HALFTIME REPORT Positioning Ahead of the Fed Rate Hike SEP/21/22

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Hi, I'm Scott Wapner. And you're listening to see NB C's halftime report, the podcast, the most profitable hour of the trading day. We record this live weekdays at 12. Eastern, listen in.

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Call. Thank you very much. Welcome, everybody to the halftime report. We've got less than two hours now, before that Fed decision and the press conference with the chairman. Of course, I have the Investment Committee with me today to debate what the market reaction is likely to be no matter what they say and do. Brent talkington with me Jason snipe as well. So rod, Satie, and Joe Terra Nova, let's check the markets right now give you an idea of where we are, as I said, a couple hours ahead of that key decision. And then the news or you got the Dow good for about 146 30,000 852. The s&p 500 still below 3900. We're watching that gain of one half of 1% today, and there is the two year note yield. Look at it right there. 4%. Even and that is the highest level there. Since 2007. Touching for for the first time since then. We're gonna get into all of that and certainly much more. I do first want to go to our Lesley picker. She has been following that hearing on Capitol Hill with the bank CEOs and has an update for us on what's been taking place as we've been following this lawsuit by the New York Attorney General Leslie Hey, Scott. Yeah, that hearing in front of the House Financial Services Committee about two hours underway with seven of the largest consumer facing bank CEOs answering questions about the broader, broader macro environment, JP Morgan CEO, Jamie Dimon, addressing his views on the economy, he said there was a quote, small chance of a soft landing, he said there's a chance of a mild recession and a chance of a harder recession,

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paying the price of too much fiscal monetary stimulus. I don't want to second guess all the people doing that that might have been predictable at the time to taking the right action to reverse it. But I don't think you could spend $6 trillion and not expect inflation. And so I don't like to cry over spilled milk. Let's do the things we got to do to fix all that and then move forward with the economy which is the best way to reduce inflation and help all of our citizens. Ranking Member Patrick McHenry began his questioning by asking Citigroup CEO Jane Fraser about the economic consequences of a high inflationary environment. We are very concerned about the high prices that consumers are facing in America and indeed, around the world. We certainly have lived through very unusual times with through the pandemic or the recovery from that, and then the impact greatly exacerbated by the war in Ukraine. And so the impact of the higher rates that are required to try and tame the inflation is likely to be moderating growth in America and around the world. And we'll be putting pressure on many of the drivers of the recovery that we've been looking for. Representative and Wagner Republican from the St. Louis suburbs pressed us Bancorp CEO Andy Sunseri. On what inflation and high interest rates might have meant for savings and credit card debts. The series said, quote, inflation is impacting those who can afford at least while noting that savings levels and credit card spending continue to be above pre pandemic levels, while payment rates are starting to normalize. Other topics covered today so far include regulations, cybersecurity, racial equity in lending and hiring and newer technologies in banking, Scott. Okay, Leslie, we appreciate that. And we'll count on you for any updates if you haven't throughout this hour. It's Lesley picker joining us there I mentioned we have Joe brand, Jason and Surat with us today. Of course, our Steve leasman is with us as well. We have him for a few moments before he gets set to go into the room where it happens a later today at two o'clock. Steve, I'll begin with you because the big story is this 4% on the two year the first time since oh seven that we did that, as you pointed out, maybe an hour or so ago, the peak Fed funds rate moving to 4.53% for April of 2023 in a way that the two year is helping the Fed get to where it may want to go. Yeah, and it's going where it may thinks we're thinks the Fed may want to go here. Scott, I was just the reason I was looking down. I was doing a little math here, a 300 basis point increase in the two year note, in about a year. Go back to September 2015. We were at a quarter on the two year note. And what's interesting is 100 of that most of that has come 100 of that has come since the beginning of August. So there has been a a coming to the Lord moment in the bond market in terms of understanding or believing where the Federal Reserve is going to go here and I've got three H's to give you today, Scott, they're going high. They're going to hold and it's going to hurt. I think those are the three essential elements of Powell speech in Jackson Hole. And I think it's the essential of what he's going to say today.

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And the question is going to be how much hurt? Is the Fed willing to take in terms of the rising unemployment rate decline in GDP activity?

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That will tell us how far he'll go in terms of raising rates. I'm wondering what sort of specifics we may get today, because the Fed chair, Steve hasn't always given us the degree to which we've wanted them. You included, of course, with some of the questions that you've asked him at at most recent news conferences. Lizanne Saunders, who was on a couple hours ago, said the biggest questions for the Fed today, what are you going to get to the destination? Right, how high? Are you going to take the terminal rate? And how long are you going to stay there? Do you think we get clear enough ideas, to the answers to both of those questions today? Maybe a bit on the first question, Scott, I think there is a range, and I'm going to call it somewhere between 375 and four and a quarter, which I think is noticeably a little bit less than the market is banking on right here, where the Fed may get to, and it may want to look around and give a little time for what they call those long and variable lags to have an effect. I think the Fed believes it needs to get up to that destination, it has an appointment with that level. But it may not want to go further immediately, I think it will go further if it feels it needs to. But another 100 basis points, if you go back to that Fed rate outlook chart is baked in and tightening for the end of the year, maybe 100. And a quarter depends on how you measure it. But in any event, you do that, and we just talked about how historic this increase has been. And you know, the famous Milton Friedman quote about long and variable lags. So you get to four and a quarter, by the end of the year, it may be a little bit less than that the Fed may go into a I want to call it a temporary pause, you know, maybe a bit of a hibernation to see what happens that will only happen. If you get some cooperation in the inflation data and some softening in the labor data. In both those situations, the Fed may want to look around and have given the effect of what it's done the historic nature. You know, I joked with Carl this morning, he said the Fed coming in for a third 75 basis point rate, like you said that like it was just kind of like normal, this is abnormal. It's historic, this kind of increase. And there's a lot for the market to stomach here. Yeah, I mean, Powell has made the point to the ones they've already done, or I think he may have used the words around, you know, unusually large, right, the 75 point moves, and here we go get set for number three, on that account. Steve, we'll see you later on the TV. Look forward to that. And of course, hear from you this afternoon. As it all goes down. I mentioned I do have the gang with us. So Joe, I'm coming to you first. So you have an idea of what's going to happen today that this move in the two year to 4%. For the first time since oh seven stocks hanging in? What's the message there?

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Yeah, stocks are hanging in. But I can't remember a time since the great financial crisis when the bond market has been so important as an indicator of where equities ultimately are going to go. Now, if you've got that two year after the Federal Reserve statement today and press conference, and its pricing of 4%. That's going to act as a headwind for equities to ultimately have a rally I think the two year without question is gonna be the leading indicator. I think the press conference today, as Steve spoke about is critical, is the chairman going to maintain the same disposition have a very hawkish terse statement that was going to be released before that, if there's any degree of flexibility, if there's any degree of comfort, if there's any degree of leaning towards that the terminal rates going to be four to four and a quarter percent? Scott, the market is in positioned for that. And that's where you're going to get the rally. The market right now is overwhelmingly positioned bearishly. It's reflected in all of the CFTC data, which shows that holdings of s&p futures are at their most bearish level since Oh, eight since 11. And since 2015, and you know, what happened in each of those three instances? So the press conference to me absolutely going to be critical. Unless, Brent, you think the markets getting a little too aggressive? Right? We just talked at least one 453 In April of 2023. Maybe he says they go 100 more this year? And then in his words, you know, look around, stop, stop and look around. How do you see things heading into the meeting couple of hours time

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to two things. First of all, on the two year if investors want to tell, going back for a very long time, when the two year not only stops rising, but starts falling and usually around 50 basis points. That has been a very, very good indication of where the terminal rate in the Fed funds rate will be. So right now we're going in the wrong direction. But watch for that over the next, you know, three to six months. I think that what what Steve said was his three three ages are spot on. I think the bias after the Fed speaks today is actually to the upside. I do agree with with Joe. There's so much negativity right now. And so I'm not even remotely calling for some long term rally, but I don't know

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Know how much more hawkish Powell could get besides already using words like pain. And so I think if he just continues with the same narrative, I don't think it will be any surprise. And I do think you could have a relief if he doesn't go even more hawkish than his pain trade. So I think there's a little bit of a bias after he speaks to the upside. Upside later on today. Yeah, it's like you wrote the headline of the wolf research note today,

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Brian, because that's what they're talking about our senses that the markets could be set up for a short lived relief rally if the Fed hikes by 75. And Powell doesn't ratchet up his hawkish rhetoric even further, Jason, snipe your expectations here.

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Yeah, absolutely. Scott, I think, you know, for me, it's all about the rhetoric and rhetoric, I just mentioned that I think that commentary is going to be key, obviously, the 75 basis point, move is priced into the market, I think, and the other piece is higher, for longer, how long? How high? Obviously, what what will the terminal rate be anywhere between four and a quarter and four and a half is obviously starting to get priced into the market. So for me, the market is going to be hanging on to every word that comes out in the presser today. And I think I agree with Brent, I think there might be a bias to the upside, you know, but I think he's going to be terse, brief, and get right to the point because credibility still remains on the line. Yeah. So Ron, do you think we're set up for some sort of relief rally once we get today, out of the way that the danger, of course, is that the chair is more hawkish than we're prepared to hear? That is a true danger. And especially I think, to Jason's point, the credibility here is really at stake. So we've had a little wishy washy before this, the last one was very strong. I think he continues, I think he continues to be strong. And the question is, what how strong is he going to be? And if he's maintains the same, you know, tone that he did last time? Yes, you get, you get a little bit of relief rally. But if he says, you know, we go 100 points, and we don't know what we're going to stop, and we don't know where the destination is. I think the market sells off, because there's really sticking to their guns. Well, I mean, it's hard for him, though, Surat to be that specific, he's going to say we're, you know, we're doing our 75. Today, that's what we think anyway, I'm not going to make make the call until we hear it ourselves. But he's going to likely suggest that they're going to be data dependent. And they're going to have to see what the inflation numbers look like, even though it's a lag, right, looking at the CPI, as some have pointed out, is looking backwards rather than forward, but at least perhaps gives an idea of where the trend is going. The danger as well, for investors like all of you, and Serato, throw it back to you is is wanting, needing, hoping and expecting more specificity and not getting it. Yeah, no, you're absolutely right. And, you know, we all want that. So that we can actually understand kind of where we're gonna go. But he's not going to give it to us because they don't really know yet. And they don't want to, you know, get get stuck into a box. Because once they do that, then you know, everybody's going to be hanging on every word. So I think there'll be there'll be, it'll be terse, and there'll be vague, and we'll kind of have to just keep on waiting for more data to come in. Yeah, just keep looking at that two year continues to tick a little higher. So Joe, does that does that put tech most at risk? In the larger picture? If you think that these moves and interest rates are just getting more steam behind them?

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Well, I don't think it's an incentive to step into some of the extreme valuation technology, a lot of the semiconductors a lot of the software names that traded with that just ridiculous valuation over the last several years and didn't have the profitability. So no, I wouldn't be there. I do have positions as you know, Scott, and recently increased my position and Apple, it's now my largest holding Microsoft, I've talked about those names. I think those are the right technology names to be in but quite candidly, they're not exactly performing relatively well here in the month of September. So I think technology needs to be treated with a very strong degree of discipline, and that discipline is being applied to what's the valuation because valuations are going to continue to contract if rates are going to move higher. Because Brent I mean, I'm looking at names like Microsoft ticking a little bit higher today it's given us 1% In the green that stocks been at a 52 week low making new ones more recently in the days behind us here Google as well. You know apples been a question mark after a nice burst it's lost some of that appeal of late to but what are we to make of these mega caps? Right? We can we can make the distinction between the Ark stocks, the ones that Joe's talking about these higher valuation ones, but what about mega caps, the most heavily owned most bet on names in this market? Where do they shake out now after what's likely to happen today?

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Well, so I wrote a piece for CNBC in December of 2021 about

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Where we are right now. And it's been a great 10 years for the NASDAQ. And as of the end of 2021, on a rolling 10 year return, the Q's had annualized 20% per year for 10 years. The only other time we even got close to that was in the 98 997 9899. technology bubble. And so we've had these 10 years and what was also the ingredients in those 10 years, QE, zero Fed funds rate. And so now those companies have, you know, over earned their historical average, and now we're just under earning. And so that's why, you know, we sold the Q's, and then we, we bought them back, but in JP Q, so then we could just I think we'll get more money made on selling calls against the Q's than actually on the capital appreciation, because we've just over earned for 10 years. And I just don't think people understand we're just in a different environment now than we were. And so prices and PE need to need to recalibrate. And so I think people are hoping that these companies are just going to have a V shaped bounce and we're back off to Goldilocks just aren't really understanding what history tells you about where we are in the cycle and where we are with rolling 10 year returns. Wow. But Jason, I mean, that's, that's a big call.

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So you got I mean, Bryn is painting a new, brave new world, in a sense for these kinds of stocks. Right? No QE, no rates at zero? Do I, as an investor now need to rethink my entire strategy around technology as a result of this brave new world that we are entering into?

16:40
Yeah, absolutely. I think there's, there's a part of all portfolios that need to be reassessed in this situation, there's been a complete regime shift and the price matters. So if I think about Apple or Microsoft, again, you know, Microsoft trading at 24 times Apple trading at 25 times, you know, it's not the names that Joe talked about the nonprofit Apple names, I think that the thesis on that makes a lot of sense. These are hard names to own in this environment. But yes, you know, when we're, we're moving into a rising environment, you know, in a tightening cycle. This is a this is a place where you have to own different names. And to Brian's point. I mean, these names have, have really done well over the last decade. So I think there's room for other areas of the markets, particularly value oriented sectors. I think that could Beckett do well in this environment going forward. And I think that's really the point that you need to, you know, make sense of as you're kind of reassessing your portfolio and positioning where you need to be. See, you know, the issue I have with that Surat, if if Jason snipe tells me that the most tried and true names in the market over the last 10 years are now in his words, hard to own. Because of this new environment that we're in rates are expected to go up and I'm supposed to go to value when rates going up is going to further depress economic activity at a time when the Fed wants that to happen. I'm supposed to go into more value sectors, industrials, perhaps, or banks, things like that. Does that make sense? For me to start looking that way? I think as part of a diversified portfolio, absolutely. Because the margin of safety is a lot higher in some of the value stocks and financials, industrials, etc. But I do think there is a place in your portfolio for growth stocks that are reasonable valuation. And so take, for example, Microsoft, even though it's trading at 25 times earnings, if Microsoft can grow its earnings, you know, eight to 10%, higher than the average growth stock, you're going to have demand for that stock. That's where you really have to pick your stocks not to say, Hey, I'm going to buy this basket, like, like Ron was talking about the Q's, I do think there's opportunity there for the apples and Microsoft's, and some of the Googles of the world, that if they can out earn their peers, you're really looking at cell activity there. But I do think value is going to be very important, much more so than it has been the last 10 years. But it hasn't worked. I mean, you know, we've gone through these cross currents where value works, one month, growth works runoff, but going forward, your rates are going to be at 4%. And the Fed is going to keep us there, which we all think is probably going to happen. Values gotta be part of your portfolio. All right, so Joe, you know, there's a stock that we talked about the other day, you highlighted it, believe it was on the day that those housing stocks got an upgrade which we deemed to be controversial. I believe it was a double upgrade.

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Overweight on a couple of housing names and we suggested now is now the time to be upgrading with that magnitude of housing stocks when we're worried about what's going on in that in that space. You mentioned Louisiana Pacific at the time. You did not have a position in it. I know you were looking at it. You have a position now

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Yeah, I certainly do. And you jumped in right? $51.60 Louisiana Pacific.

20:08
Absolutely. Thank you Bank of America for the downgrade. This is a second derivative play on housing. I'm not there. I'm with you, Scott. I don't want to step into housing right now when I know the economy's could get a contract. I know today, the chairman is going to be asked about being an active seller of MBs, which is going to put compression on the real estate market in the housing market. So I went to second derivative. It's respectful evaluations, Louisiana Pacific trades at four times this is a company with a very strong balance sheet. It's well diversified geographically. And it's an example of I believe the type of business that's defensively oriented in its industry. And defensively oriented businesses right now are exactly what you want to own. I don't know that its growth or value. It's right now it's really defense. It's utilities. It's staples, its health care, its energy. And it's been that way since last December, since the chairman made the announcement of what he was going to do with monetary policy last November, immediately in December, it was healthcare and consumer staples, and the defensive formation took hold in the market. And it hasn't changed ever since Louisiana Pacific and buying it as an example of that type of stock. You're sending it higher to just about highs of the day for LPS. You see it there with the 3%. We'll call it game. We'll keep our eye on that one. For the remainder of our show. Straight ahead. Right here. We have trades on some of the big analyst stock calls of the day and one week from today. Join the most powerful investment event of the year at CNBC is delivering Alpha returns in person can't wait September 28. You can meet with economic leaders, policymakers and the world's best investors. I'm gonna be interviewing citadels Ken Griffin there. You can scan the QR code on your screen right now. And registered. Don't miss it. We're back in just two minutes.

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All right, welcome back to the halftime report. Bank of America today has removed visa from its us one list and added PayPal, it's one of our calls of the day. Sir, I want to I want to go to you first. We've had debates about PayPal a lot lately, right? The stock has gotten clobbered? Is this the right move? Should you should you add it back and remove visa at this particular time given where both of these stocks are.

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So I like the PayPal addition that we own PayPal, I think you know, one of the things that we've talked about for a long time is PayPal had so much pull forward, that happened during COVID. And now things have kind of stabilized. So I like that part. I like the Venmo part I like as that grows, I don't agree with the visa call. I like the Visa MasterCard calls just because as inflation takes hold Visa, MasterCard and make more money, as is people spend more on their products. So I mean, there's a valuation issue there with Visa, MasterCard, but again, these are companies that I think are gonna outgrow the market. And you want to hold these in a diversified portfolio. So Visa, MasterCard, PayPal, all payments, and all going to do well in the next couple of years. Jason snipe, PayPal, you own it as well, do we feel like this stock is ready for a reset? And I think maybe that's the best word for it.

23:36
Yeah, so I think, you know, what Elliott getting involved is was kind of a catalyst for the stock for cost cutting, obviously, there's some pressure on margins of stock to your points, God has been decimated down over 50%. But the multiples come in quite a bit, it's now trading at 23 times forward, they just need to figure out how to how to monetize continue to monetize the existing user base and figure out also as well, what they're going to do with new business. So, you know, again, for us, it's been a staple in the portfolio. It's our favorite payments stock, even though it's gotten hurt this year. So I think, you know, over the next couple quarters, you can incrementally add to this name, with the pullback that we've seen over the last really 18 months. So bring on that point. You say to our producers today. You'll you'll add more at some point. The question is at what point

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right, so so I'm not I'm not in a hurry, because I think of all the things I said I said early. What's interesting about PayPal is I really do think that the Elliott coming in to take a stake was a ship there because prior the prior two quarters, you know Dan Schulman or the C suite. I felt they were all over the place like are they going to buy Pinterest that then came out and said they're not going to focus on new users just monetizing their existing users. And so I felt it was all over the place and the stock is down because everything's down, but I think it was also down for poor execution. So I was really frustrated.

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did this last quarter after Elliott came in, they have a new CFO, which the street really likes. They're doing really nice cost cutting. And so I want to see what happens this quarter where we are on that. And if they continue to have good headway, because I'm not in a hurry, I do not think this market is going to make a V shaped rally to 4800. By the end of the year, I'll be patient, see what happens this coming quarter, and then probably add add after that, Joe, you don't own it, and maybe you have a more critical eye on it, than some of the others who have this stock have endured the pain in it. Can you tell me why pay pal deserves such a premium to the s&p. At this particular time? It's 21 times forward. Why does it deserve that? And is it likely to come in even further in the weeks if not months ahead?

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So I don't think that Pay Pal is susceptible to further declines from here. By the way, Jyoti owns Pay Pal sold out of it in November of last year. I think the optimism that you can have right now for Pay Pal comes from the addition of a new CFO, Blake Jorgensen, who was previously at Electronic Arts and what he introduces is a very aggressive buyback plan that's sorely needed at PayPal. He enacted that back in 2013, for Electronic Arts and it worked there. I think that's going to be working here for Pay Pal, better management of the bad balance sheet, better return of capital to shareholders. That's your optimism and buying the stock. I don't see further downside for PayPal. All right, straight ahead. We're gonna hit the financials today. The Fed gets ready to raise rates. As you know, you have the hearing down on Capitol Hill, the CEOs are there. And for Hispanic Heritage Month, CNBC is celebrating our teammates and contributors here, CNBC producer, Silvana, hello.

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When I first came to this country, I only spoke Spanish. Once I learned English, I only wanted to speak English. And my mom really, really made sure that we only spoke Spanish at home, to make sure that we held on to our heritage that we held on to our roots. So I'm so proud of that. I'm really proud of that, you know, in a crowd of people, I know that I speak two languages that if someone needs help, I can help them I can translate for them. And I think throughout life, it's opened a lot of doors for me, especially in my career, given that I'm bilingual, I feel like it really just gives me double the power.

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We're back on the halftime report. Let's go to Ayman jabbers. He has breaking news for us, Amon.

27:38
Scott, we now have a response in writing from the Trump Organization to that lawsuit filed by the Attorney General of the State of New York earlier today against the Trump Organization. The allegation in the lawsuit was that the Trump organization for years has been inflating the value of its assets and conducting fraud. In order to do that the response here from the Trump Organization, now, lengthy and in writing, accuses the Attorney General of waging a year's long political campaign against the Trump Organization, also targeting New York City's increase in crime offering a number of statistics about crime in the city saying that she should be focused on that instead of the Trump Organization. And it concludes with this God, they say an attorney general is supposed to be fair, impartial and unbiased, not weaponize their office to pursue a political vendetta or target their political opponents. Today's filing by Attorney General James sets a dangerous precedent, not just in New York, but for our entire nation. The good people of New York should be disgusted that from the Trump Organization spokesperson today and the response to those that lawsuit filed earlier today by the Attorney General wait to see how all this plays out politically, legally. But you can already see the political strategy here, Scott, which is to attack this and say that this is all politics. It's all about tarnishing Trump ahead of some potential 2024 presidential activity. We'll wait and see how that all plays out. And whether the President the former president declares his intent to run again for the presidency the United States got. Yeah, we'll see if we see the former president at some point today, responding personally to all of this, too. Amen. Thank you. That's Ayman jabbers outside the United Nations, where he's covering the president's appearance at the General Assembly earlier today. Up next we have the very latest from those hearings on Capitol Hill. The big bank CEOs are in DC today. Plus Mike Santoli. He just sat down for his mid day word ahead of the Fed. So we'll talk to him on what he's thinking about a couple of hours from now programming note as well. 10 o'clock Eastern tonight on CNBC. Don't miss an all new episode of Jay Leno's Garage very special episode with a special guest Elon Musk halftime back after this

30:00
You probably know by now the CEOs of major US banks are testifying in Washington DC before the House Financial Services Committee today or Lesley picker joins us now, with the highlights we might have missed over the last 35 minutes or so any fireworks, no fireworks. Although the hearing just reconvened after a brief recess lawmakers pressing the global banks about their investments in Russia, and whether they'd be prepared to stop doing business with China. If it were to invade an American ally, the CEOs responded largely by saying they defer to the government for guidance. In the event that something like that occurred noting that it's hypothetical at this point in time, they were also asked if their banks were well capitalized to which they also that they weren't as made evidence by these fed stress tests. Earlier in the hearing, JP Morgan CEO, Jamie Dimon was asked about post financial crisis capital requirements. And what that meant for lending

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was not just capital liquidity requirements, international requirements, Basel requirements, etc. do restrict lending raise the cost of lending,

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damaged markets, a little bit of reduced mortgage lending the poor, some of our banks, we want good regulations, I think we need to spend a lot more time at recalibrating the effect of these regulations are across the whole financial system. So the question there was essentially Scott, you know, whether there were too stringent capital requirements to help people in need when they are looking for, you know, to borrow in as the economy faces periods of stress. And Diamond's response was basically, look, we've got some pretty stringent capital requirements at this point in time. And it's a good idea, potentially, to revisit those in this post financial crisis era. Yeah, Leslie, thank you always interesting to see the leaders of these large financial institutions on on the hill, taking these questions from members of Congress never know exactly what's going to take place, whether there will be fireworks or not, not over yet. We'll see if anything develops over the next couple of hours time Lesley picker, thanks to you for that. All right. Let's trade the financials. Guys. We do have other news, obviously, that being the Fed, you do have this move Serat higher interest rates, you have considerable amount of exposure here, Bank of America, Blackstone city first republic jpm. US Bank Corp.

32:22
When you look at interest rates now and then this was something we hadn't factored in before. But as rates keep on going up, the banks are going to make a lot more money on this. They're not really giving anybody high interest rates on their checking and savings accounts. They're lending making money on the spread. And also on the investment management business that you know, as people move more to other alternative investments, they make a lot of money. So I think this is a good tailwind for all the banks, especially the ones that are money center banks, and the wealth management banks. Do you agree with that Jason snipe who also owns Bank of America, Goldman Sachs, CSL X lf the Kre, along with PNC Financial, is this a good time to buy bank stocks? You have the conflicting stories? Right. I got higher rates. I got worries about the economy, which rules the day for the stocks?

33:10
Yeah, yeah, absolutely. So Scott, I mean, obviously, these banks are well capitalized. I mean, that I'll start there. But I think there's there's there's still a lot of headwinds here, you know, higher rates, you know, slower demand potentially on on loan demand and commercial loan demand. I think that's a concern. Obviously, the IPO IPO market has has shrunk, you know, so there's not not a lot of issuance there at all. So So for me, I think it is a play, I agree with Serato, the kind of the net interest income piece, I think that's an opportunity. But here where we are late cycle, you know, sometimes financials are likely not the best place to be if this potential recession is slow, and sallow and not, you know, pervasive, I think you could kind of inch back into this some of these names, but I think right now, they've been a hole for us not overly excited about the sector here. Nor are you, Joe. And I mean, how can you be overly excited at a time where one of the generals of the industry Jamie Dimon himself is in DC today and said, there's a small chance of a soft landing, that you could have a mild recession, I can't imagine an eye either one of those scenarios that these stocks are going to all of a sudden take off.

34:25
So I said to Patty, our producer before the show, I have tepid enthusiasm surrounding financials, obviously, I have ownership of Bank of America, Goldman Sachs, Morgan Stanley, and I think I've I've set forth myself got a reasonable expectation on these companies. I'm not going to see the type of revenue growth that potentially I'm going to get from consumer discretionary or I'm going to get from technology, but I am going to see the strength of the balance sheet I am going to see also a degree of resiliency. Let's keep in mind that in q3 financials are actually outperforming the s&p

35:00
They're up 4%. So I think it's about setting a reasonable expectation. That's what I'm doing here. That's where the tepid enthusiasm comes for. If you're looking for more growth potential, and a potential higher beta exposure as markets rally, you go second derivative, you look at the exchanges, like CME or ice, or you go to the asset managers I gave as a final trade the other day, Charles Schwab. In addition, you could look at T Rowe Price, I think that's where you're gonna get a little bit more of the growth opportunity. But given the current climate, I don't think you could have a you have to set a realistic expectation for the big banks. Well, Brent, I mean, I think that's a good point that Joe makes. And if you know, the one of the top banking analysts, Mike Mayo was here himself, he would probably say what he has in the past that this is a better environment right now for Main Street banks versus Wall Street banks. Do you agree with that?

35:54
I like the way Joe's. I like the way Joe's position in it. And I agree with you. I agree with Joe. I mean, I have a small position in Goldman. But here's the issue, I have two issues. First of all, like loan growth, it's all relative, we have an inverted to flat yield curve that is not good for the banking environment. You can't you can't lend on the short end that has a higher rate than the long end but doesn't make any make any sense. And then I do believe in the economic cycle. And I do believe we are late stage economic cycle. And we're Joe said earlier, when we're talking about value and growth, he doesn't look at that he doesn't look at it that way. And I don't either he's looking at defensive where you want to own consumer staples, utilities and healthcare. When you are late stage. It is like textbook you don't want to have an overweight to Financials. And so for those reasons, I have a small position and Goldman we sold our ETF s VL that had a 45% regional bank exposure because I can guarantee you this Scott, the Fed will be successful and not only slowing but stalling the economy and that is just not a good universe for financials to outperform. All right, we're gonna take a quick break when we come back. Mike Santoli is here for his mid day word you think the two year might be on his mind? We'll find out next.

37:37
Welcome back to the halftime report. Counting down of course to the Fed one hour 12 minutes. Just about even our senior markets Commentator Mike Santoli joins us now for his mid day word I mentioned I can't imagine the two years 401 is not on your mind like everybody else's today. Yeah. And it reflects markets bracing for some impact the two year note yield Dollar index at a new high. So clearly, we're kind of edging toward the the idea that we know are getting at least three quarters of a percent. Maybe you're building in some anticipation that could be slightly more hawkish, whether it's the number or the the outlook stocks, you know, they're about 1% above the low for each of the past three days past three days, intraday low was basically 3030 plus or minus a couple of points, say 1%. Above that, but right around a two month low. So to me that tells you it's not as if stocks have puffed themselves up in anticipation of some great relief, even if you typically gotten a little bit of a quick reflex relief trade no matter what happens during the Fed. And then the question is, does it hold? Or does it fail? We've got a great ability throughout the years to put yourself sort of in the mind of the market, if you will, what do you make of what Liz Ann Sonders suggested this morning, when she was on the key questions the the time it takes to get to the ultimate destination like Mom, Dad, when are we going to get there? And then how long we're going to stay?

38:56
How much clarity Do you think the market needs to get from those two questions today market is inherently impatient, and in this case, more so. And I think that being in a position to say within the next several months, we're probably at the destination in terms of the rate level in terms of being there for a longer period of time. I think we have to absorb that possibility. And more specifically, what's acceptable in terms of economic weakness for the Fed to get up there and stay up there and maybe even lean toward adding to hikes after they pause? Because that to me is going to be in some of the dotplot. Today, where's unemployment going? Based on their projections? Because that to me gets to the crux of it. How much are they willing to take the starch out of the economy? How much of it to achieve the goal there was that article What was it yesterday in the Journal of tomorrow suggesting their their content? The Fed chair is with a mild recession at this point, there's no doubt no other way out of it. There's no doubt that they are that they probably have it as a base case not playing for it necessarily. If they feel

40:00
If they can just sort of soften up the labor market enough and have wages decelerate and have this sort of Immaculate slowdown and inflation, fine, that'd be great. But I don't think that's necessarily how it's scripted at this. Speaking of the journal I'm looking at all plays into the same story. I'm looking at a headline here. Meta, the former Facebook is looking to trim costs by at least 10%. In the coming months sources telling the journal for a story that's moving right now it sort of plays into what's ahead for the labor market and what we can anticipate. Thanks. I'll see in a few. That's Mike Santoli. We'll see him later on for his last word. Of course, we have more trade straight ahead right here.

40:50
told you about that flash headline just a few moments ago, resulting in a move right there for shares of meta, the former Facebook's spiking their Wall Street Journal reporting, the company is looking to trim costs by at least 10%. In the coming months, the stock did hit a new 52 week low earlier today. Surat, you and Brynn. Both own it. So I'll lean on both of you here. Bring to you actually, I'm sorry, Surat, I was going to you first, my apologies. What's your read of this news? It is causing the stock to rise?

41:20
Look, I think Facebook came out with these huge expectations of growth in terms of how much we're going to spend, you know, billions of dollars into the meta. And I think this is a good thing. It's raining. And cost is really important as we go into, you know, potential advertising slowdown as well. So, to me, it looks like the company's making the right moves here, cutting costs, and focusing, you know, on operational, you know, expertise. So I think it's good. They have to deliver it's been, it's been ugly stock, it's been one of our worst performers. But I do believe there's a lot of value there and I'm still a holder and a buyer at these levels. See Brenda I can think of you know, okay, reining in costs is one thing, reining in costs when you need to spend for what you've determined the future of your company to be. You've sold investors on that vision. And it is a long term vision. So if you're reining in costs, now, does it prolong the runway of getting to your vision?

42:20
Right, I mean, I've told you before, I'm more of a tourist and the stock I bought it probably 30 points ago, and it's been like this is a textbook to me. Growth name that's become a value trap. Right? I can't I got I got sucked into a ride. The stock had a low P E. And now the P e is I want to say a 15 times forward if this continues to go lower. And so how can they continue to spend 10 billion a year for this metaverse? I have air quotes here. Metaverse yet reining in costs so I agree with you. I'm more looking as year end as the year comes as the urine comes whether I'll do like tax loss selling on this because it's just been such a poor performer even when the tech when tech rallies, it just doesn't rally. And so I just think you need to have a total resetting of the table with expectations to get investors to come back to this name. Otherwise I think it's going to be a value a growth value trap which which are just painful to own because you don't want to miss that move. If you if you do see tech starting to turn around and you don't get it here That's such a shame. Yeah, it's been a rough year. No doubt for investors in meta. We'll take a break guys we'll come back we'll do final trades next

43:34
gotta pick overtime today with that man right there. doubleline CEO Jeffrey gunlock reacting his first word in reaction to the Fed. What they do what they say and we'll see in a few hours time I hope you'll join me there. Let's do final trades guys and the minute that we have left Jason snipe please go first.

43:53
Yes, good. I like Autozone here nice beat on the top and bottom line construct. 6.2% I like it here.

44:01
Okay, Brynn.

44:04
I'm gonna give you a cover call idea you can buy Devin here sell the January 2375 Strike cover calls you collect $4.50 which is a 7% yield plus you get a 2% dividend in December. So it's like a 9% income for the next five months even if the stock does nothing. Okay, so right.

44:24
Going back to Morgan Stanley trading it 10 times earnings at 3% dividend yield to get a margin of safety here. I think management's really focused on their businesses and I like to stop. Okay, Joe, his shots frozen, but he's choosing the CBOE. So you don't get Joe but you get the name. Most important of all, I'll see everybody in overtime. Look forward to it. The exchanges now.

44:46
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