Desantis Vs. Disney 4/20/23

0:01Right now and fast, the bare knuckles battle between Disney and Florida Governor Ron DeSantis taking a new turn. The latest development straight ahead. Plus, the Biden administration dialing up the pressure on Beijing. The Treasury Secretary Janet Yellen pushing national security over economic relations with China, while the president signaling new investment curbs could be coming soon. A live report from Washington straight ahead. And later, Tesla's tough day, the stock plunging almost 10 percent on the back of the EV maker's mega margin miss and the company's pivot to growth at all costs. Then there's this.

0:31Elon Musk's SpaceX Starship rocket triumphantly making it off the launch pad this morning. But minutes later, that joy turning to pain, that rocket exploding. I'm Melissa Lee. This is Fast Money Live from the NASDAQ Market Side on the desk tonight. Tim Seymour, Courtney Garcia, Dan Neathen. And with us for the hour tonight, Rebecca Patterson, former Bridgewater Chief Investment Strategist and Fast Money friend. Welcome, Rebecca. Great to have you with us. Well, markets finishing the day in the red as the Dow drops more than 100 points. The NASDAQ falls nearly 1%, the S &P to close off over 0.5%.

1:01Much more in today's action in just a moment. But we begin with a developing story tonight on Disney. Shares dropping once again today and down almost 3 % over the past week as the battle between Florida Governor Ron DeSantis and Disney takes a new turn. Disney executives reportedly calling on lobbyists to keep an eye on any legislation in Florida that could hurt the company. CNBC.com's Brian Schwartz here now with that new reporting. Brian, what's the latest here? Well, this fight between Disney and Ron DeSantis is just heating up, guys. Listen, what we're seeing here is right after that press conference this past week, where DeSantis effectively ripped Disney and said he was moving ahead with his latest salvo with the company.

1:39Disney executives are calling on their legion of lobbyists to start engaging immediately with Florida state legislature representatives or the state in the state house and the state Senate. And really start pushing them to kind of take a step back here and think about what they're going to be doing next. And really a lobbying campaign that's starting to build up here is related to Disney and the land surrounding the Disney Disney World in Florida. And so there's a wide variety of bills that they're taking a look at at the state level. But there's some real question marks here as to exactly how much further this battle is going to go as Disney's lobbyists are stepping up their game as we go forward here.

2:17According to the people you're talking to, Brian, what are the odds that Disney actually loses that special status in that district that surrounds Disney World? I mean, I would think that DeSantis and the state of Florida have a lot to lose if Disney says, you know what, we're going to move. We're out of here. And other businesses might follow suit. I don't think there's any sense right now that Disney has any plans to move out of Florida. And when you look at their special status, there is some debate as to whether, you know, where that exactly is going for Disney. You know, there's that new board that DeSantis is trying to push forward to have more authority over Disney right now in the state of Florida.

2:50and that new board is really all DeSantis appointees. Many of his allies are on that board who are looking at how to really push back against Disney in the next few weeks. And remember, keep in mind, in Florida, the state legislative session ends in May. So there is only so much time left here for DeSantis and his allies in the state of Florida to really go after Disney with any sort of laws or impactful legislation. The threat to build a prison adjacent to Disney World, Was that just political theater? I definitely think it was. But I do think it speaks to how Ron DeSantis looks at this company and the feud between both DeSantis and Disney.

3:29I do not think that there's going to be some sort of state prison built next to Disney World. But let's be very clear here. It does speak to the power DeSantis has right now and the position he's in to take on Disney as the governor and as this legislative session comes to an end. And keep in mind, Republicans have a supermajority in the Florida state legislature. And that is important because all of those people, for the most part, have followed in lockstep with what Ron DeSantis has wanted over the years. So if you're Disney, you're really going to have to turn the dials here on lobbying that legislature to try to just get some on your side.

4:02All right. Brian, thank you so much. Brian Schwartz. You can read the entire story on CNBC.com. Let's trade this. Tim Seymour, you're a Disney shareholder. How do you take this news? You know, I've heard a lot of a lot of noise around Disney for the last couple of years. And I think, you know, they were also on some level really in the focus during the pandemic because of what was going on with parks and whatnot. And I think this is going to blow over. I know no one wants to hear my politics on this anyway. So I'm just going to point out that I think this is a political issue. And I think there are plenty of people on both sides of the aisle that have a strong view.

4:33But it does sound like that the view is largely in favor of Disney on this one. Again, my politics don't matter. What I care more about is that the story around Disney was going to move this stock is really less in the way of streaming losses, an asset mix, maybe something strategic. Are they going to spin off ESPN? You know, blah, blah, blah. I mean, Bob Iger is the guy to handle the next strategic step for this company. And if you want to, again, get back to the politics here, Bob Chapek was the guy that really might have even started the politics. So or at least was responding to the politics that were brought upon Disney, depending on how you look at this.

5:05So I'm going to choose not to be investing in Disney based upon the noise around this. I think it's got the best assets, you know, certainly in the business. I think the diversified business model, the multiple here is not that attractive. But I am a shareholder. You know, it's interesting. Back in February when they reported their fiscal Q1, you remember the stock had just had this massive run. And then they put up this beat on the EPS. They talked about costs. It was one of Iger's first times to really speak to the street again. I know he's been doing that for decades here. and the stock gapped up and then it closed on the low of the day and then went down like 20 % from those opening highs.

5:41So to Tim's point about valuation, I mean, there's a lot of stuff that Bob Iger's going to have a honeymoon period. He's going to be able to do a lot of things. And I think to Tim's point about this kind of tit for tat with DeSantis, I mean, if you had to ask me, I'd bet on Bob Iger on this one, okay? Like Disney's been there for 100 years. It's going to be there for another 100 years. And it really seems about a lot of culture war BS, you know. Also, Disney, largest employer in Florida, to your point. It's not something that I think is a winning issue if voters have to decide. But to the point I would just say is like if there's some of the stuff that we're seeing about the consumer, I don't think some of the stuff we're seeing about streaming, I don't think this is probably going to be a great quarter and a great guide when they report in a couple weeks.

6:23And to me, the stock remains in a bit of a downtrend. If shareholders like Tim think it's a bit of expensive, when they just put up a great quarter last quarter and couldn't hold those gains. To me, it probably seems like there's room down towards 90. It was Disney employees that brought the political fight that demanded that Disney get into the political fight because Bob Chapek's initial response was to not wade into this potential morass. And then because the outrage expressed by the employees, he said, you know what? We're going to put a statement out against this bill. And so this really speaks to it and not to be political because this could be any political issue out there.

6:55if your constituents, whether they be your shareholders or your employees, demand that you take a social stand on something or a political stand on something, that can just invite risk to the company. And how do you weigh that? Yeah, that's the era we're in now. I mean, we saw it initially with the U.S.-China tensions, more interventionist policies, economic policies that were driven not just by a political goal, but an economical, social goal. And now we're seeing that play out through the pandemic and now through ESG issues, not just at the national level, but here we are on the state level.

7:29And in the case of Florida, I mean, they were given a gift in that people migrated there in droves during the pandemic. They have low tax rates. They have good geography. They have all these things going for it that benefit Disney as well. But if DeSantis wants to keep attracting companies to Florida, which is one of the top five states in the country for GDP contribution, he's got to be careful how he steps through this because the last thing they want is a chilling effect. And one last thing I'd say on Disney specifically, you know, you think about some of the benefits they get from the Reedy Creek area, their ticket sales pre-COVID, just the ticket sales revenue for taxes was equal to the entire state's budget for elder care.

8:08And that is a big chunk of their budget. There's a few elderly folks down in Florida. Just a few. A few who might care about that for sure. Yeah. And I think this is going to blow over, which I think you used that term here because ultimately I think this is what DeSantis wants is it's in the news right now. We're talking about him. He's all over the news. He's in this bid for presidency. So I don't know how much this is going to go, but he wants the publicity and, you know, what's bad publicity at the end of the day. And I think that's what they're getting. But ultimately, I think when you look at something like a Disney stock, I think this news is going to blow over.

8:38I think it's selling off specifically on this. I would not worry about that. I do think it trades pretty expensive, but I think over the longer term, there's a lot of opportunity here, especially Iger has just stepped into this role. He's just starting to have some of those layoffs to cut costs. But I think there's going to be more down the line with him. And I wouldn't put it past him. I look at the chart, too. So we always have to bring in that component here. I mean, Disney's traded down from 180 to one, you know, 195 traded in this range. No one cares about charts in terms of telling that story.

9:04What they do tell you, though, is in terms of the valuation, where this company has come from and where it is and the bad news that we priced into the media world. If you're selling Disney, you're selling it at the bottom and you're selling it at the bottom. Also, what the charts tell you is really almost a 10 year range on the stock. I mean, after it re-rated with the DTC business and the streaming business, it obviously a lot of excitement and all streamers pulled back. But to me, there's not a lot of great news priced into Disney here. There really isn't. And for a company that has, again, this diversified asset mix that does have optionality in what they can do with some of those assets, I think they're going to start paying a dividend next year.

9:41I think they're going to get back to normalcy. Look, no company really was hurt as much as Disney on some level in terms of the core business. All right. Now to the latest moves by the Biden administration against China. The Treasury Secretary striking a hawkish tone in a speech earlier today. And there are fresh reports the president is threatening to impose new curbs on investment in China ahead of the G7 meeting. The details now from Kayla Tausche, who's live at the White House. Kayla. Melissa, Secretary Yellen's speech billed China as the aggressor in the global economy, calling out its unfair economic practices, barriers to market access and coercion of vulnerable trading partners during what she described as a particularly tense moment between Washington and Beijing.

10:20But Yellen, who said she plans to travel to China at an appropriate time, also took the role of pragmatist and said Beijing has an opportunity to make different choices. Our path is not preordained and it is not destined to be costly. The trajectory of this relationship is the aggregate of choices that all of us in these two great powers make over time, including when to cooperate, when to compete. The remarks come as the Biden administration prepares to ratchet up restrictions on U.S. investment in Chinese semiconductors, AI and quantum computing. Sources tell me the screening program will be structured as a one year pilot with additional sectors possibly added after that.

11:05The administration is preparing to unveil the program in the coming weeks ahead of the G7 summit, and there could be more penalties to come. Three sources tell me the Office of the U.S. Trade Representative is also considering raising tariffs on certain strategic Chinese exports as a penalty for China falling short on the Phase 1 trade deal. This is the House Ways and Means leadership challenges USTR to enforce the deal more strictly. A review of those tariffs could come to a head later this year. A senior trade official says no final decision has been made, Melissa, but there is no shortage of pressure from both sides of Pennsylvania Avenue to do more.

11:42Kayla, thank you. Kayla Tausche. There was a definite sort of emphasis by the secretary, the Treasury secretary on national security over economic interests. Right. So she's basically saying we're going to do what is right for this country. Whatever the consequences are for the economy, which is sort of frightening. It's stagflationary. I mean, it's pure and simple. The IMF last week, the International Monetary Fund, their biannual meetings down in Washington, biannual, semi-annual. I never know. Twice a year? Twice a year. Do we care about those meetings? I care a lot about those meetings because what I heard from hundreds of institutional investors attending those meetings is that they're starting to wonder how safe they feel going to China.

12:24I had never heard that before in my career. I was shocked by that. And I also heard that people are now pricing in a greater risk premium when they're looking at Chinese investments, not just because of what China might do, but to what you just reported, what the United States could do. You can't put your money in. You might not be able to get it out at what cost. And that's something you have to think about that five years ago, 10 years ago, we didn't. Right. They're looking at businesses. They're looking at private equity. They're looking at VC. They're looking at JVs. How did U.S. companies get into China to begin with, all with JVs?

12:56Are we going to start looking at that and looking at that as potential technology transfer, Tim? Well, it has been, and it has been. And this is the way, as a guy who's been in emerging markets my whole career, this is what happens. You're welcome until we don't need you anymore. And this is what we've seen with a lot of companies. We've certainly seen this in China, seen it absolutely in Eastern Europe. And I think that discount on Chinese equities, though, this is nothing new, right? If we look at what's been going on in the Chinese tech sector, we know that discount. And that's that's the discount that the Chinese government is putting on their own companies.

13:26So I look at who does this benefit? Look, some of the companies that I think it was more than a coincidence were up today, like an AMAT. You know, when you're talking about hardware and component producers and folks that are going to benefit from staying at home. And then there's Intel who hasn't been able to get out of their own way for a long time. And I just look at positioning and I own long the stock and I've been long the stock through good times and bad times. And these are bad times in terms of the share price. But this stock is so under-owned. And the amount of money that's being thrown, I think, in Intel's direction is something that's very interesting.

13:58We know about the discount on Chinese equities, but I don't know if there's a real discount on U.S. equities operating in China. Not yet. We've had that chat, too. We've had that chat. Especially for real brands like Apple. It still hasn't happened, right. An Apple, a Starbucks. I mean, the list goes on and on. Yeah, which I do think you're going to see investors worrying more and more about that as it becomes more realistic. And it is still, I would say, far out of the future. Right. There is nothing definitive that's happening yet. But that is where companies like Apple are going to be a little bit more under pressure because they have a lot of their sales that are coming from China.

14:27So China has been this tailwind as China reopens. But now it's suddenly going to be a headwind for people. And it is going to be a shift for investors. And that risk won't go away before the election in 2024. Likely. It'll probably get worse before it gets better. Yeah. So think about this. You know, in an interest rate environment that we are in right now, a lot of our U.S. multinationals were borrowing a lot of money at really cheap rates for years, buying back their stock, kind of massaging their EPS for years. Think about an Apple. Think about a Tesla, how much stock or how much cash they have over in China and the difficulty it is just anyway for tax purposes and stuff to get that back.

15:00So when you think about that, I mean, to me, I think there are potential headwinds for some of these large multinationals. The other thing is interesting, Tim, you just mentioned some of the semis. I mean, NVIDIA just continues to go higher. Right. And it just doesn't seem to be a headline out there that is negative for this stock that trades at 24 times sales. OK, like think about that. It's nearly a 700 billion dollar market cap company. And I just think about this one and I say as the day went on today and I said more and more headlines about this. Did you see that this stock had a leg lower?

15:29Yeah, it did. And it sold off 2 percent towards the end of the day. And so to me, like I think about like if they really do have such an edge on all of their competitors for these advanced chips, this is going to be a centerpiece of this kind of negotiation. And to your point, Rebecca, this is not anything that's going to be settled anytime soon. So to me, it's not being priced into NVIDIA right now. Clearly, from a valuation standpoint, I am short this stock and will remain it. I just don't see a whole heck of a lot of upside. I think all the great news, you know, Elon last night on their call said they're buying, you know, hand over fist or GPOs.

16:01We know what's going on with, you know, OpenAI and that sort of thing. So to me, I don't know. I think a lot's priced in right here in the stock. All right. Coming up, we are watching shares of CSX in the after-hour session. The company just reporting results. Details from the quarter straight ahead. But first, a rough day for Elon Musk. Tesla shares tanking as price cuts hit margins. The stock now down over 22 percent this month. We will debate where it goes. And SpaceX launching the world's most powerful rocket this morning. But minutes after liftoff, the Starship exploded. The impact on Elon's space stream straight ahead.

16:29Fast Money, be right back.

16:41Welcome back to Fast Money. Tesla shares plunging nearly 10 % today. It is its biggest one-day loss since the second trading day of the year. The stock now at its lowest level since late January. But the big dip not deterring one of Tesla's biggest bulls. Last hour, ARK Invest's Cathie Wood had this to say about the stock and where it's going. We do have a five-year investment time horizon. Our expected value is roughly $2 ,000, and that's within a range of$1 ,400 to$2 ,500. Wood saying the promise of Tesla's yet-to-come robo-taxi fleet is a major driver for her valuation. I was just looking, I was looking down at my phone because I was looking at this article from April 2022 in which ARK Invest CEO, Kathy Wood, came out with a price target of 4 ,600 in 2026.

17:35So it seems like she's dialing back her expectations for this. That was also predicated on this notion that robo-taxi, and so there's sort of an optionality involved in self-driving and what that car can become. I know you're a bear, so I know you're going to poo-poo all over No, but yeah, I added to my short on the opening today. I added a little towards the close. My time horizon is much shorter. I actually think it's going probably break 100, which where was in January. And my price target is 69 to the downside. That might seem a little aggressive on 420 on a day that it was just Elon day here.

18:07But to me, I think there's something else going on here with Tesla. We know that he had been selling Tesla shares all year last year to fund his purchase of Twitter. We know that SpaceX has been for sale. he's been looking to raise capital that way. You know, if this stock were to continue to go lower, if they are pushing out a manned trip to the moon, and that's what the whole idea of this rocket launch was today, Twitter, they just marked down from 44 billion to 20 billion dollars, got 13 billion dollars. This is not a generally very liquid person. He used to be able to get whatever lines that he wanted to.

18:40But now he's got all these banks on the hook for this debt that he can't service based on Twitter's businesses. So to me, he might be entering the endgame here a little bit for being the CEO of all of these companies and being that levered. And now when you look at the stock right here, it's broken. The fundamentals have shifted. Not a single analyst on the street downgraded the stock. OK, there's probably a price target downgrade. They will be downgrading the stock lower. I'm just telling you that, people, over the next three to six months or so. And that's when you have a situation where, you know, who knows if he's going to be in control of this company in the not-so-distant future because it doesn't seem like the Elon aura is playing out right now, the three biggest companies that he's involved in.

19:20So even putting aside this sort of pivot, because they did sort of pivot yesterday when they were saying, we examine pricing on a weekly basis. We're going to keep cutting prices to keep the volume up. That's growth at all costs. That's sort of growth mode company for a company that may not necessarily be in growth mode right now. But putting that aside, you think the stock goes to 69 because he is too extended, that there's a liquidity issue. No, I just think that there's a demand issue. And I think there's a competition issue in China. And I think that if you're looking at the prices of an average price point of$45 ,000 for your car, and you've just seen margins go from 25 % last year down to 19 % and likely going lower, they have a big fundamental problem that I didn't hear a single analyst talk about.

20:00There's this guy, Gary Black, and he was on Max's. He was on Last Call last night. He's like the biggest bull ever on Twitter. He's always talking about Tesla. He seemed to have turned on this story. He's lowering his estimates. So earnings estimates are coming down. Margin estimates are coming down. Delivery estimates are coming down. Backlogs coming down. And inventory is going up. Does that sound like a good fundamental situation for you? I don't know, Rebecca. What do you think? I think he has a strong view on this. I would back up because Tesla is special. I don't want to comment on Tesla per se.

20:28But just thinking about what's going to drive the auto demand. The consumer right now is still fine, I'd say even globally. But we're definitely seeing moderation. You know, Q4 last year, we saw the biggest increase in nominal household debt that we had seen in 20 years. So the credit card spending has picked up a lot. The excess savings has been reduced. And now we're starting to hear anecdotally from the banks and from companies like Amex that they're starting to get a little more nervous on that consumer spend. And so if the consumers start ratcheting back, jobless claims today we saw ticking higher again.

21:00Guess what they're not buying? Teslas. Well, they're not buying. I don't know how far you have to cut the cost to get them to buy. I agree. And they're not buying any cars. And if you look at how Ford and GM have traded over the last couple of days, too. And I agree. Today's data anywhere, whether it was that Philly Fed, whether it was the jobless claims that are still, you know, like the market's still tight, but they are weak. Yes. And I think you have a dynamic here where it to me just gets back to the multiple Tesla. It's never made sense to me. It makes even less sense now. And I believe it's a car company.

21:29I don't believe it's anything else. So and I and I look at the chart that tells me this is is the last mega cap tech stock that never broke its downtrend going all the way back to 21 to November or December of 21. That still hasn't happened, whereas all the other ones at least started to outperform and started to break to the upside. And I'm not saying that they do forever, forever either. I think there's a reason why the triple Q's and the mega caps kind of broke out around SVB. But those are the things that make the most sense to me right now about Tesla. And it's never been clearer is that the multiple now, especially if it is a car company, if they are playing the competitive game to, you know, to outproduce everybody else and take on the competition.

22:11I still think competition is pretty tough out there, too. Yeah, I was actually surprised that it closed the day down less than 10 percent, I thought, because it seems like a narrative shift that they're presenting, management was presenting on the conference call. It is. Yeah, they really focused on the fact that they are trying to increase demand kind of at all costs. They're willing to cut the prices on their cars, which is interesting because they've done it so many times. I think this is their fifth price cut that now it comes to the point where consumers are saying, well, are they going to keep doing this?