Power Lunch - When, Not If? 01/03/24

Episode Date: January 3, 2024

Federal Reserve officials concluded that interest rate cuts are likely in 2024, though they appeared to provide little in the way of when that might occur, according to minutes from the December meeting released today. We’ll explore what that means for markets and your money.Plus, the auto market ended 2023 with the pedal to the metal, posting its strongest sales year since 2019. Are consumer smore flush with cash, or is this just a post-pandemic pickup for auto buying? 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 everybody to Power Lunch alongside Kelly Evans. I'm Tyler Matheson. Glad you could join us. Stocks continuing to sell off to start the new year. A down 174 points on the Dow right now. Take a look at the NASDAQ. It's 8 tenths percent decline continues the stretch we started off with yesterday, which was the worst first day for the NASDAQ composite since 2016. We did see more upward pressure on rates earlier. We backed off. But let's get to Steve Leesman for the Fed Minute, shall we? Yes, indeed.

Kelly, thanks. And I'll cut right to the chase on these December. or minutes and tell you that to the extent there was a discussion about cutting rates this year. It was not a very robust, in-depth or resolute or confident discussion. Fed officials saying that they did see the current policy rate at or near the peak in this rate hike cycle. The projections showed that most agreed a lower target range would be appropriate this year, as in 2024. But there was a high level of uncertainty around those rate projections so uncertain,

In fact, it was possible the economy could require further rate increases, the minute said, or keeping the rate unchanged longer than expected. They did agree that it was appropriate to keep policy restrictive, quote, for some time. Now, a number of participants, this is a place where they did kind of hint at rate cuts, highlighted that they were downside risk from keeping the policy rate too restrictive for too long. And some said the Fed should begin thinking about, thinking about when it might be. communicate the possibility of winding down balance sheet runoff, but that seemed to be far into the future and very, very obscure in terms of a comment. Now, more importantly on the issue of

inflation, the risk of inflation were seen moving towards greater balance, and they said it was clear progress had been made on inflation, but they underscored. They needed more evidence to be confident that inflation was moving back towards the 2% target. There was some optimism about it. It's surrounding, for example, labor supply and demand coming back into balance. and housing inflation coming down. Labor market remained tight, but coming into better balance. Participants saw momentum of the economy as stronger, perhaps, than currently assessed. Now, there was a bit of an upside and downside to the inflation discussion.

I'll go through it, and to give you one important point here, many remarked that the easing of financial conditions could make it more difficult for the Fed to reach its goal, noting that yields had declined pretty substantially in the lead up to that December, meeting on the downside part, there were lagged effects of policies and potential weakening of household balance. Just one more thing, the staff forecast, which is pretty important in terms of the Fed making their decisions, also saw continued upside risk to inflation. Kelly, Tyler. All right, Steve, thank you very much. Stay with us as we're going to return to you in just a moment. But meantime, our next guest says rate cuts seem like a matter of when, not if. But it might take

a downturn to get to that when point. So he bought the sectors that he thinks are best. for safety along with him today. Joining us is Ken Stern, Lido Advisors, President. Ken, welcome. Good to have you with us. Do you still feel, based on what you just heard, Steve, say, that rate cuts are a matter of when, not weather? 100%. I absolutely think that there has to be some rate cuts.

What I worry about is what's going to happen, because the market, as we all know, is a leading indicator. And what has been hoping and driving this market is the fact that employment has been so strong, and we know that. And employment being strong has saved, I think, a lot of pain. The market rallied so high last year while rates were going higher. If we see rates starting to come down too fast, I think the market's going to spook. And it would be coming down too fast because the market would be anticipating that the economy is in some distress, sputtering.

That's exactly right. If we start seeing this is the time to stress test. This is the time to take a step back and say, we've got a little. lot going on in the world today. We have a lot going on with the consumer. We're starting to see consumer debt, you know, coming up a little bit. We're starting to see savings rates go down. I think this is the time that we do a little bit of a stress test and a little bit of election protection here. How do you do it? What do you do? So instead of betting how quickly rates are going to go down, let's just say that we think the long term is positive. And with that in mind,

let's do a little hedge. Let's do a little downside protection. Let's say, Let's do something that's going to protect if the overall market goes down. Days like today where we're seeing volatility, why are we afraid of that? It's going to happen. Why don't we embrace that? Have the cash available. And I do think, and I think this is similar to your last guest, Kelly, I think this is a balance. Could the magnificent seven still rise?

Yeah. But why not go into more interest rate sensitive health care names, financial names? Why can't we start broadening back the portfolio out? You can. Some people are just afraid to because they don't want to underperform again or they want to stick with tech. Let me just circle back in a moment. If I can just go back to Steve Leasman on the minute, Steve, the market initially had a knee-jerk reaction to the downside. We're stabilizing somewhat here. How much should we read into this idea that maybe you can put it better than me?

They weren't exactly gung whole in the discussion, at least, about cuts. It was more in the projections. I want to go a little off topic here. This all reminds me a little bit of Bruce Springsteen line where it says take it right at the light, go straight into the night and then boy, you're on your own. To the extent the market is forecasting six rate cuts next year, or this year, sorry, it's on its own. These minutes do not back that up, would be my personal opinion here. I think the minutes are backing up this idea that there's likely to be rate cuts this year. Those are in the projections.

but the extent to which the market has that certainty, and I did see it, by the way, in the probabilities in the last couple minutes, back off just a touch. It's still a 70% probability of a rate cut coming in March. But that is something the market has to own on its own and cannot really point to the Fed to come to that conclusion. And it's okay. It's not wrong if Ken, for example, wants to advise his clients,

hey, the Fed is going to cut rates in March and do so six times because my inflation forecast is X. I don't think you can go back to the text to support that conclusion. Yeah. So the words do seem a little bit more like they're holding back. They are indicating that sort of the peak of this cycle, Steve, has been reached, but they're not really committing at least verbally. No, and like I said, Tyler, it's okay to have that conclusion. And that could be the right conclusion.

There's no, the Fed doesn't have any lock on getting forecast right. And God knows it may actually have a lock on getting them wrong sometimes. But that said, if you do this, you do this on your own recognizance, essentially. You go out there and you say, okay, I have this inflation forecast that comes down to the point. And this is the key point here, that it provides the Fed, the confidence that it says in this document it needs in order to cut rates. And that's going to happen between now and the March 20th meeting. So, Ken, you mentioned a couple of sectors that you think are well positioned for defense. Let's go back through those a little more slowly.

And obviously, there are big sectors. Finance is a big sector. That's right. There are insurance companies in there. There are big banks. There are medium-sized banks. Health care is vast. That's right.

So where within those sectors? And also what Steve said is. super important. I don't think that the market necessarily needs to decide. I think rates are going down in March. I don't. And I think the things are very dynamic right now. If, for example, we start to see a slight tick up of unemployment, you're going to see all of that go out the window, and you're going to see the feds going to want to save this into that soft landing that everybody's hoping for. And we have an election year. And we have political risk. And we have oil prices that are in flux right now with what's happening geopolitically.

So I think the idea is to plan for the volatility, to have some defense in place, to have some hedges in place, and then you're right. I think that big pharma didn't do so well last year. It looks pretty, from an absolute standpoint, it looks promising now. So this is an entry point for that.

Same with regional banks. Same with brokerage firms. These types of sectors and industries, regardless of what happens with the feds because it's a probability game at this point. Do I think that rates are going higher? No, I really don't. Do I think rates stay the same? Maybe.

Do I think rates are lower 12 months from now? Yes. Based on those two probabilities, I can overweight those sectors with a little bit more confidence, the House confidence, if you will. If you had to guess, would you guess that the rate cuts will be backloaded this year rather than beginning sooner. In other words, later rather than sooner. I would, but again, if you're waiting until it already happens, it already happened in the market.

The market's a leading indicator. Yes, the market's been saying this. This is right. For three months now. That's right. And we all know a broken clock is right twice every 24 hours. So I do think backing this in right now makes a lot of sense and just erring on the side of caution. So when we do have these big down-vall days, these are days to start accumulating.

Ken Stern, thank you very much. Ken Stern of Lido Advisors. We appreciate your time today. Thank you. With the yield on the 10-year note briefly back above 4% earlier, it's get a pulse check after the minutes with Rick Santelli out in Chicago. Rick, what do you make of it? Well, I'll tell you, here's what I think of it.

When the chairman walked out and began Q&A, he was pretty much seating the market for aggressively pricing in eases. He said basically, you know, guys, today's discussion was basically about easing. Now they're walking it back a bit. So what did they accomplish? In an election year, they accomplished the previous December, which was just, you know, a couple weeks ago, hitting the highest level in the Dow Jones ever on multiple occasions. They raised up the equity markets.

They built in eases. We hit $34 trillion in debt today. So obviously funding costs at higher versus lower levels is quite significant between the Fed and the Treasury, I think they did a marvelous job of kind of guidance as they walk it back now. But in the end, the markets are going to get what they want if the Fed can't get the markets to change their outlook. And a whole set of other variables coming into the equation, weakness everywhere we look. Let's look at ISM, new orders. 16th month, consecutive month under 50. All right, jolts, nearly a three-year low on job creation going back to March

of 21. Now let's look at an interesting. day of tens. It hits 4%, then it anvils off the Empire State Building and drops in tress yesterday's low yields at 391 and a half, makes a new one, and then it stabilizes on the minutes. We haven't closed above 4% in nearly four weeks the 12th of December. And when all our guests talk about markets moving down, they better really be more specific on the Fed versus the market, because the yield curve is the biggest trade for 2024. Every source I have thinks long-dated treasuries have a chance to hit 5% again, but they certainly don't feel that aggressive about two-year note yields.

Kelly, back to you. Rick, could you comment on the dollar, please? We saw a big increase yesterday, one of the strongest gains in some time. And then today it looks like it's continuing after the minutes. Yeah, no, it hit 101 on a closing basis, and it held. And I do believe that the yield curve, if it comes, to fruition that long-dated yields are going to be bucking the trend of short-dated yields. It's going to make trading the dollar index a lot more dicey because we're going to get strength

on the steepening of the yield curve. We're going to get weakness on the notion that the market may be more correct on Fed eases than many think. So if I had to make a comment, I'd say that the dollar index isn't going to get trashed, but I would be pretty confident we're going to be trading a bit under 100. Interesting. Rick, thank you. As always, we appreciate it, Rick Santelli. Coming up, the high end holding on. Luxury real estate was a bright spot in the broader housing market last year, but can that continue? We'll speak to Douglas Ellman's Noble Black about that next. Plus, the auto market starting off with some good news, December sales, the strongest since 2019. Are consumers more flush, or is this just a post-COVID pickup? We'll be right back. Welcome back, everybody. While sales in the broader real estate market plunged in 2023, the high-end market seemed to be. to hold up better than expected.

Let's hear more from Robert Frank. Hi, Robert. Taylor, good to see Manhattan home prices rising for the first time in over a year, driven largely by the high end. Median sale prices rose 5% of the fourth quarter to $1.16 million. That's according to Douglas Sullivan and Miller-Samuel. The average price for a Manhattan apartment also increased to just over $2 million. The total number of sales fell due to a lack of inventory, sales volume dropping 6% in the quarter, and 29% for the year.

But sales above $5 million, that's kind of mid-market in Manhattan. That increased in the quarter. Most of those are wealthy buyers. They pay in a lot of cash, so they're not as relying on mortgage rates. Two-thirds of apartments in Manhattan were sold for all cash. That marked an all-time record. We won nationwide, the ultra-high-end held up fairly well in 2023. There were 34 homes sold for more than $50 million.

You had five homes selling for over $100 million. Most of those were in Palm Beach, the Hamptons, Connecticut, the usual hot spots for the wealthy. The most expensive deal of the year was that $190 million sale of an Oceanfront home in Malibu that went to Jay-Z and Beyonce. It had been listed for $295 million, so they saved $100 million. Do we know if they paid all cash? I would guess they did. Because they can't. I just missed out on getting that.

You've been a dollar less. A couple dollars. Next time it comes around. Robert, stay with us. Let's get an agent's take on the state of the luxury real estate market. Noble Black is also with us. He's a real estate broker at Douglas Ellman. You've sold over $3 billion worth of property.

So you know a thing or two about this space. Let's hope. How would you describe the market right now? I think the market's strong. I mean, it's definitely a tell of different markets, right, depending on where you are in the city and what the product is. But overall, as you said, we've held up far better than we thought we would going into 23 with the rate hikes.

And we're certainly finishing it on a very strong note. Was 2023 in your sliver of the market in Manhattan a story of the fourth quarter being particularly strong compared with the others? It really was. Yeah, we started very slow. How does that? I think rates, right? I think it was rates at the beginning. We started slowing very dramatically in 22 and then into 23 that continued. There definitely was a hangover.

At some point in 23, people got tired of waiting. They had other life reasons they just had to go forward with it. So even with those high rates, they came back in some of the wealthy. that we're waiting for the market to adjust because of the high rates decided to come in. They weren't financing, but they were waiting for kind of blood in the water. So sellers started capitulating. You just had all of these things start to happen. And then finally in December, when mortgage rates started ticking down, that's when really we've seen more activity.

So in the high end, I live in the suburbs of New Jersey, okay? And in my particular town, a house comes on the market, and there are fewer and fewer of them that do. But they typically go very quickly and above asking price. when one of these high-end properties comes on the market in Manhattan, do they sell above the asking price or below it typically? So it depends on how you're defining high-end, right? So for the true high-end of Manhattan, and let's talk about maybe about 15 to 20 million,

those are not typically going above the asking price. No, there's usually still some discounts to that. But what you are seeing is for certain true trophies, maybe something downtown of the West Village that's Turinkey, those are not going above ask, but they're going at astronomical numbers, at least compared to everything else. So it's not so much that there's a bidding war driving the price higher in those instances, but they're still holding up very, very well.

The bidding wars tend to be kind of below $3 million, you know, where there's very little inventory and people are really, you know, exasperated. They've been looking for a long time. They haven't found anything. So once they see something good, they pounce. That's like the first-time buyer cohort in Manhattan, basically, Robert. Yeah.

Yeah. And what really helped the high end during 2023 was the supply of new development. And a lot of that, it seems, is kind of. kind of running out because of financing, the trouble getting financing from banks right now. There's not a lot of new development that's been started in the last year. So what will be the fuel to help 2024 if that's gone, at least for New York? Well, the pipeline's definitely running dry. So you're right, we're not going to have that.

We're running through what remains of that. There's a couple that are downtown. There's one in particular that's coming, but that's a few years away, right? So what we've had to rely on for the last few years is gone. I think as rates continue to lower, you're going to have sellers that start putting their properties on the market, right? They've been locked in great mortgage rates for however long. There's no inventory for them to go towards. So once that starts to relax and we're going to see the market unstick, but there's not that big driving force that we've seen. I think we're

going to go where we are here, kind of sideways and up a little bit. But it's going to be a better story than 23, but much continued where we were. Is there a hot building right now or a hot address in Manhattan or a couple of them? Depends on what you want to buy. You know, downtown, if somebody's looking for new development, There's one in particular that's done very well. And again, that's partly a story of a good product, and also there's not much competition for that. That's over one high line. So that's, you know, West Side.

We've done a nice few deals there, very good developer. If you're looking uptown, you know, there's one building that continues to just do astronomically well, and that's 220 Central Park South. So very little that's available. Even I've heard of that one. Everyone has, right? That's the Ken Griffin building, yeah. And you heard of 15 Central Park West before that. This is the newer version of that.

Both are great buildings. But if you're talking about popular and kind of it building and popular culture, that's getting crazy prices. One quick final question. How is it being affected a couple of years ago? The whole story was people leaving. We were just joking about Miami with this lovely scene behind us. What impact is that having, if any? Because it seems like some of these prices are still at records or activity levels are at records.

I think it's a lot of impact in the press. But the thing that's often overlooked is a lot of those people are changing their tax residency, but they're not selling their apartment. Right? So those people that are moving down, in some instances, they're still coming back up. They don't actually want to be there year round. But even if they do, they still want to have a footprint in New York. They still want to come back for their cultural reasons. They want to come back for kids, for shopping, what have you.

They're not giving up on an apartment in the city. They may just change their tax residency. Very interesting. Very interesting. Thank you very much, gentlemen. Robert. Thank you. Appreciate it.

Very much. Up next, a domino effect with billions of dollars on the line. Apple's big downgrade yesterday from Barclays trickling down now to the suppliers. We will break down the moves down the chain on Apple. Be right now. Welcome back to Power Lunch, everybody. Shares of Apple lower once again today, down 4% in the first two trading days of the year. And when Apple falls, its suppliers take a hit too.

Steve Kovac joins us now with a look at the collateral damage, Steve. Big time. And look, this is really from the playbook back in 2022 when Apple sneezes and a slew of its suppliers catches that cold. So that Barclays downgrade yesterday on Apple spurred that 4% drop in shares. And the same concerns we've been talking about forever. iPhone demand, Mac and iPad demand, and lackluster services growth all on the horizon. Down another percent or so today, kind of waffling around there, but also following many of Apple's important suppliers. Let me just rattle off a few examples here.

Han High Precision, better known as Foxcon here in the U.S. They assemble Apple devices, fell a bit yesterday and today. TSMC, that's, of course, the chipmaker for Apple devices, fell 3% yesterday and another percent today. Broadcom, they make the Wi-Fi and Bluetooth chips for Apple devices, fell nearly 3% yesterday, down another 2% or so today. Qualcomm, maybe you've heard of it. They make the modems for Apple's devices, fell almost 3% and down another 2 today.

You get the idea of what I'm going here. Now, these companies supply a lot more than just Apple, but the size of Apple means there's just a lot of revenue exposure. for all these names. Look, we're going to get earnings from Apple here in a few weeks, and it's going to be telling about Apple and all those suppliers and more than I just named, especially commentary on the March quarter, which in that downgrade yesterday from Barclays, the analysts predict, will be weaker than the street is expecting. December quarter, by the way, Apple says six, but flat sale.

I know this is a hard question and maybe a naive one, but as you look at the stock price declines of those suppliers, Are the declines commensurate with the percentage of revenue that is traceable to Apple? Or is the stock market overdoing? In some cases, yes, in some cases, no, historically there have been some suppliers where, you know, they get like 80% of their revenue from Apple so you see a bigger fall there. But my point here is it's also a signal that other consumer electronics demand is falling because a lot of those names. Because Qualcomm doesn't only do business at all. Nor does Broadcom.

You know, Qualcomm is also in every single. or just about every single Android phone, for example. So, you know, it's also a signal that if people aren't buying iPhones, they're probably not buying Samsung's and those premium phones as well. So at the same time, PC market, you know, a lot of commentary going into this year that it's going to recover, that we finally hit rock bottom. So maybe that can benefit some of those names I just rattled off. But when Apple falls, all these names fall along with them. And Apple has a high, by some reckoning, is a high PE right now. Yeah. But was Wasn't Apple within the past week, 10 days, within dollars of an all-time high?

Yeah, just December and November, they were hitting, they were at that $3 trillion market mark again. And also, like you said, yes, all-time highs. They had all-time highs last summer into the fall again. And yeah, and here we are. And here we are lamenting and once again, wringing our hands over. It just takes one downgrade to have these ripple effects throughout all these suppliers. I also wonder if we are experiencing.

financing a leadership shift, Apple has been the most important stocks to the market, arguably, size, influence, whatever for a long time, is Microsoft starting to edge in there? That is, that is, I am watching this every day tick by tick because Microsoft is, has the narrative, the AI narrative, right? They are at least on the software side, invader on the hardware side, the leader as far as what they're selling and so forth. Apple has nothing to show on AI. Everyone wants to see something.

What does Apple have cooking when it comes to this user-facing AI? They don't have anything yet. To sort of back out for a second and see, the iPhone arguably was the most important product to the world for the past 10 years, right? That's why we're talking about the supplier ecosystem, but is the most important product now generative AI in the way that it affects those chip stocks and that ecosystem? I just wonder if that's going to kind of supplant. It could be. And like so many of those chip stocks claim their AI chips and so forth, but they're not yet. I mean, Arm is trying to make a case for itself to be an AI company.

but right now that what they do is not as capable as what Nvidia or AMD can do. Look, the iPhone's not going away or going to be replaced or disrupted anytime soon. I know there's that downgrade or that commentary from DA Davidson this morning kind of saying, you know, where's the innovation and so forth? That story's been told, asked about Apple so often.

I think what you just said, though, is so interesting to me because a decade ago, Arm was exciting because it was an Apple supplier. And now they're trying to say, no, no, no, we're a Microsoft. We're a generative AI supplier. And does that kind of capture the shift and sentiment that we're seeing.

Yeah, it's hard to tell. But look, the mobile business is going nowhere. This is still the gateway, the mobile devices, still the gateway to all these technologies we're talking about. The question becomes, can Apple capitalize on that? We're going to have to wait months. If they have something, it's not going to come out until June or be announced until June.

In terms of a large language. In terms of LLM or whatever kind of thing they're cooking up, we're getting these whispers that Apple's doing something there. But for now, Apple is carrying it all away, even above Google, above anyone else. And that's largely because of their partnership with Open AI. Microsoft, yeah. All right, Steve. Thank you. Thanks, guys.

Appreciate it. Let's get to Courtney Reagan now for a CNBC News Update. Courtney? Hi, Kelly. Will court officials say names of people associated in some way with late sex offender Jeffrey Epstein will be made public as soon as today? They're part of documents from a settled lawsuit involving Epstein, who took his own life in 2019, following his arrest on federal child sex trafficking,

charges. Some of the names and documents have already been disclosed in the case. Minor victims listed in the documents will not be identified. A New Jersey religious leader was critically wounded in a shooting outside of his mosque today. Newark, New Jersey police say a man in all black shot the mosque's imam early this morning and then took off on foot. The motive of the attack, not clear yet, but the state's attorney general issued a statement this afternoon saying there is no evidence the shooting was motivated by bias. The U.S. joined 11 other countries today to condemn attacks in the Red Sea carried out by the Iran-backed Houthi rebels and Yemen. The militant group has said it will continue to target any vessels in the area they believe support Israel,

but the joint statement issue today warns the Houthis the attacks are illegal and the group will feel the consequences. Kelly, back over to you. A pretty significant show of force there. Courtney, thanks. Still to come, peaks and valleys in the tech hub. Over the last few years, we've seen startups and big money flowing out of Silicon Valley to other parts of the country. But is the AI boom bringing it back home? We'll talk about that next. Before we go to break, let's also get a quick power check.

On the plus side today is Marathon Petroleum. Mizuho out with its sector outlook saying they're positive on the name. Those shares are up about 5%. On the downside, N-phase, along with the rest of the solar space, end phase shutting more than 5%. That's your power check. Power lunch. We'll be right back. Welcome back. Where will the next trillion dollar company be founded?

Investors are increasingly looking outside Silicon Valley to cities across the U.S. with cheaper cost of living. A recent journal article highlighted the growth of new businesses in Atlanta, Georgia, and census data shows them outpacing the rest of the country, along with places like Mobile, Alabama, and New Orleans. Here to discuss in today's tech check is Duncan Davidson. He's co-founder and general partner at Bullpen Capital. It's good to see you, Duncan. Do you experience this where you are? Oh, I think that story got it exactly wrong. It might have been okay a couple years ago, but now, no, no, no. Everything's coming back to Silicon Valley because of AI as you started the whole session. Okay, but wait a minute. Let me just come to their defense for just a moment. Can both things be true? In other words, are we seeing a real boom in startup activity elsewhere across the country and also at the same time seeing AI kind of revitalizing the original Silicon Valley?

Well, you must understand. I love startup culture and I've spent time around the whole world. trying to generate startups in various communities. It's a very different question whether you can diffuse startups and whether Silicon Valley remains the center. I agree. We've seen other places like Nashville seems to be a nice spot to consider starting, but none of these places can challenge the center. And the idea that a trillion-dollar company is going to emerge out of Atlanta, I just don't

see it. What about Seattle? Not anymore. Now, Seattle's got hold because Microsoft, your last segment is spot on. Microsoft may be the new leader because it's so. well-positioned AI as opposed to Apple, but I don't think Seattle's a place you're going to see it. Right now, all this main activity is happening down here. Why do you not think Seattle is going to be a place that is going to see that kind of development?

They've got Amazon, biggest cloud company on Earth. They've got Microsoft, maybe number two in cloud, and they're both going to play very heavily in AI. We have had companies up in Seattle. They have a hard time in Seattle. They've actually, one of them moved out to Nashville. It's just too hard up there. But the center of AI work, OpenAI, which Microsoft is so close to, is down in the San Francisco area. And that's why.

And this is how it always happens. Whenever a new factor production comes in, like PCs or the Internet, everything centers where the core of it is. Because let me ask you, have you read Elon Bus, the book about Elon Musk, it just came out, fantastic book by Walter Isaacson, hardcore. He is an advocate. You've got to come together. You've got to not be remote, but in a building, and you've got to work hardcore. Yes, he's spot on about that. And that's happening in the AI world down here, not in the diffused world out there. Let me ask it to you this way, Duncan, because one other effect we saw accelerate during the pandemic for sure was just a boom in startups, period. Now, maybe you could say, we don't know

if all those are going to pan out yet. But the mix of software and remote working is, and maybe you could throw AI into the mix, I mean, maybe the software, you know, is that inherently causing us to have more creative destruction, more startups? So yes, Atlanta gets more. Yes, Mobile, Alabama gets more. Yes, the Acela corridor gets more, you name it. There's kind of just more of this activity in general. And maybe the business models are easier to scale these days because you can take eight or 10 people and all of a sudden have a really interesting startup. You don't necessarily have to be in just one part of the country. You can find great startups. over the place. I agree with that. Our own portfolio used to be about 50% San Francisco area, and then it diffused during the COVID and the lockdowns to be broader outside and not in the center, but it's coming back. I think what you want to think about is that we just came through an historic bubble. It may have been caused by the Fed keeping interest rates too low, too long, and certainly the lockdowns led to remote work. But an historic bubble always makes people think it can happen everywhere. But when the bubble's over, people re-center, and that's what we're seeing

right now. We're coming back home again. I assume you will say it was ever thus, but California has serious fiscal problems right now and major deficits, and their taxes are very, very high, and they're talking now, according to a report we had on yesterday, of instituting potentially a wealth tax. Would that in any way dampen the supremacy of San Francisco in the Valley in what we've been talking about? There is a point at which we're going to kill the golden goose, and you may be right. We may be getting this close to it because a lot of people I know at Net Worth are bailing out to lower tax states. But I don't think people really believe that the current administration in California really destroy the thing. They might, but they don't really believe it's going to happen.

How would you describe, Duncan, the general state of activity in San Francisco and the vibe out there there and Silicon Valley and kind of in the whole region these days? Obviously, it reached a nadir during COVID, but it sounds like you're saying, you know, it's coming back. somewhat. San Francisco's a mess. I mean, the fact Gavin could clean it up for that big summit in a couple of days and let it go back downhill again, the priorities these people have are completely wrong. And so parts of the city are still a war zone or nobody wants to go there. But there are parts that are very healthy. And when I say San Francisco, I'm really saying the whole Bay Area. This is not just the city phenomenon all the way down the peninsula. But you are seeing, and maybe you can give us an example. I don't know how active you are. For instance, the AI space in particular, these days, but are you seeing a raft of new business formation, you know, people renting out, you know, office space across the area? I mean, things like that. Well, Y Combinator is a huge factor. And I think in the most recent cohort, it went from 20% AI-based to 60%. And these are all being spun into areas around the San Francisco area. So yes, we're seeing a big pick up.

The data I've seen says in the last six months, seed and series A deals have been twice as many in this area than anywhere else. New York's number two, Boston's number three, but it drops off really fast. So yes, you can actually see in the data it's re-centering here. That's really interesting. Fascinating. Really, really interesting stuff, Duncan. Thank you so much. We appreciate it.

Take care. It's going to be a great year this year. Oh, happy New Year to you, my friend. Still ahead. Pedal to the Metal, Autostales, ending 2023 in high gear, hitting their highest levels. Since 2019, we will break down where consumers bought and where they could start buying in 24. Power lunch will be right back. We'll talk car. Welcome back, everybody. Auto sales kept revving higher into year end, with 2023 hitting the highest levels since back before the pandemic in 2019.

Phil LeBow live with the latest figures from key automakers released today. Hi, Phil. Hey, Tyler, a nice end of the year for the automakers, almost all of them, did much better than. and what I think a lot of people expected earlier in the year. Toyota, these are strong numbers from Toyota. For the fourth quarter, sales were up 15.4%. Hyundai up a little over 5%, GM, fractionally higher. And the breakdown in terms of the types of vehicles that were sold in the fourth, in really all of 2023, it shows the rise of the hybrid. Ice vehicles, they continue to lose their momentum, down now to 84%. Look at hybrids. Outselling EVs in 23, up to 9% of the market. And there you're,

EVs at 7%. For General Motors, they end the year with 16.3% market share. That is up 3 tenths of a percentage point. So it's a nice move higher in terms of overall U.S. market share. They end number one. Then you have Honda. Take a look at Honda. Their December sales were up 31.5%. Hybrid's a big part of the story at Honda. And it's also a huge part of the story at Toyota. Toyota dominates the Honda, the hybrid market here in the U.S. Oh, they flexed. that muscle in the December time frame, time frame, up 63%. I have said at time and time and time again. Hybrids will stay hot because of the pricing. It's about 10 grand cheaper right now to buy an average hybrid compared to an average EV. Doesn't mean you can't find EVs lower price, but the average

EV sells for about 51,000. Average hybrid, 41,000. Do the math. People are clearly right now pivoting towards hybrids. And the fuel economy is attractive. Phil, do you know what share of hybrids generally these days are plug-in versus, you know, the kind we think of in the class of Prius thing? Oh, it's a small percentage. They charge while breaking. Yeah. Yeah. Yeah. I would say maybe five to 10 percent. And that's, you know, when you look at the numbers, the plug-in hybrids, the very few number of models are plug-in hybrids versus conventional gas electric hybrids. And I imagine the latter is what appeals to people who want to avoid the hassle of the plug-in and just be able to get the extra mileage. Yeah.

Absolutely. Look, what Prius started way back when, it's had a rebirth in the last year. People are saying I want better fuel economy. I want to start moving towards electric vehicles, but I'm not ready at the price point right now to go all electric. And that's going to be the key here. When you bring down the price of the electric vehicle substantially, not, you know, it can't have one or two models where with incentives you go under $40,000, you've got to have a lot of that. that's when you will really see EV sales take off. I agree with you.

Yeah, range anxiety will never go away. It's price and range anxiety. Once you get the price down and the range up and the charging infrastructure up, then EVs become a lot easier of a sell. Toyota has gone very heavily into hybrids, right? Well, they've been there and they realized a while ago. And look, there are some people who sit there and say, Toyota got a little bit lucky here because the market pivoted towards hybrids,

hybrids when they really haven't done much with electric vehicles. Call it luck, call it strategy, call whatever you want. They realize that they are the leader. They dominate the hybrid market. And as a result, look at the sales in December, 63% increase in hybrids. People want them right now. It's an amazing vindication of sticking with that strategy. Luck is the residue of design or whatever have you.

Preparation. Thank you. All right. Thanks, Phil. Coming up, can you hear me now? Verizon Hire on an upgrade at KeyBanks saying, Wireless is set up for success in 2024. It's one of those stocks that often had a higher dividend yield than a PE.

We'll trade it and other movers of the day in a three-stock lunch right after this. All right, time for today's three-stock launch. The speeded up in addition, first up on our menu, Verizon, hire on an upgraded key bank, saying wireless is set up favorably for 24. Jerry Castellini's in the hot seat, CIO at Castle Ark Management. What do you do with Verizon here, Jerry? You know, Tyler, this falls in the category of a lot of the names I'm looking at right now that are basically value stocks. They're just so cheap. They're cheaper than they were when they rallied three years ago. This is the time when you have to look at names given that you've taken the rate increase cycle off the table and you've got a lot of earnings estimates that are depressed.

Verizon is the perfect example of this. It sells it roughly a fraction of what it used to one day. and it really does have the ability to generate free cash. This is one of my buys here and let the stock run. Don't take advantage of the folks that want to say, well, it's bounced from the low. Stay with it. All right. Thank you, Jim. Well, Carnival is our next name, starting off the year slowly, along with the rest of the cruise line stocks.

It's down 11% in the past two days, Jerry, after it more than doubled last year. Would you get in here or what do you think of it? Yeah, so again, investors are trying to say, themselves, any kind of bounce off the low of a very deep cyclical business is an opportunity to exit. They're trying to argue that what we should always do is move our money back into tech when it bottoms, and they're missing the point that the economy itself is the driver of earnings power for these kinds of names. In Carnival's case, yes, they're building a lot of extra capacity, yes, they're much, much more competitive environment today. But the overriding view is that

it might get the revenge travels behind us and we have to move along. That doesn't have to be the case. Just because people have been in a cycle of jumping on a boat, so to speak, doesn't mean they're going to stop. And I do think this is a name where you could have upside earnings surprise. And again, given how cheap it is, this would be a time that you'd really want to jump in. Let's move on to our final name is Sun Run, pulling back to start the year after a 52% gain in December alone. Jerry, what do you say? Yeah, I take the other side on. This is good to be lightning up here. You know, the state of California threw a brick wall at them and their opportunities there. The business itself is really, really significantly dependent on access to

capital. It's not clear. There's more and more examples now of the business itself now contracting. It's contracting in Germany. It's not going to grow in California. And you have to ask yourself the question, what is the point of owning a business that is solely dependent on government subsidies and cheap capital? There are so many other places that you can put your money to work today, and you don't need to play a theme that probably has sunset in terms of some of these green energy plays. All right. Jerry, thanks very much. Jerry Castellini. We appreciate it. Quick programming note, Sun Run CEO, Mary Powell will join us for an exclusive interview right here tomorrow at 2 p.m. Eastern Time. Maybe we'll play some of Jerry's tape. Don't miss it. Maybe. Still ahead. What's brewing at

Starbucks? The new step, the coffee giant is taking to eliminate waste. That and more when we return. Welcome back. Two minutes left in the show. Several more stories to cover. Let's start with the national debt, which just hit a new record. It's now surpassed $34 trillion, according to the Treasury Department, and it comes amid the threat of another government shutdown. Congress just has weeks to agree on a new federal funding plan before the next deadline. I can't remember what percent of GDP $34 trillion is, but it's one point... We're nearing 100, right? It's over, over.

It's more than our GDP is something in the $20. The real problem with that is it means every year we're running the deficit, it's going to continue to add to the debt. The debt is now making the interest service costs, the biggest component... The biggest item other than military spending, I think. Half of the deficit. So we're trapped in this loop where the high interest costs keep increasing the deficit, which adds to the debt load, it increases the deficit. And I still don't. We're going to be lucky if we muddle our way out of it.

A perpetual motion machine there. All right, let's talk about Starbucks taking further steps to reduce waste. Beginning today, the coffee chain is going to use reusable cups or accept them for use at drive-through and online app orders. It previously only accepted personal cups for in-store transactions. Drive-thru and app orders account for 70%, 70% of Starbucks business. You take a cup, you'll deposit it there at the drive-through lane. And in a sanitary way, they bring it into the store, fill your with your drink, and away you go. And you're a cup. And it keeps the beverage hot.

Will you be doing this? No. Okay. No. Let's get to an amazing buzzer-beater in women's college basketball. Caitlin Clark of Iowa, sinking a three-pointer from the logo to give her team the win. After review, let's see this shot right here. There's the pass.

There she is in the paint and boom. Oh man, it sounded like the horn had sounded before she shot that. She is a phenomenon though. I mean. This is new to me, but she is apparently becoming a must-see player. Iowa was in the football stadium and 55,000 people showed up to a game earlier this year. And they play Rutgers this Friday. The game is sold out.

Tickets on the secondary market are going 5x face value and last night's game was on Picar. Wow, look at that. Did she get it all? Yeah, I think it was out of her hand when the lights on the backboard. went off. I say swish. Hawkeyes beat the Spartans. Thanks for watching Power Lunch. And closing bell starts right now.