hard for many people to swallow. SBF was intricately involved across all of his businesses. Now on the civil side, if regulators from the SECC or the CFTC decide to act, they could impose massive fines. And then there are the millions of creditors who could sue Bankman Fried for damages. So a lot of moving parts here, John. Mackenzie, if I can, who do you think Sam Bankman-Fried is trying to persuade with this media tour? Because most of the crypto people I know are furious with him. Most of the public doesn't believe that he doesn't think or didn't do anything wrong.

Who is his real audience here that he might be trying to persuade? I mean, it almost seems like he's trying to win in the court of public opinion, but as you said, Kelly, he's already lost that battle. So then it goes to, is this some sort of attempted illegal strategy? And literally every single attorney that I've spoken to, people have tried these kinds of cases in the past say it is the worst possible idea. Because, yes, he's not speaking under oath, but he is certainly exposing himself. Like you had this comments from his interview with the financial.

times over the weekend in which she did admit to greater involvement in decision-making at Alameda research, which was hypothetically the big goal of this press store to distance himself from that decision-making process. So it is very unclear what the strategy is here. Maybe it's a stay-out-of-jail strategy. I mean, if he keeps showing up in articles and on TV, it doesn't seem like he's running or disappearing. Anything to say about, do the experts have anything to say about that? I mean, I think that a lot of people are confused about why it's taking so long, but if you talk to anyone in the legal field, they say that this is par for the course. They say that it takes time to build up the kind of case that prosecutors would look to charge. So these fraud cases are credibly

complicated because you're trying to prove intent that somebody intended to do something wrong and they didn't just make a bad decision and that's not an easy case to make. So on the legal side, people aren't too concerned with how long it's taking. And so even though he's going on this extended media tour and sitting easy in the Bahamas, I don't think there's any question as to whether he will ultimately face some sort of legal repercussions. And is that the only thing people are talking about it? I mean, let's remind the audience. You are in Ghana right now, McKenzie, for this major Bitcoin conference.

What is the mood there? I mean, people are so optimistic about the power of Bitcoin technology. There are 600 people here from 42 different countries, and they're all talking about the use cases for Bitcoin beyond being a speculative asset to trade. You've got Jack Dorsey speaking tomorrow. His company, Block, has been instrumental in trying to find. foment wider Bitcoin adoption. I spoke with Thomas Templeton earlier,

and he's the person at Block who's spearheading the company's efforts to democratize Bitcoin mining by creating new hardware that's more affordable and efficient so that people like you and me, Kelly, if we wanted to try it out, we could do that too. We also heard from Ray Youssef. Now, he runs a decentralized exchange called Paxville that's very popular in Africa,

and that's the story of peer-to-peer crypto adoption here in Africa. So people are very excited. They're brainstorming, they're talking about, what kind of potential exists for new applications. McKenzie, thank you and John. There are also others in the industry trying to distance themselves from Sam Begman-Fried saying there's something real here

that's not associated with him. Well, I mean, if people stop believing, people who don't already believe, then the price is going to take. So you've got to be optimistic if you've holding it. You certainly do at this point. Guys, thanks for watching Power Lunch.