Power Lunch - The stressed consumer, Boeing’s big run and fixing the supply chain. 12/6/22

Episode Date: December 6, 2022

CEOs of some of the world’s biggest companies describe the consumer as “stressed” and spending as “slowing”. What that means for the economy as we head into the holiday shopping season. Plus, Boeing’s big rally. Is the stock’s recent mover higher just the start of bigger gains? And diversifying the supply chain away from China. 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. I'm John Ford in for Tyler Matheson. Here's what's ahead. Stressed, slowing. It's not just a description of your work life in December. It's how the consumer is being described by the CEOs of some of the world's biggest companies. We're going to look at what that means for spending and the economy as we head into the holiday season. Plus, Boeing's big run, the iconic company has been under pressure for years. But the stock is making a dramatic turnaround up 35% in two months. Is this the start of bigger gains? A deep dive on Boeing later this hour. Kelly? John, thank you. Hi, everybody. And let's look at the markets where we're sinking again

throughout the day. Just off session lows, the Dow's down 417 points. All 11 sectors in the S&P are lower 3935 to Babasani's point last hour. We've kind of round-trip to where we were before we heard from Powell. We're weighed down by energy and tech in particular today. Oil trading pretty poorly. The S&P's down four days in a row and the NASDAQ is down another 2%. Take a look at Big Cap Tech as well. Meta, down 6% today. AMD, NVIDIA, down 3%. Apple down about 2%, 143, the latest there. And according to CNBC.com, Morgan Stanley, cutting 2% of its global staff. The move impacts about 1,600 of the company's 81,000 employees, shares with just off-session lows, John, down about 3.2%.

Yeah, Kelly, and as we just mentioned, one of the biggest questions facing the economy is whether the consumer is stressed. According to Jeffries, credit card balances are growing up 15% year over year. Meanwhile, the savings rate falling to 2.3% versus the pre-pandemic average of 8.8%. And here on CNBC, CEOs of some of the world's biggest companies are growing concerned about spending. They're still stressed. I mean, we serve everybody. Americans come to Walmart. We've got some customers who are more budget conscious that have been under inflation pressure now for months.

It really started changing in March, April of this year. and that sustained pressure in some categories, I think, is something that customers are having to deal with as we approach Christmas. I'm not going to call a recession that's for economists to do, but right now we're still seeing a pretty strong consumer. If you look in the short run, the consumer is spending 10% more than last year and 40% more than pre-COVID. They're spending it in different things. That's a tremendous sum of money, and they have a trillion and a half dollars still in their checking accounts more than pre-COVID. So the spending is down. Inflation is eroding everything I just said.

and that a trillion and a half dollars will run out sometime mid-year next year. And so when you're looking out forward, those things may very well derail the economy and cause this mild or hard recession that people worried about. If I didn't watch CNBC in the morning, which I do, the word recession wouldn't be in my vocabulary, just looking at our data. So which is it? Joining us now is Diane Swank, KPMG, chief economist. Diane is the concern that the consumer is running out of steam based on the rising cost of credit

you know, lower savings balances, or is the sunny side that we don't have to worry about that until next year and a lot could happen between now and then? I think it's going to be more of a next year phenomenon, but I think the important issue is what is the Fed's goal here? The Fed's goal is to hammer demand to bring it down to what it sees as a supply-constrained world. And that's a very hard thing to do. And even though we're only talking about a small increase in unemployment, I think it will be a recession, a shallow recession, that shift from 4.3 million, over 4.3 million jobs year to date

relative to almost double the pace of the 2010s. That helped to keep consumer spending void, along with that savings amassed. Much of the savings that we had a mask during the pandemic is now concentrated only in the highest income households. The lowest income households ran out of it by the end of the second quarter. And that's what you're hearing from the different as you disaggregate the data, it matters where it sits as well as what happens to the number of paychecks that have really provided support for the U.S. economy and made it resilient. That very resilience is also what the Federal Reserve is worried about in sustaining inflation and putting a floor on how low inflation can go.

Diane, I was struck by how strong, how much stronger than projections consumer spending was for Black Friday and Cyber Week. I think the predictions were for something about flydiction. but it was actually up considerably. But then at the same time, I wonder, does that continue throughout the rest of the quarter and how much discounting is necessary to achieve that in order to move the inventory?

How important is that set up for what happens in Q1 and what we have to look forward to as far as the consumer and the job situation, which affects the consumer heading into 23? So first of all, the Black Friday sales were good, but after adjusting for inflation, not as good. And that is even with the deep discounting. What's been really interesting in watching the credit card data is how sensitive consumers have been to discounting. They are now very much more cost conscious on average. And that is important.

We had a lot of early discounting in October, which pulled a lot of spending forward. And then credit card receipts slowed down dramatically until we got to those Black Friday sales, which actually came back this year. Remember, they weren't really discounts a year ago. So that's really important is that the sensitivity we're seeing. The good news for the consumer through the end of the year is we got a little extra boost in energy prices coming down and finally prices at the pump coming down. So that will help boy consumer spending. But as we get into next year, the issue for the Fed is, you know, can they cool inflation enough to not have it metastasize and become a much more fatal condition? And the reality is they feel they need to raise rates a lot more in order to do that.

I think they're going to stick to a half percent at their next meeting, but the end point on rates, likely five and a half percent. That's much higher than they were even a few months ago in their own projections. And we think that's enough to derail the employment growth. And once you take away all those new paychecks in the economy, it is a lot harder to sustain consumer spending. Do they have to go this route? Diane, I mean, I take Scott Kirby's point that out in the real world,

There's not a lot of recession talk right now, but you can't ignore the message that markets are sending with these inversions and so on. Should the Fed be heeding that message and pursue a strategy that's a lot less hawkish right now? Well, remember, the Federal Reserve, first of all, Paul is a student of history. History has taught us over and over again. They won't repeat the mistakes of history that if they don't go far enough on inflation and derail it now, it could metastasize. And he was really clear in his comments, his written comments, which were much more hawkish than his Q&A. In his written comments, he was very clear in his last speech about where the underlying inflation resides in the service sector outside of shelter costs. A lot of things are coming down and that's great news.

But it's not enough to stop inflation from metastasizing. And that's what the Federal Reserve is dealing with. And if they do not stop it now, that risk a much more severe kind of. recession like we saw in the early 1980s. They don't want to go there. They would rather have a rise in the unemployment rate today and slow the economy. I think it will tip into a recession. You know, it's kind of splitting hairs at this point in time. They think it's 50-50 between what they call a soft landing, which is a rise in the unemployment rate and a sharp slowdown and an actual contraction in growth. But at the end of the day, they want to get rid of that because if they don't, you risk the

kinds of problems. This is a global and scope problem that you had from a two decades long series of mistakes, policy mistakes, including the Federal Reserve, not going far enough. They're not going to make that mistake this time. All right. They're going to stick to it. She says, Diane Swank, thanks for your time. We appreciate it. Diane Swank from KPMG. Now, with stocks near recession lows, our next guest says the Fed's tightening won't necessarily cause a recession, and he's telling investors not to be scared of that inverted yield curve. 82 basis points, Peter Anderson. That's what we were just showing on the twos and tens. He's the chief investment officer at Anderson Capital Management. Peter, what makes you so

sanguine? Well, first off, the focus that we have on inverted yield curves, I understand that, Kelly, but one of the things we have to think about is that is created by us, investors. It isn't some kind of divine message from the heavens that we think we should interpret it as an independent an assessment. So think of it this way. If I'm bearish, I'm going to trade treasuries in a certain way that's going to construct that yield curve. Then I'm going to look at the yield curve and say, wow, this yield curve is implying a recession. So it's almost a vicious cycle that you get in. And while it's an academic interest to look at a yield curve and analyze its inversion, I don't necessarily think that it guarantees we're going to have a recession. I hear you. But

Let's just talk about the tens versus the one-year treasuries, for instance. They've inverted 11 previous times. Ten of those ended in a recession. The 11th ended in a sharp slowdown with Fed rate cuts. Yes. And I would love that we could use these more than rules of thumb as like a factual physics equation. But as we know, this is a complicated field. We use emotions, fear, reading all kinds of articles about where we're heading.

Last but certainly not least, this is a total different recovery, isn't it? I mean, I think the Fed is somewhat confused about is this a recovery or a boom. And I think most of them are thinking it's a boom. I tend to think it's a protracted recovery just because it was such a crazy entrance into this world pandemic. And I would love to see a textbook recovery. But I think we have to relax that expectation a bit and say, let's calm down. Things will improve. But it's going to be very very, very lumpy along the way. Okay, Peter, so you say an inverted yield curve doesn't scare you? What would scare you?

Collapse of consumer confidence and spending, some unforeseen geopolitical shock? Well, there's a lot of scary things out there, and I do get scared myself. So I wanted to negate that first off. But what I look at are the financials of companies. You know, they're cash flows. I'm a former bond investor, so I'm very, very pessimistic and worried all the time about cash flows, EBITDA, leverage and coverage. So when I look at stocks, I try to find stocks that have prevailed through this past three years. And believe it or not, there are some out there

that have done very well from a bond holder's perspective. Their coverage has increased and their leverage has decreased, even in the face of, say, decreasing revenues in a macro sense. So that's what would scare me is if I were not to be able to find companies that had those improving metrics throughout this. Sure. And maybe at some point if, you know, the fundamentals really deteriorate, that's one thing. But for now, you've got at least three names that you like. Zouettis, Booz Allen, United Rentals. Is that right? That's correct. And they all have those traits that I just mentioned, Kelly. You know, you look back. And United Rentals, you know, their EBITDA has increased 20% over the past year. And their revenues are up on an annualized

basis for the past three years, about 12%. The stock is up slightly 5%. But just, just, think of that. I mean, that's a serial acquirer. It just bought one of its major competitors last month. For $2 billion, it did a fundraising for that via the high-yield market. And so there's a company that I think regardless, sure, the Fed is going to impact almost everybody if they keep hiking, but some will be hit less than others. And the numbers don't lie, you know, as opposed to, say, the yield curve, which we make up as trading. When you look at financial statements and especially, the purest of Peorce, Ivetah, that is not made up by us. That's made up by the actual transactions of the company. And the same applies for Booz Allen Hamilton. Let me just mention about that consulting

company. I don't think many people have realized that this is about 90% business from the government, the U.S. government, mainly insecurity. And do you know that it's bad. If you're worried about recession, yeah. Recession never comes for the government except maybe, you know, Tea Party times. I was going to say that because their backlog is four times their annual revenue right now. And while we can't say that's guaranteed revenue, just as you were joking, they're pretty solid predictions about their contractual revenues. All right, fair enough. Peter, thank you. It's great to have you here today.

And the yield curve, you know, devotees can come your way. Okay, thank you. Peter Anderson, Anderson Capital Management. Coming up, Taiwan Semiconductor Tripples, its planned investment in the U.S. with new chip plants in Arizona. A look at what it means for rebuilding the supply chain and rebalancing our dependence on China. Plus, Boeing's tailwinds, the stock surging 38%

over the past two months. Is this the start of a bigger turnaround? And before the break, Paramount Global shares are falling down more than 6.5% after the company said its ad revenue in the fourth quarter is going to decline from the third. More power lunch in two minutes. Welcome back to Power Lunch.

Today, Taiwan Semi announcing a $40 billion investment to build chips in Arizona. This as the U.S. tries to diversify from China when it comes chips. Christina Partsenevolous is covering that story for us today. Sima Modi is also looking at other companies which have had to diversify their supply chains. Christina, let's start with you a huge day. Yeah, bigger and better. That's what TSMC Taiwan Semiconductor is promising with its $40 billion investment for two manufacturing fabs in Phoenix, Arizona. One is already under construction creating four nanometer chips expected to be ready by 2024.

The second fab should produce even more efficient wafers, or fabs, three nanomainers by 2026, if fall goes as planned. And that's roughly about 50,000 wafers per month. A fraction, though, of what is being produced in Taiwan. But the United States is determined to diversify away its production from Asia and create more advanced chips on American soil. and then also means more jobs. Roughly 10,000 high-tech ones and an additional 10,000 construction jobs just over the next four years or so.

TSM isn't alone in its building endeavors. Intel is building at its fabs in Ohio. Micron has announced new investments. Even foreign firms like Samsung are expanding here. They are incentivized not only by the piles of subsidies coming from the state level and eventually the federal level with the chipsack, but also the push from customers like Apple

to diversify away from China. TSM's presence in the United States also helps with developing new products with U.S.-based clients like Nvidia. It's not going to be easy. TSM will have to deal with language barriers, procuring equipment and finding the talent, Kelly. Wow. Yeah. I mean, it's a challenge that Intel is also taking on, especially when it comes to the more advanced process technology. What about oversupply concerns?

Because these are such advanced chips, is that not an issue? as long as they're able to execute on the plan? I guess that could be an issue five years from now, but that means that every single company is going exactly to plan. Intel, you brought them up. They have issued a statement to me about this because TSM said they were creating the most advanced nodes. Intel is saying, no, we are also creating a three-manometer node as well,

and we're working on that from 2023. Yes, it could create an oversupply, but it's bringing it to the United States, which is the goal. The White House thinks that they could have, pretty much satisfy all the demand here in the United States. Not sure if that's necessarily the case, given how many little parts go into absolutely everything,

but... Is there any dispute about whether these are... and does it matter if these are state-of-the-art chips that they're building here? Or is it just, hey, any supply that, you know, we need throughout the supply chain right now goes a long way? Well, to the oversupply part, that would most likely be more at the lower level,

the ones that are used in the auto sector. And so that's why it is a benefit for many of these chipmakers to create the advanced ones here in the United States, is it going to be something, we need that here. That's something that the United States is lacking, no doubt. But unfortunately, and I just mentioned it very briefly, Taiwan is still going ahead

and creating the most advanced ones, the two nanometer. That's starting as of next year. Here or there? No, there, not here. So Samsung as well, they're going to be expanding here, but they're not going to be bringing the most advanced technology here. This is just kind of a hedge, right?

I mean, Taiwan is, that's where it's at. That's where it gets built out. But for those kind of advanced military purposes, for graphics chips, you want to be able to have that supply some in the U.S. in case things go south. And be able to work with U.S. companies like NVIDIA, AMD, to work together and create these products. So that could help build that relationship. Yeah, great look. Christina, thanks. Now let's bring in Sima Modi as more companies try to become less reliant on manufacturing all kinds of things in China. Seema?

And John, efforts to diversify away from China, really gathering pace. CSX, CEO James Foote, on the earnings call, said they're seeing more and more activity on the onshoreing side with just the uncertainty surrounding China. Chip supplier Terodyne mentioning countries or regions like Southeast Asia, Malaysia and Thailand as they figure out how to diversify. And then FISA, referring to the need to diversify as a way to protect themselves from the prospect of more lockdowns. Experts say a lack of manufacturing expertise, though, in countries like Vietnam, Malaysia, Thailand, that is slowing down the move out of China. The head of Eurasia's India practice, Pramit Chowdhry, also telling me how heightened tensions between China and India are challenging companies' efforts to diversify there.

One example being visa restrictions on Chinese nationals entering the country. CFR's Manjari Miller also pointing out that India recently banned Chinese app TikTok and is conducting tax rates against Huawei and ZTE. But India is fully in campaign mode. I can tell you that, hoping to really capitalize on China's troubles, working the phones, ministers flying to Silicon Valley over the past three months to pitch companies there. Next week, the minister of Uther Pradesh, it's a major state in the country, coming to New York to the Indian consulate to meet with business leaders.

Guys? In a way, building the buildings and getting the equipment in them is the easy part as expensive as that is. Training up the workforce, which takes years so that you've got the full ecosystem and the support manufacturing is another piece of it. How committed are various countries or regions you hearing and maybe even India specifically to that harder part? Yeah, the ability to ramp up talent and expertise in building out highly complicated devices and chips and other technological components, that seems to be where there is a major challenge. There is. efforts to diversify, but then to get the talent to meet the expertise and to fulfill that

demand, that's where you see a lot of companies say that's where we need a lot of help and what's extending these timelines, right? We've been talking about diversifying away from China since the Trump administration when those U.S.-China trade efforts were really front and center. And now here we are talking about efforts to still move away from a country that has done such a good job at not only providing great expertise and making these certain chips and components, but also price effectiveness as well. In a country like India, it is cheaper, but it's gone more expensive

over the last two to three years. So that also is part of the negotiations that are taking place. Great point. SEMA, thank you very much, our Sima Modi. Speaking of the supply chain, ahead will take a look at one company using the cloud to improve trucking and logistics.

That's in today's working lunch. But up next, a meta loss. The stock today is on pace for its worst day since October as the EU may ban, from running ads using customer data, the latest after the break. Welcome back, everybody. Shares of meta are down almost 7% today.

They've just continued to trade worse throughout the session. This on pace for its worst day and months after a potentially unfavorable decision by the EU. Let's bring in Steve Kovac to explain what's going on, Steve. Yeah, Kelly, this one's really wonky, so I'm going to make it as simple as possible and explain what happened here. So, EU privacy regulators decided to recommend limiting how meta's apps like Facebook, and Instagram, process personal data. That's according to the Wall Street Journal. Now, in this case, that means asking permission before collecting data within its own apps. That's a step further than what Apple forced meta to do last year, which is those pop-up to be getting to ask you whether or not

you want to be tracked across third parties and websites. Now, obviously, this would make it harder than ever for meta to target ads, and we already saw how Apple change decimated sales growth for META. But here's the big but guys. There's a lot more that has to happen for this to actually go through. The EU regulators sent this recommendation over to regulators in Ireland who are actually responsible for enforcing privacy rules against META. Those Irish regulators aren't expected to make their decision until next month. So for now, this is all happening privately and behind closed doors. Now, if they do decide to adopt this new rule, META has the option to appeal before it goes into effect.

And even if that happens, META tells us in a statement, it can find other legal avenues to process the data it needs to target the ads under EU's privacy laws and rules. Plus, it's going to take a lot of people to opt out of that tracking to have any kind of big effect on META. But that's part of what's setting META lower today, the risks that could face yet another major hurdle to its ability to use data in its apps to target ads. We already saw what Apple did with it, guys. Well, you said Apple.

Yes. And so I got to ask about some app store changes that are coming, a much bigger menu of prices for developers. Does this show some flexibility on Apple's part? Not necessarily on what developers are getting charged, but at least on what they get to charge? A little bit. Well, thematically, John, what this is, this is actually a settlement from a class action lawsuit from a lot of developers against Apple. They wanted more pricing options within and at payments and how much they can charge in stores.

So basically, instead of going in like five-cent increments or 99-cent increments, you can do a whole dollar or something like that. You can go up to $10,000 if you really want to charge that much for your app. So basically, Apple didn't want to go to court for this case, and they settled with developers on that to give them those options. But look, they really hold it to developers overall when it comes to splitting those fees. So there's still a big battle going between those two cohorts. Always a battle with Apple. Steve, thanks. Thanks, guys.

Now let's get once again to Christina Partonnevalles for the CNBC News Update. Christina. Hello, John. Here's what's happening at this hour. A whopping 305 criminal counts have been filed against a suspect in the Colorado Springs mass shooting at a gay nightclub. Authorities say it could be the most heavily prosecuted murder case in state history. The charges include murder, assault, and hate crimes. Anderson Lee Aldrich is suspected of killing five people and wounding 17 others.

The House Committee investigating the January 6th attack on Capitol Hill will make criminal referrals to the Justice Department. Panel Chairman Benny Thompson did not say who the targets will be or whether former President Trump will be among them. Thompson says the panel is seeking to publish its final report by the end of the year. And a federal judge has ruled that Oregon's voter-approved ban on high-capacity magazines can go into effect on Thursday. The judge also issued a 30-day stay on a permit-to-purchase requirement for new firearm buyers. after law enforcement agencies said they needed more time to set up permitting systems. Back over to you, John. All right, Christina, thank you.

And now ahead on power lunch. Coming home to roost, housing stocks struggling in recent months as rates rise. Luxury was holding up in the pressure, but will that last? And Boeing, Boeing gone. The aircraft maker having a strong month recently announcing a major deal with United we'll discuss after this. Welcome back, everybody. 90 minutes to go. And once again, we're right about it, session lows. Let's get caught up across the board on stocks, bonds, and commodities, plus Boeing's big recent rally. So let's begin with the markets where all the major averages are down once again. The NASDAQ leading the way off more than to almost two and a half percent right now. We're trading below 11,000 for the NASDAQ. This is a more than 30 percent drop year to date. The S&P 500, 39, 20 down 2 percent. The Dow is down about 512 points right now. Even a rough day for alternative energy. Solar names, Nphase, Solar Edge, getting hit EVMaker Lucid, the worst performer on the NASDAQ 100. A lot of these stocks don't like tight liquidity. Tesla also down about 2% today and about 50% on the year.

Shares of Sanofi and Glaxo are soaring right now with the companies getting a big legal win in a class action suit over their heartburn drug Zantak. Here you can see GSK, for instance, up 7%. Let's head to the bond market now where the yield curve inversion continues to deepen. And Rick Santelli is. tracking the latest for us from Chicago. Rick? Yes, even the knob, always a favorite in the old days on trading floors, that's 30s versus tens, is toying with inverting again. Now, remember, last Wednesday was the Brooking institution, Q&A, and testimony of Fed Chairman Powell. So that was one of the last days where he was protesting the markets aren't hearing what he's saying. So this is interesting. Let's look at a two years since then. It's hovering right at the low range of last Wednesday the 30th.

Ten year yields are actually well below the low yield of the price above the high price of that session. Not what the chairman really wanted. And if you look at July Fed Fund futures of next year, these are the fulcrum. That's where the price stops going down, starts going up in Fed Fund futures. It's hovering around the same price. And here's what's interesting. Look at the Dow Jones Industrial Average. It's below the lows of that day, as are S&Ps.

Only the NASDAQ isn't, but it's close. Why is any of that important? No matter how much the chairman protests, it seems though equities are paying attention, but certainly not the Treasury complex. Back to you, Kelly. All right, Rick, thank you, Rick Santelli. Oil is also grabbing the headlines with its deep slide into the red.

It's back below $75 a barrel today. It's negative on the year after everything that's happened. Let's get to Pippa Stevens for the very latest. Hey, Kelly, oil is tumbling today with WTI falling to its lowest level of the year. Now, macro headwinds are driving the action with traders worried about a slowdown in global demand. That's counteracting the positives of the EU-Russian oil ban, as well as the $60 price cap. U.S. oil hitting a low today of $73.41, although it is closing slightly above that level, currently at 7423 for a loss of 3.5%.

Brent crude right around 7940 for a loss of 4%. Now gasoline, futures and heating oil also down sharply with Arbob now in the red for 2022. But we are also watching European gas prices, which are bucking the trend and in the green. A cold snap has hit the continent and wind generation is down, leading to a jump in gas demand. Finally, energy stocks falling alongside the broader market. The drillers are leading those declines with Marathon Oil, APA and EO.O. all down more than 3%. Kelly. A stunning turn of events, Pippa, thank you.

Meantime, shares of Boeing are contributing to the Dow's decline today. They're down more than 4%. This after a 34% run in the past two months, could it be the start of something even bigger? Let's bring in Sheila Kailu. She's aerospace and defense analyst over at Jeffries. Sheila, it's good to see you again. First of all, what accounts with a sudden change in sentiment for Boeing? Really when it started was the November 1st analyst day when Boeing set out a turn.

of $10 billion of free cash flow from in 2025, 2026 time period. So that really went from zero to here with the $10 billion target, making voting look extremely cheap compared to other industrial stocks and other aerospace stocks, if they could get anywhere close to that. So to put some framework on it,

the biggest driver of that $10 billion of free cash flow is going to get to the maxes off the ground, those 737 maxes that they have, which they're producing and shipping out about a rate of 25 per month right now, The target is to get to 50 by 2025. So doubling. So that's why Boeing is attractive right now.

And their free cash flow per aircraft, we estimate, is around $10 million. That's a very low estimate, given the issues they've had with that aircraft. So strong free cash flow, solid fundamentals at a time when people are nervous about the macro outlook. What do you say about the big recession debate as we head into next year? I mean, it's all well and good for Boeing. But if the economy takes a turn for the worst, then what? I don't think it'll matter much. Air traffic is still 25% below 2019 levels overall.

That's really being dragged down by China, which is 70% below 2019 levels still. So any signs of a reopening, we think we'll drag Boeing up even further. Our forecast is for 4% air traffic growth over the next three years. That compares to 6% over the last decade. We think air traffic is a two to three times GDP play, and therefore airlines will need that sort of lip.

So they'll need from 25 per month today of max is being produced, and that's mostly for domestic traffic, to 50 per month. So our air forecast traffic predicts that we're going to need a doubling of new deliveries over the next three to four years. And it's not a matter if the demand will be either, but if production could sustain that. Sorry. Sheila, how exposed is Boeing to a shift in sentiment on aviation? People have been talking so much about revenge travel.

People just want to get out there. And so there has been that. But what happens if that shifts as perhaps the consumer gets tapped out, as we were talking about at the beginning of the show, could happen. Heading into 23, does the valuation perhaps take a hit? There's certain sensitivities. So in terms of our 4% air traffic forecast, you know, we assume if the consumer slows down a little bit, let's say it's 3%. That would be a 3 per month hit to Boeing's aircraft production off of the basis. 50. So very minimal. There's only been four years in the last 40 years where air traffic has

actually declined. So a 3% estimate is essentially a recession for air traffic. So we think the 4% is rather, you know, subtle growth actually for the aerospace industry. We've taken a point off for China not coming back strongly and another point off for some Zoom replacement. So we've already accounted for that in our view and our forecast. So it's more about the production rates getting up there. And Airbus announced just two hours ago, that they're cutting their forecast for the year, not because of demand, but they can't get the planes out the door quickly enough. Right.

Well, we'll see if that thesis flies. Sheila Cayle, thank you. Thank you. And up next, today's Working Lunch. My interview with the CEO of Sam Sara. We'll be right back. Welcome back. Kelly, it is crunch time for global logistics networks here in the thick of holiday season.

Everybody wants to have enough inventory, but not too much. And all of this is happening as consumer demand is spotty. And truck drivers are still scarce. And all of that makes a great time for working lunch with Sanjit Biswas, a co-founder and CEO of Sam Sera. The company makes cloud-powered technology for efficiency in the supply chain from trucks to manufacturing floors. The stock spiked 20% last week on strong results. Sanjik grew up in Silicon Valley, went to a high school, a few minutes from Apple headquarters, and sold wireless tech startup Maraki later on to Cisco for a billion dollars, about a decade ago.

The Valley's innovation culture has motivated him from early on. And I think it was really great sort of source of inspiration, right, that all these tech companies were around. And it wasn't just Apple and Adobe. You had Cisco systems, you had Sun Microsystems, you had all these industry giants that were doing big things. Netscape, if you remember that name. And it's funny now, I work with Mark Andreessen, who's on our board. It's just kind of amazing how the world works out. So definitely felt a source of inspiration from there.

And you could kind of just feel it in the air. If you wanted to learn about computers or the World Wide Web or whatever it was networking, it was kind of open to you, at least here in the Bay Area in the 90s. And that was a great environment to be growing up in. If you were curious and you wanted to tinker, you could basically find those resources, even if you didn't have them at home. It's not like I was able to do all this stuff at home. A lot of it was being done at school.

He took advantage of it. It's been a year since Sam Saar's IPO. No surprise. It's trading lower like other growth stocks. But interestingly, the company's fundamental. are more than holding up so far as customers look for ways to save on things like insurance and gas. Customers in these largely paper-based industries are just starting to take advantage of artificial intelligence and data for smarter operations.

First, they want to know where those vehicles are, and that's the GPS tracking or telematic side of what we do. That's where the business got started. But they also care about their over-the-road safety. So are these drivers distracted in any way? Can it be coached to drive a little bit safer, or increase their following distance, basically reduce the likelihood of an accident. And the way that we help accomplish that is through data. So we have cameras that run AI at the edge in the device itself and can basically alert the driver if they're maybe following a little too carefully or closely or not wearing their seatbelt or looking at their mobile phone, which happens to many of us, right?

It's a kind of daily distraction. Right now, Sam Sarah's got a $6 billion market cap. just reported 724 million in annualized recurring revenue up 47%. And it's interesting, Kelly. Sanjit told me about one customer that saved a half a million dollars in fuel costs using the technology to remind truckers not to idle during stops. And the company then spent some of that savings on driver incentives to keep that efficiency going. It's fascinating.

Reading here more about it, Cisco, the restaurant supply company, uses it to monitor for driver distraction, capture road video. So they seem to be more on the B2B. side, but in telematics, we see their spread throughout areas like insurance. A lot of people have these on their cars to monitor their driving. It's basically incorporated it now in Tesla's software with safety scores and all the rest of it. Now, the way Samara is using it is that the insurance play is companies can prove that their driver wasn't at fault in certain cases. And therefore, those claims, you know, get resolved in their favor. Their rates stay lower. And so all of that

being in the cloud, being able to search through and find key moments that, that can, you know, that cameras have captured on warehouse floors as well as on the road, give companies a lot more insight into what's happening and preventing bad things from happening. Incredible to watch how this man in particular has had such success, it seems, twice now. But to your point about the stock, what should investors right now be gleaning from how this company's fundamentals are doing? Maybe the stock, like you said, has been a struggle. But at a time when we're looking for green shoots, would we consider this one? This is one of those times when you've got to look beyond the trajectory of a stock price.

really think about what are the fundamentals of the company, right? How are their profit margins doing? What's the customer momentum? Is this something that customers seem willing to spend on, even if they're not spending on certain things? Reminds me of Intuit in that sense, right? And they had their report a few days ago. Small and medium businesses are committed now to digitizing their back office because it's for efficiency, yes, but it's also for flexibility. They found they needed that during the pandemic. So Intuit saw that core part of their business holding up even better than the consumer was. So I think the question is, is a stock like Samsara like that for industrial? Yeah. That needs to go digital. If you look across at something like ProCore in construction,

does it show that same stickiness within construction management and their cloud? We'll see. And if those customers do start looking for savings, is that actually a catalyst for further adoption in what could be a tough time? Good stuff, John. Thank you. Up next, everybody, a rare double upgrade for J.P. Morgan. We'll trade that name and two other big calls in today's three stock line. Welcome back. We're trading three of the day's big calls in our three-stock lunch today. We've got one on General Electric. Oppenheimer upgrading it to outperform ahead of its split into three. Deutsche Bank, meanwhile, upgrading S-Stay-Lauder to buy, calling it a potential beneficiary of China's reopening. And Morgan Stanley double-upgrading J.P. Morgan to overweight, calling it a recession-proof bank stock. So let's bring in Todd Gordon, the founder of New Age wealth advisors and a CNBC contributor. Great to see you again, Todd. Let's start with GE. You take a sip of this one. What do you think about the stock? Yeah.

Hey, welcome back. This one, for me, this is not my kind of play. This is a no touch for me until we get more clarity on this, on this spinoff, right? The stock has performed really well on a relative basis against the broader market since mid-September. Throw a little technicals or broke 81 resistance. I could offer support. If not, the 200 days, about 77. So they broke into three parts, my aviation, healthcare, power generation.

Power has been under pressure. from the renewable side, decreased demand in the U.S. Aviation, in other hand, is done well. You know, I have a travel recovery, resurgence in orders from Boeing and Airbus. It's done well in the commercial military space. So, you know, there's pretty bullish price targets on it. For me, this is a move that's already coming up on the turnaround story. Just not my cup of tea, if you know what I mean. Okay. Now, what about Estee Lauder? Beauty is supposed to be relatively recession proof, and then you got luxury with Tom Ford, more of a play now for them. What do you think? Yeah, that Tom Ford was interesting. It's not all that significant, John. It's a $2 billion deal.

It's, you know, SDA Loader's an $83 billion market cap company. So it's very, it's not very dilutive for that. But, you know, it's a staple coming into a recession. You know, it's shown relative strength. It's performed better than the S&P. I don't personally own it. I would consider it. I think it's pretty richly valued. It's got like a 39 PE. It's trading 57 on a price to free cash flow. And you compare that against competitor L'Oreal, a 37 PE, 32 price to free cash a little bit lighter there. And it's trading 43 times next year's earning. So it's pretty expensive. They hike the dividend. It yields about 1.15%. For me, John, or I'd like, I'd like to see us kind of carry through resistance above 246 if you wanted to consider playing it. I'm going to

watch it. Watching it. What about JPMorgan? Double upgrade saying it's recession proof. What do you think, Todd, is it? Boy, I don't know about that. The stock has had an unbelievable run. I own it in our dividend portfolio. I think it's obviously financials are doing well. And just to let you know, John and Kelly, we did just today put some hedges on for a potential continued drop here over the next several weeks with our company. So I just want to caveat that. But, you know, certainly very bullish. 26 analysts are following, I think nine or hold, eight or outperform, and the balance. There's no sales on that. I forgot the break up there.

But, you know, expected earnings per share in the financials going into 4Q, only down about 2.5% looking forward to revisions for 4Q. Well, the S&P is looking to drop about 5%. So financials are expected to weather. You know, if we could buy a little bit of a pullback here, I think, in JP, maybe it's a good place to hide, but you got to watch that yield curve inversion. You know, we've seen very deep inversion now in a three month compared to 10 year, 70 basis points. So that's going to weigh on. Obviously, their net interest margin. The trading activities from fixed income and equities should

be good. So, you know, maybe by a pullback here in JP Morgan, I'm going to continue to hold it. All right. You're going to hold it. Not a seller. I'm not sure if it's recession proof, but hopefully we won't. We'll find out. Todd, thanks so much. It's great to see you today. We appreciate it. Yeah, I want to mention major indices bouncing off the lows as we head toward the end of the hour. Coming up, the latest read on housing, Toll Brothers, after the bell. We will tell you what to expect. We're going to get a firsthand report on the housing market after the bell today. Toll Brothers is going to have results.

Diana Oleg, joining us now with more on what to expect. Diana? Well, John, Toll Brothers is expected to report increases in both EPS and revenue for its Q4. The luxury home builder has fared slightly better than its peers. because of its higher price point. Higher-end buyers are not quite as sensitive to rising rates because they probably have more wiggle room in their wallets or they may not be mortgage-dependent at all.

Now, that said, toll did lower its guidance in August, and CEO Doug Yearly in August also said that demand had dropped sharply early in its Q3 as rates really spiked in June, but as you see here, rates then pulled back slightly in August, so he said we have seen signs of increased demand as sentiment is improving and buyers are returning to the market. Average weekly deposits in the first three weeks of August were up 25% compared to July.

Well, fast forward a month and rates shot back up over 7% again in October. We did see sales of new homes jump 7.5% in October month to month as more builders reported adding big incentives, specifically buying down the mortgage rate. So we'll have to see if that played into told results now. Kelly? Wow. And everyone wondering if that bear market in stocks for housing is over. At least that's what someone suggested last hour.

Diana, thank you very much. Have a quick news alert on Netflix to mention as well. Co-CEO Ted Sarando speaking at the UBS Global Conference, making some fascinating comments, John. He says there will likely be multiple ad tiers over time in addition to what they just launched. And on the sports front, added, we have not seen a profit path to renting big sports today.

We're not anti-sports. We're just pro-profit and have yet to figure out how to do it. They've got to do small sports. like T-ball and Cornhole. I think that's probably profitable for them. Do you really think niche sports could be profitable for them? Honestly, I think it probably,

I mean, they've done it with international content. What about sports that are popular internationally? Maybe there's a way to bring that in a way that people are... I don't know, but that's not what investors want to hear. Maybe not. And they probably are reassured, though, about his pursuit of profits at a time like this. Thanks, everybody, for watching Power Lunch.

That does it for us today.