Power Lunch - The Outlook on Yields, Equity Options Fuel Volatility & Carvana's Stellar 2024 12/19/24

Episode Date: December 19, 2024

CNBC’s Tyler Mathisen and Kelly Evans take you through the heart of the business day bringing you the latest developments and instant analysis on the stocks and stories driving the day’s agenda. “Power Lunch” delves into the economy, markets, politics, real estate, media, technology and more. The show sits at the intersection of power and money. “Power Lunch” gives viewers a full plate of CNBC’s award-winning business news coverage, plus a healthy dose of personality from the show’s anchors and the network’s top-notch roster of reporters and digital journalists. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

And welcome everybody to Power Lunch alongside Kelly Evans. I'm Tyler Mathes. And stocks are bouncing back today, getting back some of yesterday's losses. The Dow seems likely to snap its 10-session losing streak. But the markets are coming to grips now with the likelihood of higher rates, the 10-year yield holding back above 4.5%. And that is a bit of a, I'd say, troublesome or challenging level for equities. Well said. Actually, a lot of strategies say anything over 4 and a half at this point, certainly over 5, but, It was interesting. We didn't just get this knee-jerk reaction yesterday. It continued in today. I mean, we almost kissed 460 just a short while ago. And you've got that government shutdown looming as well. Exactly. And so you might normally think that would be a kind of event that sends yields lower and kind of a risk off. But again, maybe that just tells us how much things have changed.

A. 12.1 a.m. Saturday will be the shutdown if no deal is reached. We talked to Emily Wilkins last hour. She said, thinks it's better than 50-50. That happens at this point. President-elect Trump saying the proposed funding deal was unacceptable. now he also wants them to raise the debt ceiling. Yeah. Or I heard on one report, maybe even eliminate the debt ceiling, which would take that impediment, I suppose,

or that hurdle that we have to deal with, it seems, every few months or every year at least, off the table. Plus, we're going to talk this hour to the CEO of Carvana. Two years ago the stock was trading at $4. Where is it now? Look at that. $226. Don't you wish you'd own that one?

Can this possibly keep it? going. We'll talk about that and the market for used cars. Really one of the great finance stories of the last couple of years. Just incredible. All right, let's get to the broader markets. The stocks rebound from yesterday's sell-off. You can see we're up about three quarters of one percent across the board. After the Fed signaled fewer rate cuts, then markets were anticipating for next year. One of our next guest thinks this is a great buying opportunity and the Fed remains supportive. Our other thinks the Fed will be on pause for the time being and could even hike again if inflation reignites. Joining us for more is Tom Lee. Fundstract

Global Advisors, Head of Research and a CNBC contributor. And Jeff Kilberg is founder and CEO of KKM Financial, his contributor as well. Tom, we'll start with you. I take it you think this is a buying opportunity. This is another buying opportunity in our view. 2024 has proven to be a year where the market's been strong and it has alluded many opportunities for sustained weakness. I know yesterday's pullback was really painful, but to us, I think the fundamental supporting

stocks are intact. and I think it's a good opportunity for investors here. A good opportunity for investors. Jeff, I take it that you feel is differently putting it too strong? Well, I don't disagree with Tom on the fundamental side of it, but I think if you look at where we're at, the interest rates, what's on the horizon from taxes, tariffs, and deficits, I really have to be considered of what happened yesterday.

It was the second largest move in the VIX we have seen. And historically speaking, Kelly, Tom is right. a month after that spike in the VIX, you see the S&P 500 higher. However, I don't think we can lean on history here due to the fact that we've seen stretch valuations in the top 10 names of the S&P 500. We've also seen just a straight line up. If you look in the last two years, back-to-back years of above 25%, we've become conditioned that the market is going to continue to move higher thanks by and large to the Fed dovishness

and their $7 trillion balance sheet. So I'm looking, I know Tom wants to back up the truck here. I have the truck running, but I'm not ready to back it up yet. to see this more process, reset valuations. I think that's going to be the next couple of months, possibly the first quarter, because we've become two conditioned, Kelly, to markets repricing in a day. I have to go back to my 30-year career and understand that we will see reset valuations more of a quarter or two, not just a day or two. You know, Tom, this has been a bit of a slide for the, for the data. Put it mildly, we had 10 down days in a row. You say you saw signs

of capitulation yesterday as it was a 90 percent down day. I did, Tyler. You know, as context, the market has been bleeding lower. If you look at internals for the last 10 days, yesterday looks capitulatory because not only did we have a 90% down day, but the VIX, the spot VIX, exploded by 75%. There's only four times in history where it's risen 60% in a day. So yesterday was the fifth time in its 35-year history. Of those four times, the market recovered. all of its losses within a week, three out of the four times. The fifth time it took, the fourth time it, sorry, it took a month. So I think what you had was people panicking to get out of what they thought was a momentum trade that's ending because we're so close to your end. But here's the interesting thing. The forward VIX futures curve barely moved. So it was almost as if people were seeking protection through the VIX yesterday.

What tells you, Jeff, that more valuation resetting is to come? I think due to the fact we only had one down day, Ty, typically when you see prices reset or revalue, you have consecutive down days. And those consecutive down days bring along margin calls. And you saw Interactive brokers head talk about his concern of margin being used on the MAG 7. So when I look at a day like today where you're seeing passive indexes, Bowie, the overall three major indices, Nvidia, Facebook. These names are coming back because you're seeing people deploy cash in a passive index. So I do get concerned about that. short-term volatility, but I'm going to embrace this volatility over the next month or two because

I don't think history is going to line up. This is not going to be the same way. We've seen a straight-up move ever since last November, and especially since November 5th after the election results. So I do have concerned short-term, but I am cautiously optimistic at 2025, but there's me more volatility. This was like a depth charge that went underneath the water. There will be ripple effects. Tom, let's talk about the small caps for a minute because they have these kind of moments where they look really promising, they go on a tear, and then it just stalls out and a lot of investors are feeling frustrated and wonder if it's worth sticking around. Yeah, I mean, I'd say investors are tired of having like the rug pole on small caps.

Yesterday is an example. Unfortunately, when markets get nervous and their risk off and of course buyers disappear, stocks that aren't as liquid get hit harder. That's why the Russell not only has been sort of under pressure for a couple weeks, but really got hit yesterday. But do we think anything has undermined what makes small crabs attractive the next five years, it's still in place. I mean, they've underperformed the last 10 years by the second largest magnitude in the last 125 years except for 1998. So not only are they derated, but now we have a roadmap of deregulation, possible mergers, at a time when financials, which is a huge weight in small caps, look more promising.

And things like biotech, which is a huge weight, also look more promising with de-elective. So I actually think this is, again, another chance to buy a dip. Let me ask both of you to respond to this idea, and that is that did the chair yesterday effectively or tacitly concede that maybe they move too fast too soon? In other words, by cutting 50 in September again in November. What do you think, Tom? And then, Jeff, your thought? Fed Fund futures were only pricing in two cuts essentially next year, depending on how you wanted to look at the level of Fed fund futures. And the Fed essentially agreed with that.

Essentially agreed, yeah. Yeah, so the Fed sort of forecast just were not what the market was expecting. I don't think the market expectation is wrong. I think it's better for the Fed to be wanting. wanting to support the economy. So in other words, get to neutral. But the fewer cuts they do in 2025 actually is better for this bull market because it provides a lot of future ammunition to protect the economy. So to me, the idea of going from committed four cuts to two or, you know, potentially four to two, and maybe even only one cut next year, I think that's actually

a bullish outcome. Jeff? It felt like a confessional yesterday because Fed Chairman, he actually came out and said that their forecast for inflation really fell apart towards the end of the year. So I believe that they had to kind of catch up with the two-year note. And I go back to my career where I started in the U.S. Treasury pits in Chicago, the Chicago Board of Trade, the bond market has always provided leadership. But what's interesting now, I think the tenure can go to 5% before it goes back to 4%. And with the way inflation is trajectory and moving higher, the Fed is seemingly moved away from their 2% target. Because if you think about it, Ty, the Fed would have to have CPI go down to 1% for about a year or two

to get anywhere near those 2019 pre-COVID levels. So I think the Fed may actually have to hike rates before they cut them again. I know that's a bold statement, but it may actually happen in Q2 or Q3. Well, we will see what happens. Tom Lee, thank you very much. Jeff, you're going to stick around for just a minute. Thank you, Tom. Because today CNBC released our exclusive rankings of the most valuable college athletic programs

in this year of big money in college sports. some of these programs are valued at levels similar to pro teams. Number one school on our list, the Ohio State University at $1.32 billion. Texas, University of Texas, Texas, A&M, Michigan, all valued at more than a billion. Alabama, just shy of that. Sixth place on the list is Jeff's alma mater, Notre Dame. It's the highest ranking private school and the only school in the top 15 that is not in the SEC or the Big Ten. And they have a big game tomorrow night against my Indiana Hoosiers,

where my son just finished his first semester. And I see you are wearing an Indiana crimson coat. This is a tell, Golden Domer. Don't miss can stir my holiday coat. Look at the helmet here behind me, the Golden Dome. And what's interesting, no one really knew that Indiana actually had a football team. So hat tip to Coach Signetti. He has brought them to a national prominence.

and they're coming to South Bend tomorrow. It's going to be a little snowy. I believe that Notre Dame and Marcus Freeman will be prepared to run the ball. But if you go back to the most valuable university, I know we're six on that list, but I'm pretty sure I could call Coach Lou Holtz right now, and he would kind of talk about Ryan Day, not deserving that number one spot.

But it's fascinating to see the amount of money. Each one of these teams in these college playoffs, tie, are receiving about $10 million. So if you look at the Ohio State example, you guys talked about making $280 million a year, if they're able to go all the way to the championship, they're going to drop another 10 to 15% talking $30, $40 million to their bottom line.

It's remarkable to see the amount of cash in college football. All right, well, I got to say go IU. I know there are a lot of people who go say go Irish. Killer, thanks very much. Jeff Kilberg. You bet. Appreciate it. See you guys soon. Yeah, you bet.

Still ahead. Talk about a comeback story. Carvana shares were worth less than $5 two years ago today. Now they are sitting at around $232. That's a 5,100 percent. increase. We'll talk to CEO Ernie Garcia about what's driving the turnaround story when Power Lunch returns. Welcome back to Power Lunches. We get ready to close out 2024. We want to zero in on a standout stock. Despite a 3% drop today, online car retailer Carvana is up about

325% this year alone, up over 190% since our April stock draft. That has helped push the mentalist owes Perlman into first place in the draft. There you see the ranking And not by just a little bit. Look at the margin of difference there, less than two months to go in the stock draft. Here for a Power Lunch exclusive, Ernie Garcia, Chairman, President, CEO of Carbana. Ernie, welcome. Good to have you with us. I think part of the story behind the remarkable stock performance 110% in the past six months is what you have done in terms of profitability and making the company much more profitable in 2024 than it has ever been most profitable, as I understand. standard car dealer chain in the country. How'd you do it? Oh, wow. There's a lot to that question. I think, you know, we're going to hit our 12-year birthday in January, so just in about a month. And I think over that period, we've had a ton of great people at Carvana that care that have

built a completely different business model from anything that's been available to customers in the past. Customers go online. They can pick a car in minutes. They can get it delivered to their door as soon as the same day now. You know, we handle financing and everything else, so we're deeply, vertically integrated. And I think the experience that we deliver is one the customers love. So we're now growing faster than any other automotive retailer out there. And then, you know, the economics that business are much different than traditional automotive retail. So we give our customers a discount and we're still the most profitable. And so that's a powerful combination. And then, you know, we're only 1% of the market. So we got a lot of room to run.

So I think there's a lot to be excited about. So how did you boost profitability specifically? You know, that would, that would take me a while to talk about. And I think I would bore your your viewers. So I'm going to stay away from too many details, but I think it's a completely different model. We've built over a long period of time. We put a ton of effort into making sure that we found as much efficiencies as we possibly could in every area of the business. The way that we reconditioned cars to make sure they're in great shape for our customers, the way that we spend money to deliver cars to a customer's door, making sure that that's more efficient and faster, the way that the entire transaction is managed, a bunch of things that we do in

finance. We've worked really hard to make every part of the transaction more efficient. We think that there's a lot more room to continue to find efficiency, so we're going to work hard to continue to find those gains and then share them with our customers and hopefully keep the party going. Ernie, it's one of the greatest turnaround stories in corporate America. I mean, literally, I can't think of one that has been more astonishing. And for those who haven't followed us closely, this isn't like a meme stock thing where you were Hertz and a bunch of investors came in and said, oh, let's take a flyer.

I mean, what is your gross profit per car now? It's significant. So, you know, we're now, we've been the last couple quarters in the $7,000 area, give or take, and we're able to do that by cutting out more middlemen than has traditionally been the case in automotive retail. You know, we're basically a stacked automotive retailer. We're a finance company. We're a logistics company. We're a reconditioning company.

We're a company that buys more cars from customers than we sell. We're a big wholesaler. And by stacking all those functions that exist in the automotive ecosystem, we're able to give our customers a great deal, and we're able to be more profitable than any business has ever been in this industry. And so it's been pretty fun and we're excited about it. Again, to make sure people caught that, $7,000 per car is your gross profit. But still, I mean, that's a big number. So just to go back two years ago, there were people who thought your junk bond,

you're doing more debt issuance, try to get through that difficult time. They thought it was a zero. They didn't want to go near it. A lot of the bankers who got involved were able to kind of help keep you going, but also it was just an incredible, the ability to kind of navigate that was very difficult. I always think back to when Elon Musk was sleeping on the floor at Tesla when it nearly went bankrupt. and I just wonder if you have any moments that were like that. I think the truth is that building anything truly different is always very hard.

And I think most of the time, most people don't get an in-depth view of just how difficult it can be. And I think, you know, unfortunately at the time, but I think fortunately with the benefit of hindsight, I think 22 and 23 were a tough time, was a tough time for us. But I think inside the company, a bunch of people stood up tall. We did our best work and we're on a great path. and I think that we're a better company for having gone through that. So we definitely have taken our bumps along the way. I think that that's often the case when you're trying to build something different.

But I think today's a good day and we're extremely excited to keep it going. So let's say I want to buy a car from you and I go on your website and I see that there is, and I note that you have Tesla Model 3 is the biggest seller among your cars in 2024. Let's say I see a Tesla Model 3 that I want to buy. We agree on a price and you deliver it to my house. and I decide I don't want it for whatever reason, just because, ah, it didn't have this or what, what happens then? You call us up, you tell us you don't want it, and we come get it from you.

We give you seven days to drive the car around your neighborhood, see if your golf clubs fit in the back, and if the cup holders work for you, and if your kid's car seat fits in there, and if it works, awesome, and if it doesn't, you give us a call, and we'll either bring you a new one or we'll take it away. Our goal there is to make that as easy as possible, to make sure the customers tell that story, and then other customers know that if they want to buy a car from us,

you know, if they make a mistake, it's okay, they can return it. So it makes the decision a little easier up front. And if I want to sell a car, I assume it's the same kind of operation. We agree on a price. I'm selling my Tesla Model 3 to you. We agree on a price. You come and pick it up. And give me a check.

Correct. We'll come pick it up as soon as the same day. You can come drop it off to us as well. And then we'll give you, yeah, we'll put money in your account and we'll call it today. Ernie, quick final observation, really. You can take it however you want. The stock is now trading it over 100 times for its forward P.E. So for those who look at it and go, great job, nice turnaround, I ain't going near it.

Do you think your growth is going to justify that kind of multiple? I think I was nervous about what you're going to say once you set me up like that. But I'll say, I think we're going to let this stock take care of itself. I think we are 1% of this market. It's a trillion dollar market. There's a tremendous amount of opportunity. our job is to go out and take advantage of that opportunity. I think investors' job is to figure out with the present value of, you know, that ultimate

execution is going to be, and that's their job. I think we're going to keep running fast. We're going to keep trying to solve problems. We're going to keep trying to deliver great customer experiences, and investors can figure out the right price. All right. He had an answer. I mean, you know, what I'm going to say?

Don't buy the stock. Ernie. You put me in that spot. You did that to me. Listen, if you can get through what you got through, you can handle any question. Ernie Garcia. Appreciate your time today. Thanks for joining us.

He's the chairman and CEO of Carvana. And still ahead, treasury yields do continue to climb after yesterday's rate cut. But just how high will they go? We'll discuss that topic in Market Navigator next. Welcome back to Power Lunch, everybody. After yesterday's debacle that really took place in the last two hours of trade, the industrials are up 250 points, S&P by 29, almost 30, and the NASDAQ by 104, basically half percentage point gains.

Dom Chu, what do we have in our navigator today? All right. So, Tyler, what we have right now is the 10-year treasury yield continuing to climb well above that key 4.5% level traders are watching. Now, one of those traders believes that yields will continue to rise in the short term. You saw him earlier. Back with us again as Jeff Kilberg, the founder and CEO. Wearing the Indiana coat. We're wearing the Indiana coat.

He's got the Indiana coat on right there. All right. So let's talk again about the yield picture. So take us away to this world here where the yield is not going to be as scary or will it be as scary as the recent price action has lent itself to. It's just remarkable, Dom, how much has changed since yesterday's Fed meeting? So if you look at where the 10-year note has been, going back to before September when they had their massive 50 basis point cut, we're nearly 100 basis points higher. So I think the trajectory is going to continue to move higher, a couple of reasons, Dom, due to the fact that they can't get inflation under control,

due to the fact that they're being forced not to cut any more potentially in 2025, be on that pause. But I think we have so much uncertainty about tariffs. We're so much uncertainty about tax cuts. There's certain uncertainties about deficits. That's going to propel potentially the ETF, TLT, lower. And this is the inverse relationship, Dom. So think about it.

The 10-year note goes from 4.5% up to 5%. TLT, the $50 billion ETF, will go lower. So it's an inverse relationship, but I want to be consistent. of that move higher, and I want to use options to express a bearish view on TLT, but yields going up to 5%. All right. So let's take us through the – we're showing the graphic right now about the put spread. It is a bearish trade.

Take us through the mechanics of this option strategy. So it's a bearish trade when you think about where we're coming, but this is a put spread. So I want to define my risk. So I want to be a buyer. And TLT right now is about 30 cents higher from where I executed this trade this more. But I want to be a buyer. I'm going out to January 24. That's three days after the inauguration, four days after the inauguration.

I want to be a buyer of the $88 put in TLT. I paid about $1.40 this morning, but I also want to consider reducing some of that cost and selling the premium. So I sold the same expiration, January 24th put, for $0.35, and that put is at $84. So I'm hoping if the yield does go up to 5% in the 10 year, this put spread will fill out, and I'll collect the $4 minus what I paid was about a buck 05. All right. And so if this happens, the max you can make is that difference, right, minus the dollar five that you paid for it. At what, you think you would bail on this trade or say that, you know what, maybe it's not worth it or how, how, and you can risk manage by saying already that you've already purchased this thing.

But how exactly then would you risk manage around it if it's not exactly going in your favor? Or do you care? So when I buy a put spread, I'm defining my risk. So I'm comfortable losing the $105 per one lot. because if this is wrong, we're going to see my equity exposure appreciate. It's going to continue to move higher. So on a put spread, I define it out of the gate. I will not really manage it or overmanage it, I should say. But if we do see this come to fruition, if I'm correct about this trade, Dom, you're going to see equities move down about 5% or 10%. Because we saw the 30-year jumbo loans, they go over 7%. You're seeing the 30-year futures go to 4.75. This could be disastrous short-term because the consumer will get hit with these higher. yields. We just haven't felt yet. There's a lag effect, as always. And now we're 100 basis

points higher than the 10-year-known from last September. So I think there is going to be some effect on the consumer moving forward. All right. Jeff Kilberg, navigating the bond market for us right now. Thank you very much for that. We appreciate it. Go Irish. It's my last go Irish. I had to get one more than the tie. Gotcha, Ty. All right, got you, let's bet you. Let's bet you let's take dinner. How does that sound, Ty? Oh, it sounds great to me. I'm giving you a witness to it. You're on. You're on. Don, Don, you can come to you, buddy. All right. Go Hoosures. All right, still ahead. Shares of the S&P Regional Bank ETF off about 6% so far this week. We will speak with Valley Bank CEO, our friend Ira Robbins, about what the Fed's plan for interest rates could mean for his bank and what deregulation might mean as well.

Power Lunch is back in two. Welcome back to Power Lunch. I'm Contessa Brewer with your CNBC News update. The suspect in the murder of United Healthcare CEO Brian Thompson is back in New York this afternoon. Luigi Mangione is expected in court any minute after being hit with new federal charges, including murder, stalking, and firearms offenses. Federal prosecutors say they have jurisdiction since Mangione allegedly traveled from Georgia to New York to commit the crime. Meanwhile, a Texas judge refused to throw out criminal charges today against the former Yuvaldi School's police chief accused of delaying the response to that mass shooting at Rob Elementary in 2022.

19 children and two teachers died. Pete Errondondo faces 10 counts of child endangerment. His lawyers had argued he was improperly charged. And Big Lots announced today it will hold going out of business sales at all of its locations after its sale to private equity firm Nexus Capital fell apart. The bankrupt discount chain says it will try to find another way to stay in business and we'll try to complete a sale by early January. We'll keep our eye on that situation. Tyler. Tessa, thank you very much. Inflation is back in focus after the Fed gave a bit of a hawkish forecast for its rate cut path in 2025. Bond yields jumping, stocks falling while Powell gave his statement. We were here yesterday to watch it all. Here to give us a read on both the banking and the consumer and interest rates. Valley Bank, Chairman and CEO Ira Robbins. Welcome. Good to see you in-house for a change.

Wonderful to see you. Thank you. It's great to have you here. Your reaction to what the Fed did yesterday, your reaction to a positive yield curve and what it means for your business. Could not be happier and have a positive. positive yield curve, operating in a negative yield curve for a bank, and a bank like Valley, which generates so much of its revenue from net interest spread, has been a real challenge for the last two to three years. So even though we're sitting at 25, 30 basis points of

positive yield curve today, that positive slope in itself is going to be a huge tailwind for banks, not just regional banks, but for all banks in general. So it couldn't be happier. It seemed as though the Fed Chair was concerned, or I'm concerned about, I made a strong word, about inflation. Are you? Absolutely. Like I think inflation is still running higher than what the Fed's target is. And there really hasn't been any kind of, we had an early reduction in what that looked like. But it's some strain still. And I think the inflation is still going to continue as we continue to move forward to conversations I've had with many of our borrowers. They're still seeing inflationary prices and the tariffs, I'm sure, which we all want to talk about at some point.

I was with a borrower the other night and he talked about already implementing 10% price increase. with the expectation of what may happen, those conversations are beginning to happen, and there's this confidence perspective. When sentiment changes, then sentiment sometimes proves this correct. What industry was he in, if you don't mind my ask? Apparel. Apparel, because we were having this debate last hour over whether the apparel companies are really going to be hit by this, or did they absorb it last time?

An interesting point that was previously made is that because we had tax cuts first last time before we had tariffs, it kind of helped companies cushion the blow. We're not going to get corporate tax cuts this time around, certainly not first. We might get the tariffs first. I wonder if that dynamic will be different. It's going to be a thousand percent different. I think margins are something that have already been under pressure for a significant period of time. We've seen increased interest rates.

The compression that we saw, so from an ability for a bar where to not have to pay as much interest, it may not be as much as they thought before. Now they're seeing price escalation. It's going to be challenging to how they're managing their overall bottom lines. They will definitely try to push it through much more so to the borrower this time, to the end buyer, than what we saw last time. Let's talk about deregulation. There has been, obviously, attended to the new administration.

A lot of talk about deregulation would affect the banking sector. What do you think about that as a broad question? And if there were one or two regulations that you could change or eliminate, what would they be? And the banking sector and a broad U.S. in general has to decide how inclusive do we want the banking sector to be? Meaning? At this point right now, we've made capital restrictions, regulation that is. is uninclusive as to where consumers cannot enter the banking industry, and they're left going to somewhere else, whether it be a checking account because of overdraft protection, whether it be a shadow banking environment,

payment rails are looking to move. We have put forth policies in place from a capital requirements perspective to how we think about bright lines within regulation that has made the banking industry be an uninclusive industry to so many people in the country. The negative impact. The unbanked. The unbanked. And it's increasing even when you think about traditional generational client. entrepreneurs where they're getting their capital from today. Credit is being delivered outside of the banking industry today. In general, shadow banking environment's great. But when you look at how does that align with the socioeconomic

derivatives as to what this country wants? There's no fair lending that sits in the shadow banking environments. There's no CRA requirements that sit in the shadow banking environments. There's no disparate treatment that sits in the shadow banking environments. So we are creating a country where access to capital is being pushed out of the banking environment, to organizations that don't have any of the socio-economic themes that we've been talking about for the last three to four years. And not just that. If something goes wrong, I mean, what, you know... So would you like to be more like them, or do you want them to be more regulated like you?

I think regulation is a good thing to be clear. There has to be regulation in an industry like ours. We are an industry built on trust, but there has to be a regulation that just doesn't say, I need to add two to 300 basis points at capital. What are we actually doing there? Are we making banks safer? Or that trade-off in making bank safer is harming. another individual. Is moving, moving lending to another platform? Moving and lending to different platforms is something we should be doing. Banks

innovate all the time, right? We think about technologies and transfers from a payment system. ATMs, banks have innovated over and over again year after year. So regulation that supports innovation is something we should definitely be focusing on. But regulation that takes hardworking consumers

and takes them out of a banking industry is bad. We talk about commercial real estate today. Obviously, Valley has a significant exposure to commercial real estate. So what happens when we say banks can't lend to commercial real estate? Where does it then go to? It goes to organizations that, by the way, don't have affordable housing requirements associated with it, so where's the housing going to end up coming from?

And who's it going to be for? It's not going to be for the intended outcomes that we're looking for. And in general, we need to really rethink through the entire regulatory approach within the country and what is the outcome that we're looking for. Because right now, the unintended consequences, in my mind, far outweigh the good that they're looking to say. See? Call up Doge.

Soon and later. Get them focused on this. There's a lot of regulators out there today. Yeah, a lot of the banking. They might be changing some of those banking regulators as well. FDIC going into Treasury, you have a view on that? I think we have a lot of regulators. And once again, they do a very good job of what they're doing.

But they do the same thing at three or four different regulators. I'm not sure that's the correct approach, right? Having a more of a uniform approach, we have a same regulatory environment that sat around for 30, 40 years. Everything should be looked at again. What does the banking environment look like today? How do we deliver our experiences to individual clients? Payment rails have changed dramatically. We have to change the regulatory environment as well.

And not because we don't have good regulators. Sometimes they just have a mission that gets crossed up. And that creates inefficiencies. It creates challenges. It creates organizations like Valley have difficulties competing in that type of environment. Regulatory has to be looked at. Well, I hope that whoever is in charge of looking at regulations consults you because you're a thoughtful person. Thank you. I appreciate. Wonderful being here. Thank you for having me.

Good to see you. Thank you. Thank you. The 10-year yield is continuing its rise after yesterday's Fed decision and press conference. Around 455 at present, we'll get out to Chicago and check in with the traders on this topic when Power Lunch returns. Welcome back to Power Lunch. Stocks are rebounding, although off of earlier highs were up about half a percent on the Dow, a third of a percent for the S&P and NASDAQ after yesterday's steep declines, but interest rates remain in focus. Let's get out to Rick Santelli in Chicago for more on this developing story, Rick. Yeah, I'll tell you, the interest rate complex is wild, just like equities. Now, if you look at the first chart, this chart starts on the 9th of December, which means we've had nine consecutive sessions in a row on the tenure where the yields on any given day are higher than the previous day.

That is building momentum. We've talked about it, and it's been a great technical indicator. Two's 10 spread, the steepest, the widest, going all the way back to mid-22, that speaks volumes about the market's anxiety on inflation. And finally, the dollar index on pace for another record closed going back to the end of 2022. But maybe the most interesting story is all that volatility in equities and what it may mean. And for that, we're going to go talk to Chem. Hi, Jim. All right, yesterday was one of those days where the equity markets,

went wild. Now, so did interest rates. But when we spoke, you had a good explanation that I think viewers would be quite interested in. It's a perfect storm. Not only are you getting the inflation and the catalyst, but it's important that it's Dece OPEX. It's the biggest option expiration. And we have a Greek tragedy here. Beta, theta. Okay, go on. Options expiration is the biggest one. These leaps have been on the board for years. A ton of open interest in the put side. So what happens when all of a sudden you get a big catalyst, you're going to be. you start moving, all of a sudden, people need to cover risk. And that was a lot faster than people expected, a lot of short covering, you know, on these options. So they were basically selling futures

to neutralize some of the exposure they had on the option side. There was a lot of put selling dimes, 20s, that now that went up to $5 on that move. When that happens, that creates a margin call issue, so people have to cover that risk. That expires tomorrow morning, so a lot of that relief is what you're seeing here in terms of the push up as those things are coming down. But until that comes off the board, you know, you have this volatility pressure. So they see that opening price and then we're pretty much done tomorrow. That's right, that's right. But the big catalyst is still there.

So I don't think this is necessarily over. The structured flows that we've been seeing that have been supportive are fading. They're going away. And as that starts to fade, you're likely to get more and more selling here. I used to love expiration days. There's a whole other game. So even though that opening price kind of is the end of the game, you have till when to decide if you actually want a position in those options,

take delivery so you can play the game seeing where the futures market, the cashes, then decide, okay, I want that position or let them expire worthless, correct? That's exactly right. And the AM print is critical tomorrow. If we're stable through it, which it looks like we will be, you'll get a little bit more support. But then Friday, Monday, after that initial support, now there's a whole new ballgame. So a lot of those hedges come off as well. Right.

Okay. Now, how should we look at the rest of the year with respect to we're beyond the big expiration? Is there any dynamics going into the end of the year under the Santa Claus and the turn that we should be aware of? There's a re-leveraging effect in the end of the year that should still provide some support. But this interest rate inflation story is the story. As we go into the election, there's going to be a lot of risk off. People don't want to wait and stick around for what might happen to accelerate some of those forces. So I think that inflationary, stagflationary forces, which you and I've talked about for some time, are going to be at the heart of all the conversations.

Excellent, Jim. Always fun to talk to you. Be careful on the big. expiration. Watch that opening price tomorrow. Remember, you have a bit after that to decide if you want the position of your expiring options. Kelly, back to you. Rick and Chem, thank you so much. We appreciate it tonight. And still ahead. We're less than 36 hours away from potential government shutdown, and there's still a whole lot of law that lawmakers cannot agree on. We've got the latest on the DC drama. We've been here before when Power Lunch returns.

Government shutdown is looming. Could happen. Saturday morning. Let's get to Emily Wilkins on Capitol Hill for the latest. Emily. Hey, Tyler. Well, yeah, Speaker Mike Johnson has been huddling in his office for hours now with lawmakers trying to hash out a plan to keep the government from shutting down come Saturday. Now, remember Elon Musk, he killed that initial bipartisan agreement that lawmakers had, and he heavily criticized the measure spending, which of course is going to be a focus for the Department of Government Efficiency or Doge. But at this point, it is looking like any package to fund the government is going to have billions of additional spending in it.

I mean, Donald Trump himself called for Congress to fund disaster aid for areas hit hard by hurricanes as well as aid to farmers. Now, those measures alone, if you look at that original bipartisan bill, are more than $110 billion in funding. Now, there are some smaller measures that were in that initial package that are likely to be cut. This includes giving a cost of living boost to lawmakers' salaries, but those have a much smaller price tag. And this is really showing how hard it's going to be for Elon Musk and Verveig Swam Swami to cut government funding. In addition today, the Senate is actually supposed to vote on a package that could expand Social Security benefits to those who get a public pension but also worked a job where they

paid into Social Security. That measure, it's already passed the House. It's set to pass the Senate and become law. And it would add $200 billion to federal spending. And this is really just showing that even though Republicans have a mandate, that they see to cut spending and cut the size of government. There are still a lot of bipartisan support for spending measures and a lot of questions about, I think, what next year is going to look like, that we're still trying to figure out through this very, what is supposed to be at least,

the final week of lawmakers being in D.C. trying to figure out the path forward on funding the government. Guys? How much power does Musk have? How do the people on Capitol Hill react to the fact that an unelective delegate who is not even really in power yet, because there is no new administration, is seemingly calling the shots for Congress. And where's Vivek? I mean, look, Elon Musk put his money where his mouth was in this last election. He spent hundreds of millions of dollars helping not only Trump win re-election, but also helping Republicans keep the House. And members are very cognizant of that. They're also cognizant of the fact that with his purchase of Twitter, now of course, X, he has a megaphone in terms of reaching

conservatives. There were some lawmakers who I spoke with yesterday who said that their phones and their offices were ringing off the hook with people calling them, saying that they'd seen Musk's tweets and they had concerns. So that's the kind of power that Musk is bringing right now to Capitol Hill. But you are right. I mean, we did hear incoming Senate majority here John Thune say that, look, you know, members are going to have to balance what they see on social media with what they think is actually the best thing for their constituents. So I think a lot of questions here about how this is all going to work out and all going to play out, but certainly a lot of concern right now.

Emily, for now, thanks. We appreciate it very much. Emily Wilkins on Capitol Hill. The markets are paying attention to what happens there. So are those in management. Frank Holland is joining us with more on what CFOs are saying about the prospects of some big cuts to government spending, Frank. Hey, Kelly, you know, the biggest corporate financial decision makers, they are very concerned about the economic future of America, according to the results of our

exclusive CNBC CFO Council survey. A total of 93% said sweeping government cuts are needed to ensure the future of the country. The other 7% only disagreeing with that statement somewhat. The survey was taken between December the 9th and December the 16th. That was after Vivik Ramoswamy spoke at our CFO Council Summit, sharing his vision for the Department of Government Efficiency or Doge, which he will run with Elon Musk. 82% of CFOs believe strongly or at least somewhat that Ramoswamy, Musk, and Doge will achieve some meaningful cuts in federal spending. But there's some mixed opinions about the reality of achieving that goal of $2 trillion in cuts by July the 4th, 2026. 33% disagrees strongly that it's possible. 30% say it is somewhat possible.

And then we also ask CFOs about their corporate spending plans for next year. Two very interesting data points here. More than 80% said their cap-x would increase or stay the same. And then when asked about their top KAPX priority, the number one answer was investing in tech outside of artificial intelligence. Only 7% said they are investing in AI capabilities. Back over to you. Frank, what do you find most surprising about these results? You know, I really found it very surprising that a lot of these CFOs believe that sweeping government changes need to be made. But then when we talked about, we asked them, how could Doge potentially impact the economy?

We have some graphics for it. I want to show you this. It's just a wide range of results. Some people believing that Doge has the potential to actually harm the U.S. economy, others saying, you know, just not sure what it could mean. But everybody believes that there needs to be some type of change. And you can see from our previous numbers, a lot of them believe that they're going to be effective in the cuts. But the actual impact of the cuts on the economy, that doesn't seem to be so clear

when we talk to these financial decision makers. All right. And interesting, too, that the capital spending intentions are not on AI so much as they are on other kinds of technology. Right. Frank Holland, thanks very much. Now on Monday, a very special edition of Power Lunch. We're stuffing your stockings with stocks. All hour long, traders, strategists, and analysts will give you their top picks going into 2025.

We also want to know which names you want to hear about. Just find us on social media. Put in your request. During the break, check out CNBC's Instagram story. And you can drop us a note and let us know which stocks to trade. We're back right after this. Welcome back. Let's get a quick look at the markets before we go.

go. Everything's kind of backed off from the highs. Yeah, it has. Fading a little. It's fading a little. It's fading. The market was up three quarters of 1%. It's about half that now. The 10-year yield, interestingly, rose all the way to nearly 4.6% is also backed up. And by the way, there was a bad tips auction at one. Really, really bad tips auction. We talked about those yields earlier this hour, how they were already on the up, and that's why you see them where they are. It was really an interesting day yesterday because at 2 o'clock we were on, and the market was positive, as I recall. And then it began to fade. And then by the time I got home, A thousand points.

What happened in that? We were only down about 200 now. Powell said it was a close call. It was Fort and Morgan's fault. Maybe Wapner probably in there too. We gave him a market. We tried. And then it just all fell apart.

Yeah, on his commentary. Maybe even on some of the drama happening in D.C. I think so too. Thanks for watching Power Lunch. Closing bell starts right now.