Power Lunch - The Inflation Fix, Record Gas Prices and the CEO of Spirit Airlines 5/16/22

Episode Date: May 16, 2022

Why the Fed alone can't fix inflation. A veteran Wall Street investor tells us whether he thinks the biggest risk to the economy is financial over-tightening. Plus, gas prices hit another record. Tyler & Julia asked our energy expert if prices have peaked. His answer: no. And the CEO of Spirit Airlines has a lot to say about JetBlue's hostile bid for his company in our Power Lunch Exclusive. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome everybody to Power Lunch for a Monday. I'm Tyler Matheson, and here's what's ahead on a very busy hour. Solving the inflation problem, the market is looking to the Fed to fix one of the biggest challenges facing the economy. But a veteran Wall Street investor says most have it wrong. We'll get his take on what has to happen to get it right where the solutions really are. Plus, the CEO of Spirit Airlines, he's responding and maybe not in such a good way to Jet Blues, now hostile bid for him. the company. You'll want to hear what he has to say in this power lunch exclusive. But first, to Julia Borsten, who's in for Kelly. Hi, Julia. Well, Tyler, the down S&P reversing course again, trading higher at this hour. The S&P trading near 4,000, and tech stocks once again getting hit the hardest today. The NASDAQ remains about 28% off its ear high. And you see it's hovering around

the flatline. Now, big cap tech stocks are mostly lower Apple. Alphabet and Tesla shares are falling, while META is up about 2%. Financials and consumer discretionary stocks also coming under pressure, while the energy sector gets a lift on higher oil prices. Tyler? All right. Thank you very much, Julia. You know, pretty much every economist and investment strategist

agrees that inflation is the biggest bogey. The markets and the economy must overcome. They largely agree to what inflation's origins are and who the main solution providers must be, namely the Fed and other central banks. But our first guest today, says they've got it wrong. Here to explain his veteran investor, hedge fund manager,

and foreign policy analyst Dan Arbus. As an aside, he has a profound understanding of Eastern Europe and Russia earlier in his career when he and I met. He was a lawyer in Prague and deeply involved in the restructuring of communist economies. Dan, good to see you again. Hi, Tyler. I don't see you, but I'm happy to hear you. That's all right. You just listen intently here and I get to see you.

Let's talk about why you think the markets, got it wrong on the origins of this inflation and on who the solution providers should be and what the solutions should be. Give us the kernel of the argument. So I'm not sure that markets have it wrong necessarily. There's no question that there's inflation. But I think that the analysis is incomplete and the Fed is the wrong problem solver. Milton Friedman famously said inflation is all. always a monetary phenomenon, except when that's not all it is, which is right now.

This is pandemic pent up real demand, times synthetic free money demand, times politically disrupted supply. Normally the tools that the Fed has is they raise interest rates to cool off excess demand. I don't believe that we have fundamentally excess demand, actually, on the the contrary. And what we do have is politically disrupted supply. Supply that's been disrupted by first Trump's trade war and now, of course, the European war and Putin's brutality in Ukraine. And also the- Also, would you include there, Dan, the disruptions caused largely in China by

COVID and the lockdowns that are there now and what they had to do in. in the past? Right. So my view is that inflation will resolve itself when it resolves itself. If you can tell me when policymakers are going to come up with the right policies to help the supply chain shortages and disruptions, then we can give you a date. But raising interest rates right now is not a thing. Corporates should be and are taking.

steps on their own because they have economic incentives, not political incentives, to repair their own supply chains as best that they can under the circumstances. And I believe that we need to move policy back toward free trade and establishing a basis for free trade. And you also believe, if I'm understanding correctly, that by raising interest rates and withdrawing money through quantitative tightening, not only will you have higher rates and higher carrying costs on an already enormous federal debt, but you will be hastening and deepening what you see as a likely recession to affect not just the United States, but Europe in many parts of the world. Exactly. That was laid out in the article that I published, I guess,

late last week. I think we need to remember that we are still, despite the episodic inflation, which I would call event-driven inflation. We are still in a disinflationary, long-term secular environment characterized by spiraling death, aging demographics, and above all, disruptive job displacing technology, which is basically going to be de-employing not only blue-collar workers, but already is de-employing skilled workers, many of whose tasks can be replicated by AI,

that isn't necessarily particularly intelligent. Dan, I want to, yeah, I'm curious particularly about that last factor, this idea that this recession might be different because of that new technology and its impact on the labor force. How do you think the combination of that and the aging demographics need to be taken into consideration when there are policy changes to try to moderate the impact of a potential recession? Well, that's extremely relevant.

I think that the labor participation rate, everybody's talking about, oh, there's a labor shortage. Actually, the labor participation rate is the lowest that's been in since the 70s, and it's been hanging around basically 62% of eligible workers for about 12 years, if I'm not mistaken, since the financial crisis and the early recovery. People are just not looking for jobs, whether they're living on government social security checks or payment protection checks. People have withdrawn from the job market because available jobs, I continue to believe,

are declining and being displaced and replaced by technology. The jobs that are available seem to be jobs that people don't want. For example, the most suffering sector in society, I would have to argue, are nurses. They're quitting in droves because they've taken years of stress through the pandemic and they're not particularly well paid. The jobs that are that are in demand, I really believe, are filled, notwithstanding the fact that you have people like Jamie Diamond,

the CEO of J.P. Morgan, having declared that everybody would be coming back to the office, he's building a six million square foot office center on Park Avenue, and then promptly turning around and saying, no, everybody can continue to work flexibly from home, as well. I just think that he was concerned to offer benefits to employees, maybe a smooth

transition back to the office. But if the idea is that, well, I have to do that because my competition is doing that, I think he's going to wake up and find that's not the case. Everybody will be back in the office. I want to get one quick answer and then turn to Russia and the war in Ukraine.

If the Fed is not the solution provider to the inflation problem, who is or is it's some combination of solutions? Or does it just have to work its way out, as you described earlier? All right. I always defer to private market incentives as opposed to government, politics, or even philanthropic incentives.

I think a lot of this work needs to be done to the extent it's possible by companies themselves. And then the burden is on the legislative and executive and executive. executive branches to adopt some policies. Now, Janet Lennon, former Fed governor, of course, and Treasury Secretary, talked about a new trade regime where we're going to be, quote, friend-shoring. We're going to be trading with our friends

who share our values, and we're not going to be trading with people who are frenemies like China, who don't share our values. I think that's an absolutely wrong direction to move in. I think that what we need to do is, disavuse ourselves of the idea that we're going to change regimes, we're going to export our democratic values and our democracy and our practices to these other authoritarian nations. But at the same time, we can do business with them where our interests align.

But one country or one person we can't do business with, in your view, is Vladimir Putin. You say, forget the oligarchs, many of whom you knew before they were oligarchs, when you were working in Eastern Europe. Forget the oligarchs. They don't matter. The only guy that matters is Putin, and we cannot normalize anything with Russia as long as Putin is there.

Quick answer on why you think his exit is critical to the next generation. When the Ukraine conflict started, the first thing I said on the first day was either Putin has to go or the world order that's been prevailing since the Second World War, the end is at risk. Vladimir Putin violated the most basic provision of the United Nations Charter to four when he invaded Ukraine, but much worse than that, because others have done the

same. He is committed by any definition war crimes under the Geneva Conventions and genocide under the Genocide Convention Article 2. How can we normalize relations with a country whose leader is a war criminal. The only way that we can ever normalize relations with Putin is, sorry, with Russia, is to see Putin removed from power. And the only way that happens is if he is demonstrably humiliated by being ejected definitively from Ukraine with NATO's help. And I mean, more help, air support. And then we can talk about what comes next in Russia, which is both risk an opportunity at the leadership level. Dan, it is always great to see you. We got a lot in there, and I appreciate your time. As always, your analysis is always provocative. Thanks very much,

Dan Arbus. Thank you so much. You're welcome. Julia. Well, it's a big week for retail with many key companies reporting earnings. Home Depot and Walmart are out with quarterly results tomorrow. Then target lows and some of the discounters will follow. This is the S&P retail ETF is under pressure, down 25% this year. What should investors expect and what names can withstand inflationary and potential recession pressures? Let's bring in Jerry Stork, CEO of Stork Advisors. He's the former chairman and CEO of Toys R Us and the former CEO of Hudson's Bay. Thank you so much for joining us, Jerry.

Before we get into some of these specific names, give us your macro view. What are you expecting to hear across all these companies this week? Well, look, there's no doubt the consumer slowing. I don't think most of the companies that report this week. They're all strong retailers. I think they can report pretty good numbers retrospectively. But what we're going to pay a lot of attention to is what they say about the future, what trends are they seeing?

And there, I think, there's going to be a little more fright put into the market. Because they're going to say what is absolutely happening is we're heading for some kind of recession environment where it's a full recession, recession light, or just a slowdown. It's clear that things are slowing down. So that's the macro environment. It's also clear inflation is continuing. It's not slowing down. if anything's accelerating.

And frankly, within any reasonable planning horizon, I would expect inflation to continue. So that's where we're going to be. Some of the numbers are going to be pretty good, but what they say about the future is going to be pretty bad. Well, Jerry, when we look at Walmart coming tomorrow and then target the next day, how should investors think about the differences between those two companies? Is this really all come down to which companies are better positioned to have pricing power at the end of the day? Well, also, you're dealing with people who are large. These are big companies, people who have, you know, an incredible.

value position. You look for the retailers that take the least amount of the consumer dollar and waste it, you know, on overhead or anything. So Target and Walmart are two of the biggest winners in the marketplace. They have been. Look at, look, Walmart's up for the year. Target's barely down in a market where the retail index is down, as you said, 25, 27 percent, depending upon when you start and when you finish. So these are good companies. They're going to continue to be strong players, by the way. So this is not the time to think they're going to start doing poorly just because they've done well. And, you know, what we do see is it gets really bad, a very, you know, real recession. Walmart always does better than Target. You know, this has been going

on for 50 years. Walmart always does better than Target if things get really bad. And we're not there yet. We're still in an environment where I think both are going to do well. There are other companies. Take a look at Costco. Costco's down for the year, not as bad as other retailers. I think we're not going to see that going forward. Costco takes the least amount of the consumer's dollar and waste it. You get the best deal at Costco, better than Walmart, better than Amazon, better than Target. So, you know, they're down a little bit, but as we get to the fall, I think that's where consumer is going to flock.

It's going to be just fine. Costco's going to call you, Jerry, and use that last bite in their next commercials, man. That was about as good as it gets. It's just a fact. It's just a fact. Take a little, a price of Cheerios. I mean, it's, you know, per ounce, it's 20% less at Costco than it is at Walmart. Yeah, but you got to get a front end loader to bring the Cheerios home.

You got to get two boxes instead of one or something like that. I want to ask you about this, and that is rising gasoline. prices. If gasoline goes to five and six dollars a gallon, how is that going to impair the consumer who may want to go to Home Depot or may want to go to Walmart? Are they going to have to postpone some of those purchases that they otherwise might make? No, I think it pushes them to Walmart, pushes them to Target, pushes them to Costco. Well, consumers cut back on then are more discretionary spending items. So then I look at names, you know, like the department store segment that really has never fixed their strategy.

You know, when things are good, they say, oh, look, we fixed it. When things are bad, they say, oh, well, we still have some more work to do. So basically, they have a lot more work to do. So they're not going to spend their money as Macy's or Nordstrom or bed bath and beyond, you know, places like that. And luxury, God forbid. You know, when the market is bad, trust me, luxury crashes. And that's what we've been seeing in the stock market lately.

Jerry, the ad agency for Costco will be calling. Jerry Storch, thanks, man. Appreciate it. No problem. Take care. All right, coming up, we've got the national average for a gallon. Well, how did I know this? Breaking another record gasoline prices today. And according to AAA prices in California are about to hit $6 a gallon. Julia, $6 a gallon when you live. California gas prices, too high. Are we near a peak? Let's look at that. Plus draft kings, Alibaba and Neo are three stocks where analysts see big upside. We will see if our trader agrees in today's three stock lunch. And later, the CEO of Spirit Airlines, he's responding.

to JetBlue's hostile bid. It's heating up. We'll talk to him in a power lunch exclusive about 15 minutes from now. Well, folks, national gas prices hitting a new record today, according to AAA. The national average currently stands at $4.48 a gallon. You're kind of lucky if you can find it at that price. The climb higher has been jaw-dropping just one month ago. The average sat at $4.7. And come with me, folks. A year ago, it was $3.4 for more. Let's bring in Andy Lippo.

He is the president of Lippo Oil Associates. Andy, always good to see you. Welcome. Thanks for having me, Tyler. How high are we going to go on gasoline prices? Well, unfortunately, we're going to go much higher right now. My forecast is that the national average is going to hit $4.75 a gas. in the next 10 to 14 days.

And after that, we could continue to approach $5 a gallon as oil prices and gasoline futures prices continue on their march upward. If you are unlucky enough to own a diesel vehicle, which some people do, thinking that they were going to get good mileage, or you're a trucker who runs on diesel, how high is that going to go? That's already above $6 in some places. Well, right now the current national average is around $5.57. And actually, diesel prices have stabilized for the time being, as we're seeing demand destruction, especially in Central and South America, as well as in parts of Southeast Asia. So the market is trying to get better in balance on the diesel front, but there still is a potential to move on up another 15 or 20 cents a gallon. These numbers are just remarkable.

And, Andy, I live in California. The gas prices are so high. It's shocking sometimes to pull up to the pump. And I just wonder if you have a sense of whether the differential is going to grow in some of these states. And if California's prices are going to continue to get even higher, or if you think we're just going to see growth across the country, and at what point people are just going to stop driving and stop taking road trips in summer? Well, I think gasoline prices across the country. are going to continue to go up, especially in California, where the consumer has to pay more

just for the type of gas that they're burning due to stringent California regulations. But in addition, California charges a 51 cent per gallon state excise tax. The consumer is paying another 40 cents a gallon and other environmental fees. And if you add on top of that additional sales tax, as well as what the credit card companies are charging you, you can see why. California runs about $1.20 a gallon versus other states like Texas, Oklahoma, or Kansas. Yeah, I mean, I guess my question, though, is at what point does it really start to impact consumer behavior here in the U.S.? You know, we always talk about the summer as being a big driving season,

and obviously people have to drive to work. They have to drive to take their kids to school. But when it comes to that discretionary driving, the road trip, the extra trip to the store, at what point do those high gas prices really start changing consumer behavior? Well, we're starting to see that on the fringes, especially in the Northeast, where gasoline prices are far higher than the national average. But I would say once you get to $5 a gallon or $5.20, then you're going to start seeing significant gasoline demand destruction as consumers across the country are going to combine their trips. As far as this summer's driving season, I think Americans are going to take to the road. been cooped up the last two years. And when you're faced with, are you going to drive or are you going to fly where airline tickets have also been increasing as jet fuel prices are soaring as well,

I think the consumer is still going to be driving this summer. Still going to be driving, but paying a lot more for it. Andy LaPow, thank you so much for talking to us. Thank you. Now further ahead on the show, The Disruptor 50. We're getting ready to unveil the list of startups changing the tech world. We'll how some of the previous years Disruptor graduates are performing. Plus, we'll take a look at one company disrupting the liquor business, turning carbon emissions into vodka.

Welcome back. Tomorrow, CNBC is unveiling its 10th annual Disruptor 50 list, which highlights the fastest growing and most powerful private companies that are disrupting the public giants. Now, since launching the Disruptor 50 index in 2016, our companies who have graduated from the list have outperformed the broader NASDA.

stack. But that growth hitting a major slowdown over the past year as investors move away from growth and into value. Some disruptor graduates, though, seeing major market collapse declines from their original IPO valuations. Root insurance down 95% since it's October 20 IPO. Blue Apron down 93%. But it's not all bad. Some names did double their market caps. Shopify's up over 3,000 percent, block formerly square up over 1,000 percent. Now, the combined value of this year's Disruptor 50, which we are announcing tomorrow, will be the highest ever. And the list is going to be revealed tomorrow on Squackbox and at cnbc.com slash disruptors. So these companies, Julia, and this was really all credit to you, and this was your baby.

This was your invention, basically, and a really great and enduring one. These are private companies to make the list. Exactly. Once you go public, you're no longer. Once you go public, you graduate. And now you are added to this Disruptor 50 index. We have 80 companies that have graduated, meaning gone public, and are now publicly traded. We could track the performance of this index.

And what's been fascinating about the performance of the disruptors is they've actually far outperformed the NASDAQ over the past decade. But in the past year, when we've really seen these growth stocks hammered, they have underperformed the NASDAQ. But so interesting to see how it plays out. But the whole idea is to look at the private companies that are going to be the next giants or are currently disrupting these incoming. So as you look at this list of 50 that will reveal tomorrow, correct, I guess some would repeat year after year, right? Some repeat year after year unless they graduate because they're either purchased or they go public. But what's different in the group this year from prior years? Do you see any sort of difference in texture or industry or? We tend to see

different trends emerge. So for instance, health care, health tech companies really rose to prominence in the past couple years during the pandemic, we will see more health tech companies this year. Also, fintech and logistics are two key areas to watch to give you a little tease. And you'll be here tomorrow to present it all. All day long. All day long. All right. Fantastic. Julia Borsden. All right, let's get to Sima Modi now for a CNBC news update. Take it away, Seema. Hey, Tyler, here's what's happening at this hour. A senior official in the Biden administration telling NBC news that the president has approved a plan to redeploy hundreds of U.S. troops to Somalia in an effort to fight the al-Qaeda linked extremist group al-Shabaab.

The decision reverses former President Trump's move to pull most U.S. troops out of the country. The U.S. Navy Secretary is expected to visit the USS George Washington tomorrow after at least five crew members committed suicide in the last year. Several sailors tell NBC news that they lack resources and their living standards on the ship are not, quote, necessarily up to par. The Supreme Court is striking down a federal restriction on political candidates, loaning large amounts of money to their own campaigns. Republican Senator Ted Cruz challenged the restriction by intentionally loaning more to his re-election campaign in 2018 than was permitted.

And French President Emmanuel Macron appointing a woman to the position of prime minister for the second time in the country's history, Elizabeth Warren, currently the Minister of Labor and previously served as a Minister of Environment. Tyler and Julia, back to you. I thought you said Elizabeth Warren. Elizabeth Bourne. No, not Elizabeth Warren. Elizabeth Bourne. Thanks, Seymah. All right, JetBlue, launching a hostile takeover with Spirit Airlines. And after the break, we will head to Phil LeBow with Spirit's CEO, Ted Christie. Plus, three names down big this year.

But analysts are promising huge upside will reveal the stock that Wall Street thinks can rally more than 40% in today's three-stock lunch. All right, we got 90 minutes of trading left in the day. We want to get you caught up on the market, stocks, bonds, commodities, everything else. and the CEO of Spirit Airlines. Let's check on the markets right now. The Dow is at session highs or thereabouts, up more than 300 points, about 1% at 32,503. The S&P 500 is a little bit higher, solidly back above 4,000.

The NASDAQ is now close, close, close to turning positive at 11,800, down about four points. Fears, once again, about the economy stocks in things we need to buy like energy. They're going up today. But stocks and things we may want to buy are heading lower some of them. Travel, crafts, coffee, coffee, even swimming pools. Consumer discretionary. Oh, there you go. Right behind me there.

There you see them. The worst performing sector. Now, now, I walk over here, two more steps. There we go. See, bond report. Rick Santelli in the bond market where some economic worries are playing out. Mr. Santelli. Yes, definitely some economic worries.

As a matter of fact, if you look right now at Treasury, We have a two-year note hovering just a smidge higher yield than we closed on Friday, 30-year bonds as well. So you have kind of the barbell. Both extreme short maturity and long maturity have a little pressure. But the rest of the curve is mostly hovering near unchanged or yields are a bit lower. But the big story is, as the global economy in the U.S. have question marks, we're getting further and further away from recent extremes of interest rates. Look at our two-year. 285 is the intraday extreme or 27.

basis points below that. If you look at the next three charts, they all at their intraday extremes on the 9th of May. So as you look at a 10-year, we're down 31 basis points from that 320. You look at Boone's. They hit very close to 120. They're now at 93. They're down 26 basis points. And if you look towards the UK, who may have the most questionable economy of all, their high watermark on their guilt was 2.07% currently at 173. That's minus 34 basis. points. The point of this story is that even though the Fed has many more tightens in this cycle, the Treasury market for the moment certainly seems to have put in some tops that look to stand. Tyler, back to you.

Rick Santelli, thank you very much. Let's move to oil, started the day lower, but has been gaining throughout the session. Pippa Stevens is at the commodity desk. The prices are up in the teens now, and I mean 110. Hey, Tyler, that's right. It's green across the board today in energy markets and starting with oil, we did see a mid-morning turnaround amid growing optimism that Chinese demand will bounce back with Shanghai set to reopen in June. This says the EU continues to debate a possible Russian energy ban. Oil is now at the highest since March and Goldman Sachs is Jeffrey Curry telling Squawk box this morning that we don't know how high it can go. The firm's base case is $125 per barrel, at which point they think demand destruction sets in. But

There are a lot of factors here that could push oil much beyond that 125 level. Let's check on prices. WTI is up 3% at 113.86. Brent crude right about $114 per barrel for a gain of 2%. Natural gas up 3.5% inching back towards that $8 level. And gasoline futures up 1.5%. Tyler, hitting another record high today. All right, Pippa, thank you very much.

Well, JetBlue launching a hostile bid now for Spirit Airlines. originally after offering $33 a share for that discount airline. And now the Spirit Airlines CEO is ready to speak out. Whom other than with Phil Leboe, who joins us now with Spirit Airlines CEO, Ted Christie. Phil? Thank you, Tyler. Ted, thank you for joining us today from the Spirit headquarters in Miramar, Florida. I know you can't go into details about the tender offer of $30 a share.

You still need to go over with the rest of the board from Spirit. but what's your reaction to JetBlue coming back and making yet another bid to buy spirits? Well, thanks for having me on, Phil. Appreciate it. Yeah, you're right. We can't comment on the tender offer until our board has had time to review it. But I think what we can talk about is the prior proposal that we received for them at $33 to share and why our board determined that it was not a superior proposal to our current merger agreement with Frontier.

And it really circles around the primary issue of whether or not that transaction could be consummated. And we invested extensive time with JetBlue and their regulatory advisors, along with our regulatory advisors and financial advisors, reviewing the strategy and looking at ways that it might possibly get done. And what we determined is that it's not likely to be approved. And it really boils down to a couple of things. First and foremost, JetBlue is in active litigation with the Department of Department of-Refruit. of justice today on the Northeast Alliance with American Airlines. And we view that as a very critical issue as it relates to trying to solicit additional regulatory approval. And in addition to that,

it's problematic because it is a higher, fair, higher cost airline buying one of the largest ULCCs in the Americas. And so for those reasons, and our board did put a tremendous amount of effort into this, they determined that it was not likely to be consummated and therefore not superior. Okay, Ted, there's a disconnect here because when I talk to Robin Hayes, He says, you guys didn't do your due diligence. An exact quote from him is, we've been disappointed by their lack of engagement, meaning your lack of engagement. We don't think the Spirit Board did its fiduciary duty considering our offers. They have hidden behind the regulatory approval argument as a smokescreen.

Basically, Ted, he says, you guys didn't do your job. You didn't really consider their offers. What do you say to that? Well, I think that's a bit frustrating that they're putting misinformation in the market because the truth is farther from that. We engaged with JetBlue early on in their process and spent the better part of a month in back and forth with them. Numerous conversations between us and them and their regulatory advisors. In addition to diligence, we opened up our data room to them. We had an extensive call with them.

I participated in a diligence call with myself and my CFO with Robin and their CFO, and they asked us all the questions they wanted to ask us about the business. And in fact, at the end, complimented us on being transparent and productive. So we felt that that whole process, quite frankly, was very constructive. So we're a little surprised and frustrated that they're spreading that misinformation. Our board invested considerable time and effort in reviewing their proposal and determined it was not superior. Ted, you know their commentary on Wall Street. There are a lot of people who think, forget about JetBlue.

The merger between spirit and frontier doesn't have much of a chance of getting through with this administration. Do you honestly think that you can do a combination and it will get DOJ approval? I do honestly think that, Phil. In fact, it's one of the reasons that we're excited about that transaction is this is a different type of deal. The reason that we view the JetBlue deal as problematic is the antithesis to the way we look at the frontier deal. These are two like-minded, low-cost businesses. They're looking to expand and drive more stimulation with lower fares. This is not a discussion about capacity constraint and higher fares, which is what we're hearing out of the JetBlue camp.

And we view that as very problematic from a regulatory perspective, whereas with our frontier transaction, it's about growth, it's about more low fares. We think it's going to be very good for our shareholders because it's going to have tremendous synergies as we extract additional utilization and flying out of the combined business. It's great for team members. We're going to create 10,000 plus jobs over the next five years. And good for consumers, you know, over a billion dollars in savings that we think we can deliver. Hey, Ted, JetBlue has already started reaching out to your largest investors. And I'm assuming that you have done the same, or you've at least kept them apprised of your thought process as you've gone through this entire process. How active will you have to be over the next several weeks?

As it's clear, JetBlue is going to come in saying, these guys haven't done their work. We're a better company to merge with than Frontier. Well, we're going to do exactly what we plan to do, which is we have an exciting transaction to put forward to our shareholders. The vote is scheduled for June 10th. We're going to be reaching out to them and making sure they have all the information they need to make a good informed decision, which we're supportive of this transaction, management and the board recommend this transaction to our shareholders. So we stand by that decision. We think we'll be able to show them all the information they need.

Obviously, we've been active already, but that will continue here over the next month as we get closer and closer to the vote date. But we were planning on doing that anyway. And so we're looking forward to getting that done. Ted, thank you for joining us today. I know there are a lot of people who wanted to hear from you, a lot of your own investors who wanted to hear from you. And I appreciate that we've had a chance to hear from you, Ted Christie, the CEO of Spirit Airlines. Bottom line is this, Tyler and Julia. I think over the next several weeks, what we have here is a pitched battle where you have JetBlue coming out and saying, we are the better deal. Spirit is going to have to say, uh-uh, we think Frontier's the better deal. Interesting to see how this will shake out between now and early June.

Absolutely. And we see Spirit shares up about 13 percent. Thanks to you, Philibault and Ted Christie. And when life gives you carbon, make cocktails. We'll take a look at one company using emissions to make vodka in today's clean start. And before the break, check out shares of Robin Hood. That stock lower today continuing its declines this year of more than 40%. The company CEO Vlad Tenev joins us live tomorrow for a CNBC exclusive. So here's a new one. What if you could turn the dangerous carbon emissions that contribute to global warming into a martini? But this is no toxic cocktail. Senior climate correspondent Diana Oleg joins us now with the latest in her series on Clean startups.

Diana? Well, Julia, we've reported a lot on carbon capture, which is various methods that take those dangerous CO2 emissions from factories and other sources. and keep them from getting into the atmosphere. But what do you do with all that CO2? Well, how about making vodka? It's the best vodka on planet Earth. And says the Air Company CEO Gregory Constantine,

the best for planet Earth, because the vodka is actually made from greenhouse gas emissions. We work with partners that capture that carbon dioxide before it's emitted into the atmosphere, and then we use that CO2 in our process in creating the alcohols that we create. Distilling alcohol the old-fashioned way not only releases its own emissions, but it uses a lot of water, about 35 liters of water, to make one liter of distillate.

It's obviously far better for the planet in that we're removing CO2 for every bottle that we're creating. The scientific process in these laboratories is invaluable, but it's not cheap. Air vodka, a three-year-old startup is a luxury brand, about $65 a bottle. But at bathtub gin in Lower Manhattan, the vodka is getting high praise. So once we tell them, hey, this is how it's made, and it's got a negative carbon footprint, all those really beautiful things is what happens

to make them want it even more. And then they go looking for it going, where can we get it? The company is now going beyond vodka, launching a perfume line made of CO2 and opening its third production facility. Vodka for us is really a gateway towards all the other products and then the industrial applications of where our technology can go.

can go. The Air Company is backed by Toyota Ventures, JetBlue Technology Ventures, Parlay for the Oceans, and Carbon Direct Capital Management. Total funding to date, just over $40 million. Carbon capture is now becoming big business as we look not just to reduce greenhouse gas emissions, but to keep necessary emissions from getting into the atmosphere. The more carbon we capture, the more opportunity there is to put that carbon to use. It's now being used to make everything from vodka to ice,

glasses, laundry detergent, Coca-Cola, even jet fuel, Julia. Wow, an amazing step. I was fascinating by the fact that you can use the carbon for so many different things. What kind of competition are we seeing among other companies in the space? I mean, this company raised $40 million. There must be a lot of interest from entrepreneurs. Absolutely. Because we're seeing so much more of this carbon capture, I mean, I'm getting pitches every day

from companies that are doing different types of carbon capture. And then the next step, of course, is another company that might, it and shoot it into the ground, or as I said, sell it to Coca-Cola. But the more carbon we capture, the more companies are going to want to do something interesting with that carbon. And that's just not a bad thing. It's not a bad thing. And I bet consumers are interested in that as well. Thank you so much, Diana. Next time you're here, Julie, we'll do a taste testing. Absolutely. And we'll invite Diane. All right. Coming up, today's three stock lunch, these three names are down big for the year. But analysts say, look on the upside. We'll trade them next.

It's time for today's three stock lunch, where we trade three of the biggest movers of the day. On the menu today, three big calls where analysts are seeing huge upsides. Draft Kings with a whopping 153% upside is Jeffrey's reinstate's coverage with a buy rating. Neo, a 73% upside as Bank of America upgrades the stock to buy, and Alibaba with a 47% upside after receiving a double upgrade from J.P. Morgan. Let's bring a Jeff Kilberg's sanctuary wealth chief investment officer and CNBC contributor. And let's start with Draft Kings. Are people really going to be gambling more when they're in a recessionary environment or inflation stays high?

Well, Jerry, you know I love a liquid lunch, so great to be here. But let's talk about these three names all dramatically down. But Draft Kings, I think you're absolutely right. People still are gambling. The next generation that become a hobby, betting five or $10 on the Celtics or whatever the NBA finals may look like. But interesting enough, the American Gaming Association stated that they saw first quarter revenue at $14 billion in the whole gaming industry, which Draft Kings, as you knows, has about 25% of that marketplace. That's the biggest year ever. So I think to your point, inside of inflationary pressure, inside of all the things that are going on from a headwind from a macro perspective, yes, you are seeing it.

So I look at this oversold name down about 52% year to date. I want to see it get back above. It's 50 day moving average at 1650, but I think this is a buy. I think this is an opportunity because you have to remember the all-time high was trained up at $74 just a year ago. Give us the thought on Neo, the stock, not the singer-songwriter. You know I love Neal, Tyler, but it's interesting enough, and I am not a buyer yet. By no means do I want to fade or go against George Soros. George Soros actually took a position about an $84 million position in his nearly $7 billion fund.

I think there's just a better opportunity for a lower price in acquiring this stock in Neal. And why is that? It's just ambiguity. Yes, they are the leader in EV. Yes, I think they have a solution on coming with more of a middle class EV car solution. But we don't really know what the lockdowns inside of China have done. So those ramifications are making me sit on pause and stay poised. But Neil and with George Soros, you are seeing a little pop in the stock. But again, another stock that's been decimated as we really can't measure the uncertainty coming out of China. Final name here, Ali Baba. That stock also weighed down in the past 12 months. What's your play here? I think you buy Alibaba, and I actually own it through an ETF, PGJ, which is the Invesco Golden Dragon index ETF. But Alibaba, another name really hasn't recovered since Jack Ma made a lot of comments, which financial regulars did not like in China. But I think if you look at the massive growth potential inside of the cloud business for Alibaba, that's going to be a congruent line, Julia, to what we've seen in AWS for Amazon. So I think there's an opportunity here. The $233 billion market cap is about 25% the size of Amazon.

So I like being a buy-here as we see the second largest economy in China come back online, hopefully this summer. Jeff, thanks so much for joining us for our three-stock launch. An $80 million dollar Bel Air Mansion went up for auction and the bid came in. But the real action happened after the auction ended. That story. Next. An $87 million mansion went up for auction. The bids started coming up and in, but not the way the owner wanted. Robert Frank has the details.

Robert. Now, Todd, this is a mansion in Bel Air listed for $87 million. It ended up selling for just $46 million. The seller is a celebrity dermatologist named Alex Kedavi. He built the house on spec, hoping to sell it for a profit. He told CNBC the auction was flawed and, quote, horrible. He said that concierge's office. which sold the property guaranteed him a price of at least $50 million.

He also complained that the sale came as crypto and markets were collapsing. Concierge saying, quote, we are confident that market value was delivered. And by the way, this price was largely in keeping with other big recent auctions. We have the Mega Mansion nearby called the One. That was listed for $295 million, sold for $140 million in auction back in March, and a home in Beverly Park that was listed for $165, ended up auctioning for $51 million. This Kadavi house is 21,000 square feet.

It has a hydraulic DJ booth. It's got a marble car gallery and a glass elevator. Kadavi defaulted on the loans on the house, which forced it into bankruptcy. Now, people familiar with this bankruptcy tell me that he owes more than $50 million in the house so the proceeds won't cover his debt. So, guys, that's why he's upset.

He's underwater on this property, even though it's sold for just under $50 million. Maybe as rates rise and we see these wobbling stock markets, we could see more of this, especially in these crazy spec markets like Bel Air and Beverly Hills. Crazy spec markets. Indeed, you just have to wonder how big is the market size? How many people could possibly want to buy a $50 million $21,000 square feet house? I mean, it just seems to be rather small, right? Yeah, and it is a small market.

And there were so many, as you probably know, you know, up in Bel Air and Beverly Hills, there were a lot of actually plastic surgeons, dermatologists, luxury people that weren't really in real estate that built spec houses, thinking this was a big market, thinking they could put any price on it, and the deaths just ran up. And we see a lot of these houses now coming on the market, even in a relatively strong market. I mean, the L.A. market is strong, but these prices were based more on hope than reality. L.A. market's still strong? Yes or no? I mean, I'm clearly not as strong as it used to be. Julia, it's been great having you here.

It's great to be here, Tyler. See and see the rest of week as well. Thanks for watching, Power Lunch.