Power Lunch - Who Owns The News?, More Record Highs 12/27/23

Episode Date: December 27, 2023

A major lawsuit could have huge implications for the future of AI. The New York Times is suing Microsoft and OpenAI, claiming its chatbots we’re trained using copyrighted articles. We’ll explore the potential fallout.Plus, the markets are once again in the green today. And even though the gains are small, record highs are being hit seemingly every day. We’ll discuss whether or not the record rally can continue into the new year. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everyone, and welcome to Power Lunch. Alongside Kelly Evans, I'm Tyler Matheson, coming up a major lawsuit that could have huge implications. For the future of AI, the New York Times is suing Microsoft and OpenAI, claiming its chatbots were trained using the New York Times' copyrighted articles. Plus, more green arrows for the markets. Even though the games are small, record highs are being taken out seemingly every day. Here's a quick look at the numbers right now. The number to watch on the S&P is 4818. That's the old-time intraday high. almost two years ago. We're about 30 and change points below that level as the index is just turning negative and giving up some of the gains we saw in the past hour. Although stocks are generally rallying as bond yields continue to fall, the yield on the 10 year, a hair below 380 after that strong five-year auction last hour, very sharp drop from a few months ago when it

briefly topped five. And a couple of big names in the news. Apple getting a legal win in the patent case involving the Apple Watch and appeals court ruling to pause that import. And Tesla shares are higher as the company is expected to post another quarter of record deliveries, but that won't be enough to stop BYD. The Chinese company will soon pass Tesla as the worldwide leader in sales of fully electric vehicles. We start this afternoon with the markets as the S&P 500 nearing a record high. A high is not seen in a couple of years. And the noted market watcher Ed Yardini, president of Yardini research, thinks the record-breaking rally is just getting started. Take a list of his bullish call on closing bell yesterday.

5,400 by the end of next year and then 6,000 by the end of 2025. I think this is a bull market that has legs that's going to continue to charge ahead. I think what we're seeing here is a significant relief rally, and the relief is that we're not going to have an economy-wide recession, and the relief is that inflation, in fact, can come down without a recession. Well, let's get some market reaction from Jack Ablin, founding partner and CIO of Crescent Capital and Jessica Inskeep is director of product at options play. Jessica, nice to have you in the house. Nice to be here. Thank you so much for having me.

Jack, let me begin with you. Valuations are really not stretched. If you look at the broad market, there are some parts of the market where the valuations are high historically, others where they're low. Is there any reason for this market not to keep climbing? Well, you know, it's funny. I've known Ed Yardinni for a long time, and he's been bullish most of the time, I will say he was flapping his arms around Y2K. But, you know, this time, I think he does have a legitimate case. It's a bit of a stretch. 5400 would be 20 times 2025 full year earnings. So certainly within the realm, we would need a 10-year triple B bond yield of about five, which would equate to a 10-year treasury of around three and a half, certainly not too far from where we

are today. So really, the whole thing is predicated on earnings. It's certainly not a stretch to get to 5,400. Jessica, where are you on this argument of whether the market can continue to move higher or not? I'm definitely in the bull camp. And I do believe earnings is the next catalyst that we're going to be looking for. And we are actually leaning towards the overbought territory. So I'm looking for some consolidation. But really, I think the question we should be asking is, can we have this increased growth and can we have a deflationary environment at the same time? And we've seen that with the data. And so I expect to see that to follow through with the market.

And I really think the answer to that is AI. We see productivity increases within employment reports. That equates to companies being leaned and being able to do more with less. Does it get me better than that for a market? Growth plus deflation? It's what they call the Goldilocks scenario, isn't it? Yeah, yeah. And you wonder, because, I mean, Jackie, maybe you can speak to this a little bit,

but are we seeing any pressures on top line growth for, instance, as we've seen inflation go from 9% to, you know, two and a half call it? Well, one of the things I do watch, and certainly the retailers, and you talked about consumer goods just before the break, and my concern is a lot of the year-over-year revenue growth that they've enjoyed has really been just pricing, right? So volume growth has not picked up, but revenue growth certainly aligned with pricing. And of course, if we do get disinferral, inflation and, you know, potentially deflation, that could turn things around pretty quickly. Right. Although I guess just because some would say we are going to get that or maybe we're

going to get that in pockets. And others say, you know, not so much. We're still kind of seeing, especially in services and that kind of thing, a little bit of cushion that could help corporate earnings. Absolutely. Services were the sticky one. We're absolutely seeing it in goods, though. And we have this resilient, selective consumer. We saw it with going to the Taylor Swift concerts or We just choose where we want to spend our money and they're savvy. It required some resilience to afford Taylor Swift, right? You have to have resilience. You certainly do, but not resilience to go there.

Great experience. Are there particular sectors that you have your eye on as values right now? Absolutely. So it's definitely broadening out within the value sector. I think financials may even be set up really, really well. That chart also looks really, really well. And that will definitely play out with the Fed pivot that we see. C, so that should be interesting.

But overall, I do think there are pockets within the economy, and we have to pay attention to the AI story. I think that is still the growth that has not been recognized, and therefore those really high P.E.s that we see with that magnificent seven are actually justified because that E in that equation may not be correct. Yeah. Jack, among your choices is one financial T. Roe Price, so there you overlap with what Jessica says, but also a couple of real.

plays that have, well, not necessarily high, but high-ish and growing dividends. Yeah, that's it. And it's actually consistent with the financial play. I think what we will likely see this year, the Fed follows through on what we expect, is a yield curve that will finally be positively sloped again. So we could see, for example, the overnight rate trend toward three. We may have three to four, you know, three and a half, to 4% of the 10 year. That's a great environment for the realty plays and also Tiro Price, of course, as a market play. And again, certainly if Ed Yardini is right, T. Roe Price should do pretty well. Jessica, any areas? I mean, we talk broadly about AI and financials and things like that,

but where do you see kind of the biggest opportunity, whether in the charts or just generally speaking for next year? Yeah, I'm still going to keep it with that AI, meaning I think it's kind of obvious where we've seen it play out so far. Invidia. Yeah, because there's astronomical demand for it. They can't meet that demand, even with some of the forecasting that's coming through. But that's just a piece of it, because when you want to build an AI large language model, you have to start with those mega chip processors.

But the companies that have the biggest data sets, they're prime to benefit. And it takes a while to recognize revenue if you're on the B2B side. And then there's the CAPEX story of spending and the resiliency and the lien that will go into the companies. So it actually all moves in harmony if you think of it. Does that make you bullish on any names in particular that we maybe haven't talked about, or is it more of just a kind of a move on the S&P 500 that we should see broad benefits? Oh, there's definitely specific. So I think it starts with the AI narrative.

It's going to start with Nvidia, the chips, some software, some data security, so CrowdStrike, things like that. The direct-to-consumer side, so Adobe, even Spotify would be in there. Microsoft for sure. Meta and Google, we'll talk about that a little bit later. and then it's going to translate over to B2B. So this is just what it takes to create those models. And now we've got to see the companies that have the biggest data sets, which actually brings me back to the financial services.

So I'm looking to see what Bank of America does with all of their data implemented with AI, so on and so forth. Florida, well represented at this table. Jack, I know you're down in Florida. Jessica flew up this morning from Jacksonville. We're grateful for both of you for being here. We'll see you, Jessica, a little bit later. Thank you.

Thank you. Thanks, Jack. ahead on the show. As we mentioned, we've got some technical support for the new year. We're going to ask which charts are set up best for 2024 plus the money pit. With rates heading lower, home prices are back on the rise, according to Tuesday's data. A bad sign for affordability and all those first-time buyers still trying to break into the market. Talk about that when Power Lunch returns. October home prices posted their biggest gain of the year. So will that offset the benefit of falling mortgage rates and make affordability? maybe even worse heading into 2024.

Diane Oleg has more high die. Hi, Ty, way to kick it off, right? Look, so we're coming into 2024 with a strange set of circumstances in housing. You've got rates coming down off their recent highs, but prices never came down during those high rates, and the supply of homes for sale is still far lower than it should be given strong demand.

So let's take a look at affordability. Mortgage rates started this year at about 6.5%. Rose steadily, jumping over 8% in October. They have since fallen back, sharply and we'll start next year right about where they did this year. So here's the difference between a 6% mortgage rate and an 8% rate. If you're buying a $400,000 home with 20% down on a 30-year fixed, at 6%, your monthly payment is $1,18. That's without insurance or property taxes. At 8% that jumps to $2,348. So a difference of $430 a month or $5,160 a year. And for those on the edge,

That's real money. So lower rates do help on the monthly payment, but home prices continue to rise, and the gains are just getting bigger because of that low supply of homes for sale. Sellers were a little bit more active this fall, but the supply of homes for sale is still about 38% below pre-pandemic levels. That'll keep home prices strong, and lower rates help people afford more homes. So I think what's going to be really interesting to see is if the spring season is actually pulled forward. That is, people see the drop in rates and want to jump in either buying or selling because they want to beat the competition. Guys? All right. Diana, thank you very much.

And those falling rates have been a huge boon for the home builder stocks. They've seen big gains this year, and especially since late October, led by the likes of Pulte and Toll Brothers. But our next guest downgraded a bunch of the builders to neutral from outperform last week, saying the good news may be already priced in. Jay McEnliss is a housing analyst at Wedbush. Jay, it's good to have you. and we've been speaking with a lot of bullish colleagues of yours lately. So you're going a bit against the grain here. Yeah, a little bit.

I think the move that we've seen that you talked about since the beginning of November, along with what may be in terms of the lack of supply like Diana was talking about, I don't know that we'll necessarily have enough homes to be ready for all this demand that's coming, especially if rates moved down. And so I felt like with the run the stocks had had, it was a good time to step to the side for a little bit. So that's interesting. It's almost a problem to you. It's a good problem to have. It's not enough supply. Yeah, potentially. I think that's one of the reasons when you look at the names that we like.

We're focused on not only affordability from a manufactured housing standpoint, as well as we do believe there is going to be higher volumes in 24. As we said in our downgrade note, our long-term bullish thesis has not changed on the group. and we do think there's going to be growth in single family starts next year. And potentially remodeling is down a little bit, but we do think you're going to see more starts coming out of the ground in 24 versus 23. So long term, you're still bullish. You think if there were more supply, maybe the builders could do better. Let's talk about valuation, which sounds like it's one of the top concerns here.

What are the valuations you're looking at? Do you look at book value and where are we by historical standards? So if you look at where we are right now in book, or about 1.4 times our fiscal 24 average book valuation. That is about the same level we saw in late 21 when the group peaked before, but certainly nowhere near what we saw during the GFC, where we were trading it over two and a half times forward books. So in my mind, it isn't so much about valuation at this point as it is.

The groups had a great run. I think there is a very strong leaning when we talk to clients that rates are going to come down pretty quickly in 24. If something knocks that off track, that may slow down demand. That's something I'm a little worried about. But also, you look at what prices have done, and we've seen the price growth on a year-of-year basis in the FHFA. That started to accelerate again.

I think October's reading was like 7% over last year. So we're seeing prices accelerate again. Mortgage rates have come down, which certainly helps. and the builders, to their credit, have found ways, whether it's mortgage rate, buy downs, incentives, a little bit of base price cuts to keep that affordability working. Just the question is if something off-rails or derails this lower rate story, then I think the group might see a little bit of a pullback. I guess the question is, is not so much are builders in a good place?

Because it seems to me they are, because existing home owners are not putting their places on the market. existing home sales are down. So where does the inventory come from? It comes from new building. But on the other hand, I guess the question is, have we already discounted with the big rises in an awful lot of these builders, a lot of what could come in 2024? In other words, have we front-loaded some of the stock market gains that these builders might otherwise experience in 2024? I think for the site builders, the Pultes, et cetera, the world, I think I think you're you may be correct and that's kind of the one of the premises of our downgrade i would say if you split it into two separate camps and you look at the manufactured housing space cabco is a name we like there

um they actually saw volume shipments a little bit weaker in 23 versus 22 uh because of some over over inventory situation um those inventory situations seem to have fixed themselves so we actually do think they're going to see volume growth in calendar 24 that's uh the ticker cbc bc That's a name we continue to buy here. But I think for the core stick builders that we cover, yeah, I think we've priced in a lot of good news already. Interesting. All right. Jay, thank you very much for joining us.

We appreciate it. Thank you. Have a good new year, Jay. Thank you. Further ahead, risky business for whiskey. The EU delaying a threatened 50% tax on whiskey shipments from the U.S. Hallelujah. A sigh of relief for distillers.

But the problem isn't resolved for good. That story when we return. I think you just get some whiskey and talk it over, right? I think that's what they need to do. We'll be right back. Okay, everybody. Welcome back to Power Lunch. The electrical grid is having a hard time keeping up with current demand,

leading to a few well-publicized outages over the past several years. And demand is only increasing from here, of course. Electric cars being one contributor. Pippa Stevens joins us now with one way utilities are trying to keep up. I was speaking to a friend. It isn't necessarily, he says, that, that there isn't enough power generation capacity, but that the grid can't keep up.

The transmission, the delivery of the power is. So that's one problem. Also, there's the interconnection queue, which is backlogged, and so it's hard to get these new projects online. And so what we're talking about today, what can potentially save the day, is a virtual power plant. So this idea is by no means new,

but we are at an inflection point here with electricity, demand, growing, and then more and more renewable energy sources like solar that can just ramp up when we need them. So what is a virtual power plant? Well, at the very simplest, it's a collection of hundreds, thousands, even tens of thousands of smart, grid-connected smart devices. And so when you group those all together and they're all acting as one, that can have a really meaningful impact in terms of balancing load on the grid. So an example would be, let's say you have a smart thermostat and it's really hot in the summer. Everyone is cranking up their ACs. Let's say that you opt into this program that allows the utility to control your thermostat if they lower everybody's houses by, say, one degree. You're not really going to notice, but that has a big impact on the demand on the grid. And so as we see, more and more distributed generation, as utilities deal with more and different types of power that isn't necessarily conducive to the way that it was initially built,

which is a centralized behemoth, you know, one structure, it's now distributed. And so they're trying to adapt to how we now consume the types of devices we're using. And VPPs are really seen as a game changer. It also reduces costs. That's a key thing here. So if Kelly and I both have these smart thermostats and Kelly likes it. I want some cash if I'm being part of it. I mean, and the grid provider says, okay, we're going to have to cut the, reduce your temperature by one degree but one degree only. And Kelly wants it colder than that. What happens to Kelly?

Well, Kelly can say no. So these programs are set up in different ways, but the majority of them always have that opting. Yeah, so you always opt in to begin with. but then you can also, you know, opt in or opt out on specific instances. So Kelly might say, no, actually, I don't want to do that. Or another example would be when you charge your EV. So when everyone gets home at night, they all plug in at the exact same time. That stresses the grid.

So if you say to your utility, hey, you can shift when I charge to 2 a.m. And so this benefits both Kelly in our example and the utility, because Kelly gets a credit for the power she is not using. Now we're talking. Yeah, she gets a credit. Do I get a better price if I charge at $2.50 in the morning? You do. If you're in a time of use market, you do get a better price and you get that credit.

I'm not sure I do, because I do have an EV, and I do charge it at 2.15, but when I look at the price on my bill, which is indecipherable, I can't figure it out that I thought I should get a better price because I'm waiting until 215. I'm not doing it in the afternoon or in the evening. Well, in theory you're supposed to. Sometimes you're paid directly. Okay. Sometimes you're paying my bill and maybe you get a credit. But then also, if you think about it in the sense that then the utility doesn't have to build a gas.

paker plant that maybe is only used for a couple of hours per year in some cases. If they have to build that, your bill is going to go up because you're paying for those generation assets. And so maybe you don't see it on your bill, but if you think bigger picture, if they're not having to invest that capital in a very capital-intensive power plant, and instead, Tyler Matheson is not charging at 7 p.m. when everyone else is, ultimately that can benefit you as well. Okay.

I'll behave myself. Are there any regulatory roadblocks to these kind of gaining more traction, or is it just a question and more households being equipped these devices. Because at some point, they should start handing them out like candy because it sounds like they would benefit more from people having them than not. I know in our house, there's been some pushback to the kind of smart thermostats and stuff because it's just a little creepy. Yeah, yeah.

Some people think that utilities are handing out things like smart thermostats for free as a way to try to get people to sign up for these. But there has been not so much regulatory pushback, I would say, but a lack of awareness and also utility planning models are so specific, and they have to answer to those regulators. And so the DOE had this big study recently that said there's just a lack of understanding, a lack of knowledge. And I think a hesitation, because when there are these outages on the grade, it is so high profile. Everyone is so mad.

Everyone is up in arms. And so they're trying to look at it in the sense of how can we make sure that demand and supply always match and maybe not necessarily understanding the true potential of a VPP and what it could do if everyone is opting in. Yeah. Okay, Pippa. I'll bring in my bill tomorrow. Thank you. Let's get to Christina Partsenevilus now for a CNBC News Update.

Christina. Hi, Kelly. Well, a New York City man accused of stabbing two teen tourists in Grand Central Station on Christmas Day has been charged with hate crimes. The suspect allegedly made derogatory comments towards a 14 and 16-year-old tourist from Paraguay before stabbing them at a restaurant inside the terminal. He's being held without bail after pleading not guilty on Tuesday to attempted murder. A Florida City removed a Confederate memorial today following years of controversy. The work to bring it down began overnight in Jacksonville on orders from the city mayor. It's unclear where the monument will be taken after its removal. And New York City's iconic New Year's Eve ball got a makeover. Organizers of the annual celebration

unveiled the ball's new design today. It features a new bow tie, lighting pattern, a nod to Times Square's former nickname, the bow tie of Midtown Manhattan. But Kelly, as you can see on your screen right there, the entire building itself is still under massive construction. They're spending about $500 million. I see it every single day. because my desk is right in front of that building. That building won't be ready until 2025, but it'll be a big tourist destination. Indeed.

Isn't that what it's all about? But that's cool, though, to get a little glimpse, well, for us, for those who don't see it every day. That's a little less cool when there's like blockage, construction, tourists. Amen. Totally. Christina, thank you. Christina Parts of Neveless.

Still to come, a roller coaster year for the media space, growing competition, backlash from higher subscription fees, and the Hollywood strikes delaying content after the break will hand you a TV guide to movies and streaming in the year ahead. Welcome back, everybody, to Power Lunch. Amazon has just announced its official plans to show ads on its prime video service in an effort to, quote, continue investing in compelling content, increasing the investment over time. That's so said the company in an email to customers, I among them.

The shift to limited advertisement will begin on January 29th. And for customers who choose to continue ad-free, it is an essential. additional $3 a month to avoid those ads. For more on what this means for the streaming rivals and a recap of what has happened in Hollywood this year, joining us now is our friend Janice Mint, CEO and editor-in-chief at the Ancler. Janice, always great to see you. It does seem to me that right now, if I do say so, the legacy media companies are getting

their asses kicked by net... To use the colloquialism, I'm in a cranky mood. to use a colloquialism, by Netflix, Amazon, and Apple. Am I wrong or right? And Hulu, I guess, a little bit. Tyler, nice to see you. Unfortunately, you are right. It was really the tale of two economies this year.

And the Legacy Studios, those CEOs, they have run out of moves to make. And you've seen that all come crashing to this horrible end at the end of 2023, where in particular, Shari Redstone, Bob Backish at Paramount Global, are flailing around, possibly merging with another company that is flailing around Warner Brothers Discovery, trying to make one plus one equals three. I'm not sure a lot of people agree with that. But all these companies, you see some streaming services that seem to be really dominant and efficient and effective. clearly with Thursday night football has helped legitimize

it, helped people find it. But then I look at Paramount Plus. I get no, I don't sense a lot of traction there watching the UEFA League. Max at Warner Brothers Discovery seems to me to be a step backward from calling things HBO where they had

an established brand. I speak gingerly, gingerly about the home team's product peacock. Well, Tyler, you could add all the subscribers of all those services together, and you would barely be the thumbnail of Netflix's subscriber base. And I think that whole glee, I guess Chadenfreude, the town felt around 2022 when Netflix's had the great correction, they thought this was a moment for them to strike. The fact is Netflix won. They are too big to fail. They don't have, the most important thing is they don't have the albatross hanging around.

their neck of legacy businesses. They don't have a cable TV business. They don't have a broadcast channel. These are the things. And even though we talk about streaming, streaming, streaming, these legacy businesses account for these companies, these studios, about 30 to 40 percent of their revenue still, and it is sinking. And therefore, you are seeing the stocks respond to that. Can you both remind me when you watch Thursday night football? Does it currently have ads or no? Yes. Absolutely. It does. So, Janice, here's the kind of oddly infuriating thing. So consumers bulked at linear cable. You know where I'm going with this. Because of the ads. So we invented the DVR and

all of that so that we could skip them. Then we invented streaming for a better ad-free experience. Then my big innovation was I get Amazon's innovative prime thing where I can't fast forward, rewind, or DVR anything and with commercials. What is the innovation? here? Well, Kelly, the innovation might be that you will be on hold for 45 minutes with time Warner table begging for that package to come back. There's no one who I can talk to at Amazon either about that. You will, you can talk to a chatbot, I believe, who might do to a link that doesn't quite work. But this is, to me, the end of 2023, it's like a, it's the final referendum on the streaming economy. With Amazon's move into advertising, and by the way,

this is going to be the monster of streaming advertising. It's going to be second to YouTube and scale. It's going to drive prices down for Netflix, for HBO Max or Macs, Peacock, all these places that were dabbling, moonlighting, and advertising on streaming. This will crush them, and it's widely believed the prices will go down. But this is the referendum that has declared, we spent too much, it didn't work. The cost of scripted programming are too high. we are going to do less.

We're going to try to get more return on investment. And if you want more programming, you're going to have to now sit through ads just like you did way back when in 2010. Although you would argue the innovation is they at least are offering me the consumer and we pay for YouTube without ads. And at least Amazon will give you that option. And Tyler, you wonder in retrospect if it should have been,

okay, instead of the DVR or alongside with it, you could pay for ad-free, you know, linear cable and that maybe consumers would have done that, but it doesn't matter now. Well, past is past. We had Rich Greenfield on Fast Money the other night, and, I mean, he basically threw a big hand grenade into the legacy media companies.

I mean, he's his game set and match. It's over, man. I hate to say it because I know so many people who work there, but it is over the days are numbered. And what we're looking at, if not next year, but certainly in the coming years, it will be a town that will be consolidated, an industry consolidated probably into three, at the most five players.

Janice, can I just ask you a question about this to be clear on this? So let's take our parent company, NBC Universal, for instance, or pick your set of, quote-unquote, cable channels. There's not a disruptor for that product. So if the distribution is through a big tech company instead of through our parent, you know, Comcast, do we as the media company care? Doesn't that benefit us if the person who has to pay us to carry us as a channel has, has deeper pockets?

Listen, I think that we've seen a few things happen with around the tech companies. I think that for starters, let's just take CNBC as an example. I think that independence around news definitely falls under question. I think what also happens you definitely will lose a diversity of programming as the funnel gets tighter and tighter at the top of what can be made and what can't be made. We spoke to a top television executive in town just this week who said to us, Apple will not do one thing. Well, they will not program one thing that stands in the way of an iPhone not being sold.

And we now have these tech giants who are going to be making decisions about what people watch, and what used to be sort of this thriving independent offball, often, yes, but community of creative people. And they also, the problem with that for the creative community and for executives, is that you lose any competitive market. If you have a show that nobody wants, nobody else is going to take it when you're down to three buyers. So it does have a harm in diluting the quality and breadth of content

and certainly the independence of content that a lot of creative people and executives really pride themselves on entertainment. How many fewer channels, you know, we've grown accustomed to the thousand channel universe on cable, How many fewer channels will there be when this is all over? I can't imagine that a lot of the niche players are going to be around in a year, two years. I mean, Tyler, I would say six months.

I mean, when you look at the different, let's just start with cable, the carriage negotiations coming up. I don't know anyone who's going to take to the streets if free form goes away. if, you know, I don't even know some of the smaller Fox channels. These can disappear. The cable companies are tired of paying for these. And they just cost money to run internally for Legacy Studios. Those will go away. I think in terms of the smaller streamers, I mean, I think it's all fair game.

I think that there could be a universe where it's Max Paramount plus Peacock all in one. that you've seen these losses. You see them in the quarterly earnings reports. It is hundreds of millions of dollars. Hundreds of millions of dollars. It's insane. There's no other line of business where this would go on even this far. So I do think 2024, at least in the streaming side, is when this comes to an end,

when consolidation, at least of the smaller players, is not just inevitable. It's the responsible thing to do. And I do think we will be speaking to you a lot in 2024. Janice Minn, always good to see him. It's a silver lining to all of this. That's the good side. Still to come, the New York Times, speaking of media, legacy media, they're suing Open AI and Microsoft for copyright infringement

in a case that could rock the entire tech and media space. We'll explore the fallout when we return here on Power Lunge. Welcome back to Power Lunge, a bombshell lawsuit today, but one that people did see coming. The New York Times becoming the first major media company to sue over AI. The newspaper filing suit against Microsoft and Open AI, claiming they are using the Times as copyrighted work to train their chatbot. Joining us here on set to discuss is Danny Savalo, he's MSNBC's and NBC's legal analyst.

Danny, it's great to see you welcome. This was expected, no, in some way, shape, or form. Why is the New York Times at the forefront? Yes, these lawsuits have already been cropping up. And the theory of liability is that by using AI to train the AI using copyrighted material, and that copyrighted material is the New York Times intellectual. property, their columns, their pieces, all of their content that is out there and for a subscription. It is copyrighted material that is for sale. So the argument is by training AI using this

huge database of copyrighted material, they are infringing on the copyright because they will use that later on. And it's impossible essentially to separate what they are digesting from what they're putting out. So what applies to the New York Times could apply to virtually any published work, whether it's produced by the Washington Post or, I don't know, the Brookings Institution or whomever, right? You seized on a key reason why I think ultimately, one of the reasons I think the Times will not be successful, and it's this. The Times is obviously a gigantic player in the world of copyright, but copyright attaches to a lot of stuff. The notes you make on that paper

today are theoretically copyrightable. Own by NBC. Yes. Owned by NBC. Exactly right. So so many people have copyrights. The New York Times, if they're successful, that means that arguably AI would have to go out, these companies would have to go out and find all these owners of copyright, wherever they may be, in a log cabin somewhere in Alaska, and pay them. And that would mean the end of AI. That would mean the end of the future of artificial intelligence if that were the case. So in a sense, it could be argued that the Times has to lose for progress to survive. How would the Times prove that Microsoft ChatGBT, GBT, BARD, are siphoning their content? And when I ask a question about some medical topic, that it is coming from the New York Times copyrighted material. Do they go word for word and look through and say, well, this sentence looks an awful lot like that sentence that was published on May 25, 2021? Or what? How do they prove it? You've seized on a key issue, which is it's probably conceded. that the AI companies are digesting all of this copyrighted material.

That seems to be indisputable. The question is what is going to be in the output? Because if it is a copy of the Times content, then you've got a problem. And that's a copyright infringement. The Times included had verbatim output examples from their articles. Exactly right. But then that creates a secondary issue, which is why. Is that a product of the AI committing a form of copyright infringement?

Or is that the user saying, hey, spit out something that is written like this particular writer for the Times. And, oh, here is a first paragraph for you to base it on. That actually is an issue that if you put in a first paragraph of a copyrighted material, then it's more likely to spit out something that is very similar. But on the first example, if it is simply churning out something that is inspired by the writers and the other copyrighted material it's digesting, then probably not only is that not a violation,

That's kind of what copyright law is always envisioned that we would learn stuff. In fact, the words coming out of my mouth today, I learn by reading copyrighted material, by law professors who I will not pay a dime for the information that I got, and I am now regurgitating to you. So if I were to say, write me a 750-word summary in the voice of Thomas Friedman, the New York Times columnist, about the current war between Hamas and Israel. It could be a problem. It depends. Look at the output.

If the output is substantially similar, if you can compare them. To a column that Freeman just wrote. To a column that Friedman just wrote. And that can be enhanced by what the user requests, right? The example you just gave is perfect. Write it in the voice of Thomas Friedman. But you might nudge it along even more. You might say, here's the first paragraph of what he recently wrote on the same topic.

Now you're getting closer to copyright violations. But the mere fact that it, may be derivative of Friedman, that's everything. That's what we go to college for. That's what we read stuff for. We're all derivative. There's an argument to be made that the only difference between this and what we do is that humans do it and they put in a lot more effort. There are more calories burned. With AI, it happens instantaneously and you don't see the effort. And then, of course, yet another issue is the fact that stuff that's created by a machine is not itself copyrightable. That's another issue down the road.

Only humans for now can get copyright protection. But really the key is going to be what is the output? How derivative? Is it just merely derivative? Does it fall within fair use? Or is it flat out copying? It's fascinating. I'm feeling so derivative.

Me too. We're all derivative. We all are. Thanks, Danny. Thank you, man. Coming up, our Chartist will give us her top picks for 2024. It's time for technical support when Power Lunch returns. Jessica will be back in a minute.

What was my ambition when I was? I was starting out, survival. I love the word ambition. Ambition is passion. It's a key ingredient of greatness. To me, ambition is being undaunted by the impossible. I'm ambitious for the nation. I'm ambitious for its people.

I'm ambitious for my people. My ambition has always been to seek the truth. To learn as much as I possibly could. To make an impact. I believe in dreaming big, I always have. My ambition is to show gratitude. Ambition. It's got America

written all over it. Ambition really is the foundation of capitalism. I wanted to do great things in this country. My ambition is to do very well in business and to take those profits and recycle back in society

to try to make the world a better place. Everything can be a reality. I see ambition. In many ways, ambition, human ambition is what drives the world. All right, time now for some technical support. And as we wrap up 2023, Let's check the charts for 2024 and discuss the stocks with the best and worst startups for the new year.

Setups, excuse me, setups for the new year. Back with us, Jessica Inskeep, Director of Product at Options Play. And first we have IBM. It's among your top picks. What are you seeing in all these squiggly lines, Jessica? So the squiggly lines represent 13, 26, and 40-day moving averages on a weekly period. That is one, two, and three-quarters worth of prices. Simply, we want to see them sloping upwards.

that indicates a really good base. I see support about this 134 and this 145. And we're just meeting resistance right now. But this is bullish. We're going to have some consolidation. I expect it to move up forward as we get into 2020. A little love stock for many years. IBM getting a little love there from Jessica.

Next up is Alphabet, another top pick. That it is. So same drill here, 13, 26, and 40. So important from that perspective. I've got resistance and that consolidation happening right here around that 142 line. And we talk about that psychological level a lot. There is an area of supply there, which means there are a lot of people who own that security. It's having a hard time going above that line because you may be a break even.

And you'd say, you know what? I want to go ahead and get out of this security at this point. But it's part of that AI story. And I expect that to translate into 2024. All right. Let's move on to one that you say has the worst setup for 2024. And that's moving a different direction, Jessica. Even I can see that.

There you are. Same squiggly lines, 13, 26, and 40 with those prices. Not moving the same direction. They're not. And that's what's important with technical analysis. We look at the slope of the line in addition to where the security is above and below it. It is having a very difficult time going above those moving averages right here. And I would not even consider this a bowl until I see some continuous weekly closes above that line right there,

which is about the 26th level found on the 13 week. Two nice, one naughty. That it is. All right. Jessica, thanks very much. Thank you. Kelly. And still ahead, making spirits bright. The EU delaying a 50% tax on American whiskey ahead of the holidays, but the problem

isn't solved just yet. We'll get the latest in a live report when we return. American distillers are toasting to the new year as a potential tax on their whiskey is getting delayed by the European Union. Emily Wilkins is live with the details. Emily? Hey, Kelly. Well, it's been a little bit easier for American bourbon distillers to get into the spirit this Christmas.

After the EU announced, they would extend a suspension of tariffs on U.S. whiskey. Now, the move avoids a 50% tariff from going into effect on January 1st. And all this, of course, is tied up in that larger debate over tariffs on steel and aluminum imports, which Donald Trump implemented way back in 2018. Now, the Biden administration has been working with the EU for about two years to try and lift these tariffs. U.S. Trade Representative Catherine Tai said that trading partners are working to economically incentivize fair and clean production, while EU Trade Commissioner Vladis Dombrovskis said the delay allows additional time to work on addressing global

overcapacity and decarbonization of steel and aluminum industries. Back in D.C., Kentucky Republican Congressman Andy Barr, who pushed for an extension of the tariffs halt being halted, told me that the EU has become a critical market for distillers from his home state. And the year after tariffs were first lifted in 2021, he said there was a 32% increase in U.S. exports. What we've learned from these tariffs when they're on and then when they're off is that American whiskey, American bourbon in particular, can compete with any other whiskey in the world, whether it's Scotch, Irish whiskey, whatever it may be, if we have a level playing field. And that's why. this is such an important issue.

The tariffs on U.S. Whiskey have been lifted until March 31st, 2025. And what happens at that point could depend on the outcome of the presidential election? Back to you guys. All right, Emily, thanks very much. Emily Wilkins reporting, well, the markets are kind of hanging in there today. And after that sort of hiccup late last week where we had a bad day, we seem to have righted the ship. Listen, eight-week winning streak, it could be nine. we'll see how today's practice action goes.

It was interesting to watch as well how stocks initially rallied sharply after the results of that five-year auction at 1 p.m. hour. The auction went well. We saw the Dow up triple digits. It's come off that now. It's up 49. The S&Ps turn negative. The NASDAX up a couple. But bond yields remain lower.

So that 10-year yield is still below 380. Yeah, pretty good setup as we head into the last, what, two trading days of the year. Crazy, isn't it? Hard to believe. Hard to believe. All right, folks. We're going to leave it there for you. We'll be back here tomorrow on Power Lunch.

Thanks for joining us for an hour today. We appreciate your watching Power Lunch. That closing bell starts right now.