Power Lunch - There Is An Alternative, Striking Out 9/28/23

Episode Date: September 28, 2023

Stocks are higher today, but about to close the books on a bad September. Does it boil down to people investing in bonds or even gold, instead of in stocks? We’ll debate.Plus, the auto workers could expand their strikes tomorrow, as the issue grows more politicized. How much longer could this go, and how bad could it get? We’ll discuss. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch alongside Kelly Evans. I'm Dominic Chu. Coming up on the show, stocks, they're higher today. But in a couple of days from closing the books on a bad September, does it boil down to people are investing in bonds and even gold instead of stocks? We will discuss that topic. Plus, the auto workers could expand their strikes tomorrow as the issue grows even more polarized and politicized. How much longer could this go and how bad could it get? Dom first, let's get a check on the market. Hey, you're supposed to be doing this normally. I think you got this. I'll do my best impression. Dow's up 73 points right now, about 150 points below session highs. S&Ps up 20 to 42.95 and the NASDAQ is actually leading the way up three quarters of 1% today. Bond yields have backed off their highs. But as Dom mentioned, only a couple of trading days left in the month.

And here is the month-to-date look. Despite today's green, the Dow's down 3%, the S&P down 4 and a half. the NASDAQ down almost 6%. And it's come as the flip side of higher yields. The 10-year yield closing level back on August 31st was just 409, as you can see over here. We've jumped more than 55 basis points in a month at 462. Latest check this hour. Is there more pain yet to come? Let's bring in Rick Santelli from Chicago with more. Rick? Yes, I'll tell you, if I had to make a prediction and folks, this is just my opinion, but I would say that I have a cycle interim top showing up technically. So today and tomorrow are very key days. If you're watching the Treasury fixed income markets, I would look for a little bit of buying to start reversing some of these

moves. Now let's get to the month to date. As Kelly was saying, look at that month to date of tens up over 50 basis points at current levels. But what's interesting is if you add in two year and 30 year, well, 30 years up 53 basis points month to date at current levels. I've talked at great length about how long maturities have taken the heavy lifting and are leading the rates in this last big move for August. But you see two year there, two years only up 23 basis points at current levels. So it's up half speed with the longer maturities. And it isn't just us. Think about Europe in general. Think about all the countries that are dealing with inflation. It's a global issue.

So let's look at two-year notes going all the way back to mid-2006 for the U.S., the U.S., the U.K. and the EU, all on one chart, and you can see exactly what I'm talking about, and we can move further down the curve. Let's do the long maturity in the form of a 10-year. U.S., UK, EU, the same dynamic going on. And this is very important because central bankers are all fighting a very similar war. My guess is you're not going to see one country have a widely different inflation. look just subtle. So we want to monitor all of these moves. And finally, the big beneficiary to a big month of August for rates was the dollar index up nearly 3%. Kelly, Dom, back to you.

Thank you, Rick. Great recap. For years, the stock market mantra has been known as Tina. There is no alternative. Bonds and cash were pretty much at zero, but not anymore. This year has given way instead to the so-called T-Bill and Chill approach. And even gold is regaining its luster. Dom, are you listening? I am. Have you seen this selling gold bars? They're selling out quick, too. Within a couple of hours.

You don't have a lot of them. The more people look at the global government debt situation, the more nervous they seem to be getting. Are these alternatives behind the September swoon in stocks? Let's ask Rachel Aiken, senior investment officer at Cape Cod Five wealth management. Peter Bookfar, chief investment officer at Bleakley Financial Group, and a CNBC contributor and our very own Bob Bassani. Welcome to all of you.

Peter, I'll start with you because I think you really. summarize it best when you say this is just the sovereign debt bubble popping, and do you think that will keep people seeking alternatives for some time? I do, and the bubble peaked when we had $18 trillion of negative yielding securities in Europe and Japan. So this unwind is a global phenomenon, and yes, I think a lot of people are trying to find other things to sort of hide out in. What's most interesting about gold is how well it has traded in the face of the very short rise in interest rates in a very short period of time. I guess the question to ask just as a quick follow-up, Peter, too, that is, you know, at some

point do people say, okay, well, I have my exposure now to bonds, I have my exposure to cash, and I only want a little bit of exposure to gold, and there still is really no other alternative. Well, the interesting thing about gold is that the demand is not just from investors. We've seen a voracious appetite on the part of central banks in wanting to own gold as part of their reserves. When the U.S. and the EU decided to sort of confiscate or at least freeze half of Russia's central bank reserves when they invaded Ukraine, that was a wake-up call to a lot of other central banks to say, hey, maybe we're safer just owning gold in our own vaults. So I think that central bank bid has been enormous. And I think that that is one thing that is also helping

to keep gold. Now, that's not necessarily their investment decision, but it's their desire to own things other than U.S. dollars. Rachel, it's Dom here. I wonder if you take a look at the way things are setting up. We've gone through such a long period of time with those Tina trades. There is no alternative, 0% interest rates, that as soon as you start seeing some interest rates that are on a four-handle or maybe even a five-handle, that has to seem attractive to some folks, even if they feel anxious about the sovereign debt. market. But can the equity markets also participate to the upside in a rising rate environment?

So, Don, thank you. I agree that, you know, seeing a forehandle on any tenure is really an attractive opportunity we feel for clients, especially it wasn't that long ago, less than 18 months or so, that we were seeing less than 1%. With that backdrop, there's definitely competition for dollars from the equity market, especially for investors who are reassessing their risk tolerance and who now have that 5, 6% return as the hurdle for entering a risk-gone market. So in the short term, pressure is definitely abound, not only from interest rates, but from oil, from the environment that we're in as far as strikes and inflation, but longer term, the market can and has been able to do quite well in an environment where a 10-year-old,

been in that four, four and a half percent range. It's just the digestion, or should I say, the indigestion that the market's feeling right now with the 10-year jumping 50 basis points in the month of September. And Bob, the only thing I'd add to that is that we haven't been at four and a half percent with the deficit as bad as it is and the debt situation as bad as it is. So as people shine more light on that, do you think they're going to get more concerned about how we resolve it? Yes, for sure. I'll tell you what worries me. Gold doesn't worry me particularly. The biggest determinant of gold is jewelry and jewelry demand is really China and India. Those consumers are what determined the price of gold. When China demand waned last year, gold

fell apart. The dollar was also strong at the same time so it was a disaster for gold. What I'm worried about is the competition with bonds. Gold inflows have been pretty modest. Bond inflows, short term, big this year, really big. I'm going to be talking about this on ETF Edge on Monday. So we now have bonds, a serious competition for stocks for the first time in decades. Bond yields are positive on a real basis. We have older investors like my age, the baby boomers. They're sitting on decades of gains in stocks. Many of them do not see the risk reward for stocks as being particularly high with bond yields positive on a real basis, on an inflation-adjusted basis.

This, I think, is a really massive change, and it's going to be real problem for stocks, competition. for dollars for the next few years. I think this is the major issue, not gold, responds. Rachel, amid that market backdrop, if there were hypothetically a shopping list to put together for stocks that you think could be attractive, hold up well amidst that backdrop, what kind of industries, what would they be? Yes, so I think, you know, one of the things that we're seeing with higher rates is if they stay this high for along, what type of stocks will be able to do well in the face of economic

weakness. So there we are really looking for cash flow positive companies, a lot of free cash flow, double-digit revenue growth and earnings. And in that space, we have companies that we think are relatively recession-resistant that you're looking at today, especially a company like Visa, where we were fortunate when the S&P did their reconstitution and put Visa and MasterCard out of tech into financials to give us an anchor in financials that didn't have credit or interest rate exposure, per se, and really some limited downside, even though they are very visible to the consumer, with other avenues and growth with their other services, including tokenization, security, as well as consulting. Also along those lines, a company like Lockheed Martin, feeling some headwinds right now from what's

gone on with the government shutdown, with the budget deal earlier this year, as well as some intrinsic issues with deliveries. But it's a company that is agnostic to the economic cycle. And we like that recession resistance and the clear visibility for cash flows and revenues moving forward for a long time. All right. So Peter, put a pin, a button on all of this for us. Well, to talk about gold as a buy, over the past two years, and gold's very, sensitive to real rates in addition to movements in the dollar. Real rates have risen 450 basis points over the past two years and gold is higher in that environment. That says a lot about the tremendous demand for gold and it's not just it's not really in the US, it's happening outside

the US but you can be sure in higher prices there will be much more US demand for gold at some point. All right Peter Bookfar. Thank you very much. Rachel Aiken and of course our own Bob Bassani. Thank you guys very much for a fascinating conversation there. Coming up on the show, though, we've got the latest on the UAW strike as workers are getting set to walk off the job at even more plants. But automaker stocks are all higher right now. You can see there. And a couple of interesting stories in today's power check. AlbaMarle leading the S&P 500 to the upside. Late yesterday, the company announcing a new partnership with Caterpillar. It will use Katz's battery powered equipment for a new lithium mine. And in turn, Alba Marl's lithium will be used in Caterpillar's

batteries. Meanwhile, the biggest decliner in the index is CarMax. It missed on earnings and revenue dropped from last year. The press release says it blames volume weakness tied to affordability challenges. Their words, in plainer terms, people bought fewer cars because they're very expensive. Power lunch will be back after this. Welcome back. Lots of talk in the markets today about the status of the UAW strikes. Let's go to Phil Aboe now for the latest this hour. Phil, what do we know? Kelly, a couple of things. Let's start first off with what may have moved the stocks earlier today. It was a report from Bloomberg saying that the UAW may be aiming for at least a 30% increase in pay plus cost of living adjustments through the life of this contract. The reason this gets attention is because

people said, well, didn't they originally say 40%? That headline was that they would aim for at least 30% wage and cola pay hike. We have reached out to the UAW repeatedly throughout the day, and at this point, the union says it declines to comment on the Bloomberg story. Meanwhile, a lot of people will be focused on what happens tomorrow morning. That's the next time we will hear publicly from Sean Fane, president of the UAW. He'll give us an update on negotiations at 10 a.m. Eastern time. He says if there's no progress, we could see more strikes. Could see more strikes. The walkouts, If they're at one automaker, two automakers, three automakers. If there are new ones, those new strikes would start at 12 p.m. Eastern time.

I want to clarify something for a lot of people. Yes, this is a nationwide strike that is impacting all three of the automakers, but it's limited to a certain extent here. We're talking about just 12% of the big three UAW members who are on strike. And as you take a look at shares of GM Ford and Stalantis, one reason why these stocks haven't moved a whole lot since the strike began is that, that just three of the 26 final assembly plants in this country have workers who have gone on strike. Let me say that again, just three of the 26. The reason I bring this up, the impact, while it is

significant, especially at those plants where the workers are out on the picket line and they're not getting a paycheck, they're taking a strike fund payment of $500 a week, that's not to diminish what's happening at those plants. But the overall production remains largely intact for the big three here in the United States, and just three of the 26 plants have been hit by strikes so far. So we'll get an update tomorrow morning, guys, from Sean Fane. We'll see where things stand and whether or not they call for more strikes. All right, Phil LeBoe with the latest there on the auto strikes. Thank you very much. So as those auto worker strikes intensify, our next guest says, what we are seeing is an entire generation just rising up angry. Let's bring in

Bill Sokol. He is a labor lawyer representing unions in their labor relations with employers and members. Bill, we're seeing work stoppages, strikes across all different industries. The UAW's front and center right now, but we just resolved part of one affecting Hollywood. And we've got health care ones in the offing. Is this a new paradigm in terms of labor in their relations with the companies? Absolutely. I think what's happening here is an entire generation, the younger generations rising up very angry because they found out during COVID, they're the essential workers. And yet they're being told you have to work for $18 an hour to build cars. So this has happened not just for the UAW, but you've pointed out.

There's Amazon, there's Starbucks, there's UPS. We now have health care workers who might go out on strike. We have the culinary workers in Vegas who may go out and strike. We have the Hollywood strike that's been half resolved. These are younger workers who are saying, look, there's tremendous corporate greed out there that is denying us the American dream. We have the right if we work hard, you know, to own a home, have a car, go on vacation, send our kids to college. And companies like the automakers, they make, the industry makes $20 to $30 billion a year every year since 2015.

They have CEOs who make $20 to $30 million a year, and they poor mouth $18 an hour younger workers saying, sorry, we can't afford to pay you more. That doesn't cut it with the younger generation. This is just the latest iteration. I think it's going to keep on spreading. We're in a very, what for me is a very exciting historical moment. Something has happened that hasn't happened, you know, in the four decades I've been a labor lawyer. Well, speaking of four decades, even more in terms of labor law bill, union membership as a percentage of the working population in this country has been on a very steady decline

over the course of the last 50, 60, 70 years in America. There's probably a reason why for that. And there's probably a reason why now it's starting to boil over. But is this enough, in essence, to change that trend? Do you think that there will be more union participation because of this? Or are we just going to put a blip in the road and continue that downturn after these current issues get resolved? That's the giant question. None of us truly know the answer.

From my point of view, I think this is just beginning. I think there's a new wave here. And it really is about generations that are being denied. what they feel is a fair wage and a decent living. When you tell young people that you can't own a home and you can't send your kids to college, you can't have a decent pension, we can't even give you decent health care, I don't think that's somehow going to just go away. We can take Lordstown, Ohio is the great example.

You know, they had a giant GM plant there. It was going to shut down. Trump came down and said, we're going to keep it open. We're going to keep building trucks. Don't worry. I'll take care of this. A year later, they shut the plant. plant down. Now a little piece of it is making electric contractors for farmers, and that's

steadily growing. And a couple miles down the road, a giant new electrical battery plant that UAW has organized, and there are going to be young workers there making a very decent living. So I think because the UAW is organized them, I think we are seeing the beginning of something very big. Although, Bill, I wonder if the focus is a little myopic, because looming in the background is the transition to EVs where China, especially BYD, is doing them a lot more nimbly at lower cost. If they ever come into the U.S. market, and they will try, they'll hold our leverage over their market as a bargaining chip. I don't know how the big three could ever compete, even with Tesla, right? And Tesla can pay its workers less because it can offer stock options.

Who wants stock options at GM? Let's flip that on its head. Let's assume for sake of discussion that no political party is going to commit suicide by not keeping the Chinese cars out. I don't think that's a real threat. But what if the Chinese, Bill, what if the Chinese come to us and say, then GM can't sell into our market? That would, that would devastate GM. I think that'll leave GM with Latin America, Africa, India, Asia, Southeast Asia. Will we work that out with China? We may or may not, but I don't think we're going to see our car industry destroyed by the Chinese car industry. I think to the contrary, what we're seeing happen with Tesla is what it's really about. Elon Musk just ate the lunch of

unfortunately, the big three, he came out to, of all places, Fremont, California, buys an old used General Motors plant, retools it, and now that plant makes more electrical vehicles than any other plant in America. And before he was there and was GM, there were 10,000 workers there. Today, there are 10,000 workers. They're non-union, as you point out. So what happens here? Well, if the automakers have good sense, they give a good contract to the UAW, they settle this

the way UPS did, a win-win situation. And that's what UAW needs to take to the Tesla workers and say, see, this is what happens if your union. So if the automakers are really smart, they're really going to give the union a good contract to compete effectively with Tesla. Interesting. Bill Sokol, thank you very much.

We appreciate the thoughts there. Thank you. Pleasure to be with you. Take care. The chat of the times. Absolutely, that was great. By the way, my first college internship was at that new United Motors Manufacturing.

facility that is now currently the Tesla. And it was a joint venture, by the way, between GM and Toyota. Wow. Macon Prism. GM and Toyota. And look what's happening. I remember. I used to work there. Yeah, exactly. CNBC's 13th annual Delivering Alpha Investor Summit is underway right now in New York City. We're going to get a live update on some of the key highlights thus far next. As we go to break, we're also calling all money managers. Don't miss our financial advisor summit coming up on October 12. We'll convene top market experts and economists to discuss what advisors can do to position their clients for You know, I know a nice lady who's moderating the opening segment of this. Oh, yeah?

I'm just going to say, you know, if you want to catch it, scan that QR code to register or visit cnbc events.com slash f a power lunch will be right back. That's quite the team. CNBC's delivering alpha is taking place right now in New York City, right here today. Some of the biggest names in business are sharing their investing insights. And joining us now is Leslie Picker live from that DA conference just across the river in New York City. Leslie, what can you tell us about thematically what the big ideas are? Yeah, so AI, no surprise, Dom, very much in focus. Altimiter is Brad Gersoner currently on the stage sharing some interesting comments about AI.

Obviously, he's a big tech investor, and he said, quote, open AI at $90 billion. He's referring to the recent reported valuation there may be ahead of itself, but it doesn't mean that AI itself isn't going to be profound. I've lived through a few bubbles. We like to describe these moments as super cycles, right? The internet, mobile, cloud computing, and now AI. They're the start of these things that are going to be profoundly impactful in our lives. But at those moments, you can also have over-hype and over-priced.

And so as an investor or a builder, you have to get comfortable with two simultaneous but competing truths. On the one hand, we probably overestimate in the very short term, which leads to price inflation, the impact that these things will have. But much like the Internet 98 and 99, where there was overpricing in the short run, we dramatically underestimated the impact it was going to have over the preceding decade. Gersner is currently talking about the tech sell-off last year and how to move forward from that. So we'll bring you the highlights as they come. And if you're looking for even more tech investing content, later this afternoon, I'll be sitting down with SoftBanks, Lydia Jet, in about an hour or so for a fireside chat, guys.

All right, great stuff, Leslie, Leslie Picker. Thank you so much for bringing that to us. Leslie Picker, as the day continues over at delivering Alpha. And now that the summer driving season is over, the energy markets can focus on the winter heating season. 59 degrees here today feels like fall Pippa Stevens joins us with more. The next week is October. Yes. Hard to believe, by the way.

I know. I know it's almost Christmas. So that means that the winter heating season is going to start. And so Nat gas prices are creeping back up towards that $3 per minute BTU level. They are a lot significantly below where they were last year. However, there is not a whole lot of relief for consumers coming. So according to the National Energy Assistance Directors Association, they said that if you heat with Nat Gas, if your bill last year was $790 around there, this year will be $730.

So only a saving of about $60. By the way, that $790 is not an average, is it? I mean, is that what... Yeah, that is an average across the country. For the winter. For the winter season, for the season, right? Oh, no, no, no, for the entire season. I mean, still, it's a big figure.

That's like keeping your house at 90 degrees. So we're talking from October to April, but the reason why we're not going to see this huge relief. I mean, a lot depends still here on weather. Of course, it always comes back to weather. But it's because utilities want to protect consumers. And so they don't pass along the higher costs all at once. Remember last year, NAC gas was above $10. That's right.

And so we're still working through those higher bills because they're not allowed to just dump that on consumers all once. They're like, oh, your rate has to go up 5x, but we're just going to raise 18% a year for 12 years or something. Regulated market. Right. Exactly. So we're still working through that. And then if you heat with heating oil, that is a much smaller portion of Americans. But there, you know, you're probably going to see your cost go up about 8%.

Because, once again, that is the middle distillate where we are seeing some supplies. shortages. Anything to add about oil, which just remains, didn't you say we touched another high earlier today before we did we pulled back someone? Back to, I want to say August of 2022. Right. I mean, it's really overbought at this point, so I don't think it's surprising. We've seen so much momentum recently and, you know, nothing fundamentally has changed all that much and say, call it the last month. I mean, we are seeing, as we talked about yesterday, the cushioning inventory levels drop. But I just think there's a lot. There's a lot of money chasing it now. And so I think it's natural that we'd see a little bit of a pullback. But, you know, we still are close to 100.

the best quarter since last year since Q1 of 2022. And of course, that was when Russia invaded Ukraine. And we saw that spike to above 130. It's a big wealth transfer, basically, because you're taking it from speculators. They're getting it. And they're taking out of the pockets of consumers who now have less buying power, right, for the holiday season because of higher fuel prices. You got to go buy the ETF. But you don't want to do so when it's, what are like a 92 RSI or something. Unless you're hedging, I guess, is the best way to put it. There you go, right. All right. Pippa Stevens, thank you very much. All right. Well, let's get over to Simomoni now for a CNBC News out of the high John, good afternoon. Here's the news update at this hour. Fast food workers in California

are getting a raise. Democratic Governor Gavin Newsom just signed a new law, guaranteeing at least $20 an hour when it takes effect April 1st. According to the University of California, it will be among the highest minimum wages in America. The Pentagon has awarded SpaceX the first contract for the Star Shield Network the company is developing. It's a military-specific version of the Starlink satellite internet system, a spokesperson for the U.S. Space service confirming SpaceX was given a one-year contract earlier this month. And a 16-year-old boy arrested today for deliberately cutting down an iconic British tree. Authorities say the tree at Sycamore Gap, which you might recognize from the

1991 Kevin Costner hit film Robin Hood Prince of Thieves, was destroyed overnight. It has been a prominent feature along the historic Hadrian's Wall in Northern England for the past about 200 years. Dom and Kelly? All right. Thank you very much, Simomodi, for that news update. ahead on Power Lunch. Time for the next stop on our Powerhouse Road Trip. Yes, there is the RV. Yesterday we got the lowdown on the Dallas Market. Today, we're heading out to the desert. Albuquerque, New Mexico. We'll get a live report from the scene of Breaking Bad and Power Lunch returns after this break.

Welcome back to Power Lunch. It's day four now of our Powerhouse Road Trip, where we get an in-depth look at what's happening in different housing markets across the country, including just how far a million-dollar budget. it now goes. Yesterday we were in Dallas, Texas. Today, we're heading out to Albuquerque, New Mexico. It's number 62 on the top 100 metro areas by size. Prices are up more than 6% from last year, and just 41% of houses are selling above the list price. Here to tell us more is Tracy Venturi. She's owner of the Venturity Realty Group of Real Broker. Tracy, welcome to the show. Hey, thanks so much, Kelly. Happy to be here. You look like you've got the podcast set up there. I don't know. Am I right? Yep.

For sure. Multimedia. A lot of these realtors are very multimedia. We had a YouTube showing yesterday. So tell me about Albuquerque and kind of what's happening, especially the way that mortgage rates have been and with home prices where they are lately. Sure. So it's actually still a seller's market here. And unlike yesterday in Dallas, where he said it was a buyer's market, we're a seller's market. Home supply is low. Demand is still there, not as great as it used to be, but we still have plenty of buyers for. what is on the market. It's, you know, buyers are having a hard time with interest rates and some of them are on the sidelines. Buyers are having a hard time with interest rates, somewhere on the sidelines. We heard yesterday in Dallas some more creative efforts to try and make those homes affordable, maybe bringing price down a little bit. There were some other types of things

like mortgage buy-ins. Are you guys seeing any of that? We're not seeing the types of things that were mentioned on yesterday's show. What we are seeing is builders, perhaps, perhaps in new construction. They've changed their floor plans to be a little bit smaller, so maybe more affordable. They're offering more incentives on new construction. The buyers are still being fairly picky on what they want in a home. They really want move in and sellers really want to not give concessions because we're still in a seller's market here. Real estate, of course, we always talk about being local, Tracy. If you look at what's driving the demand dynamic, supply dynamic in Albuquerque specifically? Is it something economic? Is it something

business related, workplace related, socioeconomic related, cost of living related, lifestyle related? What's driving it? Well, New Mexico's beautiful for sure. We call it the land of enchantment for a reason. You know, we have great economic development here for sure, some great employers and bringing a lot of great businesses in. I think a lot of our home sales are people who are in New Mexico. You know, they've been here and they're moving around or first-time home buyers and things like that. So a lot of your people, the top metro's people come to Albuquerque from are Los Angeles, San Francisco, Seattle, Austin, and Al Paso. And when you show us this million dollar house, I think we'll understand why. And I thought it was interesting. New Mexico's a non-disclosure state.

So the sales price is not public. We're just going to guess. made about a million dollars, right? Tell us about this listing. Sure. This is a really special property. You can see it's got great southwest touches. It's unique because it's about 20 minutes to the international airport, but it's in what we call the village of Corrales, which is adjoining Albuquerque. So this property's on two and a half acres with a pond, views to the Sandia Mountains, very near the Rio Grande River, and a lot of custom features that you would see in a southwest house here. like the vigas, those wood beams in the ceiling and hand-trowled walls, just a really great property, but we're all yet right here in the city.

Tracy, where are you seeing the most influx of people from out of the state coming into from? Is it a place like on the coast in California in Oregon, Washington State, or is it out from the east coast in New York? Is it from the southwest? Where are people coming there from? We have a variety. We have a really active Air Force base here. So a lot of the people that are coming here are people who have been on this base before and loved New Mexico and come back. But otherwise, we have a lot from the New York, Metro, New Jersey area.

And then the West Coast, California is probably one of the prime and some from Phoenix. All right, Tracy. Thanks so much for joining us today to give us a peek at just how far your money can go in Albuquerque. We really appreciate it. Absolutely. And tomorrow, speaking of areas with big military, presence. We wrap up our road trip with San Jose. Wait, am I? No, I'm thinking of San Diego. You are. San Jose. San Jose, I mean, there's some military around the Bay Area, but it's not a huge one.

Yeah, all right. Well, we'll find out a whole lot more when the RV heads west tomorrow as our powerhouse road trip continues. All right, as we had out to break, CNBC is celebrating Hispanic heritage, sharing the stories of influential business leaders. Here is Mario Carval, chief strategy officer at Ave Point. It's really important to know that advantages are not always going to be given to you. You need to create your own, find ways to stand out in the room. I often still feel like a minority in the conversation, but it's important that you also rely on mentorship. Surrounding yourself with people that really help you reflect on what you're doing is critical.

And in executive leadership for Hispanic Americans, it is important. important to have that opportunity to reflect. Open AI, the startup behind ChatGPT, is reportedly looking to raise new funds at an $80 to $90 billion valuation. That's roughly triple its level from just a few months ago, a sign of just how much artificial intelligence is boosting the private market overall. So Deirdre-Drabosa digs into that for today's tech check. The numbers are just staggering. And I would dare say, some would say, bubble-licious at this point. I'm going to tell you exactly how staggering they are, but let me first say that startups, especially the buzzy ones, they do often get higher multiples in the private

markets, but there are huge risks and trade-offs, especially now with Treasury yields offering an attractive and much safer place to get a return. And the valuation, it may tell us that this disconnect in public and private markets, it's getting wider, not narrowing as some believed it should. Now, Big Tech has been hit by rising yields, and Bidia has lost 13 percent of its value, Amazon and Apple, 10% each. The magnificent seven that led markets higher this year, they're now the weak spots. But a $90 billion valuation for Open AI would make it many, many times more expensive than any of them on a valuation to sales multiple. Now, if Open AI brings in a billion dollars in revenue this year, investors, they would be paying $90 for each dollar of revenue generated.

That makes Open AI more expensive by this metric than even Invidia, whose valuation of sales clocks in at 19 times. Even Microsoft, which owns 49% of Open AI, is that a mere 10 times. So for Open AI to justify that lofty multiple, a lot has to go, right? Certainly, it's putting out some of the most interesting generative AI applications, but monetizing it will be a different proposition. And that has been difficult for even the biggest tech companies. Guys, I know Leslie Picker was just on talking about Brad Gersner's panel at delivering Alpha. And even he, he's someone who invests in tech companies,

thinks that this potentially $90 billion valuation seems a little rich. And certainly, when we put it in this kind of context, you can see why. Although, you said a billion in sales, right? I mean, that's pretty impressive for a company that we'd never heard of six months ago. Derrick, a question for you, as I understand it, Open AI can now browse the internet, so it's not just pulling from its pre-2020 database. Do you know how that works because it would seem to raise a lot of problems with intellectual property and so forth? That's a great question, right?

because this has been the debate between open and closed models. If it can just prowl the internet, that could raise some privacy, some security concerns. But it does update it against Google, right? That's what Google's Bard was doing. So it keeps adding on these features. One of them is bringing it more up today. I believe it's September of 2023. So you get more important results.

But it's also been doing some really interesting, innovative things just released in the last week. Like it's enterprise and the paid model can now respond to verbal and image search. And it does lead us back to this question. You know, is this ultimately going to be a replacement for Google search? I don't know about that, but it's certainly releasing more features faster than a Google that probably has this technology as well. So it opens up this big debate as well. You know, who's in the race for generative AI, who's leading? Yeah.

And what kinds of models? The mega models are the more tailored, you know, not quite so fancy ones maybe different people use. Deirdre, for now, thank you very much. We appreciate it. Deirda Bosa with the latest. Still to come, properties, parts, and produce. We will get you the trades on Simon Property, Packer, and Kroger in a fresh three-stock lunch. We're back in two.

Welcome back. More breaking news on the UAW strike. Let's get straight to Phil O'Bow. Phil, what's happening? Kelly, a source with the UAW says that the union has submitted a counterproposal to Stalantis. Now, we don't know details of that counterproposal, but this is where we are in these negotiations, where it's proposal, several days to go back and forth on that, and now there's a counter proposal from Stalantis. Two issues are front and center separate from the wage increase or potential wage increase.

One, and these are with Stalantis. One is the fate of the plant that is just outside of Rockford, Illinois, final assembly plant that's been idled since February. And second of all, what happens with a number of parts and distribution centers around the country that Stalantis is considering closing so that they can create larger distribution. distribution centers. What happens with the people who are at those plants? We talked to Sean Fain about that when we are outside one of those plants just outside of Detroit last week. And he said, look, it's not fair to these people. This is their job at this location. They don't want to be moved to another

location where they might open up a larger distribution center. So those are two separate issues within any proposal and counterproposalysis and the UAW. And again, the UAW has submitted a counterproposal to Stalantis. We've reached out to Stalantas for a comment. We'll let you know if we hear anything. All right. Phila Bo, thank you very much for the update there. Time now for today's three stock launch. We are looking at stocks in sectors that are at or all near, oversold levels based upon their RSI or a momentum indicator. It's relative strength index. First up is Simon Property Group. It falls under the real estate sector, which is down about 8% overall this month. So here with our trades is David Traynor, the CEO of New Constructs, Real Estate.

estate's been a hot topic these days given interest rates. So what about commercial side of things and Simon Property? Yeah, Simon Properties is one of those great companies, but not so good as stock. I think they've got one of the best portfolios in the business of all the malls out there. They're usually the owner of the ones that are still doing really well. But the valuation has gotten ahead of itself. We think, just given the outlook in general, this stock is a little too expensive. We liked it a while ago. I even had it in my own personal portfolio, but I think it's time to let this one go and look for some bigger fish. I can't let it go, David, for a second. One of the rules of thumb of investing, even is supposed to be you just

own the best of the breed and kind of close your eyes and you'll do fine. And you're right, Simon Property, best of breed. At some point, if you close your eyes, five, ten years, you think it'll outperform or why does it just keep not shining? I think that, I think that The economics of the real estate sector are probably a little bit less attractive now than they have been in the past. And I think it's going to be that way in the future. And so I don't know that we live anymore in a day where we can close our eyes and invest in any way. Because valuations run up to extreme levels. And I think it's smart for people to take profits when valuations get way too high.

And we just live in a faster world, faster-paced world. We're holding periods are way, way down. and I think the days of kind of buy it and forget are gone. I think we've got to keep doing our homework on a more regular basis. Interesting. Okay, maybe that's a good segue. Maybe not for PACR in the industrial sector. It's had some nice gains this year up more than 30%.

What would you do with this name? We like this name. This is actually on our focus list long. We think it's a cyclical sector, but it's trading at a really steep discount to its current profits. It's trading as if its profits will permanently decline by 30%. So, you know, you've got the opposite. of what you have with the Simon Property Group. There's a ton of growth priced in assignment

property with Picard or Packer. You've got negative growth priced in. In fact, permanent profit decline. And the fundamentals of this business are strong. Profits have grown over long periods of time. We've not seen a 30% decline in profits in Packers' financials. So we think this risk reward here is much more attractive than Simon Property Group, and we like it. All right. And last up here is Kroger, which falls under Consumer Staples. David what would you do with Kroger here as the consumer is under pressure, but they still have to buy groceries? That's right.

You know, that's one of the benefits of being in the grocery business. I think Kroger's done a good job of expanding the wallet, putting in gas stations. They've been behind on the digital front and things, especially compared to an Amazon and others, but they still have some amazing real estate, and they are catching up on the digital side. They've still got great pricing power, volume discount. They're one of the most successful grocers of all time in the United States. They've been able to grow successfully.

And again, and this stock is trading at a super discount too. It's trading as if its current profits will decline by 40% permanently. So we like the risk reward here. We think Proger is a good addition to people's portfolios. All right. David Traynor with the three stock lunch. Thank you very much. We'll see you soon.

Thank you. Two out of three ain't bad. Quick programming note, Robin Hood's co-founder and CEO Vlad Tenev will join us live tomorrow. We'll ask him about retail. investor credit cards and so much more at 2.30 p.m. Eastern Time. We'll be right back. Welcome back, everybody. Just three minutes left. Let's get you to a couple more stories you need to know about. Starting with Delta CEO Ed Bastion saying the airline went too far and that previously announced overhaul the loyalty program, which really scaled things back in the coming weeks. And customer backlash

has already been fierce. The changes were originally made to make it harder to reach elite flyer status. As many of those programs, Dom, are becoming oversubscribed. to an airport lounge lately. I'm not an airport lounge frequenter, but I will say this, they are packed. So it used to be that these were elite lounges. And now there's a lot of people in these lounges. You can't find a seat sometimes. I wish they could just do the CAPEX to offer sub-elite. Just give more people that offer. But what's curious about this is, you know, when the story first broke, they said that whoever did this first was going to be a trend setter. But you wonder how many of these airlines are going to follow suit, having seen well. Having seen

what just happened with Delta. Absolutely. All right. Well, there will soon be no pandas in any U.S. zoo. China's taking all of them back. The Chinese government has the rights to all pandas in captivity anywhere in the world. The National Zoo in Washington, D.C. has been paying about a million dollars a year for these pandas. Now, China is requesting to have them back, as well as the pandas at zoos in Atlanta and San Diego

and Memphis as well. I think when I first saw this story, I didn't realize that there. was this national ownership of these animals across the world. This was announced a while ago, but the fact that it's now happening will really make it front and center for people, especially next summer, who show up and there's no panda to see. It's one of the few forms of soft power that China really has, and they're showing us they're willing to wield it. I would just say, I think pandas are great. I would love to see pandas in zoos. Yeah, we can be pro panda, but they recognize that bias and they're using it to their advantage. The Taylor Swift business tie-ins also keep coming.

By now, everyone knows she was at the Kansas City Chiefs game watching. I don't, do we know if he's a new boyfriend? We cannot confirm. All we know is she was watching Travis Kelsey. They have a relationship. We don't know what it is. They're just taking things slow. Pictures were posted to social media.

One eagle-eyed fan accountant noticed food on a plate nearby and posted that she was eating a piece of chicken with ketchup and seemingly ranch. Well, Dom, what has happened, please? Heinz, right? Capitalizing on this opportunity in a big way. posting on its Instagram account, limited edition bottles of ketchup and seemingly ranch dressing. Heinz has already had the product for this several years that sold this exact same thing, but called it cranch.

Now it's giving it a new name. I can't wait to find out what she's eaten when she watches the Chiefs and the Jets game. Can I tell you? No, no, no, no. She may be there on Sunday night NFL on NBC. Do you know how bad it is for New York media? The New York Post had her on the front because they have nothing else to talk about. The biggest thing in sports is the fact that she's coming.

to watch this weekend. A table will be at the Jets Navy. Power lunch starts right now.