Power Lunch - The Real State of the Economy, Cuts on Wall Street and Elon Musk’s Wild Week 12/2/22

Episode Date: December 2, 2022

The government employment report shows a stronger labor market than anticipated, but is the economy really as strong as it seems? We look at other cracks potentially forming in the economy. Plus, Wall Street banks warning of job cuts and a shrinking bonus pool. And Elon Musk courts a lot of controversy, but some big names still praising the Tesla/Twitter CEO for his acumen and his intentions. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch, everybody, along with Contessa Brewer. I'm Tyler Matheson, and here is what's ahead. Stocks are falling today after a better than expected jobs report. So do markets fear that the Fed will have to keep raising rates maybe even higher than anticipated? Or are other signs of weakness in the economy that investors are nervous about that explain why the market is down just a little bit this hour? Contessa. While Tyler, markets are lower right now off the worst levels of the session, the NASDAQ still down near, near, nearly 1%. But look at the week. The NASDAQ, the top performer here.

One week change, up a percent and a half. One week change on the S&P 500, up seven-tenths of a percent. You've got the Dow, though, which is negative, not just for the day, but for the week as well. Tech, the worst performing sector on the S&P 500 today. Both software and chip names among the stocks leading the group lower here. You've got Aresden networks down 3.5 percent and advanced microdevices down 3.8 percent, as well. as NVIDIA off as well. The two biggest winners on the S&P 500 today are solar stock, solar and first solar, both gaining after the Commerce Department finds that Chinese solar manufacturers

circumvented tariffs, you've got solar edge up 5.75%. Look at N-phase. That's up 6.7% as well. Today's jobs report only adding further confusion to the state of economy, Tyler. All right, Contessa, thanks very much. Today's jobs report only further adding confusion to the state of the economy, despite rising rates, things are still running a little bit hot, it would seem. Non-farm payrolls up by 263,000. That is way above expectations. The unemployment rate, there you see it, at 3.7%. That's really very, very low historically by any standards. And wages climbing 0.6% for the month. That was double the estimate. But there are some other key economic data points that we are looking out for as well today.

Steve Leasman unpacking the jobs report. Christina Parts and Evelas diving into consumer credit, which is maybe an increasing concern. And Diana Ola, keeping an eye on the ever-changing housing market. Steve, explain the economy to us in a minute or so. I got less than a minute, Tyler. If you're not confused, you're not paying attention. This stronger than expected jobs report, though, not only dashing market hopes from early in the Fed rate hikes, but also raising fears of more rate hikes for longer from the Fed.

and Krishna Guaha from ISI, Evercore ISI, writing the report will reinforce the Fed's assessment that the labor market remains very overheated and rates will need to go higher for longer in order to bring it back into balance. Here's the number, here are the numbers. Tato just walking through them. 263 versus an estimate of 200, revisions downward for September October combined. But it's the average hourly earnings number that freaked everybody out, up zero six, double the estimate. Unemployment rate unchanged, so no slack developing in the economy. and labor force participation, down a 10th, meaning less labor supply. All of this resulting in upping the peak, the outlook for the peak Fed funds rate back to

493, still below where it was Wednesday when, before Powell spoke, but up from 483 before the jobs report. The market is reacting to this number, not so much by dialing in the possibility of a 75 baseboard hike in December. We do hear that mention, however, but more by increasing the probability of another 50 hike, 50 in February. The thinking has to be that this economy is not slowing and the Fed will need to lean harder on it to create the slack it needs to bring down inflation. Tyler. All right. Thank you very much. Steve Leasman reporting.

We may have a strong jobs market and rising wages, but we also have rising inflation, and that leads consumers to take on more debt. We've seen those numbers who come in recently. Christina Parts of Nevilleis has them for us. Hi, Christina. Hi, Christina. Hi, Contessa. We often talk about the resilience of the consumer, especially after seeing them spend a record-breaking $11.3 billion just this past Monday on Cyber Monday, but if they seem to be sitting on all this excess savings, why are they tapping credit to pay for goods? Target CEO warning on a recent earnings call that, quote, many consumers this year have relied on borrowing. And household debt, for example, has grown to its fastest annual pace since the Great Recession

in 2008, thanks to hefty increases in credit card usage and mortgage balances. Some consumers, though, they'll say, I don't like using the plastic. That's why, buy now, pay later revenue has surged 88% from Black Friday through Cyber Monday compared to just a week ago. An installment method that doesn't necessarily cost you extra up front until you can't keep up with the payments. That's when you get hit with the hefty fees. And whether you believe the Fed will drive a soft or hard landing in the economy, these examples show there will be a much thinner cash cushion to buffer it, Tyler. All right, Christina. very much, Christina, parts in Nevelas. Now, of course, one area where Americans do tend to take on a lot

of debt is in their homes, and that debt has been climbing as mortgage rates rise and home prices stay elevated. So what would it take to get affordability back? Diana Ola Casmore, hi, Dai. Hey, Ty. Yeah, the formerly red hot housing market has cooled dramatically in just the last four months, but it's still super pricey. So we wanted to take a look at what it would take to get affordability, backed where it was just a year ago. So the average rate on the 30-year fixed has been moving around between 6.5 and 7% over the last few weeks. It was around 3% a year ago. So let's compare home shopping at today's rate versus last year's rate. Take a $400,000 house, which is around the U.S. median. With a 20% down payment on a 30-year fixed mortgage and a rate of 3%, the monthly

payment, including principal and interest, would be $1,349. A 7% rate. bumps that up to $2,129, a 58% higher payment. So if we're going to keep the rate at 7%, the home price would have to drop $37 to $253,500 to get back to that lower first monthly payment. And much thanks to Black Night for doing all this math for me. So it is highly unlikely that prices will drop that much. realistically, it'll take adjustments across the board in prices, in interest rates, and in incomes to bring affordability back to those long run averages. Steve, let me, thank you, Diana. Steve, let me turn back to you.

And on a scale where one is cold and 10 is hot, where would you put the economy right now? And you can qualify it by saying it's a six, but moving toward a four. Where would you put it? I think it's like a five going to a six, Tyler. I was exactly how I was going to answer it even before you gave me leave to answer it that way. We had the hot retail sales report. We had a stronger than expected jobs report. Some of the stress in the consumer that was just reported about does have my eye.

I am watching that. There has been a boost in some of the credit card numbers that are out there. if Diana's going to get half of the 37% of decline in housing that she's talking about, I had Diane Swach on that panel at the CFO Council the other day, talking about a 20% decline in housing prices. That's going to create a feeling of being poor among consumers. That's going to matter. But right now, I feel like, you know, the novel about Waiting for Godot,

Godot never arrives. and I'm kind of feeling more and more each day. Like, certainly we're pushing out the time that Goddow arrives, but even some people now more and more saying, maybe there's not going to be a recession. It's a minority call, Tyler, but I'm hearing more of it. You know, the interesting thing when we're talking about consumers and whether there's pressure already on consumers feeling the pinch,

Christina, you mentioned consumers using credit more often, but the real problem doesn't come until they don't keep up with their, credit card payments, is there any indication that that is starting to happen with more frequency or more severity? You mean in terms of delinquency rates, I would assume. So I actually don't have that data just yet, especially encompassing the holiday season. But if we were to use the personal savings rate as maybe just a benchmark in terms of how much cash is left, the personal savings rate for Americans has dropped to the lowest levels since 2005. And these numbers are from October. So we still don't know, again, the holiday season.

And that's what you're seeing. Just look at that drastic drop just over the last two years. And even that, I know Steve just talked about, you know, raising concerns because of credit card debt. But what about student loans, for example? We've had a holiday here in the United States for the past three years. If Biden's plan doesn't pass through, you know, Capitol Hill, that means a lot of younger people or middle-aged people, et cetera, are going to be hit with, you know, an extra slew of payments due in the very, very near term. And, Diana, what about home foreclosures? for me, you know, and what we went through in 2007, 2008, 2009, it feels like yesterday, and it was so significant, are we seeing anything to indicate that we could be bracing for

an onslaught of foreclosures? Absolutely not. And I am very, very certain in that, because this is a completely different type of housing market. You have the vast majority of borrowers in 30-year fixed mortgages that have been underwritten responsibly, nothing like they were back in the last crash. Also, you know, Steve talked about people feeling less wealthy if they were low, say, 20% of their home value. But I don't actually believe home prices could fall 20% just given the supply and demand issues in the market right now. But even if home prices were to drop by, say, 10%, and they haven't really fallen yet compared with a year ago, you still have prices up 40% just since the

start of the pandemic, 40%. And you have a huge amount, trillions of dollars in home equity that borrowers are sitting on now. Even if they lost some of it, maybe they don't feel quite as wealthy, but they're in no kind of danger of going into foreclosure on these homes because they have responsibly underwritten mortgages that they can afford. Yeah, I was going to ask you, Diana, when Steve mentioned, and I was there for the moment where Diane Swank said a 20% decline, how do you react to that? And it seems like that would be, that feels really dramatic. dramatic and drastic to me. But as you point out, even a 10% decline or even a 20% decline only takes you back to like levels of 2020, right? Exactly. Exactly. We're still 10% higher on the

K. Schiller report and home prices from a year ago. Now, prices have been coming down month to month, but that's seasonal. They always come down in the fall because it's the slower time of the market. Now, have they been coming down more than usual? Yes. But still, we're not seeing a dramatic drop, a crash like we did last time. Absolutely. And my guess is because there are so many borrowers, Diana or Steve, jump in here, who do have locked in fixed rate, low rate mortgages. They're not going to be rushing to put their house on the market because they know that the next house they're going to have to borrow at 6 or 7 percent. It's going to cost some more. So that's a supply constriction, right?

Right. And that just props up prices because if supply remains low, that's. Go ahead. Yeah, we got your point there, Diane. Steve, jump in. Well, one factor that may be out there is guys like the Blackstone Group, the Breeds, may not be out there as better buyers because the financing world has changed for them,

so we're not sure they're going to be out there buying additional assets. That may keep a cap on or limit what happens to the housing market here. Do you want to make one point, though, Tyler, which is it may be much more simple than we're making it out to be. Look at one number. the 3.7% unemployment rate. The vast number of people have jobs and have income. And as long as that remains the case, the credit situation, the housing situation, those

are going to be okay. If the jobs market deteriorate strongly, that's when you worry about these other things. But as long as Americans are employed, they're going to pay their debts and they're going to spend. One note on Blackstone, though, they told me yesterday that, in fact, they are looking, part of the reason they were excited for this deal with. Vichy on taking the chair off the table in Las Vegas is because they look forward to redeploying that capital in rental units. They think that there's real growth there. So we'll wait and see

whether that follows through. Diana, Steve, Christina, thank you very much. So where does this all leave the investor? We're going to take it on more debt. The housing market may be weakening just a bit. Prospects of the Fed slowing down anytime soon. They'll be lowered by today's jobs report, which was strong. Let's bring in Michael Landsberg, Chief Investment Officer with Landsberg, Bennett, private wealth management for some insight and perspective. Michael, welcome. Good to have you with us. Thank you. Thanks for being here. You have a somewhat more dour estimate, I would say, of the economy and the market than some of your peers. Why do you feel defensive positioning is the right place to be right now? I think what we're seeing

traditionally, and there's a few factors, obviously, we see the economy slow. I see names like McDonald's, for example, a great company. They actually reported a decline year over year in third quarter earnings, Costco, things like that. So the consumer scares me a little bit, as the previous segment mentioned. You're seeing credit card levels at very, very high levels, cash savings at super low. So the consumer to be stretched.

So I think that's concerning. The Fed raising rates, you're restricting liquidity, that typically is not a recipe for increasing in profits. So it's not that we're negative on every. But there's certainly sectors now that we look for transparency. And there's a lot of sectors that concern me with what's going to happen in the future with the earnings. You know, you point out that in two years, inflation went from 0.6% to 9.1%. And you don't expect that to reverse in quick order. But so what if the rate stays higher, longer? Is that information?

Is that news that's already sort of being digested in the markets? Why do you think that we should be bracing for more bad news, Michael? Well, I think part of the issue is I look at the Fed's ability to manage this process. You know, if you looked a year ago at Fed notes, when inflation was about 4.9%. They expected it to be 2% right now. It got to, you know, 8% by September time. So my concern is their ability to navigate this. And that's, you know, going forward, I think we're in a disinflationary environment.

I think we saw inflation the height at 9.1. I think it continues to go lower. I just think it takes a lot longer to get there. than people are thinking, anticipating. I think people want this to be over fast, and they're going to raise some rates, and hey, they'll be cutting rates in the back half of the year. I just don't see that.

I think they're going to come lower with inflation, but I think it's going to take a couple rates to get there, and I think they're going to be higher for longer. That's what I really took from Powell's speech the other day is it's going to be stubbornly high. We're going to be here for a while. It will drift lower, but it's certainly not going to get to a Fed target rate anytime soon.

Talk to me a little bit about one of the derivatives of the market we've had. this year, and that is that cash is no longer trash, and you can actually make a decent yield on treasuries, on some CDs, and other forms of very, very conservative fixed income. So should that portion of an average investor's portfolio be expanded just a bit, given your viewpoint? Absolutely. I mean, you hit it on the head.

For years, we've had no rate basically to get. cash was trash, nobody got paid. And now all of a sudden you're looking at, you know, your CDs, all of them north of four, you know, treasuries, two years or four and a half. So I think that's a strong component for people when we're in this kind of unclear period of time. Nobody needs to be a hero trying to pick a bottom. There's a lot of uncertainty with the market, a lot of opickness surrounding earnings. So it makes sense to put more money into CDs, kind of dollar cost average back into equities over time. Again, be selective. But for the first time in a long time, there is an alternative to equity.

And for the longest time, when cash paid is zero, it was tough to argue that you can go get a dividend stock and get paid. And would you ladder maturities here? I assume that's the smartest way to go. Yeah, I'm looking basically, we've been doing that for clients, you know, basically from three months to about a year, 15 months. Anything longer than that seems to be kind of problematic in terms of getting that return. But that's where that makes some sense. And we've kind of kept that now as a component of a fixed income portfolio. There you look at three months T bill there at 4.3%. that's about as sure a return as you can get.

Michael, thank you. Have a great weekend. Thanks, you too. All right. Appreciate it. Coming up, Goldman Sachs, almost perfectly flat on the year, but reportedly trying to cut costs. That could start with the year-end bonus pool. As we had to break, look at some of the names hitting 52-week highs today, including Las Vegas Sands, Ulta and Campbell 2.

Ulta is at an all-time high. Old-time. Well, despite a strong high. than expected jobs report, more layoffs and bonus cuts are hitting Wall Street as dealmaking stalls. This week, Morgan Stanley became the latest firm to announce job cuts. Goldman Sachs and Jeffries are now warning about a challenging bonus season. For more, let's bring in Husson banking reporter for CNBC.com. I mean, this is the real coal in the stocking for those who work in finance this year, right, Hugh?

It is, contestant. Hey, how's it going? It is particularly if you've been on the trading side at a place like Goldman Sachs. Let's say you've been a fixed income trader and you know, you just had a bonkers year. You really killed it this year. And, you know, as of the first nine months of the year, trading revenue was up approximately 15%, 14% at Goldman Sachs. So you could be forgiven for sitting there and thinking that you're going to have an up year. Well, it turns out, you know, you don't exist on an island. you are part of a diversified business model that happens to include things like investment banking,

asset management, which are down 45 and 71 percent, you know, respectively a year to date. And it's because of that, it's because of the pain in other parts of the Golden Universe, where the traders, we understand, are being told that, you know, their bonus pool is looking to be down at least 10 percent. And that could, you know, change as we get closer to the end of the year. And there's going to be push and pull with that. What's your sense on how much this is because the companies themselves, these banks think that they need to position themselves for whatever is coming in 2023? And how much of this is about the investors who are really celebrating cost cutting and belt tightening? It's all the above, I think, contest.

I mean, to your point, 2023 doesn't look good. And, you know, talking to management at several of the bullish bracket firms, there is pessimism about next year. It is going to be slow. There are projections of an economic downturn or recession. And in those scenarios, you don't see a lot of activity necessarily to do with IPOs, IPO when you're being effectively closed and remain shut. Trading is looking like, you know, maybe it's not going to be as strong because, for the most part, people have positioned themselves for the interest rate environment that's been telegraphed for the past.

I don't think we have. There's a good deal. He's come back. He's just coming back. And, you know, on top of that, in terms of positioning yourself, you know, in a normal environment, you can't really hurt people on compensation too much because they'll go across the street and work for competitor. Well, that's not really the case anymore.

I mean, you know, you have more options. You have the ability to lay people off selectively. They're laying off low. Yeah, we're having some problems here with it. They have fewer options to go across the street. They're not. Hugh, I'm sorry. Your microphone is cutting in and out.

But to the point I think you're making here is about competition and about. and about how even the companies, Tyler, that have to think about cost cutting, they have to think about how to position themselves. They also have to think about how to retain their talents in what is still a tight labor market. It's a tight labor market. Losing a bonus is one thing. Losing a job is another. And they're likely to be, I think, several of the executives have said they're going to be reducing their head counts in 2023 if they haven't started to do that already.

So it is a challenging time for the investment. Hugh wrote about this on CNBC.com. So if you'd like to get the full story, there it is. So, Hugh, we're sorry. We lost a little bit of the audio there. We'll pick up with you soon again, Hugh Sond. All right, ahead on the program, energy up 6% this week, ahead of an important OPEC Plus meeting that commences Sunday.

After the break, we're going to take a look at some of the key energy ETFs ahead of the decision. We'll be right back. Time now for a weekly ETF tracker. This week, we're going to take a look at energy stocks. The group had 400. $31 million in outflows, as you see right there, in the week ending yesterday. Several big issues weighing on this group. The looming price cap on Russian oil, that's one. Europe just saying it would be $60 a barrel. Plus OPEC plus meeting next week. Brian Sullivan will be there

fears they could cut production in response to falling prices. And also worries about demand from China as COVID cases continue to surge there in that country labors under a virtual shutdown. As for some of the individual ETFs, the energy spider down 1% or thereabouts for the week, 1.98% the energy spider or spyr, if you'd like it to that

way. The funds focusing on exploration and production down even more as you see there. Invesco Dyn Energy Expo'll down 5.7% and spitter oil and gas E&P down 4. That's from our partners at Track Insight.

We don't abbreviate their name. give you the full name. For more information, you can go to the F.T. Wilshire E.T.F. Hub. Ahead on Power Lunch, the trust, trust the Musk touch? Elon facing a wave of criticism following his purchase of Twitter, but he's had some high-profile CEOs step in to defend his management skills. Plus, despite further signs of an overheated economy, investors don't seem to be worried. We'll debate what comes next and hit some key movers of the day when PowerLone. turn. A little less than 90 minutes left in the trading day and week. We want to get you caught up on the markets, the stocks, the bonds, the commodities, and more. And a look at why investors

remain so bullish with some sort of shaky signs out there. Let's begin with the market. We are down, but off the lows of the day. The doubt was off more than 350 points at that jobs report earlier today, now down about a third of a percent or 103 points. As we close out the week, communication services, discretionary. They are the big winners. Energy, financials, they are the losers. Chinese tech names continuing their week-long climb. JD.com, Baidu, Pinduoduo,

leading the NASDAQ, by the way, as you see right there. Look at the gains. Oh, 30% for that last one I mentioned. And Z-Scaler, one of the biggest drags after the company warned that longer sales cycles have become a headwind for billing growth. Now let's move to the bond market. always fascinating. Always good to hear from Rick Santelli. Rick.

Hi, Tyler. You know, what a wild day with a wild set of data points we had with the jobs report today. And everything popped on it. You saw popping rates and you saw a drop in stocks. But things have changed a bit. Look at an intraday of two year. At 428, sure, it's up five on the day. But open that chart up the week to date. We're down 18 basis points on the week. And if you look at a 30-year bond, 30-year bonds are now down three on this session, down 17 on the week. Ten-year note yields are also down a lot. They're down about 17 on the week as well.

And when we consider what Fed Fund futures say, everybody's been talking about, wow, they really dropped on this number. And they did. Look at a July 23 Fed Fund futures. I picked July because all the contracts keep going down until you get to July. then they start to go up. That's the fulcrum. Right now, it's down six and a half basis points. When you're down, that means a higher probability of Fed tightening.

But if you look at a week to date chart, they're up 10, which means less tightening. So we really have to take a view here and keep in mind, 264.7 million's new size of the civilian labor force. Age appropriate. But even having said that, it's $5.2 million bigger and it wasn't Jan of 2020, but yet we still have the same amount people employed so we have a lower participation rate, lower population of employment rate, and that is a problem. Tyler, back to you. Rick Santelli, thanks very much. We've got oil closing for the day, ending down more than 1% around $80 a barrel.

This coming ahead of a huge week for crude, Brian Sullivan, with a look at that, you will be a traveling man this weekend, sir. I sure will. Thank you very much. Yeah, Tyler, okay, here's what's coming up, of course. We got the EU price cap, which looks to be in place at $60. Per barrel, that's Brent crude, by the way, price cap. That looks like that's going to get done.

Okay, the OPEC meeting, it's virtual, it's on Sunday, but just because it's virtual, doesn't mean they may not make a change. Most expectations are they will not, but do not be surprised if they actually do some kind of a small or medium-sized cut that's sort of based on my own reporting. We will see the EU oil sanctions, Tyler, the last of them, the ones that were basically agreed to in May, they finally go into effect on. On Monday, the secret is that there's actually still Russian oil flowing into Europe. These sanctions kick in Monday designed to kill any of that, any oil going into Europe,

which is fascinating, Tyler, because there are some refineries, one huge one in Italy, one in Germany that have effectively said, we don't know where we're going to get the oil to make fuel, or at least all the fuel, once we cut this off. Excuse me, I get all choked up talking about, Tyler. Anyway, there is a lot going on OPEC, the price cap, the sanctions. And keep in mind, the sanctions and the price cap are their cousins. They're sort of related because the U.S. wants more oil from Russia flowing. We don't want no oil, then prices go like this through the roof,

but they want to cap any kind of profit to slow down funding Putin's war machine. A lot coming up, and the big variable is this. How will Russia? How will Putin? How will OPE? react. We're going to tell that story in Monday, and then the rest of the week have some other cool stuff for you, and I'll drink plenty of water. All right, Brian, thanks very much. Brian Sullivan, we'll be looking forward to your reports next week. All right, today's jobs report showing

continued strength in the labor market. But other data have shown cracks may be starting to form in the economic picture. Stocks, however, seem to be shaking off those warning signs. Ron Insana is a CNBC senior analyst and commentators, also senior advisor to Schroeder's North America, also with us. Our friend Michael Farr, he's chief. Chief Market Strategist at Hightower Advisors. Gentlemen, welcome. You know, there's been anxiety, I suppose, Ron, about the pace of income growth that was revealed in this morning's numbers.

But income growth is usually a pretty good thing, isn't it? Yeah, you know, Tyler, I'm tiring of some of the concerns that people have about wage growth, particularly with inflation coming down and crossing through that wage number that we saw. inflation is beginning to fall below the increase in wages. So you're not looking at a wage price spiral if the two are not going up in tandem. And with a little more buying power and savings having been bought down rather dramatically, the savings right now is at pre-pandemic lows. I'm not so sure why everybody's getting entirely concerned about this. And the Fed's got almost a Vietnam approach that they're going to destroy the village to save it by driving up the unemployment rate to get slack

where we have no people. It's not that the labor market is so tight because the economy is overheating. Jay Powell himself said it this week. We are short human beings. Raising rates won't solve that. You know, it's interesting, Michael, because I'm very closely watching what's happening in Las Vegas and the spending that's happening there. And they're just printing money on the strip. They're pacing 20% of all of 2021 by the end of October. When you look at that, I don't know, you've got to ask, are rumors of the economic demise greatly exaggerated? Yes and no. The consumer has been sort of revenge spending.

You've heard about revenge travel sort of pent up from the great pandemic. There's sort of revenge spending now, too, I think. And people are feeling better about these increases in their paycheck. Even if those increases in the paychecks aren't keeping up with the increases in prices at the store, they can't afford as much. They still feel better. Consumer sentiment is hugely important. How the buyer feels is hugely important. In an economy, the two-thirds, driven by the consumer, it's really important to see if they have any money. Ron mentioned the savings rate. It's come from 9.3% to 3.1%. And the credit card balances are really on the rise. So the consumer is running out

of wallet, even though the consumer isn't running out of attitude, at some point the attitude runs into the inelasticity of wallet. I don't know if we're going to get there soon, but it's coming. In the meantime, spending is still on and the mood is still a bullion. So, Ron, when you're looking at the companies in this case, we just had a report from Husson about the pullback in bonuses on Wall Street from the big banks. You look at the way that a lot of the tech companies are paring down and doing some cost cutting. It seems like they're taking companies in the United States are taking much more seriously

the threat of economic recession than consumers and their revenge spending, so to speak. How closely are you watching how that may kick us into recession? Well, I wouldn't necessarily say that Wall Street and Silicon Valley will kick us into recession. It contests so much as- But ad spending, you know, in media, ad spending is way down. Yeah. Yeah, no, no, listen, I'm entirely worried that next year, year we have a recession. If you look at the slope of the yield curve, which is fully inverted now by every measure, Arturo Estrella, the gentleman who did all the seminal work on this at the New York Federal Reserve points out that now that we've had a full month inversion,

we are somewhere between six and 17 months away from a recession. Since 1968, when we've seen this kind of inversion, there's been a recession 100% of the time afterwards, again, somewhere during that period of six to 17 months. So it takes time, you know, and I don't necessarily believe that the Fed policy works with this considerable lag. We've got a big recession in real estate already. And again, as Michael indicated, you know, the consumer is a little over-extended at this juncture and may run out of gas sometime relatively soon. And again, bonuses are being cut on Wall Street and Silicon Valley's laying people off. You know, it's a matter of time before it happens. And again, I think the Fed is probably going to go too far in all of this by

the time all of a sudden done. Well, that is generally what happens. They start too late. They go too long. they go too high. But be that as it may. Michael Farr, you say that the market tends to look over the next hill and start to turn when you get two-thirds of the way to what's called the terminal interest rate hike. Okay. So maybe we're two-thirds of the way there. Maybe we're three-quarters of the way to the peak in short-term interest rates from the Fed. But we also, as Ron just pointed out, we also may be six months away from a recession. So what is an investor to do. Am I, by one signal, I'm supposed to go into stocks, by another signal, I don't want to do that if we're going into a recession over the next 60-17 months. Buy a bunch of six-month T-bills,

Tyler, you're getting more than 4% and you just kick back until all this is up. That's what we were just talking about. We were saying that cash is not trash anymore. Absolutely not. I go with you, and cash at all. Yeah, go ahead, Mike. And Ron's, Ron's, Ron's right. I mean, Ron's right. I mean, You know, you got the six-month bill, you've got the one-year treasury, you got everything over 4%. This is really good. What we're trying to do is figure out how to be disciplined investors and know when we should buy low. Well, we were at 3,500 and changed below 3,600 in September.

That would have been a good opportunity. Above 4,000, and if you look at the signs that Ron has outlined with a recession coming, you get an earnings contraction for the S&P 500 of an average at 20%. So it seems like it would be early. I think if you're disciplined, you can find a name here and a name there that will help you get through. We don't want a time, but there might be some better places to put cash to work. Michael, would one of those names be J&J? You know, what an interesting idea, Tyler.

It's not one I've ever thought about before. No, never heard you mention it. Yeah, I know, I know. So, okay, ladies and gentlemen, I'm sorry, but Tyler Mathis has been given me hell about Johnson and Johnson for at least 15 years because it's my go-to pick. It's a stock I've owned for 20 or 30 years personally. Right now, you know, Johnson and Johnson's 16 times earnings, growing earnings at 9% with a 2.5% dividend, a AAA balance sheet. It's a company I can own a long time, particularly through tumultuous times like this. All right.

We've got to leave it. If it doesn't work, just put a Band-Aid on it. Ron Insana, Michael Farr. Go ahead and Ron. Quick. Two spots to watch to see if things get worse. Number one, collateralized loan obligations in the private debt market. There's some risk there. And tether, stable coins. You've got to watch those because those can be two hot spots that cause some problems down the road. All right. Insana and Farr, Farnedana. Thanks a lot. Still to come, a nice midday pot for Boeing and a huge three-month gain for the stock. Why is the street so bullish? That's next.

Boeing shares at 3.5% a nice pop midday, adding to what's already been. Nice gains recently. Phila Bow brings us the news that's moving the stock. Hi, Phil. Contessa, it happened a couple of hours ago. That's when the WSJ put out a report saying that United Airlines is considering a hefty order for Boeing 787 Dreamliners. That order could be anywhere between 50 and 100 planes. It hasn't been finalized and it may not even happen. But that was enough to give shares of United and Boeing, a nice move higher, though United has given some of that back today. As you take a look at shares of United this year, keep in mind, this is a company that has been very aggressive about saying we are going to address our fleet and position it for growth in the future. And if you're going to do that, you've got to upgrade your wide bodies. So when you look at United's fleet plan, it basically comes down to this.

Upgrade the wide bodies. That's where the 787 Dreamliner comes in. You see continued growth with international markets. is perfect for that. You don't have to do as many flights between hubs. You can pick out select markets where the Dreamliner can do those long, narrow but lucrative flights, if you will. And then you've got Boeing and Airbus options. There's possibilities that this may not all go to Boeing. If it happens, it could be partially split between Boeing and Airbus. That's why as you take a look at shares of Boeing and Airbus, both of these companies and

both of their stocks have moved higher in the last couple of months, largely because people are saying, okay, the airlines are seeing continued demand, especially in the international routes. That is good news for both of these companies. But if Boeing were to land this, guys, it would be a huge order. The list price, and these planes are never sold at list price, $300 million per $787 Dreamliner. And again, they're never sold at list price, but it would be a big win for Boeing if they got it. How long does it take to deliver it? Depends on how they structure it. It depends. It also depends on what Boeing has. Remember, they had a number of these that were essentially built, but they still needed to be final certifications because they delayed deliveries while they were working with the FAA on new inspection protocols.

So they've got about 100 of those that they have to clear out. Now, many of those are already spoken for with other airlines. But when a company like United comes to the table and says, we want to place a big order, how quickly can we get these aircraft into use? That's when the negotiation really kicks into gear. All right, Phil LeBow. Thank you, Phil. All righty, down but not out. We will look at some recent underperformers at Goldman Sachs. are say are ripe for a rebound. Three-stock lunch is ahead.

Time for today's three-stock lunch. Goldman Sachs out today with a list of laggards that could be buys, it says. Heading into 2023, three names on the list. We thought, merited a closer look, are Adobe, Salesforce and FedEx, who better to do it than Art Hogan, Chief Market Strategist with B. Riley wealth management. Let's start with Adobe, shall we, Art? Do you like it or not? Yeah, we do like it. It's a name that's been on our focus list this year and was actually tracking the NASDAQ so off a bit. But then September rolled around and they announced a acquisition of a company called Figma. And Figma's interesting company. It's been around since 2012. It's privately traded. And it was actually gaining some traction in what's called collaborative creative activities and it operates on a web. So it was actually a disruptor and a competitor to Adobe. Adobe decided to take them out. So what happened in September was they paid $20 billion for it, half cash, half stock, and the half cash portion that 10 billion investors that assumed would be put into share buybacks. So that disappointed investors pretty quickly. I think they misunderstood

the acquisition and how accretive it could be in 2023. So the deal closes in the first quarter of next year. They expected to be accreted by the end of the year. Adobe currently trades it about 22 times, which is cheap for Adobe historically. They just had 13% revenue growth in their last quarter, and they had a record at $4.43 billion in revenues. And they're running at 87% gross margins. So I don't think they appreciate the acquisition just yet. I think as we work our way into next year, it'll start to become more apparent how important this acquisition was. Next up, art, is Salesforce, year-to-date down some 37%. Is it a good opportunity to get in or a good opportunity to stay away. I think it's probably a good opportunity to continue to avoid. So Salesforce CRM has missed

his last quarterly numbers and it's missed two out of its last three reports. And if that wasn't bad enough, their co-CEO, Brett Taylor, is stepping down. And co-CEO with Mark Benio, who is returning. And one of the things that people really like Brett Taylor for was he was really more of an operator in operating the assets they had. One of the things that Mark Beniof has been known. for is a bigger picture guy, and he's actually made larger acquisitions. And I think that the fear is without the operator, Brett Taylor, who had done a pretty good job of aligning CRMs or Salesforce's operations and optimizing things, is that we're going to go back to that Mark Benioff. Let's make some big acquisitions and see how long it takes to get them online. So I think that they've

got at least a full year of underperformance. Let's move on now to one that's really topical and timely and also controversial FedEx. Yeah, we kind of like FedEx here. I think it's a real turnaround. Obviously, they missed a couple quarters in a row even after pre-announcing. But I think they're really looking to achieve those cost reductions that they talked about. So obviously, everybody in logistics overbuilt during the pandemic, you know, whether UPS, FedEx, or even Amazon. But I think the global shipping industry is consolidating.

I certainly think it's got a high barrier to entry. I think FedEx is finally getting it right. I certainly think where it's trading now, it's trading at a company that could likely have a significant turnaround. Needless to say, consumer shifted their focus from goods to services. So there's been a slowdown in goods purchases that's adversely affected everybody in logistics. But I think FedEx is probably, if any, one of the best turnaround stories in this whole bunch that Goldman put on the list. All right. That's fascinating. Thank you very much, Art. Art Hogan. We appreciate it. Thank you.

Up next, Elon, the Musk train, the Twitter owner, getting a lot. his share of backlash, but he still has some allies. Next. Well, this has been a tumultuous week for Elon Musk. Monday, he went to battle with Apple and then admitted his beef was a misunderstanding. A self-proclaimed free speech absolutist, he has faced a barrage of backlash for reinstating controversial accounts. He did suspend the rapper formerly known as Kanye West, or now known as Yeh, after Yei posted an image. He was a image of a swastika inside a star of David. According to critics, though, hate speech has flourished under new management. The New York Times reports today that slurs against marginalized

groups have surged to unprecedented levels since Musk's acquisition, and it's pushed many companies to suspend or limit advertising on the platform. But some big names say they believe in Musk as a businessman, as a leader. Morgan Stanley CEO, James Gorman, says he, quote, wouldn't bet against Elon Musk. His words. And listen to what Netflix's co-CEO and founder, Reid Hastings, said to our Andrew Ross Sorkin earlier this week. I'm 100% convinced that he is trying to help the world in all of his endeavors. Give the guy a break. He just spent all this money to try to make it much better for democracy and society, to have a more open platform. And I am sympathetic to that agenda. Yeah. But he's also picked a lot of fights. He picked at a fight with Tim Cook,

and called him out for not advertising on the platform when a lot of companies don't feel like they want to take that risk right now with hate speech searching. And he was saying that Apple was, quote, censoring Twitter by not presenting it on the platform. I would say that is a company that is making a decision based on its business interests as to what it wants on its platform. That doesn't mean it's being censored to me, at least. Hey, Kelly is back next week. I want to tell you it's been a wonderful several months with you here. Tyler, thanks. Thank you.

I appreciate that. Thank you guys for watching Power Lunch.