here's what's ahead. peak rates treasury yields falling from their recent highs despite the fed signals there are more hikes ahead. inflation fears replaced by concession concerns. plus, a veteran real estate investor is starting to buy again, targeting distressed properties in key markets. he'll tell us what he's seeing as the commercial and residential markets come under pressure kelly, over to you >> the dow had been up 301 with all the major averages in the green. the s&p, by the way, is higher for the first time in six sessions it's really been a struggle for us to get some rally power tesla shares are moving on reports it's shortening production shifts in china there's reports that elon musk ba bankers are considering loans. and the chip stocks are the biggest gainers this afternoon nvidia, nxp, micron.

and activision dipping lower on a report that the ftc could sue microsoft as soon as today activision blizzard down 2%. more on that in a moment. we begin in the bond market today and the dramatic move in treasury yields. the ten-year yield started the year at 1.5% today the yield sits at 3.4 as the concern is now turned back to recession risk. is it possible that rates have now peaked and what does that mean for your investments? rick santelli walks us through the inverted yield curve and the three-month ten-year spread that is at its lowest level since 2001 bob pisani is here, and diana olick joins us on the mortgage impact rick, let's start with you >> yes, you know, the inversions, let's stick with what is happening. the dynamics of what is causing this we have a federal reserve and

central banks worldwide trying to push up rates they left them too low for too long, covid money stoked inflation and here we sit. but as they lift and talk so aggressively about short rates, they have some control over the long end of the market, seems to have an opinion of its own and that opinion is everything the fed is doing and some of the hangover from covid is going to cause a recession. three months versus ten. yesterday closed at minus 87 a 22-year inversion. hovers among minus three yesterday's was the most inverted since '81 what's the lowest yield on the home curve today 30-year bonds. the longest maturity has the lowest yield so to that end, it's at minus 03 which means first inserted close since october 20th right now, minus 87, that would

be the most inverted in 41 years. back to you. >> thank you let's get to bob pisani. >> kelly, it's been a strange month for the stock market let me show you this chart stocks are sideways, the s&p 500 essentially sideway this is month at a time when bond yields has been moving down normally declining bond yields is good for the stock market however, the market is changing its obsession with -- and the obsession with inflation in 2022 to an obsession with recession generally, bond yields declining when there's worries about inflation is good for stocks when you shift the obsession to recession, bond yields declining are bad because it indicates that the markets overall expecting more severe recession. so that's going to be a bit of an issue the market has been holding up very well, though, given worries about recession. you saw the blather the market

got itself into. we saw bank stocks down 8, 9, 10, 11%. look at this, m and t, bank of america. most of them were cautious but not gloomy the market extrapolated some of those worries overall. i think we're going to get cpi data on tuesday. i think that will have another data point on the inflation front. we're expecting i think 7.3% from 7.7 last month and that will be a big impact on the markets next week other than the fed meeting. >> keep an eye on that data, thanks, bob. over to diana and the impact on the mortgage market and home affordability. >> mortgage rates have come down sharply from their recent highs but it's still tbd if they're going to stay there. the average rate last peaked in october at 7.37% which crushed home affordability and it fell sharply on november 10th which

suggested that inflation was easing it fell further on remarks from fed chair powell in november with lower rates, fannie mae reporting that housing sentiment among buyers and sellers ticked up slightly off of its record lows and doug yearly said on the earnings call yesterday there are some, quote, very, very modest green shoots over the last few weeks as rates have come down so we are, as everyone says, waiting on the next week's cpi release to see if mortgage rates are going to stay in the current range for awhile or shoot back up again >> it's all about that data. thank you so much. we've got a market flash now a news alert on microsoft. steve kovach has the details. >> the ftc is suing microsoft over its $69 billion proposed acquisition of activision. this lawsuit is sayingmostly focusing on competition and

saying microsoft has a pattern of acquiring game studios to snuff out competition in the console market they point to the acquisition of another system no word on this lawsuit from microsoft. it hinges on the call of duty game sony and other rivals have complained that allowing this to go through would give microsoft an unfair advantage by making those titles exclusive to microsoft platforms. but microsoft is offering that they would make call of duty available on other platforms for ten years. they offered sony that ten-year deal and also saying that nintendo agreed to that. from what i understand, speaking to people on that side of the argument here, they are willing to fight this all the way through. the deal originally wasn't

supposed to be closed until june of next year, eamon, but this could delay it even more. >> a lot of people have been waiting for a crackdown from the biden administration and i wonder what you think the impact here is on microsoft if they're forced to unwind this deal i want to step back after you answer that question and hit you with another one i know this is breaking news hit you with a second question about the tech industry more broadly. what does this symbolize for the -- first of all, for microsoft. >> for microsoft, it was you aren't -- unfortunate timing that microsoft announced this day when they said they don't want bigger companies to get bigger and put themselves into a position where they have monopolist power they point to facebook acquiring instagram. this is exactly the kind of deal

that lena khan's ftc wants to block. if she's no longer the chair, this seems to be her only chance to make a mark for her legacy as the chair. >> so is it -- steve, a done deal then? what is the message to other kind of tech rivals of microsoft and those looking at similar kinds of acquisitions that every day we see a large company looking to bolt on, you know, plays that might help them in their future if this one is going to be the one that -- they give the red light, they say it can't go forward, what are the larger implications of that >> it's already, kelly, putting a chill on acquisitions. every time we talk about, is apple going to buy disney, is facebook going to buy this company, we say, look, regulators, president biden specifically appointed people like her to take a tougher look at these kinds of mna

transactions meta wants to buy a fitness company on the surface sounds like it would be nothing, but they're making a similar argument in that case, kelly, saying, look, this could turn -- if the metaverse and vr turns into a big thing, it could look like the instagram situation we were in with before. what this could do and already is doing is putting a chilling effect on all big tech m&a deals. >> this news is just breaking, but you mentioned meta call of duty is the big product there. that's a legacy video game and i wonder what the impact of this is on the future of video games and gaming, particularly in the metaverse, right, and whether you think that that has any implications on how that entire industry is going to shake out. >> believe it or not, this also plays into mobile more than anything right now they're talking about

consoles but the main reason microsoft wants to buy this company is because of their -- just this mobile business that keeps growing like crazy that's how most people play video games. then you start talking about the platforms, apple and their blocking of other app stores microsoft could love to put an xbox app store on the iphone and have a separate app store with their own games including activision ip. when we get into a broader conversation about what this means, you start getting google involved, you start getting apple involved microsoft and activision are involved it's also going to be interesting to see how sony reacts to this they've been the chief complaint throughout this entire process and even though they're the market leader, they don't want this deal to go through because anything that's good for microsoft is going to be bad for them. >> so fascinating. all of these downstream effects. >> i'm making calls right after this. let's turn back to our

reporters now as we reflect on some of the major market developments we've seen here and whether we've hit peak rates rick, i guess the question about peak rates, if we want to kind of focus on the ten-year in particular, is it definitely the case that 3.5% is going to be even here a high watermark and what can you think of that might not still make that the case as we look into early next year >> well, the latter is the easy answer and that's quantitative tightening it's something we've never done. we've never seen central banks with balance sheets like they've had, they've never had rates as low for as long as they have, and all of this, of course, is going to explode with regard to who is going to buy all the debt that needs to be issued topay for all the spending and all the money that we created during covid. now, as far as the rest of the curve, i can't look the camera in the eye and say, listen, that's it. the highest rates are behind us,

even though i believe it investors seem to believe it would you lend your money to uncle sam for 30 years, cheaper than any other maturity on the curve? that's a question that you need to answer. and i think that the ten year at 3.5% now is, what, three quarters of a point from the high close which was below 4 1/4. that's a big enough cushion to give them aggressive trading tendencies and to trade on what they believe because forecasting by investors and markets is a whole lot better than the history and track record of central banks and predicting pricing pressures. >> i wonder what you're seeing in the mortgage market right now. with these rates where they are, i'm wondering what the impact is on supply of new homes and previously owned homes coming to the market i'm a lurker on zillow and some of these other real estate apps and it feels like supply is training out of the market right now. that's maybe me looking at the apps

what are you seeing in the real world. >> it's draining out of the market you would think there would be more supply given that sales have dropped so much but the problem is, if you're sitting there with a 3% rate on the 30-year fixed on a house and even if you want to move to another one, you don't want to give up that rate for a 6.5% rate sellers are sitting on the sidelines. you have builders pulling back and when you look at the mortgage volume, the applications, you would have thought that lower rates over the last month would maybe bump up some of the applications for refinances and for home purchase applications we're not seeing that. we're down over 80% on refis, but we're down over 40% on purchase applications which just means that these possibly buyers are sitting on the sidelines not only can they not afford the home, but at higher rates, a lot of folks no longer qualify for the mortgage >> and, bob, finally, this all is probably the biggest question hanging over the stock market. >> yeah, and so it all depends

on what side of the recession debate you're on if you believe very mild recession or soft landing, then you're okay. right now you're going to be thinking, earnings are going to be flat in 2023, that's a good thing. if you are thinking more severe recession, you're thinking, earnings may decline 20% or more and then the market has a bigger problem because it's not priced in for that. here's the problem even if you assume a very mild recession or a soft landing, stocks are fairly priced just a flat earnings, going nowhere in 2023, we're trading at 17 times forward numbers. that's the historic average. to expand that, if you think earnings are going to be flat, you need to go to 19 or 20 you need to make an argument that the economy is going to do well that's the problem, how do you push the market up you got to believe the economy is going to do well. but the substantial group is going to think it's going to be much, much lower and earnings are going to be lower. that's the funk the stock market is in right now.

>> thank you very much our next guest says rates have not peaked and that's still a problem for the fed and the economy. so how do you invest david trainer is ceo of new constructs what gives you the confidence to say rates haven't peaked >> thank you for having me it's hard to say, but, look, until we have -- as an economy gotten smarter about how we allocate capital, we're not going to see inflation get under control. there's 20 years of mall investment that we've insecured over the last 20 years and other businesses like carvana that have had huge market caps and we've seen collapse. that's at the core of what's going on as long as we have good capital chasing bad investments, we're going to have a problem with inflation. the only way to slow that down is for the fed to keep raising rates and to quantitatively tighten. >> even if the fed keeps raising rates, we could see the ten-year drop, right? that's what we're seeing already.

the market is interpreting their ha hawkishness as a negative. why wouldn't that send rates lower, potentially >> i think it reflects the fact that interest rates are still outpacing -- i'm sorry, inflation is outpacing interest rates. as long as that's the case, we're going to have an inflation problem. i think the market is more forward-looking than it's ever been and already looking past the rate rise. in in the 10 and the 30 i don't think that means we're out of the woods yet ting markets are forward looking and optimistic in the near term we're not out of the woods and i think rates have to inch up a little bit more. >> so what does that mean for your view on the stock market? where do you think you differ most from the consensus right now? >> i think we differ most in just a real focus on underlying value and intelligence capital

allocation i think we've gotten away from that in many ways. too much fomo, yolo, chasing crypto or hot ipos we really advocate for folks to get back to intelligent capital allocation it's really more about making sure you're buying assets at the right price. you're buying businesses with real cash flow focus those investments on the companies with the highest returns on invested capital and highest cash flows because those are the underlying entity that is can create value for you over median to long periods >> could you change your tune on all of this if you start thinking, you know what, maybe rates have peaked? >> i would not i think that's one of the benefits of focusing on intelligent capital allocation is that you keep the same thing all the time your strategist doesn't change it doesn't whipsaw with the markets or interest rates or fads you focus on really doing your

diligence. you focus on fundamentals to understand profitability and valuation. it's not a dissimilar message from what warren buffett or all of the wise investors over the years have said. because that's -- at the end of the day that's what the stock market, kelly, is all about. it's about intelligent capital allocation if your strategist is focused on that, then you have something you can rely on through good times and bad. >> david, thanks for your time today. carvana shares rising today despite looming bankruptcy concerns that's got us thinking about other credit risks out there in the market a veteran strategist tells us which parts of the market he's avoiding right now. stocks that are still cheap, even if a recession cuts into interest we're trading ford, conoco and expedia in today's three-stock lunch. let's look at some of the names hitting new 52-week highs including las vegas sands, vertex, pharma and hershey

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welcome back to "power lunch," shares of carvana are making a comeback today, up a little bit after bankruptcy fears drove the stock to an all-time low yesterday if carvana files for chapter 11, it would add to a long list of 2022 bankruptcies which includes revlon, blockfi, ftx and according to new data, commercial chapter 11 filings were up 74% up from november if economic conditions worsen, could more bankruptcies be on the horizon. let's bring in brian reynolds. chief market strategist at reynolds strategy. it feels bad when you look at that data coming from november to november last year. is it going to get worse if we look at the december to december data going back last year? >> no if you look at the credit market, it's pricing in less worrisome trends in bankruptcy

credit spreads in the junk market, they're a fracture of what they were in the last decade so if you're looking at the broad market itself, i don't think bankruptcies are going to be a big issue the big issue i think is going to be the transition towards lower inflation which is what the bond market is predicting. and carvana's problem was that pandemics create shortages and gluts. when there was a shortage of cars, they had to pay a lot to get the inventory they had, and now that auto prices are coming down, that's a problem for them. >> so if you look at -- people always talk about bankruptcy as being, like, a forest fire, clears out the underbrush when you have one of these pullbacks and that can be a healthy thing for the overall ecosystem. if you think of that happening again now, what sectors are you looking at for more bankruptcies if you're thinking overall the trends are relatively good we're still going to see some pain here some place, right? >> as i said over the last couple of years on your show,

pandemic creates shortages and gluts. when there's a shortage, people overorder their inventories and you're seeing that at retailers right now. i would avoid retailers that don't have a handle on their inventory. that's going to put downward pressure on pricing. in the auto sectors as i just said, those prices are going to come down as well. >> as a regular everyday investor sitting in front of your laptop, how do you know whether a company has a handle on its inventory >> you look at their balance sheet. and on the balance sheet, they have the inventories there and carvana's inventory has tripled. that is the clue when you're inventories are out of control and the prices on those inventories are coming down, that's a real negative for the bottom line. and so i think a lot of retailers are going to be struggling with these. i think the carmakers, i think they're going to be in trouble next year. not bad trouble. but they're going to have declining prices next year

because they overordered chips were in short supply now we have a glut of chips which means next spring and summer, we're going to have a glut of cars this is normal for a pandemic with prices going up and down as they work their way through the economy. >> it's great to see you again would you say that you're basically bearish on some specific parts where we could see gluts or even i thought it was interesting the oil market, if prices remain below 75, would you say you're bearish on specific parts of the credit or stock markets, but more bullish overall? or are the distresses we're seeing in the subsectors signs that a larger problem is brewing? >> this is the most complex investment environment in most investor's lifetimes there's a lot of moving parts. i think over time, stock prices will go up but certain sectors are going to get into trouble like oil again. i was on your show ten years ago when oil was well above 75 and i said if that threshold gets broken, that's a negative for oil because people have to

unwind their trades and now we're doing it again the exact same spot, we've gone from below zero to 135 and now back down to 75. that is not normal but that's typical for a pandemic >> so what that means, then, if we say -- if i'm oan investor, i want to think about parts of retail, auto industry, parts of the energy market, depending on where oil goes from here when people have come on and recommend exposure to credits that might be offering you mid teens yields, would you think that, yeah, there is a pretty good chance that a lot of these companies aren't going to be bankruptcy candidates and will be able to deliver those pretty eye-watering returns >> i shy away from companies who debt ceiling is 15% or more. that's a risky bet i would rather be like the guest you see on who go for companies who are generating good cash

flows and have their inventories in hand. >> yeah. absolutely a complex environment -- it's reassuring when you say it we all sense it. brian, thanks for joining us >> thanks, welcome back. >> thank you still to come, we have more on that bombshell ftc lawsuit against microsoft's deal to buy activision it just crossed in the last 10, 15 minutes interestingly,ic mrosoft still hanging on to a 1% gain. we'll explore the fallout. stay with us zero-commission trades for online u.s. stocks and etfs. and a commitment to get you the best price on every trade, which saved investors over $1.5 billion last year. that's decision tech. only from fidelity.

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♪ welcome back to "power lunch. here is your cnbc news update for this hour. a judge has unsealed details about a drop bomb threat case involving the colorado gay nightclub shooting anderson lee aldridge was arrested on allegations of making a bomb threat that led to the evacuation of ten homes.

some republicans are sharply criticizing the prison swap that freed wnba star brittney griner. kevin mccarthy said president biden should have won the release for paul whelan. the white house says russia refused all efforts to include whalen's release for the first time ever, u.s. bank notes will carry the signatures of two women. janet yellen was there to see the first bills roll off the press, and then the first native eran tamico sign our currency. "power lunch" will be right back maybe it's perfecting that special place that you want to keep in the family... ...or passing down the family business... ...or giving back to the places that inspire you.

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welcome back to "power lunch. stocks rising across the board right now but off the highs of the day. just about 30 minutes ago, the ftc sued to block microsoft's acquisition of activision. microsoft losing its gains now still trading higher activision is lower by about 2%. we're going to have more on this story in just a moment and look at some of the other deals out there that could be at risk and what washington is saying here

when they file this case meanwhile, chinese tech stocks are rallying as china starts to loosen some of its strict covid restrictions alibaba and pinduoduo with big gains today. a negative covid test is no longer required to travel within that country that's lifting some of the casino and travel stocks we don't talk about the real estate sector of the s&p 500, but today it's the second best performing group after technology led higher by names like boston properties and public storage. sticking with the real estate theme, back in september, lending had dried up and commercial real estate was coming to a halt it's now so cheap, our next guest says, that they're sitting on billions of dry powder and they're ready to invest again. with close to $8 billion in assets under management, joining

us is patrick carroll the founder and ceo. are you primarily contingent on rents? which way do you think those are trending right now and how favorable is that for your company? >> well, you know, rents have been going up so fast the past couple years, i don't think anybody really expecting them to continue to go up as fast. but we are pulbullish. as it becomes harder to buy a house with interest rates where they are, people will be renting longer it's probably just not going to be as high as it has een. >> careful you don't cause a market sell-off, people are going to have to rethink how much inflation power there is in the economy. >> maybe that's my strategist. >> are you a builder or just an investor col could you be part of the

solution by increasing the supply of multifamily homes? >> that's our plan i mean, what we -- we primarily are an investor. we've done a lot of building and development as well. but where we see the biggest opportunities is in the structured credit space. borrowers, as owners of properties get into trouble, we want to come there and provide rescue capital we want to provide capital for them to pay down their interest rates, continue to manage the properties and we'll come in a preferred position and look for properties that we want to own long term and in markets we're in we're looking for good properties with just bad financial structures weak owners that are not in good financial positions and the markets that we are very bullish on. >> patrick, i'm curious whether you guys are coming out of the pandemic, into a permanently changed real estate landscape. are you seeing different trends now? whether it's regionally or in terms of excerpts versus suburbs, versus downtown that is we didn't see before the pandemic is there a lasting impact from

what we've all been through over the past couple of years >> i think the lasting impact is people are aware of the sunbelt. we've been investing since 2004 and we still see that as a very attractive option as people continue to do it. companies are moving to the southeast and into texas, arizona, and, you know, which brings employees and once people are here, they don't want to leave. the cost of living is better it's a higher quality of life. and it's frankly a lot easier to operate a business in these markets. like i said, we've been bullish on these markets for a long time what the pandemic did was bring awareness to the international scene of how attractive the markets are. >> you still think austin, phoenix, miami, these are overvalued markets >> they're overvalued because where the interest rates are as interest rates go up, the value of commercial real estate goes down. these properties are still performing just like they were but as the ten-year goes up, cap

rates go -- cap rates have to go up that drives down the value of the properties this is all capital markets. it has nothing to do with the fundamentals of multifamily business if you look at an office building, especially with all of these layoffs, that really is a deterrent to the value in the multifamily business, it's capital markets as interest rates go up, values go down. >> well, you sound confident that you can navigate this cycle. patrick, thanks for joining us it's good to have your insight thank you. >> thank you. >> good to have dry powder in this economy up next, the ftc is suing microsoft over that deal with activision what other deals could be at risk going forward we'll bring that to you.

let's get back to the breaking we brought you earlier this hour. the ftc suing microsoft over its proposed buyout of activision. let's bring back steve kovach now. you have a statement from microsoft. what are they saying >> this comes from microsoft president brad smith who has been behind this deal the whole way. let me read you what he said quote, we have been committed since day one to addressing competition concerns including by offering earlier this week concessions to the ftc while we believed in giving

peace a chance, we have complete confidence in our case and welcome the opportunity to present our case in court. so those concessions, the main one they're saying is, we'll give call of duty to all these other platforms on day one, we'll let it -- sony can have the biggest activision game on day one. nintendo agreed to this as well as steam. >> the language is interesting he says gives peace a chance which implies that they're going to war. >> exactly everything i've been hearing from the microsoft side from day one, they're willing to go to war. they really want to get this deal done. this is the biggest acquisition they've ever done. >> one of the biggest of all time. >> period. that's true. nadella wants this to happen what i found interesting in this release from the ftc also was, they talked about a pattern of microsoft's acquisition, really pointing to that saying, look,

they bought zinimax. they didn't mention minecraft, but they bought the company behind minecraft too they've been building this portfolio of game studios for the better part of the last decade and now with this huge acquisition, we see the ftc really going after them. >> their charm offensive this week didn't work the ftc voted still to pursue this case. and brad smith had an poeop-ed n the journal, he said we have no meaningful presence in the mobile game industry, a significant portion that goes to google and apple through their app store fees that's the fastest growing segment and that's not something we're capturing. >> it's it adorable when these huge companies pretend like they're small businesses. >> are they telling shareholders the same thing. >> but they are right, just

specific to gaming, they are the third behind sony and nintendo sony the chief company complaining about the deal is the market leader. and they're the market leader because they have exclusive titles just like they're complaining about here they're saying, oh, no, they're going to make call of duty exclusive, there are a pattern of these acquisitions, sony is complaining about this sony makes amazing games that they only sell on their own platforms. >> a move would be for a big tech rival to buy sony it would never happen. but they're making a strong case for why they've been so successful we want to bring in julia as well it's not just these big deals with, you know, big brand names. the ftc have already sued to block eight deals, maybe more. and some pretty small ones as well >> well, yeah, there's one that we're watching right now there's a hearing going on right now in california over meta's attempted acquisition of a vr start-up called within this is a roughly 300,

$400 million deal. what's interesting is the ftc is saying that meta is going to have too much of a dominance in this vr space which is very nascent and it's a fitness app showing through this acquisition, meta would have too much dominance of this space it's a much, much smaller deal but the ftc is going after many different companies on many different fronts and i think this ftc versus meta situation in particular will be closely watched because it could have major implications not just for this acquisition but whether or not meta can make other acquisitions all of these different cases are being closely watched as indications of what kind of m&a is going to be allowed in the future. >> let's bring in the former ftc member and currently a professor at george washington university law school bill, looking here as you join us on the phone, just looking here at a story from two days

ago in market watches in lena khan said they're taking time to put together enforcement cases she said we want to major we're doing our due diligence but she added we have a heavy docket and i think we're going to continue to see more in that direction. that sounds like what we're seeing today, is that right? >> this is the boldest move that the biden administration, antitrust agencies have taken to police mergers and it certainly does signal a continuing intense commitment to look at a wide variety of deals more scrutiny -- more carefully and to go into court to block them. >> if microsoft says it's going to fight this, take it to court, what are their odds of winning and what is the precedent tell us about pursuing it like this >> the precedent in the tends to be sympathetic to nuclear missile -- number of the arguments they've been making. there have been hits in the courts realtime. the courts are going to be

willing to 31 their arguments about the effectiveness of the pr proposed solutions that they offered. this is going to be a hotly contested matter in which they have a reasonable prospect of success. but the ftc recently has been saying we don't care if we lose a greater number of cases, we have a greater appetite for risk, so this is part of our larger commitment to be in the courtroom, to challenge deals that the agencies might have settled in the past. >> talk about that larger commitment for a second because we saw this -- these comments from lena khan earlier in the week where she said, they're outgunned at the ftc in terms of staffing in a case against meta, they're outgunned ten to one in terms of staffing i wonder if you feel like they have the staff to go toe to toe with all of these tech giants as they're staffed right now? >> i think that -- i think they don't -- >> they don't. >> they don't have the capacity. >> and biden has asked for more

money, but that money might not be coming any time soon. >> he's asked for more money and congress has been taking about getting more money but we're much more interested in what people actually do than what they say they're going to do so far, congress hasn't given them an additional dime. >> and, steve, again, let's turn to the broader implications here for the rest of the tech space this is a unique deal because of its sizeand it's a big tech company and a big video gaming one. but we aren't going to know for some time whether or not microsoft is successful here the fact that the ftc is pursuing this, like you said, it's likely to persist in this chilled environment. >> it's going to delay things too. microsoft, you know, figured they're going to be under intense scrutiny, given the environment they announced this deal into. there's already so many scrutiny over big tech acquisitions and they crossed all their is and dotted all their ts.

they've offered confrontation -- concessions. it reminds me of the time warner merger so this could happen again it's about $3 billion. if microsoft gets tired of whaty activision >> this is not the first time that microsoft of all companies has been in washington >> brad smith especially he's heading this deal >> this is a company that knows washington antitrust battles better than maybe any company in the world. i wonder how that experience last time, when microsoft faced a lot of blowback, i wonder how this is going the play out this time might be too early so say. >> that's why brad smith is running the show i spoke to him in april, i was chatting with him off camera he knows so much about video games. about this space he's done his homework he is ready to make this fight

and like you said, like they went through in the late '90s, they have the experience and know how to fight it >> how much better are microsoft's chance here? >> the prospects of success increased. they've already stretched. they have a number of big litigation debts and there's a limit to the number of first rate litigation teams they can assemble to take on the deal second, the point you've just been discussing, microsoft is well prepared for this they've taken a different approach to washington ever since the monopolization case with the justice department was fought out in the late '90s and early 2000s. they've taken a much more conciliatory approach. probably have the best approach to dealing with washington than any other major enterprise

they've been crafting their entire effort with the expectation that at some point, we might be in a courtroom having to defend the transaction. that means they are well prepared for this contest and the ftc is going to face for a variety of reasons, an enormously demanding challenge trying to make this work and the ftc is not worried about losing. again, the federal agencies are saying we're willing to lose more cases for the sake of making the point about our commitment >> and julia, make no mistake here, this is a shot across the bough. not only to this company, but so many others considering ak acquisitions what do you think the chilling effect is going to be in c suites as people look at this saying at least for the next couple of years, we've got a very aggressive ftc. >> if you look at the decline of the market cap of some of the

media giants and you think of how there could be potential match-ups between tech companies that could be interested in buying media companies i'm talking about the speculation that apple could be an interesting buyer for a disney or netflix could be a pair for some of these other media companies. i hear so much speculation about what kind of consolidation needs to happen here in hollywood. i'm hearing this from senior executives and this idea there could be some smart pairings of tech and media giants, but that will not be allowed under this kind of regulatory environment so i think this is all being watched closely. the fact that amazon's acquisition with mgm was so scrutinized and went through, the fact it was scrutinized raised a lot of concerns and i think this is going to be fascinating to see the implications across so many different industries especially as these industries and companies come under pressure >> we've just gotten word from activision the ceo saying while the ftc will be filing this lawsuit, quote, this sounds alarming so i

want to reenforce my confidence that this deal will close. the allegation this deal was anticompetitive doesn't align with the facts and we believe we'll win this challenge >> that sound you hear is thousands of corporate lawyers picking up the phone calling each other at the same time. so play this forward from activision's perspective they're giving a note of confidence here. >> that's from the ceo who it behooves him for this deal to go through given the cultural problems they had that sent their stock down and that caused microsoft to say oh, this is an attractive company to buy. said the same thing. that's why he invested as well so it really behooves him. i'm sure he'd be happy to take that fee, but he'll be out of a job if this deal goes through and i think that's what he would prefer given the problems they've had internally >> can we talk about video games? i'm bad at playing them, love to talk about them. but it feels like video games are a huge sector of the economy

that gets overlooked compared to hollywood or other entertainment. we don't talk enough about the power of the sector and the size give us a sense of the size of the landscape and what the other acquisition targets and mergers might be on the horizon. >> this is exactly why microsoft wants to buy this now. they see approaching half of the world's population, close to $4 billion people, 3 billion something, play video games every day. most of it is done on your phone. and that is where activision's just a huge growth area is done on mobile. that's why this was so attractive for them. so there's a mobile gaming growing like crazy console games is a huge business globally, but it's the mobile gaming that's really attract k people it has nothing with the metaverse or any of that stuff it's really the growth in mobile and strength of these cloud services a big part of this is microsoft needs a library of amazing games because what i call the netflix of gaming.

instead of buying individual games, you pay 20 bucks a month or however much it costs and you stream them to not just an x box, but to anything that has an internet connect that boosts their cloud business, their gaming business. gives them a leg up over the competition. what sony offers, that's why they don't want this to happen that's what microsoft seeing holistically what else could be on the chopping block here? there's ubisoft, ea, which our parent company was looking at merging nbc universal for. so there are a lot more. and a burnch of indy developers too. >> i'm fascinated by the confidence that microsoft and activision are responding. they sound almost convinced they are going to prevail over time >> they're projecting confidence, but the other question is looking at the video game industry which grew so rapidly during the pandemic. how much of that was a pull

forward? how sustainable was that growth? i do think going forward, there's this question about how consumers are going to be spending their money and whether that spending shifts especially if consumers are more strapped for catch and maybe they already made a lot of investments in video games so this holiday season will be essential to get a good read on what the video game industry sales look like post pandemic. >> bill, back to you you've been at the table for these kinds of moments inside the ftc. i wonder what their reaction is when they see these almost chest bumping statements from the two companies, prediktcking they're going to win over time does the ftc react or is this thing war gamed out for the next couple of months >> they don't react much they've heard this many times before their whole view is ultimately, we'll see how your arguments work in court. this doesn't put them off.

>> what would put them off if you're advising the companies, what would you tell them to do to push back in a way that's going to make the ftc take notes >> first and foremost, it's to see how this case turns out. it's the only way to make the enforcement policy stick and to effectively deter similar deals is to win in the courtroom so i had a supervisor once who put things in three baskets. the good, the bad, the don't overreact. the don't overreact impulse would be to say let's see if they can win the case. ultimately, you can't move the defensive enforcement unless you win cases. i think what i'd be telling my clients is let's see how this goes there's going to be some uncertainty until we get answers there, but if they doen't prevai in court, they're not going to be able to win the next one or the one after that >> fascinating advice.

thanks also to julia and steve great incisights kelly, what a fascinating moment washington going to war again. >> sure. the stock prices are telling you a lot right now. they are basically unchanged agent vision after selling off, moving back up it's almost as if investors share the confidence these executives have that this deal will ultimately get done and if that happens, what steve was talking about for the rest of the industry, the catalyst that could be for a lot more video game m&a it could go from a freeze for a while to a flurry of activity. >> bill was talking about that don't overreact basket seems like investors are in that basket now as you watch the changes in the stocks, but you wonder what it is that would trigger investors to say wait a second, the ftc's got a strong hand i don't know what that is, but a lot of investors are probably looking for it >> the stock price is going to tell you a lot curious where activision would trade if people thought this

wasn't going through it's not like we're seeing a 20% drop in shares today on this news there seems to be a lot of confidence that the case may not be that strong >> one of the things people are going to be doing this afternoon is looking through those companies. >> thanks so much. thank for watching "closing bell" starts right now. stocks are gaining back some ground on the week as the s&p 500 aims a snap a five-day losing streak. th this is a make or break hour for your money the market up about 100 points on the dow s&p 500 is up about .6%. what's leading, information technology at the top of the market thanks to a rally in chips, especially nvidia. intuit is higher some of the less sexy tech stocks microsoft is also higher what's weighing, communication