in money markets, consider lengthening your duration a little bit current s.e.c. yield is 5% >> no shoes in the house >> no shoes in the house, ever >> thank you thanks for watching. i'll see you on "closing bell. "the exchange" starts now. ♪ ♪ thank you, scott welcome to "the exchange." i'm kelly evans, and here's what is ahead this hour stocks are under pressure as the latest confidence report shows consumers very much under pressure, as well. we'll have more on that ahead, including three names you want to avoid because of it the dow right now down 282 the nasdaq is down more than 1%. plus, more on the pain points we are seeing in real estate to the lending pressures amid rising rates and soaring costs and the two cities that don peebles says are ripe with

opportunity as a result. but first, we begin with two other pressing developments. joe biden just touched down in michigan and is set to join the uaw picket line, first president to ever do so, as negotiations show no sign of ending soon. phil is live on the ground there. and no resolution in washington either, where congress is running out of time to strike a deal to avoid a government shutdown moody's warning of the consequences on america's credit rating we'll examine the fallout in a moment with dean mackie and emily wilkins and steve liesman. but first to michigan for the latest on the autoworker's strike and the arrival of the president any moment now, phil >> and the motorcade has been seen as a gm parts and distribution center not far from here i believe it's up in bellville we'll get some comments then that are being taped with the president there, where he meets with some of the uaw members

whether he's picketing or meeting with them, he's showing support pour the uaw, and he is expected to give some brief remarks. as soon as we hear from the president, we will relay those to you with donald trump coming to michigan, and the president's trip today, there is negotiations continuing between the uaw and the big three automakers those are some type of a pause going on as we speak right now here's the latest on the negotiations ford and the uaw, they are battling over an ev battery plant that is planned for about 100 miles west of here we're not going to go into the details, but this is at the heart of the debate over this contract, the negotiation, what happens with those battery plant jobs, ev manufacturing jobs? are they uaw jobs, and at what

pay scale do those people get representing if they are with the uaw? then there's stellantis. they put oh ut a note yesterday saying look, we are ready to negotiate and to award a large raise to the uaw but our costs have to be competitive. and stellantis says for its costs to be competitive, it has to benchmark those against foreign automakers here in the united states, and against tesla. and then there's general motors. it continues in its discussions with the uaw but we get no sense that an agreement is in the offing, whether it's with gm, stellantis, or with ford so, again, we are waiting to hear from joe biden. that should be momentarily and this is a little unusual, guys they are not doing this where he's at a big rally and there's a whole bunch of press there it's a pool reporter and a pool photographer who are with him as he meets with some of the rank and file members of the uaw. and then they will feed that out. >> there's the president

we're looking for that black hat. he's making his way in a blue windbreaker. you can spear through those picket signs, about to take the horn i don't know if we can try to listen in. [ applause ] [ inaudible ] >> -- the fact of the matter is, you guys, the uaw saved the automobile industry. -- companies were in trouble now they're doing incredibly well, and guess what you should be doing incredibly well, too. [ applause ]

you deserve the significant raise you need and other benefits [ inaudible [ cheers and applause >> all right good afternoon, uaw family >> thank you >> i want to thank local 174 >> there's joe biden, who just concluded some brief remarks into the bull horn, which he just handed over to the uaw president. phil, just for a quick recap, the president said you guys, meaning the union workers, you saved the automobile industry in 2008 you gave up lot, you sacrificed. they were in trouble and now they should sacrifice too. the president said you deserve the significant raise you need

and other benefits >> exactly what he said, kelly the argument you would hear from executives at ford, gm, and stellantis, we've made record offering they are offering approximately 21% pay raises in some cases, an increase in the cost of living adjustment. actually, a return of those. those were stripped out in 2008. a reduction in the number of tier wages, so workers are hired in closer to the top of the wage scale. from the perspective of the big three, they have made sacrifices in terms of making a generous offer. but they also are balancing that with what they believe they need to do to be competitive with foreign automarriager automakere united states, tesla, and they are in the midst of transitioning to electric vehicles and nowhere close to making money on them they believe in order to do that, they have got to invest billions more over the years to

come, and there is a limit to how much more they can give the rank and file workers. so that's the rung with all this, kelly. nobody is arguing that the workers don't deserve more the question is, your definition of "more." >> i'm still struck by the median worker makes $80,000 and the median worker at tesla makes less than $35,000. phil, we'll circle back soon we find joe biden there in michigan this hour, meeting with uaw workers as the strike continues. don't miss "last call" tonight brian sullivan will be live with much more on the economic and political fallout and the strike continues. that's tonight at 7:00 p.m. eastern right here on cnbc while the president is in detroit for the uaw strike, congress is still trying to strike a deal in washington to avoid a government shutdown. let's get over to emily wilkins on capitol hill with the latest. emily? >> kelly, it's still not looking

like there is a clear path to avoiding a government shutdown that would begin on saturday night, sunday morning. and congress, it's not that they're not working on trying to figure out a solution, but the house has tried and failed to bring up a spending bill so what they will do today will see this vote come a little bit into the evening the house is going to vote on trying to move forward on four major bills to fund the government and they're hoping that is a show of good faith to a small number of republicans who have been holding out, and that those republicans, once the four bills are past, come on board with that short-term funding. that's a lot of ifs. there's no gauarantee that is what we will see from the house in a couple of days. kevin mccarthy talked to reporters today and what he is trying to emphasize to members is that this short-term bill includes a number of republican priorities for the southern border, building the wall, limiting immigration listen to what he told reporters

today about that short term spending bill and the border security >> the republicans will put on the floor a rule to secure our border i think that's the appropriate way to keep government funding, secure or boarders, and keep the government open to work on the rest of the appropriation bill >> reporter: of course, even if the house winds up passing that short term bill, there is no guarantee it goes forward in the senate the senate is working on its own bipartisan bill, which stands a better chance of passing and ending the shutdown, but not clear at this point when the senate is going to be releasing that bill text we know it's going to be about 45 days of covering government funding, then we do this all over again >> emily, do either of these bills cut spending are they trying to cut spending? >> reporter: the republican bill does try to cut spending

i think at this point, there is some sort of willingness to do that but i think the main priority right now isn't about cutting spending the main priority is about keeping the government funded so congress can work on some of the long-term spending bills that's why republicans are hoping to get gains in terms of funding cut and hopefully something for immigration is what republicans want to see but at this point, it's not clear how things will shake out when it comes to funding the government in long-term. >> emily, we appreciate it we just had a two-year note up for auction top of the hour, and the way yields have been behaving, we have some headlines. let's get to rick santelli with that >> reporter: keep in mind, two-year note yields are the coupon closest to what the fed may or may not be doing, and they correlate 48 billion two-year notes, the largest offering going back to april of 2022.

and the yield at this dutch auction, 5.085%, which is exactly where the issue market was. so that screams an average auction. as you go through the metrics, dealers took 14% versus 17% option average i always liked that, because if dealers are taking less, investors are taking more. all the other metrics are close to the average, so c plus, c plus is the grade. but there is a couple of unique things here, the highest yield at an auction in 17 years, and the old guy is trading 5.13 1/2 yield. the new guys, trading 5.08 1/2 so all you tech nniciantechnici just a six basis point roll. kelly, back to you >> rick, thank you very much

5.14 is the latest print there from the threat of the government shutdown to the uaw strike to the high interest rates we just mentioned, the economy is facing a lot of pressure points, including a big drop in confidence confidence as gas prices have rebounded. and jamie dimon said he's not sure the world is ready for 7% interest rates, a hint of what he thinks could be to come and moody's warning a u.s. government shutdown would be bad for the country's credit with borrowing rates already at 16-year highs. now back to joe biden before we continue, though he's making more comments out in michigan at the united autoworker's strike. [ applause ]

>> taking the bull horn back for a brief moment now let's go over to dean mackie and our reporter steve liesman is here, as well steve, just set this up for us consumer confidence dropped this morning. not a great sign >> i think you set it up pe perfectly. you started off with the two big issues affecting the economy you have the uaw strike, the government shutdown, and then the higher oil prices, those are all three challenges that are coming for the economy they're coming for the federal reserve. without the higher oil prices, the fed at this juncture might have offered some relief it's a bit in a box where these high oil prices create a huge challenge for the fed, where they can't really afford at this point to take their foot off the brake of the economy because of the concern about how high oil prices could reignite inflation here so it has to remain tough, even

though there's a lot of signals in the economy, including what you just mentioned, the consumer confidence number that suggests the fed ought to be easing up here >> dean, a perfect time to have you back on here you know, it's not every day we hear from someone who was the most accurate forecaster two years in a row you have to remind me what the exact designation was. my nsense is you're not quite as bearish on the u.s. economy, do you remain optimistic now that we can avoid a recession, if that's your base case? >> i to remain optimistic. there is a couple reasons for it we have had these recession fears over a year now, and growth has been 2% or higher every time in those four quarters and we think growth in the third quarter this year will be 3.5% there are some headwinds, but the economy did have a lot of momentum coming into this.

now, each of these pieces, the auto worker's strike and the shutdown will chip away at growth in the fourth quarter, which we think was going to slow down any way but these two seem like they're likely to be somewhat temporary forces they shouldn't last for months and months and months. we think that underlying resilience that got us these strong growth corridors still remains there. >> this isn't necessarily where you want to go, but when you hear jamie dimon talk about 7%, is that interest rate feasible, and would it negate everything you just said or could the economy still withstand it >> so i don't think it's crazy what he said in terms of interest rates going much higher it's not our base case we think that -- and really it comes down to the inflation outlook. we think that inflation is going to settle down over the next several months, and it's going

to be enough to get the fed to stop hiking rates. so we think the fed is finished hiking rates right now the only thing that's not true in the sense that the fed has a lot more work to do, as mr. dimmon suggested, is if inflation takes off again. i think at that point, the fed would be willing to cause a recession and i do think raising rates to those levels could cause a recession. so it's not a far-out scenario, but it's not our base case >> steve, i'm glad you're here today. i always like to bandy about sort of odd, new ideas i have a new one, which is, does the fed need to get hawkish again to crash bond yields in the longer term? i can't figure out how we get out of this debt and deficit situation, unless the ten-year goes way back to something more like 2%, and i don't see how that happens without way low inflation or, you know, a way more slow economy.

>> just a warning to viewers, folks, kelly and i are going to chat and you can listen. i have the same question, kelly. the deal is this -- remember, a throughout a lot of this period, the long end was lower in part because it was banking on a recession. and i'm confused as to why that hasn't happened now. >> right >> i think what's happening right now is the long end is reflecting three things. first, it was higher growth. second was greater issuance. and the third is perhaps baking more inflation and inflation compensation all of those things are factors in why those volumes are higher, and not due to what we expect them to do, which is reflect a greater chance of recession. on dean's comments, i think of the soft landing, i like to watch a lot -- when they talk about how a ship has to hit orbit at exactly the right place or it spins off into space

that window for a soft landing is a narrower one. and the idea that these three, four things on top of each other, they make it difficult to hit that soft landing unless the fed eases back i don't think the fed has to get more hawkish here. it was plenty hawkish last week, maybe too much, but i sympathize with the challenge created by higher oil prices, which i think is going to create an issue of expectations and something they will have to deal with it. so they'll have to keep it higher the idea is those fourth growth quarter forecasts will come down and we'll be back in those place where is we have been forecasting zero and 0.5% gdp numbers for those quarters >> dean, do you spend time looking at, you know, the budget deficit? normally, when we are talking about forecasting, that's not a huge variable. at least it hasn't been in 15, 20 years does it factor in now in any

kind of way? >> well, it certainly matters. you know, it can matter in a couple of ways it can put upward pressure on interest rates that may be part of what we are seeing now it also can be at times, a lot of fiscal stimulus hitting the economy. i don't think that's what we are seeing rite now, though. a lot of the reason the deficit widened is because of lower income tax receipts because capital gains last year when the market was down, so those have been coming down that's not really stimulative to the economy. so i don't think the reason for the strength in the economy is because fiscal deficits are wide the reason for the strength is consumers are in strong financial position, real income growth is quite strong from the labor market household net worth to income is higher than it was ever in the seven years prior to covid that's fueling consumer spending that's why we are seeing it continue to outperform >> is there any way in which

high rates become a shock? for consumers, this is a windfall at some point, if you can get, you know, cash on cash, that kind of meaningful way, i guess the flipside is if credit continues to deteriorate as a result but does it shock the economy if we see rates move higher >> certainly higher rates do hit the economy, and we saw that last year. it's worth highlighting,l last year housing got hit hard, it took away as much as 1.5% of gdp growth but housing is now turning into a positive the third quarter will be a positive factor for gdp growth so housing has already taken that hit and it's improving right now, because there's so little supply in the existing market so housing has taken that hit from rates i don't think it has another

massive leg down with the current rate structure that's why the combination of housing, at least moving sideways, means a recession is not imminent soon. >> and maybe this is the last week we even get the data to know what the fed's next move might be >> yeah. i mean, nothing like flying blind. it's not a way to run a railroad, so to speak. i think that's a big problem the government shuts down, the fed doesn't get the data i think there we have to be wary of the impact of the higher rates, especially when it comes to the corporate balance sheet i agree with dean about the idea about the household balance sheet being in good shape, but at some point these higher rates take effect and they have been recently i think there's some need for relief when it comes to reit structure in housing, and i think the fed can provide that without giving up the fight on inflation. >> thank you both. appreciate it today.

stocks are falling today on multiple concerns. higher rates, potential government shutdown, weaker economic data, down almost 300 points my next guest says this is an inflection point charlie is vice chair at aerial investments. i'm referring to the chat we were just having about higher rates, charlie i think that's where you're going here >> yeah. so for 40 years, rates have done only one thing, go down. every ten-year period, there was not a single time in the last 40 years in which if you looked forward ten years, interest rates would not have been lower. and people had started taking that into account in investing it was very good for venture capital, because earnings are in the far distant future, so lower interest rates make those investments more valuable. it was very good for bonds and buyout funds it was bad for my business,

which is value stocks. value is all about companies with earnings today. so i do think that has now changed. interest rates may not go up for the next 40 years consistently, but they have stopped going down we are now going to have to think about who benefitted in the past, who was hurt, and reorient our invest mens for the new environment. >> a lot of your stocks, this isn't too much of a leap for you as it may be for some growth funds. you've been in energy. and you're sticking with oracle. >> yeah. so we thought that oracle was a value stock today. trading at only 17 times earnings, which is right on the market multiple, maybe even a little lower with a much higher market growth rate so apache and the energy names we own, trading at six, seven times earnings this has been a very tough year for small and mid-cap value

stocks the russell is down 3% on the year, so i'm making a prediction about the future, but i have to acknowledge the market year-to-date has not followed this path. >> i think that's why people are reluctant to reposition. it's been 10, 15 years that growth has worked. this underpins so much of what we were talking about, everything from presequity to private trade, so much is in small-cap growth >> yeah. so that is the trick here, something that has not worked for a long time, it's hard to put your money behind it i think we have to acknowledge, if the fed wants to create a recession, if they think the economy is too hot, that we have an overheated job market, i happen to think that's delusional but there's some quotes from the members of the fed that would make you think they think that if they want to cause a recession, they can. and that is never good for

small-cap value stocks it tends not to be good for value in general so we'll give them the other side of this at some point, the fed will stop raising rates and acknowledge what i think is true, that inflation is going to get down to about 3%, not 2%, but it is not going up when they acknowledge that, values should jut perform. >> are you working past the auto worker's strike? the president, when asked if the uaw should get that 40% wage hike, said yes 10 that might add to the extent to which these noegotiations drg out. >> they cannot afford 40% wage increases. i want workers to get -- and they have not kept up with inflation, so they have reasonable grievances. but the american auto industry cannot handle 40% increases. so we need a settlement on this. the good news is, i think we will when we do, there is a lot of

pent up demand for cars, a number of cars on dealer lots way below where it should be and they are very well positioned for electric power trains going forward >> listen, are you going to see u-2? >> my partner and head of my firm is going to be there opening night. obviously, the market is excited about this sphere. this was a hated game that has recovered. there's going to be a great list of people performing at the sphere the stock has done really well probably time to be cautious >> up 80% year to date buy the rumor, sell the fact the sphere opens right now or this weekend it's imminent. >> yeah, and the shows will be sold out

it's more important than the company-owned contempt, this postcard from earth, which is a film that the sphere produced for its showing. there's a lot riding on that if they can celtic ets for $100 during the day in las vegas, there can be a big success if you have to rely on concerts, won't be quite as successful >> charlie, as always, thank you for your time today. appreciate it. >> thank you for having me two more days, everybody, until cnbc is delivering alpha conference on thursday there's still time to register by going to cnbcevents.com coming up, one city is about to get hit with a wave of defaults when that happens, don is ready to pounce on some properties tweet me and we will reveal it

later today. and here is the dow heat map with only three stocks in the green and tech underperforming apple, microsoft and salesforce are the biggest laggards back after this.

welcome back to "the exchange," everybody i'm tyler mathisen here is your cnbc news update. fellow new jersey senator cory booker joined the growing list of lawmakers calling for senator bob menendez to resign booker called the allegations shocking, with "disturbing details of wronggoing.

13 democratic senators have asked him to step down since he was indicted on charges of bribery and corruption, his second indictment for such a russian court rejected opposition leader alexi navalny's appeal against his 19-year prison sentence. media reported the latest crackdown. navalny was sentenced in august after he was charged with creating an extremist community. supporters say his arrest and imprisonment are politically motivated. and the department of agriculture expanding free breakfast and lunch to students nationwide the government will cover meal costs at schools where 25% of the families belong to income based benefits the previous threshold was 40% 5 million additional student also be eligible for that program. >> wow tyler, i'll see you shortly. tyler mathisen coming up, housing stocks

are down since last wednesday. when the fed signals another hike before the end of the year, and inventories of new homes are creeping back up what's the real state of real estate in that's next with don peebles. when you automate sales tax with avalara,

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slowing housing market, despite the runup we have seen, and real estate magnat don peebles is here to weigh in diana, we'll start with you. >> you got a read of newly built homes in august and missed expectations by a lot. sales bell nearly 9% the median price came down 2% year over year that shifts not only because builders may be lowering prices, but because more homes on the lower end of the market are selling than on the higher end, and higher mortgage rates hitting affordability hard it started in august to the low 7% range, and today it's 7.5%.

builders have been buying down interest rates to help buyers. but there's only so much they can do, because some buyers are no longer qualifying for the loans at these higher rates. builders are up against much higher costs for labor and materials. they had been benefiting from the extremely tight supply of homes for sale that supply is down 9% from a year ago as a result, home prices continue to rise, now up 5.75% from a year ago and it seems counterintuitive that prices would rise with higher mortgage rates. usually high rates cause prices to drop. this is a unique supply and demand situation as we talk about all the time >> and up from to eight months supply in the new housing market, because the pace is so slow that does matter we're not down at the three and four-month supply levels we were when the market was much hotter.

>> right and the builders have a lot of supply coming on we saw the number of homes that have been sold but not started to build yet rise in august. that's an always interesting tidbit number inside the report. it just shows they continue to get demand, but they're not building at the levels we would hike to see and not selling at the levels, either >> diana, we appreciate it my next guest warns the recent rise in mortgage rates will test the resiliency of home sales joining us now is douglas duncan we are also pleased to be joined by don peebles, chair and ceo of the peebles corps to weigh in. so welcome to you both doug, i'll start with you. i think it's important, especially for investors who have been focused on the strength of the home builder indecision indecision that the housing market is quite slow >> it's a tough market if you are a realtor or mortgage

lender, you're feeling like this is a serious recession if you think about it, we went from about 6 million homes on an annual pace down to a little over 4 million homes that's roughly a third drop in the business in your industry. so when you put on top of that the disappearance of the refinance business, it's feeling really rough for the mortgage space. >> right to that point, is the question about whether the strength we have seen in the pockets of home building and the stocks can continue, because as rates go higher, it's all the more important they continue to do buy downs to make this more affordable >> what's unusual in this environment is typically, housing is, if not the most interest rate sensitive, one of the most interest rate sensitive sectors.

so when the rates raise, construction slows, followed by sales on the way down. in this environment, because boomers are doing what they said they would do, ageing in place, and guz the gen-xors have locked in 3% mortgages, it's on the back of builders to increase supplies so it's been a good market for them, surprisingly, even though the rates are rising the demographics are in their favor, and the slow supply suggests it's going to be the builders that will be adding to supply and trying to eventually equal things out between buyers and sellers. >> so don, if i may put it like this, would you still be bullish on the home builders, in spite of or because of everything we have seen, and what do you think happens with residential real estate at this point >> i think future is still positive for home builders what's happened is the overall fundamental of real estate of supply and demand is holding strong anyone who wanted to buy a home or refinance pretty much had

done it by the time interest rates had moved up so you have to have new buyers coming in. people who are going to trade up or not trading up any more, because they have lower interest rates. but income is going up, and interest rates are going to stabilize. you'll see them pull back next year a little bit, and there will be a shortage of inventory. most people who have an interest rate of 2.5%, 3.5% are not going to sell their homes because there's a lot of value in that rate >> are you bullish -- you know, we know that there's an apartment glut in a lot of the country that is forming. so is that an area that is attractive on the development side or no >> it depends on where if it's new york city, new york city is still supply constrained. there is a significant demand for housing. what's going to hurt the apartment building sector is interest rates, especially on existing assets that have been

purchased based on prior interest rates that have been bought at 3.5% cap rates those will have a significant amount of stress as interest rate swaps burn off. and there's nobody to refinance with right now >> and if they can't raise rents because of the other factors going on here. doug, let me ask you about one thing creeping into the market we spoke with a company called roam that is trying to match people with assumable mortgage when you buy the property, you can assume the lower mortgage rate that comes with it, as well could something like this ever go more main stream across mortgages and existing homes of almost all types >> they could, but it's difficult when rates change can by a significant amount in a short time period. of course, you need to make the

mortgage holder whole, given the change in market rates so while it's been out there for a very long time, particularly in the fha category, we haven't seen a lot of action in that space, simply because the rate rise was so significant and so sudden >> so in other words, to make them whole, that means what? >> it means if they have the existing mortgage is 3% and the market rate is 6%, you're going to have to make up some differential for that -- the value for that seller. >> yeah. cer certainly with the way prices have been. doug, thank you for your time today. >> good to be with you let's turn now to the commercial side of things, facing its own share of head winds. dom, before we talk about the opportunities there, do you think the whole brunt of these

headwinds has been felt, including just insurance and other costs that are getting more attention like in "the wall street journal" today? >> no. i think right now there's a lot of kicking the can down the road for commercial office buildings for example. i think there's a lot more stress coming there. much more stress in the apartment sector because of the nature of how those assets were purchased. the market, as a whole, ran towards -- or investors ran towards apartment buildings because they thought they were safe people were paying their rate and it was dependable income stream but they didn't bank on if you buy something at 4%, you are making a bet that rates are going to remain low, but they are not. now those investments are upside down, wiping out equity and taking end roads in terms of depleting the value of the nasdaq so there will be a lot of stress there, as well >> which is awkward, if people were hoping apartments could bail out the office sector, not

the remodel of those buildings, or that a lot of people are not really signing up to do that >> we're getting ready to launch a strategy in that area to convert office buildings into apartments and affordable housing. i think that there is an opportunity for that you have to reset buildings, though you can't take a 400 unit apartment building in new york city or washington, d.c. where there's some forms of relnt control and raise relates. but you can take a brand new building and reset the runlt reo the market converting an office building into an apartment building under the right circumstances will result in a much lower cost basis than an investor who purchased an apartment building in 2020. >> we were teasing earlier that there is kind of one city you're watching that you expect to default and if so you are going to pounce.

which one is that? >> san francisco when i was on the show a couple months ago, i thought san francisco has a lot of opportunity going forward. it's beginning to happen the buildings are going back, they're being sold now so i think that's the first to come out, because it's gotten the worst. i think new york city has to get a little worse, and it will. then i think there will be opportunities there. washington, d.c., though, is the real hidden market the federal government leases over 40 million square feet of office space in washington, d.c. and occupies another 25 to 30 million. they're at the peak attendance in their office building is 25%. >> what's going to happen to that real estate >> those government leases are long-term leases and investors looked at them like bonds. however, there's a fine print. they were all subject to annual appropriations congress is getting ready to close down the government. they're going to be looking for places to stay they wouldn't cancel leases if

the space was occupied but if you're sitting at occupancy, they will start consolidating. so there will be tremendous stress in washington, d.c. for the government buildings of course, then the businesses and professional service firms that do business with the government, you'll see con contraction there. so d.c. is going to be worse than san francisco in terms of office fundamentals. >> wow with that bombshell for people to contemplate, we just -- the shutdown, i don't know if beyond that you make much of what is happening or if you are focused on any aspect of a drawn-out fight for years to come over the deficit and debt levels. >> i'm from washington, d.c., and i started our company in washington, d.c. we have done business there for almost 40 years. they've had shutdowns, they come and go they're political stunts, because they're brinksmanship.

what happens is we are in a highly polarized political environment. you're going to see congress, you know, continue to battle so i think we will see a shutdown i think it will be short lived and i think the reality is the government needs to cut spending it cannot continue to rely on all of us to fund these expenditures so we'll have to prioritize, like we have to do in our households and businesses. revenue is down, so we have to prioritize >> the president is on the picket line. the uaw strike is one of many across the country what do you think as a business owner watching it? >> as an american, it's a very bad move for the president to go to the picket line he's the president for all of us, and this is a capitalistic democracy. and the pillars of our democracy rest on capitalism therefore, he has to be supportive of all of us. what he should do is rely on the private sector, the business and

the workers to come up with a solution he panicked, and his people panicked because donald trump is coming there tomorrow. so he broke presidential protocol, and he showed there to walk the picket line now, it's not presidential and not what leaders do. it's a mistake, and at best, it's pandering, and most likely inspiration, because his numbers are plummeting >> what does it tell you that president trump was out there, michigan being a swing state, and the uaw not having endorsed biden, so members had been voters for trump so it's not monolithic is it unseemly for the former president to show up out there, as well? >> he's not going to the picket line look, i'm a democrat and generally support democrats for president. he is -- he made a smart, strategic decision he's speaking in michigan, in detroit, but not at a picket line he's speaking at a supplier facility

that's different the uaw wanted to endorse bernie sanders any way last time around michigan took trump to the promise land when he won the presidency, and he's looking for that again biden is concerned, so he's going there to fight that off. at the end of the day, trump is appealing more towards the workers. biden is trying to appeal to the uaw to endorse him, not flirt with bernie sanders. but the challenge he's got is that many democratic donors are very concerned, and are looking for somebody else. many, you know, democratic power brokers and democratic politicians, watt an alternative. and biden is reassuring people if this goes wrong for him, it digs his hole deeper but it's not presidential. he should have never done it no one has ever done this. and no stating president has ever done this, and he shouldn't have done it

it's a mistake for him, a sign of desperation but also perpetuates this class warfare, that billionaires are successful entrepreneurs are bad people and the workers are good people. in reality, we're trying to make this country better, and most of us started in humble beginnings like i protocols have been broken over the last number of years. don, thank you for sharing your thoughts across many of these topics we appreciate it today don peebls dow is down more than 400 points right now quick market at session lows for the major averages with the nasdaq down 1.5% still to come, household debt is still reasonable with historical levels compared to income why is one major income sounding the alarm credit concerns at department stores. shares of amazon, the ftc and 17 state ags suing amazon for illegally maintaining monopoly power using

anti-competitive and unfair strategies shares are down 3.3% ftc chair lina khan will join sqwkoxua b to discuss that suit. don't miss it. we're back after this. dude, what're you doing? i'm protecting my car. that's too much work. weathertech is so much easier... laser-measured floorliners up here, seat protector and cargoliner back there... nice! out here, side window deflectors... and mud flaps... and the bumpstep, to keep the bumper dent-free. cool! it's the best protection for your vehicle, new or pre-owned. great. but where do i---? order. weathertech.com. sfx: bubblewrap bubble popped sound.

♪ welcome back to the exchange we have been honing on various economic pressure points on the economy this hour. b of a security is raising red flag on one particular segment,

department stores. lowering price targets and earnings estimate on kohl's and nordstrom. cutting their kohl's 2024 outlook by 11% as delinquencies tick up, she said, which the firm expects to turn into charge offs b of a expects credit revenues to fall pre-pandemic levels. let's bring in lorraine. welcome. >> thank you, kelly. thank you for having me. >> i bet to you this seems fairly obvious and straight forward, but the market is reacting like did you see these headlines. you're just connecting some dots for us. >> yeah. look, i think what's underappreciated is department stores last year generated about 60% of their income from credit card fees. >> wow. >> so it's a very important income stream for the department stores i think that makes these risks of delinquencies stand out to us. >> department stores last year generated 60% of their revenue,

more than half from credit card fees not from selling clothes and shoes and other things. >> that's exactly right. and we really see two risks to that revenue stream. so the first, as you mentioned, is delinquencies we saw charge-offs for the industry overall rise in august versus pre-covid for the first time so those, as those charge offs -- the delinquencies move to charge-offs, we see real risk to 2024 earnings and our estimates sit 20% below consensus for the group. that's the first issue the second is regulatory concerns because the cfpb proposed a rule that limits late fees that credit card companies can charge the consumer. that's a whole different risk. and much harder for us to really figure out because we have very limited disclosure we run some scenario analyses. we have gotten to earnings risk of high single digits all the way up to 60%. there's a real lack of clarity here, but i think it limits the potential stock appreciation of the group until we really have more clarity on this issue. >> so tell me why -- this is a

very dumb question i apologize. we're not in recession right now. why would credit card revenues at these major department stores be declining so much next year >> so look, they all -- some of them saw some nice increases after covid. consumer credit profile was excellent. consumer had extra money and they were paying off their card balances in some cases we saw consumer card revenues rise nicely above pre-covid levels now we're not only seeing that online but seeing rising delinquencies come in and affect that so that's the first issue. the second issue is for the department stores, their revenues so revenues actually selling things to people, are well below pre-covid levels as well so, if the customer is spending less on the card, because they're spending less at the department stores, that also has a negative implication for this credit revenue stream. >> i hear what you're saying i'm like -- i don't know if you have a sell, but feels like it's not strong enough.

these companies are in existential crisis here? >> look, we have underperform ratings on the whole group we have for a while. and the reason for that is twofold. the first is this issue with credit that we have been watching and tracking for many years. and the second is we do see some structural challenges to the industry overall we don't think the younger generations are flocking to department stores as their primary shopping mode, like prior generations were so we do see some downward pressure on sales over the next several years. and those two factors are really the primary reasons for our underperform ratings on all three department stores. >> lorraine, thank you for joining us today again, to read more, lorraine hutchinson's note from bank of america with more on the impact to kohl's and nordstrom in particular thanks so much for your time we really appreciate it. that does it for "the exchange" everybody. for more thoughts on the market and economy, sign up for my newsletter at

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♪ welcome to "power lunch," erb. alongside kelly evans, i'm tyler mathison coming up, president biden joining autoworkers on the picket lines today in michigan former president trump holding a rally tomorrow we'll discuss the political and economic impact of the strike as it shows no signs of ending any time soon. plus, day two of our power house road trip. today we head to another hot, under the radar housing market that would be dayton, ohio home of courtney reagan. interest rates jumping above 7.5% how does rising rates playing out in the marketplace. get a quick check on the markets with the dow just off session lows we are briefly down more than 400. down