Power Lunch - The Read on Real Estate, and Tesla Turmoil 2/16/23

Episode Date: February 16, 2023

U.S. housing starts fell in January, just as home prices are coming down as well. All while workers are returning to offices around the country. Real estate magnate Don Peebles will join us live in studio to discuss what he’s seeing in residential and commercial markets, and where we go from here. Plus, Tesla is the best-performing stock in the S&P 500 this year, already up 75%. But it’s facing competition in China, a new recall and union pressures, too. We’ll discuss all of the turmoil. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

It's 2 o'clock in the East, everybody. Welcome to Power Lunch, along with Kelly Evans. I'm Tyler Matheson. Glad you could join us on this Thursday. Coming up, the read on real estate. Housing starts falling in January. Price is coming down as well. Plus, how's the office, the back-to-work plan working out?

The real estate magnate Tom Peebles is here talking residential, commercial, and more, and what he is seeing in his business. Plus, Tesla is the best performing stock in the S&P this year, already up 75%. But it's based in competition in China, a union issue here in the U.S., as well as that new recall we discussed. We'll have more on all the Tesla turmoil. First, let's get a check on the markets, though, with stocks lower the Dow down 137, the S&P similar percentage four-tenths. Same for the NASDAQ, actually, Russell 2000 Smallcaps trying to eke out a gain here. And we've also got those numbers on the housing market. And for those, let's go to Diana Oleg in

Washington. Hi, Dai. Hey, Ty. Yeah, home construction dropped more than expected in January, despite two months of gains in-home builder sentiment. Single-family starts fell just over 4% month-to-month and were 27% lower than the year before. Building permits and indicator of future construction fell a little less for the month but were 40% lower year-over-year. Housing completions are now outpacing starts,

which means the supply situation is going to drop going into spring. As for multi-family apartments, starts were also down and permits were flat for the month and down annually. But the number of apartments currently under construction, is the highest since 1973. So a bigger slowdown in that sector is coming fast. And I can't leave you without saying that mortgage rates ticked up again today, 30-year fixed to an average of 6.78%.

Remember, it was in the low sixes all of January and briefly crossed into the 5% range barely two weeks ago. Tyler. All right, Diana, thanks very much. Let's get some more reaction to that week number and what it says now about the health of the housing market. With us on set, Don Peoples, founder, CEO, and chairman of the Peoples Corporation, privately held real estate development and investment company with residential and commercial properties in major U.S. cities, including New York, Miami, L.A., and more. Don, always good to have you with us. Good to be here.

Let's talk about those builder sentiment numbers and how they serve as a window on the mood of the market right now. Do they? I think to some degree, yeah. I think, well, the market is very passive right now. They're very concerned. people are reacting to interest rates, the rapid increase in interest rates, which is double the cost of a mortgage in about a year. And so there's some serious concern about that.

I think we're going to see more and more of a slowdown in some of these key markets. I think there will be some markets that are spared, such as the Sun Belt in South Florida. What are those key markets and what kind of housing or residential price declines might we expect to see over the next 12 to 18 months? Well, I think in some of the harder-hit markets, mainly the northeast, I think you're going to see, you know, prices drop well north of 20%. Really? Yes, because they ran up so quickly. Florida is another story. Miami, for example, in South Florida in general, is supply constrained.

There is tremendous demand. If you contrast it, say, to New York or California, which both have lost over half a million people net in the last two years, they've gone to... All those Californians are going to Austin. They're going to Austin and Miami and Dallas. And so you're seeing those markets continue to grow. While the markets have appreciated, those markets appreciated very rapidly like South Florida, particularly all of Miami, prices are pulling back. There's properties that staying on the market longer.

But you'll see a drop down of, you know, 5%, 10%. Interesting. But these other markets are tougher. We haven't seen that yet. So that, you know, it's what's coming. I thought what Diana said was fascinating about apartments, the most inventory being built now since 1973, you know, this market well. Does that mean rents are going to see significant downward moves as well? Well, no.

I mean, so many of these projects were planned before the increase in interest rates. I think new construction, new apartments, owners are going to be in good positions because rents are rising in many of the key markets. And, of course, the housing market is pretty straightforward. As interest rates increase, fewer people can afford to buy. many people are priced out of buying or they can't buy what they thought they were able to buy or what they wanted. They're going to become renters. And so you're going to see the rental product is actually going to improve in terms of quality to replicate home ownership or apartment ownership. So that won't put downward pressure on rents.

We're rooting for downward pressure. Maybe not for you. But because the renters, because of the inflation story, I mean, it would seem that that would be the obvious takeaway from this, but maybe not. Not this year because consumers still have a lot of money. I was at the J.P. Morgan conference last week and Jamie Diamond pointed out how consumers are loaded. They are. All this federal money that they've received all these benefits. And so they're spending and they're beginning to spend now on credit cards. So those rates are going to hurt them. So by the third quarter of this year, you'll see people running out of money. And I think that'll affect consumer spending. But housing, I think, is going to hold pretty tight in terms of rental housing. So I'm very optimistic on that, especially. in markets like Charlotte, the Sunbelt, Tennessee, Texas, and Miami. Well, that's the residential side of the picture. But that's not all of it. Let's turn to the commercial piece of things as well.

And bring in Robert Frank for more on that. Robert, how are things looking office-wise? We know people are getting back to work. Yeah, Kelly, you want downward pressure? Well, here it is. New York office. You still stuck at this kind of new normal of under 50%. The latest week showing occupancy at 49%.

Tuesdays are the peak day when about 60% occupied Fridays. Fridays are the new Saturdays at 25% office leases in Manhattan, falling 47% in the fourth quarter. That's the biggest drop since the start of the pandemic. There's over 100 million square feet of empty space in Manhattan. That's up 70% from pre-COVID. And the defaults, we're starting to see those now. Vornado just defaulted on a $450 million loan for a partnership that they're part of

that's backed by 5th. retail space. Meanwhile, in Miami, back to Don's world, a new office tower there in Brickle just had a new lease at $100 a square foot. That's the same as some of the offices in Manhattan. Wow. And 25% occupancy on Fridays. Let's focus on Robert's bigger picture point here, though, Don, do you see more pain ahead for commercial office buildings? I do. I see. I think New York we're just seeing the beginning. New York, San Francisco, Los Angeles, Washington, D.C., those markets, Chicago, they're in big trouble. And New York, what Robert was mentioning about Vernado giving back their buildings, that's just the beginning. They'll give back more.

What we're seeing is top-tier office building owners giving their properties back to their lenders. People have changed the way they work. You don't have to do anything other than what I just did. I drove from New York City. I allocated the time that it would have taken me to get here before the pandemic. I had enough time to go into the town of Englewood and have lunch. come here and still be early. I want to ask you something. I mean, the cities you mentioned, New York, Chicago, San Francisco, L.A., D.C., I will grant you that I think a lot, or maybe most of the reason there is not higher occupancy,

is related to the not going back to work phenomenon, the post-COVID phenomenon. But the cities you mentioned have been stricken by high levels of crime and violence and homelessness over the past couple of years. And my hypothesis is in part that that is keeping people from wanting to go back to work in those cities. Do you see that as an enduring issue for these particular markets? Look, you're 100% correct. The biggest problem isn't the COVID effect.

It's the safety, the quality of life. And people don't want to be there. Miami, we don't have a problem with people coming to work. We have an office in Miami. Everyone wants to come to work. We're expanding. We're taking more space. And so it is that people don't want to live in these cities anymore.

Their quality of life is diminished. And it's one of the reasons why people from California are leaving beyond the tax situation, beyond all the other issues that are there. It's one of the reasons why they're moving to Austin or Miami or Nashville, say. No question. Look, all you have to do is look at what, Mike Bloomberg did as mayor of New York City. There were, taxes were essentially

the same. It was very expensive of a city to live in, but it was safe and the quality of life was good and people wanted to be here and they were willing to pay for it. New York is just like an office of product. All these cities offer a product. And if you don't reach the buyer and give

them what they want, they won't come. And people are not going to tolerate being afraid to walk around. And until they deal with public safety, quality of life and clean these cities up, they're going to continue to have decline. But I think that what's going to happen is it's going to have to get a lot worse

before it gets better. Really? Wow. That's not a comforting thought. No, I was talking to Mike Milken at the Milken Conference last week, and I was saying to him, I'm concerned about Los Angeles. And he told me that he thought it had to get a lot worse before it gets better, and it will get a lot worse. Yeah. Well, the last time I was in

Washington, excuse me, in Los Angeles, and walking by some of the homeless areas there, it's heartbreaking to see in the United States. Yes, it is. It is heartbreaking to see. A lot of it is driven by drugs and fentanyl and so on and so forth. Forgive me for getting exercised on this. But it is certainly a disincentive to go there for social outings, to go there to work or whatever. How much worse can it get, really? I mean, in some of these places you would think already. You look at a guy like Ken Griffin saying, I got to leave Chicago because my workers feel unsafe here. I know. He loves Miami. I was just at a dinner he hosted last week for Milken. In fact, there were more New York real estate.

people, more New York finance people in Miami the last two weeks than you'd see here in New York. You can do more business in Miami in a better quality of life, a better, more safer environment. And that's what's happening here. And these politicians, though, are not understanding the reality that there are no walls around Manhattan. There are no walls around Los Angeles. So people can leave when they want to, and they're leaving. We can come back. I want to get to Robert Frank because he's got a great story to tell us about.

But I wonder, and I'd like to talk with Don with you about it later, about whether the infrastructures of these in-migration cities like Miami can keep up with the influx of people coming there. Schools, roads, sewer, electricity, and so forth, whether it's Miami or Austin where the traffic is god-awful. All right. I've just heard from the control room that we're going to interrupt. We're going to go and listen to President Biden

talking about some of those objects shot down in the north. Through the North American Aerospace Defense Command, so-called NORAD, closely scrutinized our airspace, including enhancing our radar to pick up more slow-moving objects above our country around the world. In doing so, they attract three undidentified objects, one in Alaska, Canada and over Lake Huron in the Midwest. They acted in accordance with established parameters for determining how to deal with unidentified aerial objects in U.S. airspace. At third recommendation, I gave the order to take down these three objects due to hazards

to civilian commercial air traffic and because we could not rule out the surveillance risk of sensitive facilities. We acted in consultation with the Canadian government. I spoke personally with Prime Minister Trudeau and from Canada on Saturday. And just as critically, we acted out of an abundance of caution and an opportunity that allowed us to take down these objects safely. Our military and the Canadian military are seeking to recover the debris so we can learn more about these three objects.

Our intelligence community is still assessing all three incidences. They're reporting to me daily and will continue their urgent efforts to do so, and I will communicate that to the Congress. We don't yet know exactly what these three objects were, but nothing right now suggests they were related to China's spy balloon program or that there were surveillance vehicles from any other country. The intelligence community's current assessment is that these three objects were most likely balloons tied to private companies, recreation or research institutions studying weather, or

conducting other scientific research. When I came in office, I instructed our intelligence community to take the research. to take a broad look at the phenomenon of unidentified aerial objects. We know that a range of entities, including countries, companies, and research organizations, operate objects at altitudes for purposes that are not nefarious, including legitimate scientific research. I want to be clear. We don't have any evidence that there has been a sudden increase in the number of objects

in the sky. We're now just seeing more of them partially because the steps we've taken to increase our radars, to narrow our radars. And we have to keep adapting our approach to delaying to dealing with these challenges. That's why I've directed my team to come back to me with sharper rules for how we will deal with these unidentified objects moving forward, distinguishing, distinguishing between those that are likely to pose safety and security risk that necessitate action and those that do not. But make no mistake, if any object presents a threat to the the safety, security of the American people, I will take it down.

I'll be sharing with Congress these classified policy parameters when they're completed, and they'll remain classified so we don't give our roadmap to our enemies to try to evade our defenses. Going forward, these parameters will guide what actions will take while responding to unmanned and unidentified aerial objects. We're going to keep adapting them as the challenges evolve, if it evolves. In addition, I've directed my nationalization. Security Advisor to lead a government-wide effort to make sure we are positioned to deal safely and effectively with the objects in our airspace. First, we will establish a better inventory of unmanned airborne objects in space above the United States airspace and make sure that inventory

is accessible and up to date. Second, we'll implement further measures to improve our capacity to detect unmanned objects in our airspace. Third, we'll update the rules and regulations for launching and maintaining unmanned objects in the skies above the United States of America. And fourth, my Secretary of State will lead an effort to help establish a common global norms in this largely unregulated space. These steps will lead to safer and more secure skies for our air travelers, our military, our scientists, and for people on the ground as well. That's my job, as your president, commander, and chief. As the events of the previous days have shown,

will always act to protect the interest of the American people and the security of the American people. Since I came to office, we've developed the ability to identify, track, and study high-altitude surveillance balloons connected with the Chinese military. When one of these high-altitude surveillance balloons entered our airspace over the continent, of the United States earlier in the month,

I gave the order to shoot it down, as soon as it would be safe to do so. The military advised against shooting it down over land because of the sheer size of it. It was the size of multiple school buses and opposed to risk to people on the ground if it was shot down where people lived. Instead, we tracked it closely,

we analyzed its capabilities, and we learned more about how it operates. And because we knew its path, we were able to protect sensitive sites, against collection. We waited until it was safely over water, which would not only protect civilians, but also enable us to recover substantial components for further analytics. And then we shot it down, sending a clear message, clear message. The violation of our sovereignty is unacceptable. We'll act to protect our country, and we did. Now, this past Friday,

we put restrictions on six firms that directly support the People's Republic Liberation Army, the People's Liberation Army Aerospace Program, that includes airships and balloons denying them access to U.S. technology. We briefed our diplomatic partners and our allies around the world, and we know about China's program and where their balloons have flown. Some of them have also raised their concerns directly with China. Our exports have lifted components of the Chinese balloons payload off the ocean floor. We're analyzing them as I speak. And what we learn will strengthen our capabilities. Now, we'll also continue to engage with China as we have throughout the past two weeks.

As I've said since the beginning of my administration, we seek competition, not conflict with China. We're not looking for a new coal war. But I make no apologize. I make no apologies, and we will compete, and we'll be responsible to manage that competition so that it doesn't veer into conflict. This episode underscores the importance of maintaining open lines of communication between our diplomats

and our military professionals. Our diplomats will be engaging further, and I will remain in communication with President Xi. I'm grateful for the work of the last several weeks of our intelligence, diplomatic, and military professionals who approve once again to be the most capable in the world. And I want to thank you all. Now look, the other thing I want to point out

is that we are going to keep our allies and the Congress contemporaneously informed at all we know and all we learn. And I expect to be speaking with President Xi, and I hope we are going to get to the bottom of this. But I make no apologies for taking down that balloon. Thank you very much. Sir, the question is.

Sir, there's been criticism that this was a... Sir, Mr. President, Mr. President, there's been criticism that this was... Sir, Mr. President, there has been criticism... Did you regret, man? Mr. President, there has been criticism that this was an overreaction that was done because of political pressure. You can't. You kind of my off and ask the question. We would have more polite people with you.

Mr. President, why have you chosen Poland for your chief to mark anniversary of the war? And what's your message? What are you speaking to President Xi, Mr. President? President Biden, stopping for a moment to contemplate taking a couple more questions there after delivering a briefing about the balloons, saying there hasn't been a sudden increase in their presence. We're just more aware of them now. Again, that's the president updating the country on these situations of the past week or two. Meantime here, stocks are under pressure following another hot inflation report.

Let's talk more about what's moving this market. Don Peebles here with us for the discussion. And we also want to bring in Michael Yoshikami, founder and CEO of Destination Wealth Management, and Todd Jablonski, Chief Investment Officer of Asset Allocation with Principal Asset Management. Welcome to all of you. Michael Yoshikami, I'll just start with you. Why are stocks going up so much even as bond yields are, too? It's kind of interesting. The bond market, obviously, is rallying because of the inflation numbers.

But I think the stock market's rallying because stock investors believe that we're not going to have some cataclysmic deep recession. I realized that what's happened over the course of the last week or so has taken the sheen off of sort of this perspective that everything is going to be wonderful and there's going to be a soft landing. But I just think the stock market believes that at worst case, we're going to have a shallow recession. I think that's why the market's responding accordingly. Don, when you hear people saying no landing, do you think that's crazy or business cycle-wise? What's your sense to tell you, having been through a couple of cycles here? What's going on? Are we going into recession?

I think we're going into a recession. I don't think it's going to be an extreme recession because the consumers are very resilient right now. They've been pushing back. They've been continuing to spend. We talked about it early. They have money. And the markets are responding to that. And if you look at what's happening, and the Fed is tapering back some of the increases. I mean, I think last time we saw something like this where there was an effort to control inflation with interest rates, it was in the 1970s. And it didn't work out well for us because it took the rates to get all the way up to. 20% before they strangle the economy. So it's going to take a while, in your view, to get us back on the path to lower inflation. Todd Jablonski, I sense you agree more than you disagree with what Don just said. In other words, you are looking for strains building toward a recession in the second half of 2022. You say the drastic rise in rates risks a severe liquidity disruption and to overweight bonds and underweight stocks. That pretty much puts a bow on your thinking. doesn't it? I think you summarized that thinking quite well.

And there's certainly reasons to have, I think, some pessimism about the pace of the U.S. economy and at the delivery of earnings, the continued pace of economic demand. The Fed and other central banks are going to take actions necessary to arrest that excess demand and deliver the price stability that ultimately the market needs. And that prevents some serious headwinds for risk asset investors. You know, there's one part, Don, in particular, of the real estate market that I wonder if you could kind of talk about. So we've seen some real problems with liquidity redemptions and some of these real estate funds and all the rest of it. And every cycle plays out differently.

We know this isn't going to be like the housing crash of 06, but then the early 90s we saw some issues, you know, commercial property and otherwise. What does it tell you about the extent to which people are trying to exit some of these areas, rate-wise, that they thought we're going to be the place to be right now? And what are going to be some of the knock on effects of all this? Well, I think that the premise of investing over the last decade with low interest rates, especially, you know, on residential apartment buildings and office buildings where they were being purchased and sold at a sub-4% cap rates with the expectation that interest rates would remain historically low forever or rents would rise. COVID put a kink into that for office space.

So I think that what you're going to see is more office building owners and we're going to begin to see large apartment building owners. begin to have to give their properties back. I know of a developer who just finished a fantastic development in California and, you know, in the hundreds of millions of dollars, but the mini-perm on the construction loan is burned off and in order to get a permanent loan, they're going to have to write a check for tens of millions of dollars to rebalance the loan. So these loans aren't going to conform to any kind of regulatory status or standards, and so it's going to be very difficult to refinance out of these loans.

And Robert talked earlier about the Vornado property that was a give back. I mean, then do we have to turn our attention to the banks? You know, who are the ones then if they're saying, you know, maybe we're not moving forward with this project? Is it the lender on the hook? Not as much. I think the equity investors are. I think the public employee pension systems and others who've invested heavily in these cash flow producing assets like office buildings and apartment buildings, their equity is going to get wiped out.

If you look at apartment buildings and you have a shift of 150 basis points, it's going to knock out 75% of your equity if you bought the building two years ago. Michael, let me get a probe a little bit of your thinking, if I might here. My notes indicate that you say market recovery, stock market recovery will likely take two years if historic bear markets

are any indication of the future path for equities. We expect this to be the case in this cycle. On the next page, I see you say that equity markets will continue to recover and it's entirely possible that they will hit highs that we're seen in 2022. That feels like an internal contradiction here. On the one hand, it's going to take two years for the markets to recover.

On the other hand, that we're likely to see highs that were set at the beginning of 2022. Is that a 2023 phenomenon or something that you don't expect to happen until 2024 or beyond? So what are you saying? So let me be more clear about what I'm saying is the market is consists of data, emotion, expectation. I think the expectation is we're going to have a shallow recession. That's why the market's been rallying. But I think, I think investors need to take a breath and realize that if that does not happen in 2003, history suggests it takes about two years to recover from a correction, more than a correction, actually, a bare market.

So I think that means that you don't lose patience, you don't lose hope, you don't sell out because you're feeling despondent right now because the market historically has come back. Might it come back to the 2002 highs? I think it's entirely possible that will happen. But investors should also recognize it may not, but if it does not in 2023, data suggests it will in the next two years. All right, folks, we have to take a little breather right there. Thank you very much, Michael Yoshikami, Todd Jablonsky, and Don Peebles. But you're going to stick with us, Don Peoples.

Eli Lilly, by the way, is taking a COVID-era necessity and using it to improve its clinical trials in the post-crow. COVID world. We've got Bertha Coombs now on that story. Bertha, fill us in. Well, Tyler, you know, only about half of clinical trials actually report racial or ethnic data, and generally it points to underrepresentation in research for people of color. But one silver lining of the pandemic is that drug makers are shaking things up in order to boost diversity. Three years ago, Eli Lilly launched mobile lab units to keep its clinical research going during COVID. Now it's using the units to drive diversity in clinical trials. At events, like the Black Women's Expo in Atlanta, where Lilly looked to recruit participants for an

Alzheimer's trial and build trust in communities of color. We're educating people about clinical research. We're able to work with local research physicians and help them help our participants or potential participants understand what research is, how to be a part of it. The FDA has pushed drug makers to boost overall racial, gender, and geographic diversity in trials, doing more in rural areas, for example, though Commissioner Robert Caliph admits there will be limits. If you're studying, for example, a new drug that hasn't been tested in many people, you may need to be in a very intense environment and an academic medical center. For other

kinds of trials, it's absolutely the right thing to do. Enrolling trial participants can take a lot of time and it cost drug makers tens of millions of dollars. Now drugstores are trying to get a piece of that business. CVS Walgreens and Kroger have all launched services with their locations. They say they can help broaden farmers' reach for trial participants. Tyler. All right, Bertha, thanks very much for that. Don, what's your view on this? Obviously, there are vast inequalities in health care access and treatments for underserved communities, African-American communities and others where there are large income disparities between the rich and the poor. How do we address that so that clinical trials, preventive medicine, preventive care can reach down into communities that have heretofore been underserved?

Yeah, I think that this is, you know, an example of bringing care to people directly in their communities. One of the, excuse me, one of the illnesses that is highly preventative is cervical cancer. It's largely caused by the HPV virus. There are vaccinations that are available to vaccinate young boys and girls who would be prevented from getting this virus and therefore protect them. But that has to be done early adolescents and it has to have a booster. So one, people in lower income families don't understand that. Their doctors don't tell them. And we are working on a program with the Milken Institute to bring that kind of care to the black community and the minority community so that we're working.

we can wipe out of disease. It's so devastating to women in particular. A lot of clinical trials, as I believe Bertha said, or many of them, are centered in academic research institutions, which may not be proximate to where some of the underserved communities live. So you've got to do a kind of outreach, don't you, to get those clinical trials into underserved communities, whether they're in Alabama or in New York City. Yes, because most of the people in those lower income communities get their medical care either in the emergency room or in a clinic, a free clinic. But they only go there on a needed basis as opposed to for a preventative basis or to be a part of some type of research for a cure, especially those who are exposed to an illness.

And I think if we can access people by bringing either these tests to them or bringing them to the testing facilities, I think we can. get a better universe and understand why some of these diseases, like diabetes, for example, affect communities of color more than others. I don't want to say goodbye. I don't want to say goodbye. I want to keep talking. Can we get in one more question? Let's go back to that question we talked about a moment ago, and that is the strain on infrastructure

and the requirement for infrastructure investment in these communities that have a lot of in-migration, whether again it's Nashville or Austin or South Florida. Do you expect that to be a real issue and problem in those areas that are seeing such an influx of people? Yeah, I think more so in South Florida than Texas. Texas has a very big infrastructure. They built that state and the major cities to grow. So if you go to Dallas, Fort Worth, you see a massive highway system that continues to be expanded and a rail system as well. In Florida, we now have a rail system in Miami called the B.

bright line, and that's very helpful. But the schools are a major issue. Private schools are overcrowded now to the point where they're not accepting many new students. The public schools, the top ones, are having difficulty with capacity. And the roads are very difficult. And the number one political issue in South Florida is traffic. And number two is education. So there you have it. You're hitting the nail right on the head. And even though we've talked a lot about people leaving New York. I mean, you have to acknowledge the strength of the rental market there. Robert Frank has talked about this, you know, medium prices, average prices, all-time highs. Demand has been far better on the recovery than expected. And we see it benefiting the whole tri-state area,

by the way, in terms of real estate. What accounts for the persistent strength there? I take all of your points about the headwind, certainly on the office piece of this and other major cities. But in the case of this aspect, why have things been relatively resilient? A demographic shift, an age demographic shift. I'm a baby boomer. Most of us, our kids, If we've had kids, they're out of the house now. And so we have freedom to move around the country. So we are pursuing quality of life. And so we are in large numbers bringing our businesses

and ourselves to South Florida. However, the younger demographic, like my kids, they love New York City, and they want to be in New York City because of all that New York City has to offer. And so that's the shift. They're renters. That's why there's a greater demand on renting.

We've got some great universities here. None of them have sufficient housing. efficient housing for students. So that drives the numbers here as well. And their employees, I mean, you're sort of implying that once people can be their own boss a little bit, set their own terms, then they're out of here. I moved to New York City in the 1980s when I was in my 20s, and New York City at the time was a mess, but I didn't care. I just wanted to be here because the opportunity was here. The business I was in was here. I think that's still true today, wouldn't you say? Yes. Look, I would not abandon New York City, and nor the people in South Florida

abandoning it. They're just moving and relocating their businesses and making that their primary residents. But this is still the most dynamic, most exciting city in the world. It'll continue to attract people to New York. But it's an age demographic. Like you said, when I was coming to New York City in the 1970s and 1980s, it was extremely unsafe. It was dirty, everything, all the bad things. But I loved it. And I wouldn't want to go back to clean, nice, neat Washington, D.C. by the way. I grew up in Arlington. Yeah, I know it is. Yeah. So nice but not excited. I tell you, I move from a very nice condo in Arlington to a not very nice where the roaches basically owned the place. I mean, it was so, Don, it's been great having you with us.

Thank you so much. Thank you. Come back again soon, will you? Thank you. Fantastic. And we'll get to Seva Modi in the meantime for a CNBC news update. Seva. That was a great conversation. Here's a news update. Kelly. Just a few minutes ago, President Biden made his first extensive comments on an unidentified aerial object. The military has been shooting down, saying the intelligence community thinks they were probably tied to private companies or research institutions and not engaged in spying. He also says he makes no apologies for shooting down the first object, a Chinese spy balloon. Before the president spoke, press secretary Karen Jean-Pierre said the U.S. is deeply dismayed

at Israel's expansion of settlements on the occupied West Bank, saying it undermines a two-state solution. And Republican Senator Lindsey Graham says today he's confident he testified openly and honestly to the Georgia grand jury investigating possible interference by former President Trump and his allies in the 2020 election. This morning, that panel said one or more witnesses may have committed perjury, but it didn't say who. And Saudi Arabian investors are joining the race to buy Manchester United ahead of tomorrow's bidding deadline for the English soccer team. According to report by the Telegraph newspaper in the UK, their primary competition is a group. from Qatar. Let the competition begin. Tyler, back to you. All right. Thank you very much. Seema and ahead on Power Lunch, a deluxe edition of Three Stock Lunch. We've got three key stock stories. We're going to look at the names that are pushing

to profitability, restaurant earnings, reaction, media result. We got a lot coming up here on Power Lunch for a Thursday afternoon. Welcome back, everybody. We're trying something new with Three Stock Lunch today. Three Key Stock Stories on our radar and our team of reporters will give us the news and moves. Then our trader, Courtney Garcia, the senior wealth advisor at Payne Capital Management, a CNBC contributor. Then she will give us our trades. Welcome, everybody. So Christina, let's start with you. Well, after Palantir's surprise earnings on Monday, I wanted to look into other potential profit anomalies. We screen for high net cash flow as a percentage to total debt, so a high ratio means they can better pay down their debt. No positive quarter of earnings

on a gap basis because non-gap doesn't always accurately portray the operations. Obviously, they have to have a market cap above $500 million. And on top of that list, we've got new holdings, a digital banking platform because of their ability to pay down debt. It's right now trading at what, five bucks. The stock is still 56% off. It's 52-week high. But Berkshire Hathaway's recent 13F showed they still back that name. Other familiar names topping the list, the potential profit list, cloud company's snowflake. Its earnings are out March 1st. Dualingo is also on that list. And last but not least, you've got CrowdStrike, which, by the way, is is trending down 2.5%. It's more than 50% off. It's 52-week high. But it's on that list.

And as we look, the hunt for the next Palantir continues, or at least a great M&A candidate. Kelly. All right. Courtney, what is the trade for you? Yeah, I actually would be stay on the sidelines of the likes of a snowflake here. And this is a great company, right? But sometimes you have to separate a good company from the stock. And this is a company. They've had good growth. They have good management. They've been ahead of a very receptive platform. But this is one of those hypergrowth companies. is not yet profitable and hopefully they do turn a profit here, but these are the kind of companies that are going to continue to be under pressure in an inflationary environment. And the way that they're

structured is they're under a consumption-based model, meaning the more that you use it, the more you pay, the less you use it, the less you pay, as opposed to a subscription-based model where you pay regardless of your usage. And this can actually be a problem because the revenue can be a lot more erratic, especially when you have your mid or your small-sized companies. We do go into a slowing growth environment, which we very well may be in. It's just really not as reliable. So I think for those reasons, good company, I'd stay on the sidelines with their stock. All right. Speaking of small fries, Shake Shack reporting earnings before the bell. Pippa Stevens has the details, but only if you promise to share the fries, Pippa.

I can never share fries. Love them too much. But Tyler, a lot of focus here on the guidance, given that Shakeshack released preliminary results back in January. But starting with those fourth quarter numbers, the company posted a smaller than expected loss. The same store sales rising 5.1 percent due to a combination of higher menu prices and traffic growth. Now, for the current quarter, Shake Shack raised its revenue and same store sales guidance, saying comps were up 17 percent in January. That is, of course, against Omicron numbers. Still, the company said the inflation outlook remains uncertain.

While beef prices have fallen, dairy and fries were up sharply with paper costs also weighing. The company said, as of right now, it has no plans to raise prices further. the last price hike was back in October, but that could change. And finally, amid concerns around cutbacks, Shake Shack reiterated that it is over-index to higher-income consumers where the trends, Tyler, are still pretty good. That sounds pretty good. All right. Thank you very much.

Pippa. Courtney, what you take on Shake Shack? Is it a shake or a bake? I like that question. Also, I would avoid Shake Shack. I do love a good Shake-Shack burger. Don't get me wrong. But their biggest problem right now is inflation.

And actually, you just noted a lot of the issues that they've had where they are actually operating a loss right now. And they have been affected by higher labor costs, higher inflationary costs to create a burger. Also, they've had a lot more delivery costs. But on top of that, they've had to raise their prices, which thus far, they do have a higher consumer customer, which hasn't really impacted demand. But at what point, I think, is the question. And actually, there was just a survey that came out by Stifle, which I thought was very interesting. and it looked at a lot of it, this and its competitors. And people just think it's starting to get too expensive.

And at what point are you stopping in and go to a shake shack if it's going to get comparable to the price of a restaurant? And I just think at a certain point, if you don't have that sort of pricing power you want in this environment, it's not the kind of company you want, especially if they're operating at a loss right now. All right. Let's get on to our last name, then Paramount Reporting Results. Julia Borson has more. Julia, stock well off the lows. Stock is off the lows, but here's what happened here, Kelly.

So Paramount Plus showed user strength and grew its users faster than expected, but the costs associated with Paramount Plus and macro challenges resulted in a miss on both the top and bottom lines. That sent the stock falling. It's now down about 3%. Now, that shortfall, especially in revenue, was driven by a 5% decline in quarterly ad revenue. That outweighed the fact that Paramount Plus added 2 million more subscribers than anticipated, adding nearly 10 million in the quarterly. quarter. The company says that streaming operating losses, which widened in the fourth quarter, would peak in 2023. And CEO Bob Backish announced that they will raise prices for their streaming services. He also said that the combination of Showtime and Paramount Plus should generate some efficiencies and also minimize user turn. Backish also painted a picture of an improving ad market.

He predicted a rebound in the ad market in the second half of this year. And he noted that certain areas, including food and beverage, pharma, and increasingly auto are seeing strength right now, Kelly. So some insight into the consumer, perhaps. True, although you should be wearing a Stetson hat for Yellowstone there. Courtney, what's your take? Let's get your final take on Paramount. Yes, actually, it would be a buyer of Paramount here. They did disappoint on their earnings, and you're seeing them down today on that information. But when you actually look at it, is pretty mixed. So obviously, advertising was a problem for them when you look back at 2022, because advertisers were pulling back in the midst of a slowing growth in

environment, but they started to see a light at the end of the tunnel there. And their costs are higher there, which really Wall Street does not want to see. But they were late to the streaming game, right? So they only started Paramount Plus about two years ago. So I think in those first few years, having higher costs is almost to be expected. And the fact that they're still bringing in so many subscribers. They had 9.9 million subscribers this last quarter. I find this very impressive. And they also are expecting those costs to be peaking this year and coming back down next year. So I think longer term is actually still has a really good story here. That's not to mention it pays a 4% dividend, which I think is definitely worth a look.

All right. Courtney, thanks so much. We appreciate it today. Courtney Garcia, the glasses are empty. All right. Take a check at the Dow, which is down right now, about 124 points or about a third of a percent. We will take you inside the markets as the Dow hovers right at the 34,000 level. We'll be right back on Power Lunch. Welcome back to Power Lunch, everybody. Let's give you a check on the markets now. Stocks are lower following a hotter than expected report on prices. at the wholesale level. Financials, one of the worst performing S&P 500 sectors today.

Goldman Sachs, J.P. Morgan, they're having a negative impact on the Dow. But these losses are relatively minor, as you see there, about a third of a percent for the financials as a group, but less than that for Goldman Sachs. A little more for J.P. Morgan. Let's go to the bond market now and check in with Rick Santelli. Rick. Hi, Tyler. You know, everybody's talking, of course, about today's producer price index and all the inflation on the wholesale level. But there were some issues that the market's differentiating today. Now, as you look at an intraday of two-year note yields,

realize that we shot up very close to what is the current high yield close, and that level is 472. But 467 when high and we ease back. Why? Well, the month-over-month numbers were definitely hot on producer prices, but the year-over-year, not so much. As a matter of fact, when you look at 6%, it's almost half of the high watermark from March of March of $1.

last year at 11.7. That was headline year over year, quarter year over year, 5.4, almost half of 9.7. That was the high water mark. You get what I'm saying, and the market is paying attention to that. As you look at a one week of 10-year note yields, there's no doubt that the direction is higher in yields. That's almost a 45-degree line higher. It's been that way for the most part since the strong jobs report. But it seems as though inflation is becoming more important than weakness in the economy as the Fed keeps tightening. Look at twos to tens. It is now at 76 basis points. It was well over 90 intraday, a minus sign, of course, so much less inverted. Three month versus tens, much less inverted. This is something to pay close attention to. And finally,

despite PPI month over month, look at Fed Fund futures for August. This is the fulcrum, the pivot where prices stop going down and start going up. It is higher by about seven basis points, then it's CPI closed at 94-71 and a half on Valentine's Day. Kelly, back to you. All right, Rick, thank you. Still to come, Tesla's wheels are turning today. The company recalling vehicles, getting the stamp of disapproval from Charlie Munger, and starting fights with employees.

We'll discuss all of it next. Welcome back, everybody. Tesla in the headlines today, it is most days one way or another, isn't it? The EV maker recalling now, 362. 2,000 vehicles. Charlie Munger, the investor, says the company is, by the way, losing to B.Y.D. in China, and new reports out that the company fired employees for unionizing a trifecta of stories to dig into. And who better to do it than Phil LeBoe? Hi, Phil. Hey, Tyler, let's start first off with the recall announcement from Tesla. This is a recall by Tesla.

But after consultation with the National Highway Traffic Safety Administration, which has been investigating full self-driving beta software. There have been reports over the last couple of years that there have been accidents or incidents where the software was not acting as it should, whether it was going through stop signs or going into an intersection from a right-hand-only lane or was not acknowledging the change in the speed limit on the road. Well, after the investigation, after NHTSA said, you know what, we think you should update this software to correct these problems. Tesla said they don't agree with the analysis, but they will be doing it over the year's software update, and we'll start to see that roll out here relatively quickly as they

address this issue. Keep in mind, guys, this does not address the question that a lot of people have, which is, if it's not full self-driving technology, why is it called full self-driving? The head of the NTSB, among others, have said, that's misleading. That's a completely separate question. The bottom line is that you will see FSD beta over the year of software updates happening relatively soon. Tesla is fairly, well, I don't want to characterize it. Let me just ask you as a question. Does Tesla disclose that this, quote, full autonomous driving mode is a test version and does not replace the driver's requirement to pay attention? Oh, they make it very clear. They make it very clear, Tyler, not only when you buy a Tesla, but also when, you know,

on conference calls or at other times, Tesla has said, drivers are told you need to stay engaged, you need to have your hands ready to grab the steering wheel, take control of the situation. So they have made it very clear legally that it is your responsibility as the driver to stay engaged. What about this unionization issue, Phil? Is it true that they fired employees? Well, the employees have filed a complaint with the NLRB saying that they were fired after it came to light that they are pushing for unionization. So now this will go before the NLRB, the National Labor Relations Board, and these employees say, we have a right to organize to take a unionization vote and that they were fired once Tesla found out about this. We have seen this happen from time to time with companies, guys, where employees say we were engaging in the right to organize. and then we were let go by a company.

And the NLRB will ultimately be the ones who make a decision on whether or not that was the case. Quick observation on Charlie Munger saying a Chinese competitor is going to eat Tesla's lunch. Well, he says that they have been for years in China. And look, we don't follow BYD a lot here because they're not sold in the U.S. But you go to China, you see a lot of BYD is all over the place.

They're doing quite well there. All right, Phil. Thanks very much. And thank you for watching Power Lunch today. Thank you.