Power Lunch - The Inflation Situation, and Disappearing Day Trader? 2/6/23

Episode Date: February 6, 2023

Markets are rallying this year because they think inflation is slowing. And Jerome Powell seems to agree. But the CEO of Nestle says more price hikes are coming. Who’s right on inflation? We’ll debate.Plus, many beaten-down names have soared as stocks get off to a hot start. Is this a repeat of “Meme Mania”? And are day traders once again jumping in on speculative names? We’ll get the latest data on who’s trading.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Hi, everybody, and welcome to Power Lunch alongside Kelly Evans. I'm Tyler Matheson. Coming up, who's right about inflation? Markets rally this year because markets seem to think it's slowing. Jay Powell seems to kind of agree, but the CEO of Nestle says more price hikes are coming. Plus, many beaten down names have soared as stocks get off to a hot start this year. Is this a repeat of meme mania? Our day traders once again jumping in on speculative names will get the latest on who is trading. But first to check on the markets as we're down across the board, but well off the lows, the Dow had been down more than 240 points, down only 30 right now as it tries to make a go at turning positive, but the small cap rustles still down 1.4%.

And Mike Santoli is watching it all from the New York Stock Exchange. Good afternoon, Mike. Hello, Tyler. Yeah, about a half a percent decline at this point in the S&P 500. If you put it in perspective with where we've been so far a year to date, pretty modest. The S&P now down about 2% or so from the intraday high a couple days ago, obviously trying to contend with the implications of that hot job number on Friday, which has yields higher and the dollar higher. Those declines in the dollar and the yields have obviously been a tailwind for stocks. Market also probably got a little over-excited in some of the more aggressive

corners of the tape. Take a look at the Russell 2000 and the semiconductor index today, pretty much moving right in sync with equivalent percentage declines. They're both big outperformers as people rush to grab onto a kind of exposure to the higher risk, higher beta areas of the market, Cal. You come along, this happens quite often. The last shall be first. Last year's losers become, at least out of the starting gate, this year's winners. Without a doubt, that is actually the classic definition of the January effect, which is just kind of reversion of the prior trends. It has been amplified this year, though. I do think because of the extreme level to which most investors are pretty defensive and expecting a bad first half of the year. And so it created a lot of

force repositioning once the market actually started out to the upside. And maybe that soft landing idea became a little more priced in. Anything else like you'd add as we await Chair Powell tomorrow? You know, I think the key is how the market contends with these tests. So, you know, the bears all last year were able to say, look, don't fight the Fed and don't fight the tape, right? The Fed was tightening into a slowdown. The tape was in a persistent downtrend. This year, the Fed seems to acknowledge disinflation or getting to the end of where they're going, probably. And fighting the tape is not necessarily to be bullish right now because the tape has actually turned. That trend has been somewhat broken tentatively to the upside.

So I think right now you're in a zone where we're figuring out if we're in a new trading range. And I would keep an eye really on those kind of volatile parts of the market that have so outperformed. I don't think they're not going to be the leaders of the next real uptrent, but it's not that unusual for them to get one of these really ferocious bounces in here. So see how the overall S&P, if we settle. on this pullback below, I mean, above like 4,000. I think it's okay. All right, Mike, thank you for now. We appreciate it. Michael Santoli. Well, inflation, of course, the key overhang for every market move. Recent data. There you are. I'm going to look over here. That's what I'm supposed to look.

Showing that it is starting to slow inflation, that is. Jay Powell, using the word disinflation during his press conference last week. But the CEO of Nestle says that that company will have to hike prices more this year. plus Target and others reportedly pushing suppliers to lower what they are charging. Let's bring in Steve Leasman for more on the sort of murky inflation picture. What are you seeing, Steve? Well, I'm not surprised to hear what Nestle is saying because companies are still going to be raising prices this year. And some are playing catch-up and some have moved further. What I did in preparation for a particular index that they have in the National Federation of Independent Business.

It looks at small business, but it's intention to raise prices. And what you see is that it is down from the peak, but it's still elevated relative to where it was. So there's still going to be companies coming along. Kelly and I just had a really nice discussion in the last hour that needs to be brought up, which is the following. We were talking about profit margins. One of the things we know companies did, Tyler, in the run-up with prices is they raised their margins or their prices more than their input costs. It's a big debate about why that happened. There's the greedy corporation debate and there's the prudent corporation idea, which was that, you know, you tell me if you have, you know, $4 gas in the ground and your gas station, are you going to sell your gas for $3.80 or for $420 because you think that the next tank that you got to fill up is $420.

So that was, there's a paper out that says companies raise their prices more because they were anticipating further price increases down the road. Whatever the case, there's scope for those margins to come down. This is the idea of Lale Braynard, who says part of the inflation problem is the profit margin problem. So now when I listen to Target, I take that idea and plug it into that theory and I say, okay, what has to happen is the company's got a pressure their manufacturers back up the chain, and that could actually help inflation down the road is that pressure. with a big caveat asterisk, circle it, make it red, how competitive are the markets we're talking about? If Target is not feeling the competition from other people or from consumers that it can't buy,

it's not going to push back on its suppliers. If it is, then it will, and that's part of the process of bringing inflation down. Remember the story that Whole Foods was pushing back on suppliers from just a couple years ago? That's positive for our inflation story. Especially because that's a segment of the market. You think it would be less price sensitive than some of the lower end, absolutely. Are we seeing, there are certain kinds of goods and I guess services as well, where you don't merely see a reduction in the rate of inflation, but you actually see price declines. It has happened in gasoline over the last year.

One can hope that it may happen with grocery products like eggs. Look at beef with Tyson this morning. Right. I mean, so if the market is competitive, then you should go back to normal profit margin. One of the things, first thing I learned in economics is a higher than normal. rate of returns shall not stand in a competitive market. If you're making five and it can be made for three, then somebody's going to do it for three. So the question is, now there are made and profit. Made and profit. Three percent return is what I'm talking about real return.

But there is some work that's been done suggesting this economy is less competitive than it was before. And that's really why globalization is a big story here. Are we going to be feeling the competition of global suppliers or not? Are they going to be supplying global? to us as well. So those are big questions we have to figure out. And whether or not, again, we come back to a question we keep coming back to, has the pandemic permanently altered things like supply changes, supply routes? We may bring stuff home here to make it, but that may mean a permanently higher price in that. And just a quick sort of a postscript to all of this, which is the least competitive segments, education, health care, those types of things are also the ones where

we're seeing so many price pressures. Even now, I don't know if you've had experience to show up, the doctor's office, I mean, there's additional surcharges. There's, like, things happening that you're seeing that wage pressure pass through. Even with everything you're describing, it may be that there's this segment of the market where there's most consistent sort of four to five percent to the upside pressure for broader. It's 100 percent right. There are parts of the market of the economy that are more competitive than others and parts where you're not going to go and you're not going to bargain.

You remember the life of Brian? We say, you have to haggle. Where there are some places we can't haggle. Some places we don't go to the doctor and say, you know, I'm getting a $15, copay down the road. Where you do 10? That's not how we do that. And by the way,

bought a car recently, I didn't haggle. Which I kind of liked, except for the fact that there was, we could haggle on the price of the used car trade in, but we didn't haggle on the price. We found the car.

We bought the car. So that has to do, by the way, with another aspect, which I find the most interesting part of economics, but is also the most boring, inventories. Inventory levels will determine

pricing. You're not buying the car on the lot. You're buying the car on the weight of the lot in the manufacturing thing. And that's where you get your pricing power. Yeah, I did the same. I bought a car recently, and the price was the price. The price was the price. You found it, and the guy was like nice to sell it to you. Yeah. But that may change. Yeah. Could. Yeah, absolutely. Steve, thanks. Pleasure to be with you. And tomorrow, before we hear from Fed Chair Powell, we will hear from Minneapolis Fed President, Neil Kashkari. That's at 630 Eastern. That's in the morning, folks. 6.30 a.m. Eastern, Neil Cashgari, Minneapolis Fed, Fed, President. Well, speaking of the markets, wrestling with how the Fed will move rates going forward,

our next guest says the question is shifted from how high and how long, and that changes the narrative from there is no alternative to saying that bonds are back. Let's bring in Dryden Pence. He's the chief investment officer with Pence Capital Management. It's good to see you, Dryden. Let's just kind of rewind here for a second. And what do you think is going on with the markets here into this Fed speak tomorrow? Well, I think the markets have probably had this January effect. It's gone up quite a bit. I think people are trying to get their handle around really what's going to happen with the Fed.

And is it going to be 25, 25, 25, or 25 and 25? When do we hit the pause button? Because that's going to spell a big difference for earnings going forward. Right. So when do we hit the pause button? Was that just shifted out for you as far as you're concerned? I think that we're probably, the pause button is shifted out probably to March or May, and then it's a very long pause, not a short pause.

And that's bringing us back to the asset allocation narrative. I look at your stock picks, Dryden, and they interest me. Raytheon, Lockheed, two defense companies, Exxon Mobil, and Chevron, two big multinational oil companies. Those feel like 2022-style picks. Am I wrong? Well, you still have a war going on in Ukraine, and you have the folks in Europe and NATO always going to a 2%. You're going from nine countries to 19 countries, spending a lot of money.

And due to what they have to spend that on, it really falls right into Lockhe, Lockhe, Martin, and Raytheon. The war's not over, and they're going to have to replenish inventories. And then for fuel prices, oil's going to do. probably stay north of 80 for an extended period of time, and companies make a lot of money at that point. Well, yeah, one of them made $55 billion in the most recent quarter. That's pretty nice money. I guess the impetus for my question is that a lot of the bigger movers have been less, so far this year, have been less defensive choices than those.

Well, I think that what we're going to see is so far this year, you're having this recovery activity. Everybody was really glad to be done with 2022. But the narrative for both asset allocation and everything else is changing a little bit, you know, we see that this first part of the year is going to continue to be volatile. Markets go up and down. It's been great so far, but we think that it's still important to maintain some conservatism in this because I don't think the inflation story is completely over with. Finally, Dryden, just going back to the energy because a couple of your big picks here are Exxon and Chevron, I mean, the oil price has not been behaving well lately.

And why do you think that is? And does that worry you that there could be more downside? Well, I think oil prices are probably going to firm up because you take a look at China coming back online. They're a huge consumer of things. And then again, you've got overall this whole issue of Tina versus what we call baby. There is no alternative and then turning into the idea that bonds are back, y'all. Baby. Baby. Bonds are back, y'all. Bonds are back, y'all.

Thanks, Dryden. We appreciate it today. Dryden Pierce. And coming up, has the day trader disappeared even with this year's rally? Retail activity at the lowest level in some years. We'll discuss that coming up. Plus, everyone is talking about China's red balloon, but the company's reopening, excuse me, the company's reopening.

after COVID and now the Lunar New Year could all combine for a huge impact on the world economy. That's coming up on Power Lunch. Stay with us. Welcome back to Power Lunch, everybody. It has been a strong start to the year for the stock market after big losses last year. There has, however, been a shift in retail investing. Maybe not surprisingly. Last month, trading activity among retail investors hit the lowest level in more than three years, according to the firm Vanda Research. Our next guest wrote a feature story in this weekend's Wall Street Journal looking at the retreat of amateur investors. Here with us now, Gunjan Banerjee. She's the lead writer for markets live at the Wall Street Journal as well as the CNBC contributor.

Gunjan, welcome. Good to have you in the house with us. Where did all those retail investors go? Did they just get scared off? Did they decide that, well, now bonds are paying more. I'll put my money there. What? Tyler, I really think that T-bills, I bonds,

money market funds are the new meme stocks. What we've seen is a lot of individual investors are hanging on, but they've really shifted their strategies. We're seeing them put their money into cash. For the first time in a while, cash is yielding something, 3%, 4%. They're putting their money into T bills, again, yielding 4%. So some investors I spoke with for this article did say, you know, cash is yielding something again.

I'm going to put my money there instead of trying to buy the dip, which a lot of them have gotten burned on over the past year. It's remarkable that last month when the meme stocks were flying. So if retail activity was at its lowest since Jan of 2020, who was in these stocks? I mean, and wasn't some of the same community? Or what do you think's going on here? So I do think we saw some retail investors come back into the markets in January. But I think it's really important to note that while a lot of them have left the markets,

overall activity is still above 2019 levels. For example, I was looking at some data in the options market, which showed that retail investors made up around 22% of options activity. So that's below the 27, 28% peak that we saw the past few years, but above 2019 levels. And we're seeing a similar trend play out in the stock market. I want to ask about Robin Hood, but I also want you to tell us a little bit, sort of the thumbnail version. You have a very interesting story about a guy who made a lot of money, and you verified that, in fact, he did, made a million and a half or something like that. But he blew it all.

And one of the reasons he blew it all was that he kept chasing his losses down. That's right. What an unbelievable story. And I'm really grateful to this individual investor for opening up about the emotional aspects of trading, which I think a lot of investors have been confronted with. And yes, he amassed around $1.5 million in 2021. And, you know, he started taking a lot of leverage, is what he told me. He started, you know, making riskier options.

Was he an investor or just a better, a bettower? It's an interesting distinction. He did get into sports betting. Because he died in the sports betting to try and recoup some of his market losses. Right. This is probably sounding familiar to a lot of people watching right now. Right, but that's what happened over the past few years, right? It just seems so easy to make money.

So I think people were like, let me get into the options market. Let me buy these momentum-based stocks. Let me get into sports betting. I think those things kind of started to seem a little bit similar. And he had some bad bets. And what he told me was he did start chasing those losses. And he started taking more risk to kind of recoup those losses. And he, of course, also started spending a lot.

So there were a few things going on there. But I think he is an extreme example of a lot of what we saw during the pandemic, where people just got into riskier and riskier trades. Like he was trading options contracts that would expire within hours. Wow. and buying and selling them. Right. And if you think that everything you touch turns to gold, why wouldn't you?

You know, why would you settle for 10% when you could get 40? And then, I mean, again, to me, it all comes back to the Fed. You know, when you put this much the Fed, the fiscal government, all of this stimulus into the economy, yes, you can win at the stock market. You can win at sports betting because you get so many incentives when you free. You can win at everything. And now we're seeing the reverse reversal of that. So it's fascinating to watch markets try to kind of bring this narrative back to life in the past five,

six weeks or so. And I don't know if there's anything we can glean now from the staying power of that at a time when the conditions would seem to be very different supporting that. Totally. And, you know, one investor I spoke with said, I was trying to buy the dip early last year. And I stopped when I realized how serious Powell is about raising interest rates. Because how many times can you get burned buying the dip before you just say I'm going to get out of the market? What, if anything, can we infer from this change in behavior about Robin Hood, which rode the individual investor? the trader trend, the meme stock trend to such prominence two, three years ago.

Well, we saw monthly active users at Robin Hood in the third quarter, you know, hit, I think, the lowest level since the company went public. And they've never reclaimed those highs since they IPO. And I think that tells you everything you need to know. They're the ones that kind of made, you know, trading cool. They made trading easy. And I think some of those investors. Yeah. They did.

And I think that's reflected in some of the same thing. In your reporting, did you find that the same thing was being said, by discount brokerages or brokerages like Charles Schwab or Fidelity and so forth. Are they seeing the same kinds of declines in trading? So that's a good point. Morgan Stanley and Charles Schwab have seen average daily trades decline to some of the lowest levels in 2020, though they do point out that it's above 2019 levels, right? So you are seeing some investors stick around.

And what brokerage executives have been telling me is that some people are opening accounts to take advantage of these high yields on idle cash, like interactive brokers. offering 4%. Their founder told me some people are making accounts to take advantage of those yields. Makes sense. Bonds are back, baby. Yeah, that's what we just learned. Yeah, right? Baby. All right.

Good, Jen. Thank you. Nice to see you again. Great to be here. Terrific. Up next, salt-free taxes and IRS loopholes saving wealthy Americans a lot of money and could cost the government billions, we'll explain. Plus, a fish out of water startup story. Today's clean start taking a look at one company producing plant-based, oh yes, Salmon. We'll be right back. Welcome back. Wealthy investors in more than 30 states are finding a

workaround to escape that state and local tax deduction cap, and it could cost the government billions in revenue. Robert Frank is here with more. Robert? So this is a creation that the state started to do in 2018, where they basically had looked, let's create this pass-through entity tax, where you basically transfer the tax obligations of the individual onto the company. Companies, by the way, are not subject to assault cap. So what you do is the entity pays the tax, entity gets the full deduction from the federal government, then passes that deduction onto the individual. So basically, if you own a pass-through, an LLC, an S-Corp, or a partnership, you don't have any cap on your state-local tax deductions if it's done through pass-through. And there are now 30 states and

growing. New York City became the first municipality this month to do it so you can write up your state and city tax. Oh, so they're now blessing this move. Let's not joke ourselves. They are blessing this move by allowing more people to do this. The IRS in the waning days of the Trump administration said, this is okay. Every other work around, all the charities they tried was not, but the IRS explicitly blessed this one. And that's why all these states are rushing. And we now have California and New York together have about $40 billion already in income. This is in the Trump administration. May I ask whether the Trump administration, principles of the Trump administration might have benefited from this? They may have, but what's interesting is the benefits are much wider than anyone expected.

$40 billion in income so far in New York and California. There's an estimate by a professor at NYU that $50 billion of income of revenue will be lost at the federal level by the time the salt cap expires in 2025. So it's a benefit that basically benefits hedge funds, private equity guys, business owners. So those who make more than a million dollars are the ones that this benefits the most. And it's very unfair. Look, most of us are subject to the salt cap. But if you own a pass-through and get your income through it, you get your income through it. You got to get your income paid to you through that S-C or the LLC. Now, it's a separate thing, real estate tax, right? I mean, there's an amount that you can deduct of real estate tax or what.

of this is that you could not only deduct all of your business income that you get through your pass-through, so that's most of your income, but you can add on to that up to $10,000 in property taxes. So you get the benefit of no cap on your income, plus you can keep up to $10,000 in other income or property taxes. So there's a plus-plus for those who are lucky enough to own a pass-through. Yes, as we all roll our eyes and go, oh, what a shock. What was this original pay for? Was this part of the Tax Cut and Jobs Act? we remember this came into creation to pay for something, which now it will pay less of, if fewer people are having to pay this tax.

Right. So the salt cap is one of the way that we paid for that corporate tax cut. Now, like many other individual components of the tax plan in 2017, this will expire in 2025. So the question is, what will happen just broadly to the cap? Depends on who's going to be in charge, right? Do we have a divided Congress? But there are all sorts of scenarios that are possible, depending on who's in charge. charge of the White House and Congress because all these components of the individual side of the tax plan, which is the lower rate, 20% deduction on businesses, you know, all the individual

components, including salt, will expire. So we could feasibly go back to the old no cap in 26. Very interesting. No cap. Sounds like something the kids say these days. Robert, thanks very much. We appreciate it. Robert Frank. All right, let's get to Contessa Brewer now for a CNBC news update. Contessa. Tyler, here's what's happening right now. Thousands of rescuers in Turkey. and Syria are frantically searching for survivors from two massive earthquakes this morning. The death toll has now topped 2,700. Another 14,000 are reported injured, and officials expect both of those numbers to rise. Turkey's president has declared seven days of national mourning. In Ohio, officials plan a controlled release of toxic chemicals from five cars of the train that derailed over the weekend.

They're trying to reduce the risk of an explosion. The release will begin at 3.30. Eastern time and last were told for between one to three hours. In Minnesota, an explosion tore a home in half. Three people pulled from the wreckage and rushed to the hospital, one of them by helicopter, no word yet on their condition. The house appears to have been under construction and then the garage section ripped away from the rest of the house. That's also terrifying. Yeah. Kelly? Condessa, thank you. Contessa Brewer. Ahead on Power Lunch, there might be 99 red balloons, but only one went by the U.S. and China tensions. Reaching new highs after the White House shot down a suspected spy balloon.

We'll discuss the geopolitical and economic ramifications in just a moment. Welcome back to Power Lunch. 90 minutes left in the trading day. Dow's only down nine points right now. Let's get caught up across the board with stocks, which are heading lower on the day. Only a small decline right now. The NASDAQ is still down nearly 1%. Remember the NASDAQ is coming off a 15% rally to kick off the year.

Material is the worst performing sector, gold and steel selling off today. Newman, down after making. making a $17 billion offer for Newcrest. That's an Australian gold miner, new months down almost 5%. Also seeing declines in your basic home products like Newell brands, Whirlpool, Stanley Black and Decker, 2 to 4% drops.

And let's check on oil. Prices actually hired today by about 1%. Still around 74 on the WTI crude. That's after last week's big drop. The focus now is on China reopening. A lot more on that in just a minute. But let's first get a check on bonds. Right now, yields are just a little bit higher.

The 10-year at 3.62. percent continuing the move higher that we saw last week after the Fed decision and Chair Powell's news conference. Now, tomorrow Powell will be speaking again and bond markets will of course be hanging on his every word. Right now, 3.62 on the 10 year. Well, the U.S. military is searching for the remnants of the Chinese surveillance balloon. It shot down off the coast of South Carolina over the weekend as China continues its reopening process. Could this incident bring more stress to an already strained relationship between the U.S. and China for more on what it all means for the global economy? Let's bring in Marco Poppich. He is partner and chief strategist at Clock Tower Group. I assume you will say that this has done nothing to improve an already prickly relationship with China between China and the U.S., Marco.

Yeah, for sure. I mean, that's definitely the takeaway. And I think we also have to, understand that right now, everybody's watching this from a U.S. and the Chinese perspective. But we live in a very, very big world, and there are other countries involved in geopolitics. And the Chinese charm offensive was never really targeted just at the U.S. targeted at the rest of the world as well. And so they're going to continue doing that, whether the U.S. is pushing against them or not. So I think that's really an important point. change we've seen in Chinese foreign policy after Congress is probably going to continue,

and that is mildly positive for Chinese assets. Let's talk a little bit about, I mean, the Biden administration has not unwound some of the more punitive steps that the Trump administration took vis-a-vis China in terms of tariffs and other, let's call them, sanctions. This event does not hasten the day when those tariffs get lowered or, taken away, does it? So there's, there is an economic impact here one way or another. Well, I think that that impact is, is going to stay there, at least until the next U.S. presidential election. I mean, we're entering presidential season in a world where the U.S.

incumbent president has lost domestic legislative initiative because Republicans have taken the House. So keep that in mind. It's going to be very difficult for the U.S. president to spend any time with domestic policy, which means he has to go abroad for relevance. We've seen that story before. And so China issue becomes the only thing that the Biden administration can really campaign on for the 2024 election. We've seen how the balloon incident has almost become a talking point in D.C. between Republicans and Democrats. The Biden administration is not using the trust. Yeah. I mean, the GOP side says, what were you waiting for? You let it transit the entire United States. And the administration has said, well,

we're waiting for it to be a safe spot for to shoot it down. But it is already a talking point. But that also tells you, though, a very important point. It's more political than geopolitical. And so I think the impact on Chinese equities, Chinese assets and the Chinese rally, which is really about the reopening. It's really about Chinese policymakers moving away from zero COVID from real estate crackdown as well, TMT regulatory crackdown as well, which began in 2020. That's still in place. The balloon is not going to pop the equity market rally in China. I'm more worried. I'm more worried about what happens at some point in Q2

if all this Chinese stimulus starts to hit against leverage levels in the private sector in China. That's the biggest risk for long-term performance of Chinese accidents. Explain that, Marco, because you have been pretty bullish on China saying that, you know, the policymakers there are just pushing for growth at all costs, basically. But what are the risks you foresee? Well, you know, it's an interesting thing you say that. I have been very bullish.

You came on CNBC in October. It's that China would be the best performing equity marketing, 2023. And then literally, like a day later, Chinese equity is ripped. So a lot of that performance I expected maybe to happen throughout 20203 has already happened. What worries me is that the private sector in China is leveraged. Household debt in China as percent of disposable income is higher than in the United States of America. And so they could get into a point where they're pushing on a string. Remember when we did that in 2009, 10, 11, 12?

Interest rates went down. Government would stimulate, but there would be nobody willing to borrow. We need to see evidence that Chinese private sector, the households and corporates, are actually willing to borrow at lower interest rates with fiscal stimulus in place. We don't have clarity on that, which is why I think there could be indigestion to the China trade as soon as Q2. is there we talked just a few moments ago that as china reopens and and world growth kind of reacts to that can can china be a problem in terms of getting inflation under control here in the united states in other words as china grows and puts more demand on commodity prices and so forth could that ripple through here

i think on the margin yes but remember the biggest source of disinflation over the next six months is going to be that rent component of the CPI, which should, I mean, it always has in the past, should reflect the lowered, you know, housing costs in the U.S. So I think that on the margin, China will add some inflationary dynamics, but there's still way too much that's disinflationary. The bigger risk is actually geopolitical risks emanating from the Middle East. So if there is something that investors should be concerned about over the next six months,

it's potential conflict with Iran. I mean, that could be a black swan event that causes oil prices to jump and restart the narrative that inflation is here to stay. Marco, always fascinating to talk with you. We appreciate it. Marco Poppich. Thanks. Thank you.

And up next, today's clean start. We'll highlight a startup that claims it's plant-based salmon looks, cooks, tastes, and flakes just like the real thing. That's next. And as we had to break, during February, we're celebrating Black Heritage through the stories of some of our CNBC teammates, contributors and leaders in business. Here's RBC Capitals managing director, Halima Croft. I'm most proud to be my father's daughter. My father, Howard Cross, was a civil rights activist.

He went down to Mississippi to help register voters. He did that a great personal sacrifice. He was really sort of a foot soldier in the civil rights movement. He was not well known at the time. And I think about everything that I've been able to achieve in my lifetime. It's because of people like my father and all of those civil rights activists. Black History Month is that, you know, months where I think back on all of those incredible individuals, both known and unknown, that just sacrificed so much to bring about such profound change in this country.

Welcome back, everybody. Shares of Beyond Me down another 8% today after a 43% rally to kick off the year. But obviously over a three-year basis, you can see the stock. is down 84% and it's been a roller coaster ride as competition has heated up in the plant-based wars. Now a new contender, plant-based fish. Diana Oleg joins us with a look at the competition and the investor cash on the line in her continuing series on climate startups. Diana? Well, Kelly, ocean trawling, which is dragging nets across the ocean floor for fish, actually produces as much carbon dioxide as air travel, that according to a recent study.

and overfishing of wild salmon is putting the species at risk. But while the plant-based meat business has obviously seen significant growth, fish alternatives not so much until now. Beyond meat and impossible foods are nearly household names, but the plant-based fish category is still in its infancy. Names like Plantish, Sophie's Kitchen, Gardine, and Toronto-based startup, new school foods, which specializes in plant-based salmon.

We've spent the last two to three years developing this completely new technology that allows us to create muscle fibers entirely from plants and then to assemble that into larger structures like whole cuts of meat. They claim it looks, cooks, tastes and flakes like real wild salmon. We can't confirm because it's not for sale yet. Unlike plant-based meats, though, which are pre-cooked, ground, and often formed into patties or nuggets, this is whole and raw. You can then cook it in your kitchen and watch it transition from raw to cooked. unlike most of the meat alternates that are out there today. The so-called salmon includes both plant and aquatic ingredients, including ocean algae, pea and soy proteins,

and omega-rich oils like those in seaweed, flax, and hemp. Investors are hoping it'll appeal to those already buying plant-based meats. If plant-based seafood can get even to 1 to 2% category penetration in North America and Europe, we're certainly talking about a multi-billion dollar market with, again, very few competitors in that space right now. Cooney notes that unlike fake meat, which is usually more expensive than the real thing, fake fish could actually be cheaper for consumers

since the cost of real fish has skyrocketed. And certainly that cost has a big impact on consumer behavior. In addition to Lever v.C, New School Foods is backed by Blue Horizon, Hatch, good startup, all win capital, and Joyon's partners. Total funding, $12 million. New School will launch first

in restaurants because roughly 70% of seafood is consumed in restaurants. Bryson said the collaboration with chefs will also help to fine tune the product's taste and preparation before it hits the supermarket shells. Back to you. Tyler, you first. Well, I love salmon. In fact, they had it last night. I'm probably going to have it again tonight if I had to guess. Did you get a chance to taste any of this, Diana? No. No. No, we were unable to taste it because it's not for sale yet, and they said they wanted to get it into restaurants first.

So we have no taste test. We're just going by what we saw. Okay. All right. It's weird, Diana, because it's sort of like the whole point of eating red meat is, we're told it's not so good for us and all that. But the whole point of eating salmon is that it is good for us. So is this purely an ego argument?

It is, because it may be good for us, but it's not necessarily good for the planet. And that's why you're looking at these fake alternatives. It's bad for the salmon. It's not good for the salmon, and it's not good for carbon emissions either. And so that's why they're pushing this. And they do say, look, it was $178 million in investment in the first half of last year. And if that continues, it would surpass the previous year's investment of $306 million. And the estimates are that this fake fish could be a $1.6 billion industry very soon.

I just think it's a harder sell to say, do this and, you know, because it's good for the planet, then it's say, do this because it'll lower your blood pressure. Yeah. Well, what if do this if it's cheaper? True, right, exactly. And you're exactly right. The price of fish has gone crazy high. Absolutely.

Crazy high. $15 a pound. Oh my gosh, yes, absolutely. Dye, good to see you. Thank you. All right, we'll try that fish together. All right, Tyson Foods, they make food down 4%. Following a key earnings miss, we will trade that and other movers in today's three-stock lunch.

Welcome back time now for three-stock lunch on the tasting menu today. Tyson Foods sinking after their first quarter of men. Lockheed Martin, rising with other defense names on those geopolitical tensions, and Invidia flat today after being on an absolute tear up 45% to start the year. Here to help us trade them all is Ava Ados. She's chief investment strategist at ER shares. Good to see you again, Ava, and let's start with Tyson. What do you do with the stock here? It's a cell.

It's a fourth generation family business. And based on our research, and again, we invest in publicly traded entrepreneurial companies. And what we have seen over the last 20 years is that when it comes to family business, the first generation tends to create wealth, the second tends to preserve it, and that the third and on tend to destroy it. And so that's a company that's following this pattern with corporate values and corporate culture deteriorating. We see a sense of entitlement and we're seeing key family members promoted to the top despite of their behavior, which wouldn't be tolerated in other places. And so this is a company that has underperformed the market for the last five years. And based on its bureaucratic character is that we're expected to continue to underperform the market in the future. All right.

Let's talk about Lockheed Martin Ava. One of our earlier guests liked it a great deal. Do you? I have it as a fold just because I like the fact that it's a well-established defense provider. 80% of the revenues come from defense. One of the major suppliers to the U.S. military also supplying Ukraine now, fighter jets. So there are a lot of things to light known. It's a good, steady company. However, it's a hold because it's not an outlier. So we expect it to continue to perform consistent

with the rest of the category. And so we saw also their margins drop from 15% to 13% and they're well below other key competitors such as Rathian. So that's what it's a hold and not a buy. So a couple of companies here that you think are kind of the weak links in their categories. I doubt you would extend that to Invidia, but I'm curious what you make after. for this big rally to start the year. Nvidia is a buy. In fact, it's been one of our heaviest weights for many years now because they have a strong mode.

They're behind most of the exciting key technologies out there, such as gaming or cloud or autonomous vehicles and AI. In fact, they're behind the most exciting development we received this year, which is the chat GPT, which is running on Nvidia GPU. So that's a great example on how Nvidia has been and outperforming. They've had a strong growth, and we do not see that coming down anytime soon. We expect them to continue to outperform the market for the long-term future. All right. And Intel, by the way, what would you do with it?

I would say it's a hold just because, you know, again, we would think growth will continue to perform the market this year. So that's why it's a fault. But due to the recent announcements we have, we wouldn't buy more. We just hold what we have. Sure. Yeah, the stock worse than the Dowell. again today down almost 4%. Eva, thanks. Good to see you. We appreciate it.

Thank you. Ava Ados. All right. A smartphone, smart move. China retailers cutting iPhone prices to spur demand. We'll talk about that and more as we wrap up power line. Well, price cuts and Apple iPhone are two phrases that don't usually go together. But retailers in China, including jd.com, are cutting the price of Apple's high end.

iPhone 14 and Pro Max models as demand their. slows. Apple's official China website has not changed prices and the list the iPhone 14 Pro at just under $1,200 and the Pro Max at about $1,300. But customers can save more than $100 through a third-party retailer. This obviously doesn't sit well with Apple, which does fight to defend its prices, but clearly they're trying to spur demand. Sure, although I mean last week's quarter, I think, is still leaving a little bit of a poor taste in some investors' mouths. They had an extra week in their fiscal year

or their quarter to play with, and still they had iPhone sales down, Mac sales down, services growth slowing, all the rest of it. And I say all of this with the experience of having to just upgrade my phone, basically the watch is free. I'm not the only one the last couple weeks.

They gave you the free one? Yes. Wow. Yes. I mean, it's not cheap to buy a new iPhone, but it's a point of the battery. It's not just me. I was talking to one of our colleagues today, same thing. And you wonder when they get to the point of giving away essentially stuff that for Apple is quite unusual.

What does that really tell you about end demand? Underlying demand. Yeah, exactly. Meanwhile, sort of speaking of which, Americans are spending through the savings we built up during the pandemic. The Wall Street Journal citing Goldman numbers reports Americans have spent more than a third of the extra savings from the pandemic. By the end of this year, the two thirds of it will be gone. Two reasons for that, the end of government assistance and, of course, inflation. higher prices for just about everything are eating into that cash.

And also, we had pent up spending demand. True. People wanted to get out, and not that they didn't buy things online and buy things while they were home during the pandemic, using some of that stimulus to do so. But now they're back out traveling. Now they're back out spending in restaurants and bars. Right. And the question is, how does the consumer look?

Because in real terms, believe it or not, consumer incomes haven't gone up since about the end of 2020. So this is the whole kind of real versus nominal thing. You might have gotten a wage increase, but if you're not keeping up with inflation, this whole idea that even people making $100,000 are now living paycheck to paycheck. I mean, that's the kind of adjustment we're all making to these higher prices. Yeah, you're falling farther and farther behind. You're on the treadmill, but the treadmill is kicking you off, you know, as you go along. Happily now, inflation's come down to the point where real rates, there are real rates now.

The Fed Fund's rate is higher than the rate of inflation. And the only problem with now that incomes and ways you're starting to keep up with that is what our audience were, most about, which is that corporate profit margins go back to what Steve was saying, are going to have to come under pressure as a result of that. I'm very interested in the sand. My wife just texted me, I'm having prawns tonight for dinner. Oh, no. Not salmon.

And they will be real prawns. And she also asks how much processing does the stuff have to go through to pretend to be salmon? I don't know. I mean, it's all processed, I assume, in one way or another. You have to imagine it's quite a lot. It is a process. The whole thing. Speaking, this is actually a perfect segue

to final point to mention today. Shake shack, we haven't talked much about it, but I just realized you're supposed to read this. Oh, I'm supposed to read this? Oh, it's bringing a taste of fine dining to their restaurants, it says right here. On Friday, the burger chain will start selling burgers and fries made with white truffle sauce. Wow, the company says they are always trying to highlight flavors and ingredients that you don't usually find in fast, fast casual establishments. And while white truffles are expensive, the items are not all such. They have some starting prices under 10. That was my question after we've just talked about stretch consumers and all the rest of the way.

All right, folks, there you got it. You know, I'm having the prawns tonight. I'll have the prawns. I'm coming over. All right. Closing bell starts right now.