tv Squawk on the Street CNBC October 17, 2023 9:00am-11:00am EDT
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you're talking about another five basis points on the two-year in the last half hour or so in part because of the data we got about half hour ago. a quick check on the oil. make sure you join us right back here tomorrow. right now it's time for "squawk on the street." ♪ good tuesday morning. welcome to "squawk on the street." i'm sara eisen with mike santoli. david faber joining us from the 13d monitors active passive investors summit. carl quintanilla is on assignment. taking a look at futures this morning. we are setting up for a lower open. dow futures down 100 points after we gained 1% yesterday on the major averages. the s&p futures digesting earnings from bank of america
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and goldman sachs and hotter retail sales. we're also seeing higher bond ye yield. our roadmap is going to begin with a slew of corporate results. goldman and bofa. lockheed martin says it expects to grow sales this year. >> retail sales coming in much stronger than expected. the ten-year is rising and stocks are on track for what looks to be a lower open, about 29 minutes from now. changes at news corp. or perhaps liking what it means as an investment. starboard's jeff smith will join me live this hour from the active passive conference which we cover every year. we start with bank of america and goldman sachs, above what most analysts had been
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anticipating. bofa seems to be the out dealer performer, although we haven't opened as of yet. coming through with their share of concerns as well, whether it be with goldman in terms of the continued drag the consumer has on the business even though it's such a small percentage overall or bank of america's balance sheet which we've talked about many times. the large bond portfolio far longer than many other banks. that obviously has a lot of embedded losses. not going to realize those. nonetheless, does have an impact on net interest income. better than expected interest income this quarter. >> david, all those concerns are ones we pretty much had in front of us before the report. we knew they were going to be a drag. we knew there was going to be a little messiness in some of the results. so the only suspense was do we have any further bad surprises in the numbers? are the credit trends looking worrisome or not. what is the core business?
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how is it operating right now and how are ultimate-end customers doing. it seems on all those fronts more or less reassuring. it seems bank of america continues to plug ahead in the core business. evencapital markets for both companies, goldman sachs very strong fixed income, currency and commodities trading. sometimes in the given quarter, it's a zero-sum game among the banks. some got it right, some didn't. i think it was okay. i think that's the push-pull sara that you mentioned which is fundamentals looking okay. the banks have given you nothing new to worry about, yet higher bond yields are the big worry points. >> everything is too good, right? lots of bank beats and retail sales are strong. bank of america from the call, the cfo says raising the net interest forecast in 2023 to
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about 9%. following in the footsteps of wells fargo which also raised its net interest income forecast. david, you mentioned the big worry was on the balance sheet this quarter. they did raise the amount $131.6 billion of unrealized losses of securities held to maturity in the first quarter, up from 106 billion in paper losses in the second quarter. again, they're paper losses. it's confusing how much investors should be paying attention and worrying about this. i spoke to a number of analysts last night about this issue. stephen shew back of wolf research, eric najarian as well, they don't see it arizona big of a deal as the market appears to be making it because the securities are held to maturity. they're not anticipating to take those closss. that's the debate on this stock. >> you're right. i don't even know if it's that
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much of a debate because i, as u say, there's no aepgs where they'll have to start to eliminate that position. that said, sara, it can have an impact when you're getting paid a very small interest rate on a very large amount of capital that you're holding. meanwhile deposit rates have to go up on the other side. i guess that's why there's a bit of a surprise that net interest income was a bit better than aepd. the other thing and we'll talk to brian moynihan later in the program, the consumer. i'm curious what your thoughts were, what they said so far at least in release about what they're seeing on that front. >> looking forward to the interview with brian in the next hour. he's saying a healthy but slowing economy that saw u.s.
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consumer spending still ahead of last year but continuing to slow. then if you go through some of the numbers, for instance, i pulled out the credit card loss rate. it did rise to 2.7 to 2.6 in the quarter before. that's below the 2019 level of 3.03%. they did cite credit card loans that they're worried about. we have this great chart of everybody's bank of america you can add to the group and how much they set aside for bad loans. bank of america's was a little higher this quarter. they're lower than expected in general and not flashing any signs, david, of anything particularly worrisome or at least more worrisome than we saw in 2019. it feels like they're more normalizing these trends. i'll definitely ask him about it. >> and then, mike, we've got goldman sachs to take a look at.
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listen, i'm not piling on here at all. you can see the stock is barely, barely down at this point. we'll see how it performs. it hasn't had a great -- the annual yulized return on equity, it's not that long ago that it was a lot higher than the 7.1% for the third quarter, not to mention year-to-date about 7.6%. >> no doubt about it. it's a different business. they did just a pile of extraordinary items. a lot of the write-downs, flowing through to the income statement from prior investments. exiting a lot of consumer lending businesses. anything that would have added like three percentage points or something. so now up around 10shgs still not that impressive necessarily relative o to where goldman used to trade even next to something like jpmorgan or bofa. it's a work of progress in
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getting investment banking humming again. when there's not a lot of deals, that's a high overhead business that doesn't pay much. the other question is what does the stock already incorporate? it trades at book value. it's not trading at a level that implies it's going to be a high return over the years. book value latest quarter, 13.83 -- it's like 1.07 times tangible book. that's either your bold case for the upside here if they can get the returns a little higher or it just sort of shows you it's a tougher business without as much leverage and risk-taking. >> david, i would add one more roe to that, the core business was 12 roe, and they beat by a billion in revenue. they were underwriters for some key ipos this quarter.
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remember last quarter david solomon said green shoots when it comes to capital markets. maybe more muted because of the geopolitical market. there is activity. that's goldman's bread and butter, more than 70% of their business. in that business they're doing well. it's the other stuff, the green sky write-down, the real estate investments. that's what's been weighing on overall results and taking the lion's share of the attention on the headlines as well. >> as it has, and perhaps it should. perhaps it shouldn't. i asked david solomon about it the last time we were able to speak a little over a month ago when we were at communacopia in san francisco. we talked about the action they had taken in the consumer business and why they took decisive action. take a listen. >> we made a decision six, seven, eight years ago when we
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started this to also get into credit for consumers. a variety of things have changed where we think we shouldn't enter that space as aggressively. >> what are those things? >> i think the regulatory environment has changed. i think scaling those businesses in this environment is a little bit harder than it might have been in a different environment. we made the decision to pare it back. what i hear from most of our investors and shareholders is they admire that we try something and also admire that we quickly made the decision that we didn't think it was working the way we wanted to pare it back. we're very focused on our core business of banking and markets which have grown really nicely. >> sara, as you say, the key will be continuing recovery in the capital markets, the m&a virment. that's what the market will be focused on. their hope is as we move into next year, the momentum we've seen to some extent will
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continue. >> we did have a big deal they're involved in recently with exxon pioneer. it's happening. i'm not sure how much more of that will happen given the changes we've seen in recent weeks, david. that is i think the core business here. that performed very well. i think 12% roe on that business was better than jpmorgan. they can point to that while they continue to do work on the consumer side which is still sort of unravelling and creating some of the write-downs. >> sara, we're going to move on. president biden is set to depart for israel tonight, looking to show support for that country in the midst of the war with hamas. nbc's jay gray is in tel aviv and has the latest for us. jay. >> reporter: look, obviously the people here in tel aviv very pleased to hear that the president will be making this trip. some of the older israelis i've
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spoken with said they never thought in their lifetime they'd see a sitting u.s. president coming to this area during wartimes to show support for this country. that's something the president fully intends to do and has done since this war started and he continues to make sure that not only israel knows that, but the rest of the world sees the u.s. having their backs here. the white house has made it clear that humanitarian aid is going to be a primary focus of this trip as well, and getting that aid into gaza and to the innocent civilians trapped in the ongoing battle. that's been a problem. the rafah border has been and remains closed, despite several days of on and off diplomacy that looked like it may result in a cease-fire for several hours, with the ability for foreign nationals to cross and
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escape gaza and for supplies to get in. it still to this point has not happened. we did hear from the white house with the president preparing for his trip, and they say they feel like it's something that is gaining some traction. so that is a primary focus, getting that food, water, fuel and medicine into those who for the better part of 12 days have not had any of those things. that's something we'll be watching very closely during this trip. you've got the buildup of foreign nationals trying to get out, all the supplies trying to get in. and then on the other end of all this, you've got the buildup of israeli troops and equipment continuing to say they are preparing for what will be a ground assault. when you talk to those that aren't on that front line, in places like tel aviv, they're very concerned about that movement. they believe, for the most part, it's something that has to be done. that's what most of the civilians here will tell you, but they're concerned for the loss of life that will come with
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that type of ground combat. that's something that i think they're continuing to watch very closely as well. it sounds kind of foolish to say, but as it has been for some time, a lot changing very quickly hour to hour. the one thing, and i'll wrap with this, we've had a relatively silent day overhead. the iron dome hasn't been tested today. it was last night. we heard artillery as a result of missiles being fired in this direction but stopped by that dome. today it's been really quiet. >> yesterday secretary blinken had to run for shelter with prime minister netanyahu, jay gray in tel aviv, thank you very much for the update. as investors might continue to watch this, it's interesting that we have seen that treasury safe haven bid we saw last week reverse. so in other words, as it does not get worse. at the moment we're not seeing
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the staef haven bid, the lockheed martin earnings were out. >> or is the safe haven bid not benefiting because of other factors. gold is up a little bit. some people are trying to figure out if it's serving a similar purpose as in past crises. >> the other thing they're watching besides biden in israel is putin is in beijing with xi about belts and roads. we've got more economic data in the u.s. to add to the mix. this is industrial production and capacity utilization after the strong retail sales report. let's get to rick santelli. rick. >> we're expecting industrial production and capacity utilization for the month of september. keep in mind the recent trends have been towards the slight strength in these indices, especially the utilization rate. we want to see which side of 80 it's on.
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quickly, to look at interest rates we continue to see higher yields and lower prices as the day wears on. part of that is retail sales. many say where is the flight to safety considering the middle east is your conversation points out. you can't see it because it's swamped by the selling. up .3% on industrial production. definitely better than the number we're expecting which would have been unchanged. that still follows a slightly better up .4. if you look at utilization rates, inching a bit closer towards 80. expecting 79.6. 79.7 which is exactly in the rear view mirror. we have been slightly below 80 all year. you have to go back to november last year for a number over 80. interest rates not moving much more on this particular data. we are nonetheless hovering near the highest yields so far on this move. "squawk on the street" will return after a short break.
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a year after introducing export controls to china, the commerce department is officially expanding those restrictions. not only will advanced chips will limited by performs but also by density. you can't take a bunch of weaker chips and put them together to make faster chips. they veal to notify the u.s. government. additional chip equipment will be restricted impacting names like kla and applied materials. to your point, david, that means nvidia's a 800, watered down versions that we always talk about, those chips are restricted. nvidia has previously said 1/4 of its revenues come from china. shares you can see are lower, almost 4% right now. intel also has an ai chip for china which could be restricted. improved demand is one of the
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key underlining factors for ai revenues, above a billion dollars in 2024. those restrictions could change that goal. the share price are off for all these names. the secretary did try to assure reporters that china still imports hundreds of billions of semiconductors from the u.s. and these controls will impact, quote, a very small fraction of this total. perhaps trying to set a lighter tone ahead of president biden's meeting with chinese leader xi jinping in a few weeks. >> kristina, thank you for the update. when we come back, brian moy moynihan. the opening bell nine minutes away. dow futures down 133, s&p
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we'll be joined at the active passive summit by jeff smith. he just finished his presentation for tria go daddy, most importantly news corp. as well among the names he was discussing. we'll sit down and talk about act violent extremism and ws rp. and a few others. stay with us, we're back right after this something brave for yo u? let's show veterans our gratitude. u? ask your local veterans affairs office
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beating expectation up 0.7% overall, up .6% excluding autos. i'll give you a few other numbers. the expectation was .3. this was more than double that. if you strip out gas which obviously was a big deal, it still is a strong number. the most important number within overall retail sales is the control group. that's what feeds into economic growth. it was also surprisingly strong, 0.6%, versus .2% in august. if you break down where americans are spending the most money, online sales got a big boost this month, so non-store. by one was in the miscellaneous stores like convenience stores, a 3% jump. gas stations, spending more money there, food spending more money there. it's not universal. there are winners and losers. you can see that basically in what's happening with retail stocks and in the categories here. for instance, negative spending in electronics, negative
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spending in apparel, appliances, building materials. that's just not where americans are prioritizing their spending. still, it's a remarkable number, mike, in the face of the student loan payment resumption which did start back up in september. we were looking for that. the rate shock that consumers have been seeing as far as higher interest rates and just where we are in the cycle. nobody expected to see this kind of strength from the u.s. consumer. >> upward revisions in august as well which is a soft number. it has led morgan stanley raising the third quarter gdp number from 4.5 to 4.9. she dials back and says retail sales 3.8%. that's including inflation. >> these aren't inflation adjusted. >> they're spending what they're earning, up 4% wagewise. the market reaction is all you
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needed to know. [ cheers and applause ] it's not revising the idea of the fed has to go much higher. staying higher is the point. >> it doesn't make them have to raise rates. it allows them to stay higher for even longer. [ bell ringing ]. >> opening bell here at the big board. -- celebrating 50 years of service. and we have sprott, an energy investments company. looks like at the opening bell we'll reverse some of yesterday's gains. combr yesterday was a weird day. we saw a 1% rally even though apple was weak, the treasury yields were higher. all of those things usually would not add up to rally. >> a lot of the laggards did perform. you had 2% up in the bank index
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at one point. it was the 15th straight monday where the s&p 500 was higher. really unusual streak. >> what happens on tuesday? >> here is the interesting part. the first monday we were up in this streak, the s&p was at like 44.50. we're down on net over the period when we haven't had a down monday. there was labor day in there, the tuesday after labor day was down. it's quirky. my point is there's something getting people maybe to just kind of slide some into equities, the beginning of the week. yes, it was somewhat unusual. the other thing about the rally was the s&p 500 went right up to last week's highs which is like 43.80 or so and stopped pretty much there. that's been the high about three times since last week. why does that matter? it's where we broke down in late september. on a technical basis people are trying to see if we have the horses to get above that. at the same time it's the
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expectation that earnings are going to continue to come in better than expected. we have the uptick in 12-month forward estimates. yet, it's about bond yields detracting from that. it's all about whether the economy can hack what's happening in the bond market, not just valuation pass-through of higher yields into stocks. we have a strong economy. is it going to be strong and then a stumble. if the economy is going to be okay, bank of america is going to be okay. loss rates are not going to go through the moon. no one is willing to make that bet that on this side of an erosion of conditions -- >> it's also a question of what is causing bond yields to go up so far so fast. i know that's a headwind for the economy. there are questions about stability and liquidity in the bond market itself, david. looks like the only sector that's going to open higher today is energy as oil is unchanged.
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we keep our eye on the ten-year at 4.832, and the s&p is lower, nasdaq down 1%. what are you watch? >> again, the ten-year -- kristina's report was an important one, nvidia shares are down over 4%. you've got the other chip companies as well that perhaps may be impacted in some way by this increased ban to a certain ex extent. what you have to be aware of is the potential response from china and what that, if anything, will look like. remember some of the actions they took against micron, for example. so i would use as a reference point shares of vmware. remember it is in a deal to be acquired by broadcom. the expectation is that's not far away, but will china try to put up some problems for them? let's leave it at that. i don't want to go too far here. take a look at what that looks like, in terms of approvals,
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what will it mean? what do they need to get there? >> will there be a response from china in some way to this latest action by the u.s. when it comes to advanced ai chips. sara, that's one thing i'm keeping an eye on. the other is a hostile in the hotel industry. talking about choice hotels proposing to acquire wyndham, 90 bucks a share. it's a cash and stock deal. 4950 in cash, the remainder in shares of choice. never that easy to push a hostile when a lot of it is made up of stock. the ceo of choice was a guest earlier on "squawk box." he talked about what they're willing to pay and why they were willing to pay that $90 number. take a listen. >> over the past five years since they've been a separate stand-alone company, we've had effectively a two times multiple advantage over their business. so the shareholders have sort of
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in their world and our world seen that difference in the gap of the earnings multiples we've had. what we're offering is to pay them something very close to our historic multiple, not theirs. we feel like it's a very compelling offer for their shareholders. >> they also included their latest letter dated august 21st. obviously they were rebuffed by wyndham. interestingly, in the letter they raise the reasons why. it's kind of giving regulators a heads-up that says, hey, wyndham is worried at least about how long it would take to get regulatory approvals. maybe you should be, too, or maybe we should be, saying the following. wyndham acknowledges strategic rationale. this is at least what they say in the release, and that terms were within a negotiable range, but it raised questions regarding the value of the stock. about 45% of the overall and timing for obtaining regulatory approvals.
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wyndham shares are up nicely. choice, of course, is down. it is a delaware company. there is no staggered board, but this is not going to take place, mike, if anything were to happen in terms of moving on that board until at least the spring. so we've got a while to play this thing out. >> for sure. david, the choice ceo's rational neal on the multiple they're willing to pay, it makes sense. $90 is a couple ticks above the all-time high trading price. so often that's a gambit. where you say we'll take you out of the highest price you ever fetched in the market. at least there's a starting point for this process. of course, the equity component of the market being the factor you can't necessarily know ahead of time. >> again, sarah wyndham did sort of engage in negotiations only to break them off a few weeks ago. >> we'll watch wyndham, up 11.5%. want to get other earnings
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movers for you. lockheed martin is one to watch, especially after last week. this is a stock that jumped 10% on the back of rising tensions and war in israel -- israel's war against hamas. lockheed martin is higher as the company beat expectations. the ceo highlighted the $2.5 billion of free cash flow during the quarter which was better-than-expected with nearly 100 returns to shareholders. another reason people like defense stocks overall. i think no big surprises as far as earnings which is good for a company plagued with supply chain issues and inflation and now investors are looking forward and saying global tensions, this is a stock we need to be in, and a group we need to be in. all the defense players have had a big run-up in the last week or so. >> pushing against all those obvious things right out in front of where demand is going to remain strong is the fact that we have this logjam in
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congress. so even though almost nobody believes there's going to be an appreciable drop in defense spending over time necessarily, there is this mood out there where republicans are looking to cut the budget, we're not going to have a budget. usually those stocks are held hostage. >> usually they get a bump when we have increased geopolitical tensions. it takes a long and expanded event like we could see in the middle east to see these stocks really hold on to the gains there. >> nothing really gets thrown off course. you just add to the demand. it's one of those things where trading psychology gets in the way when you have the issues with the budget. >> david mentioned china and potential retaliatory action against the chips. by the way, nvidia is the worst performer in the s&p, down more than 5.5%. we're also watching the chinese property problems, and this country garden which has become a poster child for some of the
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indebted equities. it could see its first ever public dollar default. we're coming up here against the deadline. they have until -- not clear, 17th or 18th. because it was a one-month extension from september 17th, david. if they don't pay, that $15.4 billion coupon by the end of this 30-day grace period, that's a technical default and could make things worseover there. >> sara, we've clearly been focused, as so many have, on the property sector in general and the concerns there. all right. want to bring it back here to the pierre hotel in midtown manhattan because we are live as we are every year. we are bringing you the latest activist headlines. jeff smith announced ideas that included news corp., for tria, go daddy. he joins me here now, as you have every year. always appreciate it.
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thank you. >> thank you. >> let's start off with news corp. the news seemed to be out that you were establishing a position there. why? >> look, david, it's a great business. it's a great asset. it's just too cheap. so we took a position and the company is made up of a number of assets which i think a lot of people know, most notably is dow jones which includes the "wall street journal" and some other things. they also own a real estate business. they own an interest in rea which is publicly-traded in australia and a 60% ownership stake in rea. that was an amazing investment for that. 20 years ago lock land saved rea, invested $10 million at the time for 40-something percent, grown to 60%. today that investment alone is worth $8 billion, and it trades.
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>> it's not a question here. >> it's worth $8 billion. the rest of news corp. then, given the $12 billion enterprise value, is only worth $4 billion. the truth is it just doesn't make sense. >> how do you unlock that value if you're news corp.? it's not as though this is a surprise to them as well. they can do math. >> i think they can. they know it. we've spoken to them. the rest of news corp., again, $4 billion, that's only four times ebitda. "new york times" trades at 15 times. they can do math. the question is what do you do about it and why do you do it and when do you do it and how do you do it? our belief is that they're going to want to do it, they're going to want to separate the digital real estate assets to be able to highlight this beautiful business for what it's worth. they can't be happy.
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their business, their crown jewel of a business is trading at four times ebitda. when they look at their peer, their competitor, where their metrics are better than "the new york times" on a lot of different fronts. >> they have a higher ebitda margin than "new york times." >> higher ebitda margin, more digital subscribers. a lot of metrics. >> taking a look at the screen. they have move.com as well. they own i think 80% -- they own it with co-star. there had been an attempt to potentially sell it. would that be included in a divestiture of the real estate assets or a separation? >> move is realtor.com. a lot of the viewers might know that brand. it's a great business, also. it's also non-core to the media business. move can be sold, or it might be combined with rea to make it a tks-free spinoff. there's a lot of different
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choices. i think often people are saying, okay -- to your point -- why haven't they done it? i believe they just haven't done it because -- i believe because they were a little insecure about leaving the rest of news corp. stand alone for a long period of time. you know being in this industry, being in the media industry for a while was something people were worried about, especially in print. >> it's challenging. it still is challenging, even with the move to digital, successfully executed by the "wall street journal," for example. it's still challenging. a lot of worries. >> sure. without a doubt. they've come out of the most challenging times. i would say ten years ago, it might have been something they didn't want to do. they wanted to leave rea in to bolster the main business. i would say five years ago they didn't mean it as much. we've had a lot of things happen over the last five years which might have stalled their progress in making this separation. now there's plenty of cash flow and plenty of scale in the
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remaining business, and the real estate business is non-core. lock land has done an amazing job creating that value and it should be identified. it should be separated for their shareholders, for their stakeholders. this is their duty. they own -- it's true they own 40% of the b shares. >> they own 40% of the vote -- negative control. it may not be complete control. you're not going to be able to replace the board here, jeff. >> well, you never know. >> really? what exactly do you do as strategy to get those votes? >> well, if you're advocating for something that everybody wants, then that's more than 40%. that being said, i don't think you need to do that. i don't know that you need to do that. what we're asking for is good for their business, good for their family, good for the shareholders, good for their employees. their employees have stock and stock options. it's not good for everybody to have an undervalued stock.
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this digital real estate isn't core to what they do, it's not their baby. it's an amazing investment. you're taking a business that's going to be highlighted. the remaining news corp. business can't trade at four times. it can't. >> you mentioned you've spoken to them. what was your response, to the extent you can share it, when you actually shared your belief about what a separation would do? >> it's similar to what we just talked about. obviously they know the math. this isn't novel. we're not the first ones to bring this up. they also would recognize that, as i mentioned, that some time ago it may not have been the right time because the remaining business wouldn't have been strong enough. >> you seemed to indicate that perhaps that time has passed and now there is a recognition on the part of management, who i have not spoken with, that they might be able to execute something -- is that your hope or your expectation? >> probably somewhere in between. so i don't know that they're
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going to do anything. we're going to continue to have those conversations. but i believe they should and i believe they understand or should understand that they, again, have a duty not only to the b holders of which they have 40%, they have a duty to the a holders, to their employees. this isn't overly hard to do, versus it's not great governance to have dual class. there have been votes to declassify. it's something to consider as well. there's easier paths to create a lot of value. >> a year ago they were talking about trying to put news corp. together with fox. i'm assuming you don't think that's ash positive for shareholders. >> we don't think that's a great idea. >> do you have any expectation they may try to entertain that again? >> i don't know. we haven't had that conversation. >> you had a couple of others. go daddy has been a position of yours for some time. you're pushing at them. why? >> go daddy is a great business.
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>> you've owned it for years now. >> a few years. they're the largest player in domain registration. so if you go and want cnbc.com, you have to go somewhere to get cnbc.com. whuns you have it, you have to keep renews it every year, in addition to the ancillary services. a highly sticky business, amazing business. last year we talked about -- >> salesforce. you started it all off right here in this interview which ended up being one of the -- you were underlining the fact they were underearning essentially. >> i would say even though it's not exactly a corollary, salesforce is also a little similar to news corp. in that running a proxy contest with marc benioff on the other side isn't all that easy to do either. instead, you're able to work with people and get people to understand what's best for the
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company, what's best for the shareholders, what's best for the stoeldz. >> 41% since you announced your stake. not bad. >> for salesforce, splunk and others last year, there was a mover in these technology companies that were formerly fast-growing businesses to get them to refocus with the markets refocusing, to refocus on balance an profitability. >> that's your hope for go daddy. >> go daddy needs to do that. go daddy has been going the wrong direction. most technology companies are refocused on margin improvement. the combination of growth and margin are now much more acceptable. you can just look at peers to see where you should get to. go daddy has gone in the last year from 38 to 31%. their peers at 41%. they have a scale business, terrific margins we talked about before, extremely sticky. they should be able to get to 40% and higher. and all they have to do -- it's
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very similar to salesforce. all they have to do is decide they want to do it. these are dials that they can turn. >> if they wanted to. >> if they want to. they have to decide they want to focus on that margin improvement, get the margins up to 35% plus. they'll have growth plus margins over 40% and a stock price that does well. >> jeff, we're out of time but i wanted to give you 30 seconds on fortria. it's a small company. it is up today. why? why are you in there? in 30 seconds, give me the take. >> i'm not great with time. >> i wish we had more time. >> fortrea is a contractor search organization. it was spun out of lab corp with a great ceo. tom hike key was at quinn tiles which is now i koouf yeah. inside lab corp they weren't
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focused on the margins. again, it's about margins. it's been spun out with 9% ebitda margins. the peers are twice that at 18, 19%. we believe there's an opportunity to do this. it's a small industry. there's only a handful of players that have the scale to compete. they're one of them. of them. we're excited about the wind behind the industry and excited about the margin improvement opportunity at the company. >> well, you did it. welt done. jeff, thanks for the time as always. >> thank you. >> jeff smith from starboard. sara, back to you. >> thank you very much. before we head to break, we've got to hit the bond report. follow up on how treasuries are fairing. that is the main story of the markets and yields continuing a relentless rise higher. watching levels 488 on october 6th, around 489 the new cycle high reacting to strong retail sales. we'll be right back.
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harvard facing criticism from high-profile donors over its response to the israel-hamas complex. the wexner foundation, started by les wexner the latest to cut ties saying it was sickened with the school's dismal failure to condemn the hamas attacks. the foundation has funded fellowships at the school for over 30 years but in a letter yesterday it said, quote, in the absence of a clearly moral stand, that they are, quote, no longer compatible partners, our core values and those of harvard no longer align. they were angry that the leadership didn't take a clear and unequivocal stand against the murtdsers of innocent israeli citizens. this is a family that's estimated to be worth about $6 billion according to forbs, the billionaires behind bath and body works and limited and
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victoria secret. the latest in a string of high-profile and important donors in places like harvard. we've seen it at penn as well to go activist. >> you have this alumni donor class, always an unstable relationship maybe with what was happening on the campuses. >> does it change things? >> when we return bank of america's ceo brian ynan moih fresh from his company's earnings call. we'll be right back.
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[ music builds ] [ screaming ] . good tuesday morning. welcome to another hour of "squawk on the street." i'm sara eisen with mike santoli. we are live from post nine of the new york stock exchange. david faber is with us, live from 13 monitors active passive conference in downtown manhattan. carl on assignment. stocks right now under pressure, down 0.75%. as you can see from the sector breakdown on the right it's not all in the red today. you have strength in some of the cyclical areas like energy, materials and industrials. it's technology selling off the worst. the nasdaq composite down 1.2%. a lot of big cap tech isn't working and then earnings movers, goldman sachs, microsoft and apple biggest drives on the
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dow right now. nvidia, amazon, lower as well and some of the new rules from china hurting the semiconductors in particular. treasuries a big part of the story here. sell-off in bond accelerates, continues i should say. yields are up across the curve. 10-year note yield 4.84. we're the highest since october 6th when we got 488. reaction to strong retail sales data and the relentless rise in treasury yields we've been following. 30 minutes into the trading session, three movers we're watching. got to start with wyndham hotel shares surging after choice hotels made an offer to acquire the company for $90 a share in a cash and stock deal. news out of thermo fisher acquiring a swedish biotech company that specializes in studying protein bio markers. an then more bank results with fresh numbers from goldman sachs and bank of america. we're going to break things down with the bank of america chairman and ceo, brian moynihan, in just a moment. fresh off of his earnings call.
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>> we're adding to the stack of economic data we've got this morning. retail sales and production business inventories out. rick santelli has those for us. >> mike, august business inventories we've been very lean on inventories, but this is a definite pop up 0.4% for august. this, of course, is much higher than the up 0.3 expected. you have to go to december of last year to find an equal number and go to july of last year to find a higher number. and any close above 5.18 in 2-years is a new high year close going back to '06. new high yield close going back to '07. 30, anything 4.98 or higher new yield close. another data point out, national association of housing market index for october and that we head east to diana olick. >> rick, home builder sentiment in october dropped 4 points to
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40 and september's read revised down 1 point as well on the nehlb index. the lowest level since january. anything below 50 is considered negative and that number was much lower than the treat expected. builders pointed squarely to higher mortgage rates as the 30-year fixed at a 23 year e high and over 7% for the past two months. sales conditions fell 4 points to 46, sales expectations in the next six months dropped 5 points to 44 and buyer traffic fell 4 points to 6. the builders said higher rates are increasing the cost and availability of builder development and construction loans which harm supply and contributes to lower housing affordability. to get buyers in the door, 32% reported cutting home prices unchanged from last month, but the highest rate since december of last year. 62% of builders provided sales incentives, up from 59% in september and tied with the previous high last december. so again, not good news on the
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builder front. sara? >> yep. those higher yields, the culprit. thank you very much. diana olick and rick santelli. that's where we start today, mike, that is the center of the action, the rising treasury yields. one trigger this morning was retail sales. so it's important, it's a snapshot of the american consumer which drives our economy, of course. they're not inflation adjusted but were they strong. i don't think anyone expected to see a number like this. 0.7% jump from august to september. 3.8% stronger this september than last year. and if you dig into that, yes, autos were a big part of it and gas stations were a big part of it as we're spending more on gas, but there was a good strength in online retail, there was strength in miscellaneous retail, which includes convenience stores and the control group which goes into gdp was 0.6%. that was a lot stronger than what we saw the month before, and really continues to bode well for third quarter gdp. it's surprising given where we are after so many rate hikes.
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we see the pressure in the housing market in mortgages and see the pressure in americans borrowing more from credit cards and having to pay the higher rates, and yet there continues to be the prioritization of spending. maybe the excess savings that are still there and not running out fully. >> wage growth is running above 4% and unemployment under 4%. you have the raw material for continuing to spend and be you have consumer balance sheets and unusually strong position because of the excess savings from stimulus and everything else before we got into this. so the economy continues to show more resilience, surprise to the upside. knob is dragging you away from the soft landing thesis at this point. although we can see it tipping into something worse down the road. the market is kind of reflecting that to some degree. bond yields we have the factors we throw around. supply has to be or the psychology around supply. taking out recession expectations and fed rate cuts from the immediate outlook is
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part of it. we have the yields going up today alongside strong retail sales andthe stock market, you know, is actually going to go flat or at least the equal weighted s&p 500 is positive. and everything outside of mega cap, this is what a broadening stock market looks like the s&p is down -- >> not bad today -- >> for now. that's the way it's being taken. >> part of the yield story is, david, my chart of the day today, courtesy of david rosenberg the shorting going on in treasury yields hedge funds and institutional buyers, here's the noncommercial short futures and options positions on the 10-year treasury. look how high that number goes. how many millions of contracts above 1.2 million. that's part of the backdrop here that hedge funds piling in against treasuries. that trade is working very well. it goes against the households
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that are consumers of these treasury auctions and the t bills we've seen lately but it is something to watch and part of the story. >> without a doubt. bill ackman will remind us what a good fall we had in terms of shorting and continues to. it is also a hedge for many as well, sara, as you well know. it's having an impact, though, on the banks. we talked at the top of the 9:00 about bank of america and goldman sachs, both of which we got earnings from this morning. both of which look pretty good, at least versus expectations, but bank of america barely holding on to a gain. goldman is down. mike, that's got to be in part because of the move up in yields one would expect. >> yep. continues to kind of rub at the concerns we've had about positive flight about the effect of the balance sheet. in fact, we have a number of earnings movers across pharma and the banks this morning. we're going to get you everything you need to know with our leslie picker on the
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financials and anjelica on j&j and morgan brennan on lockheed's results. the banks, goldman's conference call under way. leslie, what are you hearing so far? >> deep into q&a at the moment. goldman's ceo david solomon saying the u.s. economy has proven to be more resilient than expected and those are reasons to remain vigilant. noted that treasury rates have, quote, risen sharply while recent inflation and employment data coming in above estimates drives that market expectation for higher for longer. >> there still are a number of sectors in the economy that have yet to absorb the impact of higher rates in light of further tightening and financial conditions we've seen over the last quarter. at the same time, there's been an escalation of geopolitical stresses around the globe. the war in ukraine, tensions with china and now the conflict
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in the middle east. overall levels of risk are more elevated than we've seen in some time. while we don't know where this will all lead, it could impact economic growth and stability in the u.s. and around the world. we remain cautionly positioned. >> solomon spoke about regulation, the higher capital rules outlined in the bass basel 3 end game over the summer. the rules as proposed go, quote, way too far and could result in negative consequences, including increasing the cost of credit for businesses, pushing more activity to the unregulated banking sector, something that could increase the systemic risk, he says, and third, u.s. competitiveness will go down for our capital markets in the u.s. the net result would be slower economic growth in its totality. solomon says uncertainty remainedp top of mind for him and we've seen that across all
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of the major banks reporting so far, guys. >> thank you. let's hit johnson & johnson beating on the top and bottom line, raising their outlook amid strength in the company's pharmaceutical and medical devices business. stocks, though, under a little pressure. let's bring in angela peebles. what were your key takeaways? >> yeah, sara, j&j is raising their full-year adjusted guidance to between 1007 and 1013 a share and analysts were looking for 100 a share. they're raising the low end of that revenue guidance for the year. in the third quarter what we saw is that pharma drove this beat. drugs in the immunology franchise like stellar ra coming in ahead of expectations and in the cancer portfolio, drugs like carvickty coming in ahead and carvickty is interesting because that's a newer drug for multiple myeloma and had promising results, but it's difficult to make. even though people are interested in it, it's almost
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like j&j can't make enough of it. i spoke to the cfo this morning who said, even though supply is getting better, they still can't meet the demand there. and even though there was, of course, this strength in the pharma side, there was weakness on the med tech front, and j&j saying that it's taking steps to improve this. it's undergoing a restructuring in the orthopedic business and they have been dealing with some supply shortages on the contact business, having a hard time getting some of the raw materials. but the cfo telling me they expect that to improve in the fourth quarter and rebound going forward. >> i'm sorry i called you angela. anjelica. question on the medical device part of the business, it always comes back to the obesity drug. is there a reason for concern in this part of the market and other health care parts of the market like med tech or pharmaceuticals in that the more
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people on these obesity drugs, the fewer procedures and health problems we'll have? is that a reasonable concern for these investors? >> that's a great question, and it's actually one that came up on the call this morning. analysts asking what this means forbariatric surgery and, of course, that's a surgery for people with obesity, and j&j saying although it might have some negative consequences in the short term, they actually see this as a benefit going forward because these new drugs will help get more people thinking about obesity and then in the long -- and there's also the side effects some people can't deal with. if you can't deal with the side effects for the drugs you might look at a surgical option. >> thank you. let's move on to lockheed martin, the shares rebounding this morning, the first results out of a defense company we've gotten this quarter and morgan brennan is with us to tell us what we should be keeping an eye
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on here. >> yeah. everybody is watching the sector even closerp than usual, david. beat for lockheed marngs on earnings to revenue sales, sales growing 3%, free cash flow 2.a $5 billion. reaffirming full-year guidance despite trimming f-35 deliveries for 2023. lockheed's backlog up 4% since last year, $156 billion. fco jay malave, telling me the missiles and fire control segment is the significant driver. demand for highmars, anti-tank missiles continues amid the ukraine war. meeting demand has been a challenge across the industry that's weighed on q3 margins but the coo telling me he's seeing, quote, overall improvement in the supply chain. still some issues around things like solid rocket motors, power missiles, but regarding the
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israel-hamas war, st. john saying, quote, they're really hoping for a rapid restoration of security in the region with minimal loss of life. lockheed is ramping production of cross weapons due to ukraine, many of those will be in he demand around israel as well. st. john noting, quote, they don't see issues associated with the new development impacting our ability to support the u.s. government, and its allies and what's required. defense stocks, they've rallied since the conflict start but analysts cautioned this takes time for demand to translate to order and to sales. malave noting he wouldn't expect change to lockheed's projections for the next few years. the u.s. government operating on a continuing resolution that expires november 17th. no elected speaker of the house yet. in the event of an extended cr, the pentagon's ability to order new weapons or backfill stocks would be restricted, new programs can't be awarded either and malave saying if that were to happen to the extent we're reliant on that in our financial
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forecast that could become problematic. guys, shares are up 2% right now and many of the other defense contractor names are up trading higher too. >> morgan, thank you very much. on look heed martin. we monitor the developments out of israel ten days since the terrorist attack there. nbc's jay gray live from tel aviv with the latest. jay? >> reporter: yeah. look, right now in tel aviv, things are relatively calm. it's been a quiet day actually. we haven't heard the iron dome tested with ariel assault attempts so that's been a good day here and for many on the ground as they learned the president will be making a trip to israel. we talked to orlando israelis who never would have imagined a sitting president of the united states visiting their country at wartime. they are very gracious he's coming delivering a message to the rest of the world, the he
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say, he is supporting their effort here. it's going to be a bit of a tight rope for the president as he makes his trip arriving tomorrow because he has said repeatedly and the white house has driven this home over the last few hours each stop he makes, every time he talks, he's going to be talking about humanitarian aid, and that'sp been a touchy issue in this situation. we have aid piled up at the rafah border between gaza and egypt and not being allowed in. we've heard from diplomats who have been working on this is that they feel like progress is being madep, and that that border could potentially open not only to allowing food, water, medicine, the fuel that is desperately needed inside into gaza, but allowing foreign nationals to leave that war torn area. what we've learned from the state department, there are at least 600 u.s. foreign nationals
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in gaza right now and you would assume that most of those want to make that trip out of the country. that's something that's going to be a very intense focus of the president during his short time here. let's talk a little bit and we have about the rafah border crossing where there's been al these supplies building up, all of these people looking to move out, building up as well and no movement on the other end on the south you have movement. today we saw more troops, more equipment, moving into that area and preparing for what continues to be the possibility of a ground assault. what we have heard is that's something still in progress, it hasn't been delayed. when pushed on the matter, what we were told by both the idf as well as the white house the president's visit won't affect the timing or the strategy of israel, that they're going to move when they think it's necessary and they'll leave the diplomacy to the other side of this. they're going to carry out their
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mission as they best see fit. >> jay, thank you so much. as we head to a break here, here is our road map for the rest of the hour. semis getting slammed right now. nvidia down 6%. its biggest intraday decline since december. >> the conference in midtown manhattan, speaking with trian's ed garden about his latest ideas in this market and why he left the firm. after the break, bank of america's ceo brian moynihan joins us on the read on rates, consumer and the economy. don't go anywhere next on "squawk on the street."
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shares of bank of america moving higher after topping profit estimates thanks to better than expected net interest income but the company did report realized losses of $131 billion on securities held until maturity in the third quarter and continues to be a talking point from the $106 billion in paper losses in the second quarter. bank of america one of the worst performing bank stocks this year down about 17%. let's talk about all this, joining me fresh off the earnings call is bank of america's chairman and ceo brian moynihan. welcome back, brian. good to see you. >> it's good to be here. thank you for having me. >> so on the quarter, the highlight, 10% rise in profits thanks to net interest income, and net interest margin, and you raise that forecast. how sustainable is this kind of
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growth? >> oh, it's sustainable because we have 200,000 teammates who go to work every day, and it do great job for our customers and clients. what drive our net interest income is our deposit base the best in the business and you're seeing the stability and growth in the commercial side of the house. stability in the wealth management side. the consumer business, consumers still spend down, but very stable, very profitable customer base and so as you think about that, that goes. long growth this quarter was slow and expect that to pick up as the rate cycle normalizes and l led us say more ni, i this quarter. we held a $14 billion for the fourth quarter and said it was trough at that level and start to grow in the second half of next year because of the great performance by the team. >> and deposit costs are a factor there. they're rising. looks like they were a little higher than expected and higher than competitors. are you taking share and where does that go?
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>> deposit costs are 150 basis points all-in for $1.9 trillion in deposits and deposits grew a lish. basically we have 500 plus billion no interest bearing transactional accounts. the deposit cost all-in is driven by the mix of deposit at a given moment and at the end of the day $1.9 trillion that represent our customers and clients' money using to conduct their daily business. the money on the investment side has moved into the markets and you can see happened in business, but stabilized now. our deposit costs are derivative of the makeup and a consumer where you have your good core transactionsal counts 34 basis points which is a strong deposit cost given trurnal nature of that business. >> what is happening with the consumer? we got a surprisingly retail sales report. y in t you in the past year have been leading the message about the
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strength in the consumer which has been true but is it fading? what's happening here? >> well, the retail sales number came out stronger and sometimes that bounces around. focused on what we see n a given year, $4 trillion plus of our consumers moving money out of their accounts to do something, using a debit card, writing a check, taking cash out and spending it, et cetera, $4 trillion a year. in 2021, that grew over to 20 2 growth rate was 9 to 10%. in '23 first quarter over last year's first quarter, say 9%. it's down to 4%. a little over 4.5%. that has held true in september and october. that growth rate to put it in context is consistent with where we were in '16, '17, '18, '19, low growth, low inflation economy. consumer activity has slowed down. it moves from which categories but across $4 trillion, 37
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million checking customers it slowed by half. that means the consumer is being slowed down by the interest rate environment and all the stuff going on. they're employed. if you look in their accounts you can see that they in the median income households they have low balance accounts spending down the excess balance, multiples of prepandemic. in the higher income households they've moved the money into the investment side. but you're seeing that deterioration of deposit balances and consumer in those households down a little bit. they're spending money in excess of what they bring in. that means the economy slowed down with a low growth, low inflation committee and will play through the numbers. this is real-time data as opposed to lagging data. we can see this and the first 13 days october looked like september which is 4%. >> does it make you think that we are closer to going into recession at this point, or as long as the tight labor market holds up we can avoid it?
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>> well, the labor market if people are employed and the unemployment rate is strong compared to historical norms, but you've been seeing some of the open job openings and stuff have fallen and more employee movement by companies. if you look at that, more notices are up and means the labor market is softened a bit and wage growth starting to slow. our core prediction, by our research group, not to have a recession. in other words, we're going to have a slowing of the economy, troughing in the middle two quarters of next year and half a percent annualized growth and then working out and takes it to '25 to get back to trend growth. also inflation, they have three cuts next year by the fed and then four cuts the following year of '24 and '25. that still leaves the fed funds rate around 4% or so at the end of '25 but inflation getting in
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line. the higher for longer debate i think you have to put that in context. 4% two years out now, is still a higher for longer but a rate structure which doesn't move a lot from where we are now. >> you did set aside more provisions for bad loans tied to credit cards. what are you seeing there as far as stress and what's the expectation? >> we're not seeing stress. our credit card charge offs and delinquencies are where they were in 2019. as best we can tell, the overall credit in 2019 was a 50-year low for the company. so we talk about normalizing to a level that is very strong. in the credit card business, the reason why i put up provisions we grew the business. we're basically back up to almost level in loans. as you grow loans under the methodology you have to put up the reserves ahead of time. whether you use them or not is a separate question. meanwhile, releases on the commercial side and feel very good about that.
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overall credit costs of 30 basis points are sitting at 50-year lows except for what we saw in the pandemic when the stimulus changed the picture. '18 and '19 good years for credit in the history of banking and the history of bank of america and we're only getting back to that level now. >> that's good to hear. what inning are we in terms of the higher provisions? >> i think our provisions -- our provision in the quarter is driven up by the charge offs as they normalize and by reserve bill for growth. that's a good thing. building reserves for growth we want to grow loans, go out every day, and it have thousands of people trying to grow loans. the loan demand is not that strong. again, the fed having gotten into commercial side of the house and lowering loan demand. at the end of the day, you'll see us bump around at this level now and go up or down a little bit, but it's going to be driven by the path of the economy. the reserves we have set are set on a methodology which is 60%
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base case, 40% adverse case. if you think about that, the way to make people understand that relatively straightforward, that assumes we get to 5% unemployment rate, which is no one's economic assumption. it's a strong reserve position for our company. >> brian, i mentioned the stock price at the top. the price to tangible book between you and jpmorgan has widened recently. what do you think is driving that and how do you close that gap? >> we close that gap by driving the performance like we did today. $7 billion plus, 10% -- earnings, 10% growth. year over year. 15% return and change of common equity. the amount of equity we need for the new capital rules in the house in returning 15%, so there's not a conundrum. how do you get returns to that level if you cap rwa increase. we have $194 billion the requirements as stated now, about $195 billion. that's what drives it. our job is to keep driving the
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earnings and the stock price will reflect that over time. we fared well at '21, bouncing around a little bit now, and now our job is to keep driving the earnings. >> you know that market has been fixated on these health to maturity portfolios you have and, obviously, those unrealized losses did gain from $105 billion to $130 billion. should the market be concerned about this? >> no. at the end of the day, that comes from the $1.9 trillion of deposits. basically two years ago we made a decision to put some of the money to work and split it into two pieces. short-term piece and long-term piece. in the aggregate 47% of our security cash we hold is short-term overnight type of investments and 53% is long-term. that's in the health maturity portfolio because those marks we knew would come and we don't have to take them through capital.
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these are government guaranteed securities. the team has done a good job of managing its. our nii grew faster than we thought, upped our guidance because the security yields of all that activity extracts the value of that deposit for shareholders and continues to grow. >> so i just want to understand it because there's a lot of mixed opinions. any risk you would have to mark these to market? >> no. >> no risk? because you have the capital positions. what about the concerns earn the fact that you're under earning because of it relative to jpmorgan which has a more liquidity balance sheet so they don't have the underwater securities? they can reprise with higher rates. is that valid? >> about $11 billion rolled out of the long-term bucket into the short-term bucket. right now it's, you know, with cash, 5.5% plus, you know, putting money in cash is great investment over time that will change as rates come back down. we'll see over two years since we peaked the portfolio and we have made investment since 2021,
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we've seen the balances in the long-term side down $80 billion and all that money put to work in the short side. so that's a pick-up of a couple hundred basis points in yields. as we move through next year our nii starts to grow after we set the $14 billion trough. we have positive mow mementum bd it. we have a loan book that's strong and high credit quality, but on top of that, constant reprising of our balance sheet up. you saw that as the yield on that went up again. >> i think that clears up some of the confusion there. what about investment banking? what does the pipeline look like there? >> the pipeline remains pretty strong. so, you know, but we got to have stability in the market and some of that will come to market. some offerings get done, some deals get announced and the team did a good job. in market where the pool was down 30% year over year we're flatish. matthew and the team have done a
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great job on investment banking capital side in gaining share by about 0.75%. one of the highlights in there is that we made a decision about three years ago, two years ago, to say we need to dedicate more investment bank nears the middle market of america in this huge middle market franchise we have. we doubled the size of that group. that business is more consistent and less driven by big deals. we're seeing be a bigger share and putting a good base on it. billion dollars and change of investment banking fees used to be a good quarter. now doesn't feel so good. that underlying base is strong and yes, the future pipeline is strong and we just got to have stability so deals dets get done. you see that quick up quickly. >> i'm not sure we have stability. the world changed again about ten days ago with the terrorist attacks in israel and i wonder if you see any change in behavior in capital markets and clients and decision making? just around this increased
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geopolitical tense environment? >> it is a very difficult time to assess the geopolitical risks in any industry including our industry. we have teammates in israel that are -- we've made sure they are safe. people affected by it all over the world with the war going on and, you know, it's clear we have to be careful. right now the market has absorbed it relatively, you know, without moving around too much, bouncing around some here and there, but let's remember, this is a huge human issue and the markets will absorb or not absorb it and we'll react and manage our company well. we have to keep all the people in our heart and prayers to make sure this comes to a quick resolution. >> 100%. does it change anything about what you do, your strategy, the way you look at the world right now, given all these increased risks? >> well, we always -- that's why
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we drive our response for growth. so in 2014 after the invasion of crimea we changed our position in russia. we look everywhere and always rebalancing our book. we've grown our international presence from about $20 billion in outstanding loans to $100 billion and trading business around the world, they've done a great job of growing the business, but, you know, we have a great risk management team and line of business team that look at that every day, and it say how do you take it. look, in the period of volatility in the third quarter around these issues, around the world, you know, jimmy and the trading team made money every day. that's, you know, how you manage the risk of being very aware and not getting long in any one place. >> it gets you us to today's story the 10-year note yield back up in the 4.8, moving -- the relentless rise in yields. i wonder how you're looking at it? you could argue that now should be a time for safe haven with the slowing growth that you would see lower treasury yields
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with the head coming to the end of the hiking soil, but it's been the opposite. what do you think is driving it and how far do you think we go here? >> i think we're -- it seems to be we bounce. the 10-year yield moving 10 basis points is a lot of volatility in historical context because it used to move a basis point and everybody would get excited. a lot of positions and events done. is it a safe haven. there could be when the debt and worries about the debt and all those things, it goes up. the volatility around the world. i think we're in a range that sees a bounce between 4.6 and 4.8, almost up to 5 and back down. none of that affects the that much but affects the world more is the short-term rate structure which has had the impact the fed needed to have. slowed down housing, car purchases to some degree, the cost of debt is slowing down the consumer because money is
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reallocated there. companies are more conservative on the uses of debt. so loan balances are down and demand down a lot and financial conditions for lending are tighter. that's the effect of the rate structure that's felt most quickly, but the idea of what the 10-year is on a given day will bounce around based on people's views of the safety and soundness of the world and the u.s. treasure capability to pay. from an economic perspective, the short-term rates have a bigger impact in the near term. >> they're high too. finally, brian, your colleagues have been unusually outspoken about the end game rules. speaking out against it. how will they impact your bank's competitiveness and do you think the industry, if they are set to go through? >> well, as we told people today, right now we have $1.63 trillion in risk weighted assets. the expected outcome of the rules as proposed now, which would be finalized next year and be effective in the middle
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of '25 and get you to '28 to phase in would require us to have $1.95 trillion of risk weighted assets. today we have $194 billion in capital and our requirement would be 10%. we have the capital in the company in earning 50% we need to comply to the rules. that being said, i think there's a lot of debate about the wisdom of some of these rules, the increased for mortgage, increased rwa for the tax investments for solar, wind and other things, a lot of -- it's our industry and company are going to comment heavily about this and you're seeing, you know, debate even among the fed governors about the wisdom of it. there's still turns in the track go through with all this, but i think at the end of the day i've said if you give us a set of rules we'll adjust the business. the impact will be less lending capacity in the american banks, the strongest banks in the world, and less fuel for the u.s. economy to grow on. people have to be careful making those decisions. $300 billion in increase in risk
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weighted assets could have been loans we could have made that would help the economy grow and can't make them because we can't take any more risk on that risk weight assets because it's deemed to be there even though the risk hasn't changed. we have to be careful about the impact of the rules and competitiveness of the u.s. against other people. the real impact in the u.s. is mid sized companies and small businesses will have a higher cost of borrowing which is not good for the u.s., without really a clear indication that the risk of the lending we all do as an industry has changed and that -- we question that as an industry and company. >> yeah. i mean unintended consequences. well, we continue to follow that one. thank you very much for taking the time to talk through the results and what you're seeing at bank of america. we appreciate it. >> thank you. >> thank you. brian moynihan. david? >> thanks sara. after the break live from the active passive summit and ed garden join us, founding partner or was of the activist hedge fund trian, still an adviser
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we are continuing to bring you the latest from this year's conference. by the way we'll mention vf corp in a little bit. what ed garden is up to, our viewers may recall he was trian fund's founding partner leading a family office called garden investment. good to have you. >> typically do this every year. you're no longer at trian. why did you leave? >> look, i think it was just time for me to pursue the next chapter, and i'm excited about that. i have to tell you, walking around this conference, which is the activist conference, it's amazing for me to think about 20 years ago, when we were starting
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trian, the term activism didn't exist, right. i never heard it when we were starting trian. and i think, you know, i didn't realize it at the time, but we were pioneering an asset class. >> you were in many ways, although you're the youngster at trian or were. no offense to nelson peltz and peter may, but again, sort of generationally you were the one ready to take over, and you were running the firm anyway, i should point out, but why not stay while the old guys retire? >> for me i was at the point in ply life and career where i wanted to do my own thing. nelson and peter are both very engaged, going out with their boots on, so to speak. it was the right thing to do. but just finishing up on my last thought, it's amazing how the industry evolved. i thought of it back then as reimagining the role of the public shareholder.
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when i was running an equity capital markets desk in the '90s the way the world worked was if you were an institutional shareholder in a public company and didn't like what was happening your only option was to sell. think about that, right. think how wrong that is. what we did was galvanized the other owners around a point of view on the company and brought world-class work product, we brought more capital, and, you know, it's really exciting to see how the industry has grown? all right. to the extent you've been part of the evolution of activism, what now? you've got this family office. is there where it's going to stay? are you going to raise outside capital? what's your plan? >> my goal is to compound capital v fun doing it and hopefully be innovative and creative doing it. >> what does that mean? >> i think that plain vanilla
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activism has become crowded, right. how many activists were salesforce.com. right. i think it's become -- it's a bit commoditized. the question for me and my team is, how can we take the activist skill set and those experiences and innovate and take it to the next level? i've hired or i had two former partners at trian who have joined me, brian and chad, which i'm thrilled about, and our challenge is to figure out how to differentiate and innovate. >> give me an example. >> as an example, i think you're seeing the convergence between activism and private equity. right. you're seeing elliott now take companies private. right. you're seeing private equity firms take stakes in public companies. leonard green took a stake -- >> i'm sure they're good in public investing, but it's
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happening. >> there's a reason that it makes sense. so if i own 10, 15, 20% of a public company, and i'm on the inside, i'm on the board, i now have an information advantage and i know the good and bad and i also have a relationship with management, with the management team. if the market presents an opportunity to take the ownership to 100%, right, i have information advantage, relationship advantage, and i have value advantage, a price advantage, because i open such a big slug unaffected. >> right. >> there's a lot of merit to that model and we'll see how that -- >> would you partner with existing private equity? >> i would. so i think that's a concept that i find interesting. the other thing, david, public equity is still a massive asset class. right, long active equity, massive asset class. i would argue that asset class has to evolve, has to add more
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value. they have lost funds to passive. they continue to outflow generally speaking. >> they also can under perform typically? >> they need to add more value. i think somewhere in the recipe of success is going to be, you know, becoming more active. >> right. >> i think a more concentrated portfolio. instead of just picking stocks and hoping they go up, dictating corporate events, dictating corporate behavior, generating alpha because they're having a positive impact on the companies. i think activism is going to take all these new forms and innovate and how can we be a part of that. >> do you need more capital in order to execute whenever this idea comes? >> we'll see. you know, whatever happens, i'm going to be personally, you know, the biggest investor. >> right. i can imagine a scenario you raise capital around a certain idea as many activists do, or do
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you just want to raise outside capital in general? >> look, i have strong relationships with deep pools of capital, and we'll see how that evolves. my objective is to compound my capital and we'll see how that all plays out. >> right. >> but just one last thought, i was talking to a friend of mine who runs a big firm recently, and he said, think about it. when we joined the industry in the '80s, the best selling products today, etfs, private credit, private equity, didn't exist, right, so the best selling products 10, 20 years from now, we don't know what they are. i think for me personally, being, you know, being part of that trying to get creative, using the skill sets that we have to pioneer, you know, is full. >> let's talk about ge where it's the only directorship you still have. you were on plenty of boards. going to report earnings next
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week. you're going to look at it as one of the great turnaround stories and rightly so. when trian got in things did not go well. you joined the board six years ago. do you think they're well positioned to succeed? >> i look at last quarter, revenue orders, operatingeps all up double digits. in fact, eps was up 80%. free cash flow up 100%, right, raised guidance, stock up 120%. >> look at that chart. >> i've been -- >> is it over and done with now, ed? >> identi've been, you know, ca how i couch this, but now i think it's becoming clear, this is one of the greatest corporate turn-arounds in history. this is an epic turn-around. and it started with -- it started when we went on the board and replaced that board in late '17. we held that board accountable. and then we refreshed the board.
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larry culp joined the board, ultimately became the ceo and we were off to the races. and i would say this, david, a couple lessons, you know, from that. number one, be aware of the star-studded board. it was a board in the beginning of '17 that was made up of rock stars from the corporate world. and they oversaw a colossal breakdown in corporate governance. so, don't sleep well at night just because it's -- >> it's got big names? >> -- big names on the board. second, management is everything. you can hand a great company to a bad ceo and they'll run it into the ditch. conversely, you can give, you know, larry culp lemons and he'll make it lemonade. so, i think those are two hugely important lessons. >> well, we'll be watching next week. i think it's next week when they report earnings.
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finally, i'm curious. you were at trian when they originally took the disney position, i believe, and then your former partner, mr. peltz, decided, no proxy fight. we're potentially seeing it again. i know you're not involved. does that make sense in terms of what you might accomplish at disney? >> i'm not involved but it makes no sense to me why bob iger would want a fight. he's got his hands full. a transition to streaming, the linear business, you know, under a lot of pressure. you know, probably too much leverage. why he wouldn't embrace nelson and want him in the boardroom, doesn't make sense. >> that seems like nelson's -- it's a lot of different fundamental ideas -- >> i don't think anyone knows exactly what this is going to look like as the business evolves. however, i think you would want
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nelson in the room with you helping you navigate that transition. i would guess that if he did that, nelson two or three years from now would be his closest adviser. that's my personal opinion. and i would advise him to let nelson in the room. >> so far that doesn't appear to be happening. always good to catch up with you. look forward to hearing news from you as well in terms of this new view of activision. >> thank you. >> before we hand it over, i want to take a look at shares of vf corp. they're up double digits, at least they were. it was as a result of presentation at the conference. engage capital, a firm run by glenn we willing. they're pushing for changes at the parent of van's and northface as well. we may have a little more for you on that.
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you can see it's having quite an impact on a stock that had been down 50% for the year coming into today's session. >> most exciting thing that's happened to vf corp for a long time, since vans were in style. david faber. we're getting comments out of richmond fed president tom barkann with the headlines. let's get to the headlines. they look dovish. >> joining the group of fed officials that want to be patient here. he says the fed has time to see if they have done enough or if there's more work to do. he says the fed is walking a fine line between overcorrecting or undercorrecting when it comes to its policy. this gets pretty interesting. he says the data show the labor market and the economy are strong. he doesn't quite throw it out, but he says he's got a lot of anecdotes. it may be softer than implied, relying on anecdote, including he sees the economy much further along the path to normalization
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than data suggests. he says parts of the labor market are coming into better balance. wage pressure, he says, has moderated. and businesses say consumers are stretched thin. i'm going to leave it there except to tell you it's unclear how much all of this softening is feeding into inflation. back to you. >> barkin has weighed in. not a voter but still interesting to see where the discussion is going on the fed. let's get to bob pisani with more on what's moving. index is clawing back. a little stronger under the surface. >> we're doing well considering we have three problems -- the yield problem, and we have a problem with semiconductors. let me show you what's going on here. nvidia is just getting clobbered in the s&p 500. biggest decliner along with some other big semiconductors. the biden administration announced restricting exports of a.i. chips to china. nvidia's revenue is about 20 trs%, 21% are china.
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that's an issue, obviously. this seems a bit of an overreaction. this was a lot worse an hour ago. but you can see other semicuttinger chips down. the market cap weighted index, this is the problem with market cap weighted index, nvidia is the biggest one there. it's 20% of the smh, which is the one everyone watches. this is a market cap weighted index. it's pushing down the semiconductor index. apple has been down three days in a row. meta, alphabet has been sideways for the past week or so. that's one reason the market is continuing to hold. let me show you my favorite indicator. mjk is what you want to look at, vanguard mega cap index. this is all the mega cap names. you can see largely sideways for the last couple of months. finally on earnings, we have 39 companies reporting so far. look at this, 92% beat. this is what's amazing almost
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10% earnings growth. that's way above expectations for this particular group, these early performers. as you know, this is going to come down, particularly once we get the energy stocks. so far, the numbers are really good. but very modest response to the market and very tepid response to the bank earnings. >> bob, thank you. got to leave it there. as we recover off the lows of the session with the ten-year yield above 10.8. "squawk on the street" continues after a quick break. is it possible? with comcast business... it is. is it possible to help keep our online platform safe from cyberthreats? absolutely. can we provide health care virtually anywhere? we can help with that. is it possible to use predictive monitoring to address operations issues? we can help with that, too. with the advanced connectivity and intelligence of global secure networking from comcast business. it's not just possible. it's happening. ah, these bills are crazy. she has no idea she's sitting on a goldmine. well she doesn't
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good tuesday morning. i'm sara eisen with mike santoli live from new york stock exchange. u.s. tightening curves on chinese tech this morning adding to the already existing tensions. >> later, critical house speaker vote just one hour away. we'll break down what's at steak with a budget deal up in the air. first, to markets, though, we actually have an intraday rally from the opening lows. the s&p was down 0.75%. we're still up around 483 on the ten-year but the small cap russell 2000 up
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