Power Lunch - The Inflation Situation, and Crypto Collapse 11/10/22

Episode Date: November 10, 2022

Stocks are soaring on cooler-than-expected CPI data, and investors are jumping for joy. Is it time to prep your portfolio for a Fed pivot? We’ll debate.Plus, we’ll speak to the CEO of Coinbase about the future of crypto, fallout from the FTX collapse and the ripple effect throughout his industry. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Phil LeBoe, the Mannheim steamroller. That's what we're talking about. Welcome to Power Launch, everybody. Along with Frank Holland, I'm Tyler Matheson. Here's what's ahead on a very, very busy hour, very interesting day. Inflation Nation, no more? Well, stocks are soaring, yields dropping. Commodities popping as investors cheer, a cooler than expected CPI report. Is it time to prep your portfolio for a Fed pivot? And the crypto fallout. We will speak with the CEO of Coinbase about the future. of the industry, the collapse in confidence and folks, the ripple effect of the crypto fallout.

Hi, Frank. All right, hi there, Tyler. Welcome to Power Lunch. I'm Frank Holland. Joining Tyler today, stocks in full rally mode falling that core than expected CPI report. The S&P and the NASDA, they're on pace for their best day since April of 2020. You can see right here, they're trading pretty close to their highs of the day. Let's head to Christina Parts and Evelace for a look at the movers. Hey, Christina. Yeah, we're talking about a 6% swing on the NASDAQ, over 4% on the S&P 500, it's pretty much a sigh of relief after the consumer price index came in, and I want to add this word, slightly cooler than expected. And the reason we're seeing the markets bump up higher, you've got investors resetting

expectations for the pace of rate hikes, even if Fed Chair Powell said he needs to see a multi-month string of numbers like this before shifting policy. You got algorithms that are at play, as is short-covering, adding to the jump in volume today. Plus, the dollar index hitting a seven-year low. All of these factors helping markets. The biggest S&P winners right now. Caesar's Entertainment, Invesco, Etsy. Look at those numbers all up over double digits.

And then you got Hershey's Altria, CBOE down the weakest players, but really they're only down between what one and four percent. Mega Cap Tech, though, adding to the NASDAQ. You got Amazon up over, whoa, 13, 11% right now. Apple, Alphabet, Microsoft, all over 6% higher. Those names helping Kathy Woods ARCETF, which is up quite a bit today over 10, 12% now, but still down 1% over the past five days. Chip seeing a really big turnaround, too, on the heels of Taiwan Semiconductor posting its second highest monthly sales in October.

And then you've got ASML, another chip maker manufacturer, up 13% after upgrading its 2025 forecast and announcing a new buyback program. And since we're talking about Risk on, remember all those pandemic names, Zoom, GameStop, Peloton soaring today. Peloton, 13% higher. Tyler. Christina, thank you very much. I'll go out there and do an afternoon workout on the Peloton. I hope so. Oh, yeah, I need to.

I need to. Oh, no, I didn't mean it like that. A hitting hills. That's what we're going to do. All right, now to the bond market. We got yields. They are collapsing the 10-year-down 31 basis points, almost a third of a percentage point. Today, Rick Santelli, with the action yields down.

Prices up, Rick. Yes, it is a historic day with regard to these intraday moves. And it all started with. In my opinion, the year-over-year numbers on CPI, specifically core CPI. Let's look at the chart. It came in at 6.3%, which is below the 6.6, which was the highest since 82. And the reason I'm showing that chart is, listen, I'm not casting doubt on the rally in the markets or the big moves, but boy, it really didn't come down that much, and I think we need to be cognizant of that.

Look at a two-year note on an intraday perspective. What a drop. As a matter of fact, it's now on pace for a two-week low-yield close. And it doesn't end there. Here's a chart of tens. Tens? Well, they're trading currently right around 385. We all know that it was over 4% before the number came out.

It's on pace for a one-month low-yield close. And finally, how did that affect the recession spread? Well, in a big way. Here's three months to tens. currently trading at minus 31 basis points. That's the most inverted. This spread has been in three years. And finally, the dollar index.

Maybe the most important market to pay attention to, of all. It has the biggest reach. Cheaper dollars are a good thing for economies outside the U.S. Maybe not so good if you're within the U.S. with regard to, you're going to be paying slightly higher prices on what we import. but maybe the notion is that the negatives probably are smaller than the positives to many, and it's on pace right now for a two-month low close. It's currently a seven-week low intraday level.

Tyler, back to you. Very interesting. Rick Santelli, thank you very much. Let's move on to stocks, which are rallying on hopes that a cooler than expected CPI report means that inflation is peaking and the Fed will start maybe to take its foot, off the brakes. Our next guest says not so fast. The data will confirm the Fed's view that more measured rate hikes are needed, but will not stop them from raising rates. Let's bring in Diane Swank, our friend and chief economist at KPMG. This was a little bit of a rollover, I suppose, in the rate of price increases, but there's still, Diane, a long way to go before the Fed gets

anywhere near to its long-time goal of, a long-term goal of 2% inflation. Exactly. We're several multiples ahead of what that long-term goal is. And I think that's what's important to the Federal Reserve. And so they have been, you know, they've said, listen, we're going to have more measured rate hikes going forward, but that doesn't change the fact that we think we still need to go higher on rates than we did just a few months ago. And I think the market is losing sight of that. They keep waiting for the Fed to get to that point of saying, we're going to cut rates. We're still a long way from that point. And I think that's the part that gets lost in translation. The Fed would. counting on the slowdown in goods prices that we saw in declines and things like use car prices that we saw to offset the inflation that we're seeing in the service sector. And you do, yeah, you still see pockets where the inflation is anything but kind of turning down. Exactly. In fact, in shelter costs, we had the highest year-over-year increases in owners equivalent rent and rents that we've had since 1982 and in rents, the highest. on record. So I think that's really important to remember that these are still very, very

elevated rates. I do think that they'll come down more rapidly than the Fed thinks they'll come down because of the disorderly correction we're seeing in the housing market. That said, this is still not over in terms of a rate hiking cycle. And the Fed is still looking at tightening financial conditions. And they'll look at anything that looks like it's easing financial conditions and think they have to double down on the number of rate hikes, even if they're more much. measured. Hey, Diane. Frank Holland here.

You mentioned what the Fed's looking at. What about these layoffs that we're seeing in the tech sector and other areas? Meta is obviously a headline one that we saw this week, also Salesforce and a number of other companies. Does the Fed actually pay attention to that along with the CPI data? Absolutely. But I think what's important in terms of the tech sector is, first of all, they hired up rapidly. They've been on fire.

And on the other side of it, I know many, many firms that are more than happy to snap up those workers. I have very strong doubts that they will be unemployed for any length of time. And that's the nature of the labor market we're in right now. And it's one of the things that the Federal Reserve is sort of struggling with is that we still have a demand for workers, even though you have pockets that are weakening, demand for workers that outpacing the supply of workers out there by a significant margin. And so the Fed's watching that, but they're also watching, what is the gap between the demand for workers and the supply of workers?

and to narrow it, you've got to both hammer demand. And ultimately, what they have said is some pain, which is increasing the supply via an increase in the unemployment rate. You've got the federal funds rate between three and three quarters and four percent, probably moving another half point higher at the next meeting in December. Where do you think that number, which is really the number that the Fed controls? Where do you think, well, look, there is the Fed rate outlook. Where do you see the terminal rate and when?

We've got it there at 4.83% in May. Does that feel right to you? Do you think it's got to get above five? I think it's going to get a little bit above five, and I think the Fed's going to be cutting sooner than they expect in the end of 2023. It is this concern the Fed has, and it's a rightful concern, learning from the mistakes of the past. If they don't eradicate inflation and get it down to a sustainably low level this time around, they risk a much more corrosive and longer bout of inflation that we're going to. even higher unemployment and a deeper recession. So that's what they're all in on, and that's important to understand on their perspective. That said, I do think that some of the things that come off were bursting a housing bubble,

a pandemic-induced housing bubble. As we burst that bubble, that kind of disorderly declines that we're going to see is going to follow through and show up in measured and experienced inflation much sooner, I think, than the Fed expects. All right. Diane, thank you very much. Always good to see you. Appreciate it. Diane Swung, KPMG. All right, let's go to Kate Rooney now for a market flash. Kate. Hey there, Tyler. So we have some news on Coinbase, the crypto company, cutting more jobs. This affects two teams at the crypto company comes after the exchange cut about 18% of its workforce earlier this year.

We've got a statement here from a spokesperson. They say this affects the recruiting team. They say that's in connection with lower planned hiring needs. Second, the institutional onboarding team as well. They say these are ICE. and targeted actions by two teams to help Coinbase operate more efficiently and as efficiently as possible. They also say they're navigating what they call a difficult cycle right now. It comes as crypto and tech companies out here in Silicon Valley. Look to tighten their belts, show a little more cost discipline. We, of course, saw meta this week.

But the latest from Coinbase there. You can see the stock today is up more than 10%. Back to you. All right, K. Rooney, thank you. And we'll have much more on the crypto fallout later in this hour. In Power Lunch, Andrew Ross Sorkin says down with Coinbase CEO, Brian Armstrong, Make sure you stay tuned for that. More now on the huge rally that we're seeing.

Our next guest says, value will trump momentum and growth in the near term, value stocks. They've outperformed growth in the last year. The question is, will that trend continue? Let's bring in Lorene Gilbert, CEO of Wealthwise Financial. Lorraine, thank you for being here. Thank you. So, I mean, obvious question here. Do you see that trend continuing with everything we're seeing?

The CPI report, also the Fed potentially hiking rates again. A lot of people expecting, again, another 75-point basis hike. Yeah, the good news today with the state. The CPI number shows that the areas that the Fed does not really control and food and energy are starting to roll over. And that is good news because Fed can't really control that and we needed to see those numbers come down. When it comes to the markets and where we are, we had the stay-at-home play and then the reopening

play. And now we have an old economy play that's happening right now and some of those value names and where we see those value names, we think, can outperform the growth names. for the sustainable future. All right now. We're looking at the Dowler arena. The Dow near at session highs right now. The NASDAQ also pretty close to the session highs

as well as the S&P trading pretty close to its highs of the day. And I want to ask you about this. I'm going to use a Fed word right now. Premature. Are the markets perhaps celebrating a little bit prematurely? We got a really positive, cooler than expected CPI report. But one thing we have to note,

this winter has been a lot milder than expected here in the United States and over in Europe. So we could see a spike in energy prices. We definitely could. There's a lot of what if scenarios that are out there. But what I will say is we just had the midterm elections as well. And we think that we're going to have a split Congress. And with that, it tends to bode well for the markets. So with CPI numbers coming down, we have a split Congress. What does that mean? That means regulatory laws will probably not go into play. Things like share buyback taxes will not happen. So I think there's a lot of positive outlook and operational. optimism that there can be in the market. But it is premature to think that the Fed will stop raising rates. We certainly think that's going to continue. You know, Lorene, I don't know, and really nobody knows whether the market has hit a bottom here

and is done with what it needs to get through to set the stage for something moving higher later. I have no idea. But one thing I do know is this, that today speaks to me of something that's important, And that is the importance of staying in the market and not trying to time it. There's that old fact, and I'll get it wrong, but that something like 40% of your return comes on in a bull market comes on 10 days of the bull market. This may well be one of those days. Talk to me about that.

So, Tyler, you're right. And investors get weary. And right now we have a lot of investors that are weary. It's been a very difficult year, both in equities and fixed income. So with that, it is a matter of staying the point. course and being time in the markets, not timing the markets, is much more important. And so with that, those are the conversations we're having with investors, is how to stay in it and how to make the most of it right now. And like I said, I do think that value tilt really will help with investors,

not just gross stocks. All right. Lorraine, thank you very much for your time today. We appreciate it. Lorraine Gilbert. Thank you so much. All right, coming up, shares of ZipRecruiter soaring today on the back of strong corporate results, great guidance, new buyback program. We're going to speak exclusively with the CEO about the state of the jobs market and why a cool down isn't necessarily so bad for business, his business. And what does the FTX collapse and the huge downturn in the crypto market mean for the overall market and U.S. investors? The CEO of Coinbase will join us to tie it all together and talk about the news we just heard regarding layoffs. As we head to a break, take a look at some of the names, hitting all-time highs today.

today. Raymond James, Alba Marl, McDonald's, O'Reilly, Automotive, among them. Welcome back to PowerLunch, shares of the online jobs site operator, ZipRecruiter, jumping today following better than expected earnings and a strong outlook. The company also announcing a $200 million increase in its stock buyback program. Here with more on that and the state of the jobs market, Ian Siegel, CEO of ZipRecruiter. Mr. Siegel, welcome. Good to have you with us. Thanks for having me. Can you do as well, corporately, in a somewhat lower job market, as you have been doing in this very hot one? I mean, the nature of the job market is it tends to be cyclical, and we have been in what

has effectively been a bull labor market for the last eight years, barring a brief downturn during COVID. We have seen a sub-4% unemployment for a protracted period of time. What you're basically seeing right now is a re-leveling, where instead of it being a highly advantage market for job seekers. You're starting to see the balance of power shift a little bit back towards employer. And honestly, that's healthy for the labor market. Healthy for the labor market, but back to my question, can you make as much money in a slower job market than you have been in this, as you say, sort of eight-year bull market for labor? Well, the great thing about ZipRecruiter is we run a highly flexible business model, and we've been able to demonstrate that

flexibility. So if you go back and you look at 2020, when COVID hit, we actually went backwards 3% from what we'd done in 2019, and yet we were able to generate 15% adjusted EBITDA margins. The following year, as the economy reopened, our business soared. We grew 77% and we were able to maintain those EBITDA margins in spite of the fact that we were investing so aggressively into it. This year, you're seeing the labor market ease, and yet we're still growing 20% and we are going to throw off adjusted EBITDA margins of 20%. So my answer to you is unequivocally yes. We can absolutely continue to thrive in a diverse array of macroeconomic environments.

Which sectors are you seeing the greatest softening in in terms of labor demand and which, I think I know the answers. And where are you seeing continued strength or even accelerating strength? Well, it's very clear that there were a lot of categories that not only, needed to reopen but completely restaff post-COVID, post the shutdown of the economy. So you look at things like hotels and restaurants, and they were adding, I think it was around 500,000 jobs a month. And now you look at it and last month they added 34,000 jobs. So they have effectively staffed back up. It's creating a substantial deceleration in the number of open jobs. We've seen this pattern persist for two quarters now. It's something we expect to continue.

However, that's offset by the fact that SMBs, by and large, are slowing their hiring much faster than Enterprise. Enterprise is actually an area that ZipRecruiter has made significant inroads with over the last couple of years. And part of my confidence about how our growth will continue to perform and or our adjusted EBITDA is related to the fact that we've been penetrating enterprise and continuing to have success with that. Hey, and Frank Collin here. You know, I want to ask you about the hottest sectors and jobs. We're just showing the wall just a second ago. The first one was nursing. Obviously, healthcare has very stable demand, but the other four in that top five list, they're all levered to consumer or business spending at some level. Do you think you can maintain your guidance and the activity on your site if we see a slowdown in spending in sales, which is going to impact that? Software, certainly truck driving if consumers are spending less. Yeah, well, we were able to give guidance in our earnings call yesterday for fourth quarter, and in that guidance, we were able to modestly raise our top line guidance as well as.

as raise our bottom line guidance. So the answer is yes, we have pretty good line of sight into what's happening inside of the economy. You know, what the future holds is still uncertain. Certainly the depths of how deeply the trough will go inside of this current labor market, a little bit unpredictable right now. But as far as what we have line of sight too,

we feel really confident about the numbers that we have projected for fourth quarter. All right, Ian, thank you very much for your time today. We appreciate it and continued. Good luck to you. Thank you for having me. You got it. All right.

Ahead, as the FTX fallout continues, has it created a crisis of confidence in the crypto market? And what does it mean for companies in the ecosystem? We're going to talk with the company's CEO ahead. Plus, we pivot lunch, Frank. Yeah, it's absolutely a little bit of a switch here. We've got some stocks to buy if the Fed decides it's time to slow down its rate hike path. And as we had to break, a look at the markets right now. Markets trading pretty close to session highs right now.

We see the Dow's up 3%. the S&P up 4.5% the NASDAQ doing the best with rates declining, down to about 3.84%. The high just two days ago, Tyler, 4.2% of the 10-year yield. Stick with Power Lunch. We'll be right back. All right, welcome back to Power Lunch. Huge market rally today on hopes inflation is finally cooling the NASDAQ having his best day in two and a half years. And Big Cap Tech, we're talking Apple up 6.5% over 6.5% actually. Microsoft as well. Alphabet up over 7% all having a big day. you can also see Amazon up more than 11% on a day when everything is soaring. Consumer discretionary, that's the best sector, especially those housing stocks. Let's take a look at the home builders. Double-digit gains across the board. We're seeing Lenar up more than 12%, almost 13%.

Sanford Pulte Group. Down here, we're seeing NBR up almost 10% as well. And if you need to buy a new house, well, you may need to go to Lowe's to get a carpet, some appliances, maybe even some stuff for your pool. Big gains there as well. Also, vacation and travel stocks also with big games. We're talking casinos, cruise lines, everything just jumping today. Caesar's up almost 16%. Carnival up over 12%. Marriott down there. A laggard on a day like this up more than 5%, believe it or not.

All right, now time to get over to our CNBC News Update with Bertha Coombs. Hey there, Bertha. Hey, Frank. Here's your update for this hour. Washington, D.C. is suing the Washington commander's football team and the NFL. The city's Attorney General announcing moments ago a civil protection lawsuit alleges that D.C. consumers had their rights violated when the team's longtime owner, Dan Snyder, lied about his knowledge of workplace misconduct and sexual harassment. There are a number of

ongoing investigations into the team, and Snyder took steps last week that indicate he could be looking to sell the franchise. Meantime Supreme Court Justice Sonia Sotomayor has rejected another challenge to New York City's vaccine mandate, a group representing city firefighters, teachers, police officers, and others has argued that the city's mandate violates religious protections. Sotomayor has rejected previous challenges to the mandate over the past year. And a new report issued at the International Climate Summit in Egypt says that the energy crisis resulting from Russia's invasion of Ukraine is threatening climate goals. The report warns, increased natural gas production and the resulting carbon dioxide release will make it nearly

impossible to reach climate goals. Tyler. Thank you very much. Come out up on Power Lunch, folks. From crypto carnage to crypto comeback, Bitcoin bouncing back 8%, ether 13, the troubled FTX token. It is up 30%. Shares of Coinbase on a similar roller coaster ride up 12% today, still down 12% this week. We will talk to the company's CEO about the FTX fallout.

Brian Armstrong next on Power Lunch. Stay tuned for that. All right, welcome back to Power Lunch. Crypto markets really been rocked by the collapse of FTX. It's really shaking the confidence in crypto, especially Bitcoin, which was expected to be one of the more stable ones going forward. Now, a lot of questions about it. Bitcoin is up today, however, but we want to ask a lot of questions about cryptocurrency and the investability of it. Right now, let's bring in Zach Guzman.

For much more on this topic, Trustless Media co-founder, which was backed by Alameda, which is a company owned by Sam Bankman-Fried. Zach, great to have you on. Frankly, to be here. So first and foremost, why has there been so much shaky, why has the confidence in cryptocurrency, especially Bitcoin, been shaken, when, in fact, the collapse of FTX, that was caused by risky investments, not necessarily the investability of cryptocurrency. Yeah, the entirety of this year has really proven out that you can create new financial systems that tend to help people if they're looking for financial freedom as far as cryptocurrencies are concerned, but oftentimes you can replicate the same problems that we've seen in traditional finance. And that's been the real big lesson that investors have been learning

here this year, right? And it's not just what we're seeing play out with FTX. We've seen this play out with a number of crypto projects, beginning earlier this May with Terra Luna. And then from there, shifting over into Celsius and the other major centralized exchanges that have run into the same liquidity issues, right? And it all goes back to a big topic we've seen play out and one that SBF himself was attached to when it comes to regulations and how many of these crypto exchanges were over levered and a lot of transparency issues that, frankly, go back to what we saw in 08, where there is no regulations in place. And these players are basically extending themselves farther than any users out there really know. All right. So as we mentioned,

your company is backed by Sam Bankman-Fried. Have you spoken to him? He's taken a lot of accountability, but have you personally spoke to him about what's going on? I've had time to speak directly with SBF himself, but I've been chatting with a lot of former employees attached to both FTX and FTX U.S., describing, I think, what, you know, the whole industry was really experiencing here, which is just being blindsided. If you think about how big FTX was, you know, and how quickly they were growing, their reach among not just investors in crypto, but also celebrities and everyone else who had been talking about FTX, been talking about crypto, Tom Brady, you know, the Larry David Super Bowl commercial.

I mean, this is a big company. And, you know, you talk to the people who were inside those walls saying that, look, a lot of this stuff was going on and we didn't know about it. And you can take that at their word or you can think about, you know, what we've seen at other institutions, again, not to point back to Celsius as a prime example here, but Voyager as well, which FTCS had stepped in to also rescue. There's a lot of things that I think, you know, crypto is supposed to be more transparent than the old system. And this is what we're kind of highlighting at coinage. dot media is stories here that kind of get to the heart of maybe some of this stuff isn't as pure as we once thought. So, Zach, I want to understand a couple of things, and mostly about Alameda or Alameda, I don't know how you pronounce it, but at any rate, they were the investor in your company, right?

And they were investing in and speculating in other companies? Where were they getting the money? Where were they getting money to do that, to put money in companies like yours? Where did that money come from? I think that that's what everyone is trying to figure out. The relationships between Alameda, which is, you know, different than Alameda Ventures and different than FTCX and FTX is different than FtX.U.S. Right? All of these arms are very different when we think about this. And just to show kind of the amount of reach that Sam Bankman-Fried and FTX itself had was, you know, Alameda Ventures was an investor in a lot of different companies in this space. FTX Ventures was an investor in a lot of different companies in the space. But was it customer money in FTCS that was being

used to fund investments, whether it was Alameda Research or Alameda Ventures. Was it customer money that was being used? Certainly not in our experience. No, I mean, when we talk about what the Wall Street Journal was reporting today, this is what everyone's trying to figure out right now, is what did FTX do with customer funds? And their latest report is that more than half of the $16 billion they had in customer funds was used to help function and finance Alameda Research's trading arm, which would be surprising and frankly something that I think, you know, even those employees I talked to at FTX, U.S., that arm, which is heavily regulated, were surprised to see because that would seem to violate their own rules and regulations, customer service

agreements at FTX. So there's a lot that's changing right now. And the connection between all these things is something that I think, again, gets back to the point of why people in DeFi, decentralized finance, the transparency of where crypto is going and where the industry wants to go. and where centralized exchanges were and replicating a lot of these same issues around not having enough transparency, which money is moving where, we got back to the same issues that crypto is trying to solve. So that's kind of, I guess, the irony of all this.

And seeing it all play out, it is tough to watch if you've been in crypto as long as a lot of people have. All right, Zach, thank you very much. Zach Guzman. We appreciate your time today. Well, the apparent collapse of FTX has hit the crypto ecosystem hard, everything from actual cryptocurrency to the names that deal. in it, including Coinbase. While the stock is up today and how it has been falling for three days as this drama has played out,

it just announced a series of layoffs earlier this hour. Andrew Ross Sorkin joins us now with the CEO of Coinbase, Brian Armstrong. Andrew. Hey, Tyler, thank you. And thank you, Brian, for joining us. We have been just in an avalanche of headlines, Brian, over the past several days around what appears to be the collapse of XTX and giving you. where you stand in this, it would be great to get your just perspective to start with what you're

seeing. And did you expect this? Well, I certainly didn't expect it. And this is a dark day for the customers who have lost funds in this apparent fraud. We don't know exactly what it is until all the facts are in. But I think there's a few things just as I zoom out here to think about. I mean, one is that, you know, FTCS is really, it's not representative of every company in crypto, you know, compared to Coinbase, for instance, we've taken a very different strategy. We're based here in the United States. We're regulated. We have a New York Trust company. We have a license from the CFTC.

We have money transmission licenses. And we went public. And so we have publicly available audited financial statements. We don't own a market maker business. You know, we don't invest customer funds without their explicit direction. And so anyway, I think that's an important thing for people to realize in this environment is that not all companies in crypto are like this. And just like the traditional financial system occasionally has a company that goes bad, it is not representative of the whole. Right.

What do you think happened here? Well, again, it's tough to speculate, you know, without being inside the firm. But what appears to have happened is that customer funds that were, you know, deposited in FTX were somehow made of into Alameda, their market maker or more like hedge fund activity, and they took some risky positions, and the firm appears to be underwater. But again, I don't have any specific knowledge of what's actually happening, and this is what I've been able to gather from a brief couple of phone calls. You know, I did speak with SBF and CZ briefly during this process, and then just from speaking with outside participants. Did you see red flags? Your venture arm

took an investment in FTX, I believe, back in 2021. And of course, for many, for the last year or two, it appeared that this was a firm that was shooting to the moon at a time that you were competing with it. You know their numbers. You know your numbers. You know, this is partly, I think, why so many people in crypto feel duped.

And I do as well is that I look back at all the interactions that I had with Sam. And, you know, I felt like he was a very bright and genuine and eager person, perhaps a bit young. You know, he's perhaps a bit reckless in certain moments, but not corrupt. And again, I hate to use that word because we don't know exactly what happened. You know, sometimes people, they get in over their heads or, you know, misunderstandings happen. And so we should wait to reserve to see what happens, you know, when all the facts are in. But, you know, the other thing, you mentioned the numbers.

I was aware of our revenue last year. We did $7 billion in revenue and about $4 billion of positive EBITA. And I was aware of their revenue just as an investor, which was more like around $1 billion. And I was surprised at how much cash that they seem to have and Sam seemed to have to go out and perform various investments in the market, both their ventures arm and buying 9% of Robin Hood and various political donations. And I did have, I did wonder at times, I was thinking, where is all this? cash coming from. And so, you know, you always look back 2020 hindsight, but I certainly didn't feel anything enough to speak up. And so I was as surprised as anybody. You said you had spoken briefly to Sam and CZ during this process. What did Sam say to you?

Well, when he reached out, he was in the mode of trying to raise financing, emergency financing. And so we briefly discussed that. But, you know, it quickly became apparent to me that this wasn't the type of asset that we would want to invest in if it was actually that far underwater. And, you know, if there had actually been either fraud or just, you know, misrepresentation to either customers or investors, you know, at that point, my view was that the firm didn't have value for us to participate in anything, even if we could. And so, anyway, it was sort of a moot point. And at that point, I offered to be helpful in any other way I could, but there was not

something for us to do together. How concerned at that point were you about fraud, about this idea of the co-mingling of the funds? You know, there were some red flags that had been raised to me by others, but I can't really, I'm not really liberty to say exactly what. So I was concerned at that point, but again, we didn't go in with forensic accountants and look at the balance sheet or anything like that. I was basically reading the room, and it felt like a pretty bad situation that we wanted to stay away from. At this point, and the company just put out a notice on Twitter literally in the last hour about this new credit facility, do you see a possibility of this being salvaged?

You know, from where I'm sitting, it seems incredibly unlikely. I don't know why investors would put money into this, given the allegations. And so it's surprising to me that Sam is still pursuing that line of trying to raise money for this venture. But again, without being inside the firm, I couldn't say exactly. what is going on in there. And, you know, I guess just zooming out for a minute, I think this is a very interesting moment for the United States and the regulatory environment. We can talk a bit about that if you want as well. I think that, you know, there is clear

regulation in the sense that many firms like ours are being regulated in the way that traditional financial service firms are regulated. You know, we're in your trust company, we have a license to CFTC, et cetera. But what we haven't seen yet is clear crypto-specific regulation that would help clarify these matters about, you know, what's a commodity, what is a security, for instance, if you're a crypto exchange or a custodian or brokerage, what sort of rules might you follow? And so in the absence of that clarity, I think what we've seen is that a lot of American investors and the trading volume, 95% of the trading volume, has actually gone offshore. This business was not built as much in the U.S. as it could have been.

And in my view, that was a missed opportunity by the regulators in the U.S., especially at the SEC, see, you know, Cher Gensler, who, in my view, took more of a regulation by enforcement approach and really had a lot of negative rhetoric about crypto. I feel like it was a missed opportunity on their part to actually go create clear regulation in this industry, which would allow it to flourish safely in the U.S. And so unfortunately, the Americans who went offshore to these exchanges are now, you know, being harmed. Brian, talking about regulators. I want to show you a clip, if I could from an interview that I did this morning with SEC chair, Gary Gensler. And I asked him about Americans who have money in Coinbase or Binance, given that those may very well be the two

biggest exchanges still, and whether they should feel confident they can get their money out. And here's what he said about that. I'm not going to speak to any one platform, but I would say that you have rescued these. The rules and the laws are clear, but do not assume that these firms are complying with the rules and the laws that the New York Stock Exchange or the biggest brokerage apps are complying with. Brian, should investors worry? Yeah. So for Coinbase, this is a non-issue. And the reason is that we hold customer funds one-to-one backed. And you don't have to take our word for it. We are a public company. And so we publish audited financial statements by, you know, a big for accounting firm. And when we went public,

in the United States. We filed and registered an S-1 with the SEC, and we explained to them exactly how our business works. We showed them our audited financials, and they approved us as a company to go public. So what happened at FTX is not possible to happen at Coinbase, and we are a regulated institution in the United States. We actually have a broker-deal license that is not, it's dormant. We haven't, the SEC, we've tried to work with them to sort of make it more active. haven't seen a lot of willingness there. We do have a license with the CFTC in our in our derivatives business. So that's what I'll say about that. Right. You've made a number of important points about regulation in the United States and the point about trying to actually

create a environment, a thriving environment here in the U.S. as opposed to offshore where others have thrived before. Given what's happened, how concerned are you that that is going to continue persist. You've seen a number of politicians today come out with statements about wanting to look into this, wanting to write laws and the like. Does this help or hurt the case, do you think? Yeah, well, I think, look, there's sort of a natural knee-jerk reaction from some that it's going to say, hey, this just means we need more regulation. And, you know, I think in some ways that's correct. Coinbase has actually been a big advocate, and we've worked very hard to try to get more clear regulation here in the U.S. But in a way, that's kind of missing the point in the sense that, you know,

FTX.com was not regulated by any U.S. regulator. It was an offshore exchange. And the lack of regulatory clarity in the U.S. is what drove U.S. citizens to kind of, and the trading volume, to go offshore. And so that's an issue. Now, I think, look, there are signs for, this is an opportunity for the United States to really be the one to put out some more of this clear regulation. And frankly, the U.S. is a little bit behind here. You know, Europe and Singapore and Australia and Hong Kong have all made positive steps in this direction. We've seen some positive steps in the U.S. with, for instance, the DCCPA bill making its way through Congress, the Stab-Now-Vosman bill. And this would start to provide some of that regulatory clarity in the U.S.

But without that, I do fear that we're going to have more of this activity go offshore and it's going to harm American consumers. I know you're confident in your own platform. the other major platform is Binance, and that is something that for the most part works outside of the United States. There is a U.S. version. How concerned do you think customers should be about that platform?

Both its stability. There's been reports about investigations into that platform in different ways. Yeah, so, you know, it's not my place to comment on any other major exchanges out there, and I don't know any of the details, you know, even if I wanted to.

I have seen some of these reports about a different kind of risk than what happened at FTX. I mean, FTCX, what was happening there with commingling customer funds and investing in risky assets, I hope, and I would be surprised if that's happening at other offshore exchanges. But there are other types of risk there, as you mentioned, potential AML risks, OFAC risks. And so I think the net result of this blowup at FTCS is that offshore exchanges are going to get a lot more scrutiny. And, you know, ultimately, I think that'll be a good thing if we can see a more level playing field with each regulator not just focused internally in their

own jurisdiction or their own country about who are the regulated actors in their own country, but taking a broader lens and saying, well, where are our citizens going offshore and how do we make that a more level playing field? And in terms of the value, the price of things like Bitcoin, of Ethereum, of Solana at this point, people have talked about this being a crypto winter. This morning, I think somebody mentioned it might become an ice age of sorts. J.P. Morgan has a report out saying that they believe there's going to be a cascade of margin calls. What do you think the pressure is going to be like on the value, on price? And what are you seeing on your own platform right now?

Yeah. So we have seen the market come down a bit. And I would not be surprised if we see some contagion risk there. There's other firms that are using leverage in hedge funds and various firms that may experience pressure in these moments. But I don't think it's all bad. You know, again, not. Not every actor in crypto is the same, and I hate to be opportunistic, but I think for Coinbase, this is actually validating the strategy that we pursued over the last 10 years, and it's actually our moment to shine and to show that we can be the most reputable, entrusted exchange and regulated exchange globally. Now, if I think about this crypto winter or how bad is it going to be, I think you can kind of

compare it to other events that have happened historically. You know, 2008 is a good example, the Lehman Brothers, and that certainly created, you know, a session there, but it didn't call the entire financial system into question, for instance, or going back to maybe the dot-com crash in 2001 for a whole industry, you know, the best companies at that time, Google and Amazon and PayPal and whatnot, they made it through that crash and they came out the other side and they became even stronger. And I believe that's the opportunity Coinbase has in front of it today and other firms in crypto that are reputable and trusted and following a regulated approach.

And so I believe it will emerge from this stronger. And that is, of course, the opportunity. I do want to ask you about this headline about layoffs at the company, in part because we're seeing challenges across not just crypto, but Silicon Valley and the world of technology. What's the state of those layoffs and what are you expecting over the next quarter or longer? Yeah. So obviously, in this environment, I think it's very important for companies to manage cost. And as a public company, you know, our investors look at those things very closely.

We did announce some small role eliminations. I think it was about 60 folks. And look, there's certain areas of our business. For instance, we're not going to be hiring a huge amount of people in 2023. And so it doesn't make sense to have quite as big of a recruiting team. Or for instance, we hired a lot of people to work through a large backlog of institutions that were onboarding. We're still seeing institutions onboard actually at a pretty rapid rate.

But through automation and working through that backlog, we just don't need as many quite a large team. So, you know, there was some role eliminations of 60 people. I think we're going to be very prudent in this kind of environment to make sure that we are managing EBITA cash flow cautiously. We have a strong balance sheet over $5 billion of cash, but we want to make sure that we can use that cash for opportunities in these down markets because there are going to be a lot of opportunities and make sure we can be well capitalized through any kind of down scenario. Brian Armstrong. We wish you well. We appreciate you joining us, especially amidst all. of these headlines, and thank you for helping break some of it down for us.

We look forward to talking to you again very, very soon. Tyler. Thank you, Andrew. All right, Andrew, thank you very much. We appreciate that. And words there, Frank, like I feel duped, surprised, words like fraud, misrepresentation, reckless, where's the cash coming from? A lot of questions here. And it sounds like a story that we're going to be following for a long time. Yeah, quite some time, especially with the crash and crypto up today, Bitcoin and other coins up today, but obviously well off their highs and falling pretty significantly from where they were. I believe Bitcoin was about up at 20,000, just about a week and a half ago. Yeah, a lot less than that

right now. All right, we've got a big change in the markets at 830 this morning. Stocks soaring, bond yields tumbling if the CPI report means the Fed may be able to pivot soon or at least take its foot off the break. Should you pivot? If so, how? We've got three stocks, five right now coming us. All right, folks, welcome back to power launch. Markets continue to rally as the CPI report came in less than expected for the month of October. If inflation continues to slow and the Fed pivots or pauses, what do you buy? Let's bring in Todd Gordon, founder of New Age wealth advisors and a CNBC contributor with his three pivot plays. Todd, your first stock you want to mention is global foundries. Why? Yeah, I like it. Semis have showed a lot of relative

strength here, even to tech, which is actually making a little bit of a comeback here. Longer term, we have this whole growth value kind of battle, technically speaking, growth is right at the point where it needs to hold support to continue higher relative to value. I think it might have a shot. So global founders can break out about 66 and it might be able to reach prior highs of 79. and a half. So earnings recently really good. Beat expectations by about 14%. They made 62 cents a share. Last year they made one penny. They got upgrades from Bank of America, Deutsche. They're benefiting from the Chips Act. The CEO is on track to build a 600,000 square foot facility. Actually, a couple miles away from me here in Saratoga. And it's not that expensive. Only 22 times

next year's earnings. And as they said, chips are showing some strength here. So I like GFS. All right, Tau. Your next piece is a consumer facing name Lulu Lemon. Why that? Yeah, I hold this stock and actually all three I hold these in my portfolio. I should say that, Frank. Put it in a low. This stock did in May and it's already 37% higher here. So if you can draw a little bit of a technical downtrend here and the move up today broke that. So it looks like we should have support around 335.

This stock is still very richly valued 35 times next year's earnings as we've seen this big value compression. Looking to make about $9.90 next year. So the fact that it didn't face value compression in this retail squeezed inflation environment, I think is very good in telling. Got an upgrade from JP, raised the guidance two weeks ago. They've got consistent revenue growth. They're executing well, supply chain issues. Inventories are normalized.

So I continue like Lulu. Well, let's go to Vail Resorts as your final pick. Yeah, Tyler. I think people are going skiing. I think they want to get out. I think now that COVID is mostly contained, This segment here is not targeted towards the inflation-sensitive consumer. You know, it's just, it's a solid stock.

Again, thrown a little technicals in there, slight downtrend from 250 to 210. We can kind of break above here around 230. And again, earnings were solid. Last quarter, it's the slow season. They beat expectations. And they're looking at season past sales right now, which are about 6, 7%. That's the real driver for Vail. and they've also increased. I just paid the increase on the epic pass that will allow you to ski all around the country.

So I think Vale Mountain plus it's paying about three and a half percent. It's a steady play, maybe for your dividend portfolio. All right, Todd, thanks very much. Vail Resource. We conclude it there. Todd Gordon, thank you. Big move in bond yields, the 10-year taking a sharp turn lower. That is having an impact on mortgage rates. Let's bring in Diana Olik with the latest numbers on that. Hi, Dye. Hey, Ty. Yeah, no question. The major sell-off in the bond market is having a huge impact. on the housing market. Take a look. The average rate on the 30-year fix dropped over 50 basis points just today, taking it down again below 7% to 6.67% according to Mortgage News Daily. That is the biggest one-day drop since the very start of the pandemic. It matches that record. And while the rate is

still more than twice what it was at the start of this year, being back in the sixth range could be an emotional mark for buyers. You certainly see the homebuilder stocks reacting, the home-building ETF ITB up over 10%. Names like Lenar, Pulte, and D.R. Horton, which have just been slammed since rates started rising, also up about the same this after D.R. Horton missed expectations in its quarterly

earnings release yesterday. Tyler. All right. Thank you very much. Diana Olik, who are reporting on mortgage rates. Frank, what a day. What a day we had here. Stocks right now at session highs. Looking at the Dow up 1100 points right now. The NASDAQ, the best performer, obviously with rates falling down at 3.8%

as Diana just mentioned. the NASDAQ up almost 6.5% right now, seeing big gains from a lot of high growth, high valuation names, with that rate relief. From the doghouse to the penthouse here on some of these names, the technology names, the growth-oriented names, as Frank mentioned, with NASDAQ up 6%, probably one of its best days, maybe in history, session high's best day for the S&P in NASDAQ since 2020, where we, of course, had the volatility of the pandemic. Yeah, you know, Todd mentioned that people are going skiing. And apparently people are buying grills and lawnmowers, too. Lo's having a really strong day today. A lot of stocks out there having strong days on confidence that there could be a pause, there could be a pivot. The other P-word was premature.

Maybe this changes the Fed's plans to have rates be higher than previously expected. Yeah. All right. Well, we will leave it there and we'll hand it over to closing bell to take it from here at 1,1100 points higher right now. Thanks for watching Power Lunch. Talor, always great to be. Great to be with you. Closing bell starts right now.

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