Has the Fed Engineered a “Soft Landing”? And Carvana’s Movin’ on Up to the Tune of 750% This Year 7/12/23

0:01Right now on Fast, threading the needle as the market's latest move higher in the stocks leading the charge. to sign investors believe the Fed has foamed the runway for the soft landing. We'll debate that. Plus, communists in the boardroom. The FBI director warning that American companies in China are now being forced to let teams of Chinese Communist Party operatives set up shop in their businesses to maintain party disciplines. How big a deal is this? Let's go live to Washington straight ahead. And later, a stock that's moving on up. Well, we will break down a left for dead company that's out of the doghouse heading back towards the penthouse.

0:34It's up nearly 750 percent since the start of the year. The big reveal and the options action behind that coming up. I'm Melissa Lee. This is Fast Money. We're live from the NASDAQ Market site on the desk tonight. Karen Feiderman, Bonwin Isom, Steve Grasso, and Tim Seymour, who will join us shortly. We start off with some breaking news out of Disney. Shares right now are up by nine-tenths or percent in the after hours. Let's get straight to David Faber in Sun Valley, Idaho, for all the details. David. Yeah, Melissa, tomorrow morning we sit down with Bob Iger, of course, the CEO of Disney. And the news right now is that he will be CEO of the company for a bit longer than had been anticipated.

1:10Of course, our viewers may recall Mr. Iger returned to Disney late last year as its CEO after a 15-year stint in that job, out about 11 months, returned with a end date of the end of 2024. The board of directors has requested and he has accepted an extension of his contract through the end of 2026. Perhaps a reflection of the challenging times that Disney finds itself in, perhaps as well that he wants to accomplish certain things and didn't have enough time in which to do it. Also puts off, of course, the search for a successor for some period of time. I'm told as well that senior management was involved in the decision and also was encouraging of Mr.

1:53Iger remaining at the company. So this second stint for Bob Iger would appear to extend for what would be a total of roughly four years, or, right, yeah, roughly four years, instead of the two that originally had been agreed to, Melissa. That's going to be the subject, certainly, of an interview that we conduct tomorrow morning on Squawk Box, in addition to so many other issues involving the company, whether it's direct-to-consumer, the future of ESPN, oh, and on and on. But certainly important news for the market to digest after hours. Bob Iger staying with Disney as its CEO for an additional two years beyond the expiration of his current contract, which was set to expire at the end of 2024.

2:34Not too much reaction in the stock after hours on this news, David. There have been recent reports that there was difficulty, there has been difficulty finding a successor. Do you know who might have been on that short list? I'm just curious if there There's, you know, any anybody from within who might now be leaving the company because they weren't tapped on the shoulder and he's staying longer. No, I don't think that really is going to be the case here. The sense is, if you recall, he did a reorganization after soon taking over yet again with certain division heads. And I think the expectation within the company is that is where the key race is.

3:09But I don't believe that there is any expectation that any of those people, in fact, will be leaving in any way, Melissa, or that there's anyone particularly disappointed at this point. Of course, his extension does come with the recent departure of longtime CFO Christine McCarthy. But as for that search, it really hadn't begun in earnest from what I understand, and obviously will be conducted by the board of directors. And now it gives Iger more time to follow through on the strategic initiatives he's already put in place. Of course, we know part of them involving cutting as much as$5.5 billion worth of costs.

3:42We know there have been 7 ,000 job cuts along with that, but also getting the direct-to-consumer business on a path to, if not to, profitability. As they've been saying, at least so far, they expect it to be break-even by the end of 2024. So that's sort of the task ahead for him. And again, tomorrow morning, we're going to have an opportunity to speak to him at length about exactly why he chose to stay, what was behind that decision, and how he's thinking strategically about the next three years. David, thank you. David Faber joining us tonight from Sun Valley, Idaho. And, of course, do not miss that interview, the exclusive interview with Bob Iger tomorrow at 8 a.m.

4:19Eastern time on Squawk Box without commercial interruption. Bono, and you're an owner of Disney. Not too much reaction in the stock. Does this make you feel better as a shareholder? I think in the short term it does make me feel better, but in the long term it's some real concern. As we mentioned, what's the succession plan here? And is the reason why he was brought back was to kind of right the ship? And to me it says that the ship hasn't been righted now. Now, rather than him transitioning out amidst a tumultuous situation, I'm happy to see him staying along and kind of stewarding this to where it needs to go.

4:49It does raise concern over the long term. Are they able to kind of put the succession plan in place necessary to continue kind of the pillars that he's setting up? Yeah, just to underscore that, I mean, when he signed the contract and was a two year contract, was there a belief that two years would be the time frame that investors would have to wait to see the company be righted? and is now the timeline much longer, double that. I think the timeline is longer, exactly the way you said it. It's nice to have them at the helm, but wow, these waters are choppier than we really thought. And, you know, in the end of Iger's era, it was all about building up businesses, right?

5:24And obviously Disney Plus was everything. And now it's going to be more about the balance sheet, I think, as that becomes more of a burden. And it also, your question was exactly what I was wondering. Does this mean they couldn't find anyone, right? I wouldn't have been shocked if there had been some sort of co-president or some kind of somebody elevated to maybe a future role. Maybe not to the outside world, maybe to the inside world only. I'm not sure, but it does make me think, all right, they're back to the drawing board on this. It seems like, did we chart where it was when he came back? The price is actually lower than when he came back or in the same ballpark, right, by a couple of percent?

6:04Is that where it was? So so to both both of their point, he was seen as the knight in shining armor, including myself. I owned the stock back then. I thought it was going to rip higher. It did. And then it came right back in. If you look at the pandemic low, it was in the 80s. This is not the pandemic low is no one was going to be going to the parks ever again. Right. And that's a huge number they do at the parks. So this has become more of a political football with the state of Florida, with Governor DeSantis. There's so much that overhangs that you can't really put a dollar amount on and a performance level on the stock.

6:44That's what we're seeing. And we don't have anyone to fill his shoes, which is very concerning for shareholders. Maybe the political issue is impacting Disney. Maybe, maybe not. But what we do see and what was reported by the Journal just this week is that it's the best time to go to Disney World because there are no lines. And what does that tell you? Sounds like Yogi Berra. Nobody is going right now. Or there are fewer people or that people had gone right after the pandemic. They've all gone and you're not going to go back for another year or two, Tim Seymour. There are problems, as Bono and outlined, with direct-to-consumer and the streaming side of the business.

7:19I mean, there are issues here, Tim, with Disney. Yeah, but I feel like we have priced a lot of that in. Again, if anything, the updates we've had recently, you guys have addressed this. Domestic and international theme park segment has been very strong. And the problem has been the growth or lack in the DTC ecosystem and, frankly, the profitability there. It's not even that it's slowing. It's that it's pulling, you know, certainly pulling down net income. So I think you take it right to a valuation. For a stock that's at a five-year low, you put a three or four times revenue on the DTC business, which is half of what it was when the stock was soaring.

7:59And you put a 12 times EBITDA on parks, and you still end up with$120 stock. So I don't like what's going on here. I don't love this news. I don't hate this news. It's not a surprise, as everyone has said. There's not an easy solution here, but it gets back to a company that is priced a lot of bad news in. We know what's going on at Linear Networks. We know that the profitability on DTC is seemingly not even close. But the rest of it more than pays for itself. And I stay here. I'm not selling it at these levels now. We've had a lot of conversations, Bono, about how Netflix is winning in the streaming wars because everybody else is concerned about turning a profit and getting to profitability.

8:38And that's putting additional pressure on themselves in light of Netflix's ability to just be and be the king in this sandbox. stocks. So given that, I'm just curious, you know, is this a stock given that plus the possibility that consumers might be headed into a recession might be they may not have completely pulled back their spending yet? Maybe the worst is still to come. Have we priced that in? You know, I think Tim touched on it. I think Steve mentioned it as well. I mean, looking back at those pandemic lows does give you some type of rubric through which to kind of look at the stock here and being that where within striking distance of that level does give me some comfort because that gives you an idea of what it looked like when people, maybe they had the money to spend, but literally could not go for vaccine or pandemic reasons or whatever.

9:30Essentially, the turnstiles weren't being run, similar to how they're not being run now. So I think that kind of gives me some pause. And I'm saying, listen, like Tim, I'm not willing to dump the stock here. As it pertains to the question you asked me about Netflix, I do think this kind of sheds some light on the fact that Maybe this thing does continue to squeeze higher because part of the attractive thing about Disney is that although they have Hulu and all the other aspects, they do have the parks and DTC, which we thought were linchpins of that business and could withstand, you know, headwinds in other areas.

10:02So I just think it kind of shifts the way through which you're kind of looking at it to kind of wrap this thing up. Looking at Disney, where the stock price is now compared to where it was at the pandemic low, lets you know that, you know what, probably a lot of this bad news is priced in. If you were expecting the catch-up trade, and we talked about that Paris trade previously between Disney and Netflix, you're probably going to have to stay in that a little bit longer than you had expected. All right, let's get to the markets right now. And the question that we asked right in the open of the show, has the Fed been able to successfully engineer a soft landing?

10:33Inflation is cooling. The S &P is at a 15-month high. And there are some surprising areas of strength in the market. Banks, big tech, even energy, we're all up today. So does this market action suggest the Fed has actually threaded the needle in this slowing economy? The reaction to CPI was everything is up. Yes. I mean, I think it's still too early for them to say, you know, we did it. Because the one thing that I've been somewhat skeptical of, but I understand, And there's a lot of people who think the lag has still not been seen yet. And we could still be awaiting a recession as some of mortgages, let's say, roll over.

11:10But I mean, I think they're doing a good job. If you had looked at where when they started this. Right. And when inflation was just we were getting those high prints, higher and higher prints. And we would have said the market's here, the economy's here where it is now. And now inflation is here. Three. would you think the Fed would have been able to do that so successfully? I would have been a little bit skeptical. They're not done. I think we're a little presumptuous. Yes, yes, agree. We're not there. We're assuming that they're going to take the lead and say, hey, we're done. That's it. We're going to go one more, maybe possibly two.

11:44But they could overreach, which is what they typically do. So it's a little presumptuous to say that they've done the soft landing yet. The data is backing that up, but we don't know if they're done. Right. And all the Fed speak that we've gotten indicate that, you know, they believe that there is more work to be done. Roger Ferguson, the former vice chair of the Fed this morning on Squawk Box, said September is still a live meeting. I mean, nobody's really expecting nobody is pricing anything in. But he thinks it's still alive because the Fed wants to make sure that inflation is dead. Yeah. You know what?

12:17I think we need to take a slight step back here. Right. So I think the peak inflation story has definitely kind of fallen through. And that's just what we see. And that's kind of what's setting up the Goldilocks situation. To Karen's point earlier, if you had looked back nine or 12 months ago and said, do we think that we would end up here if this was the path to getting here? I don't think I certainly didn't. Right. So I do think the Fed has done their job. But to your last point, they are going to make sure and the and the base effect is going to get harder and harder as inflation gets lower and lower for us to continue to have that continued slowing.

12:49So I do think the Fed will likely err on the side of hawkishness, and it's going to take some very compelling data set up over several months to get them to kind of slow down. The last thing is I don't necessarily think that them not continuing to raise rates is now the new story. Now it is higher for longer and what effects that has on the economy. And I think that needs to be the next thing that we look at. But in this vacuum that we're in right now, until we see something, whether it be consumer credit or defaults or commercial real estate or earnings, until we see something that kind of shifts this narrative away from peak inflation, people are going to continue to want to own risk assets.

13:30The real question is, what amount of money do you need to be paid over treasuries to be taking on that risk? All right, Tim. Well, I think we need to just not be as bulled up about today's CPI number. I understand it's less than, you know, it's a third of what it was at its peak. Everyone knows that. But the core, and was better, but still at 4.8 percent. And, you know, although at 4.1 over the last three months and 4.6 over the last six months, Fed likely is not seeing this as underlying inflation as its friend here. And I guess, you know, we expected CPI inflation to come down to this point, driven by lower energy prices and less from the easing of underlying inflation.

14:17I think some of these pressures are still there. Having said that, you know, yet another acronym for markets here, and I was tweeting this out. RHINO, which is recession in name only, is that term you hear going around again. Now, after the kind of growth that we've seen over the last couple of weeks, both in the labor market and again, even if it's slowing and where the inflation is coming down and the Fed is kind of, as we know, one or two hikes away from being done. It's a question of how long they stay there. I just think that between the seasonals, between the positioning, between the scramble and the FOMO, a lot of people that have missed this rally because people have been overly bearish, I think the market can run at least until the next Fed meeting, not forever.

14:57And so this is more, you know, call it a slightly tactical view. But I still think that today's CPI number was a very good number and at least gives the market room to rally. But it's not the answer for the Fed. And it certainly gives tech room to rally. I mean, that pullback in the 10 year. It wasn't that long ago that we're looking at above 4 percent. And here we are, Bono. I mean, is this sort of the free pass, at least for now, for tech stocks to continue higher? I think that's part of the equation. I think the other thing is Tim mentioned it. A lot of people have missed the rally. I've missed a decent part of this rally.

15:31I mean, there's certain pockets of stocks that have done well. But I think there's still those handful of names, and a lot of them are in tech, that you buy them and you say to yourself, OK, the fundamentals behind these companies are still set up such that if I'm wrong, I feel good about being in these names. And now the narrative, whether it be AI, but let's take that example. Now there's also a growth narrative around that. So, you know, you've seen other pockets where people are kind of chasing. There's an article out about people chasing meme stocks, redeploying in some of these more speculative pockets.

16:02Those five to seven names still make you feel good about owning them. And being that if you own them, you are likely going to play along with the market. You don't have to worry about so much basis risk. I think that's another reason why you continue to see them kind of outperform. All right. Well, one of Wells Fargo's top strategists called the CPI number good news, but slowing inflation could soon impact a popular treasury trade. Mike Schumacher is the firm's head of macro strategy. Michael, great to see you. Thanks, Melissa. Great to be here. And you were yourself flagging that big move that we've seen that we were just talking about, the big move particularly in the 10-year.

16:35What does this mean to you? Connect the dots for us in terms of that big Treasury trade. Yeah, it's interesting. I think people are getting on board the idea the Fed has done a bit too soon. I agree with a lot of the comments that your colleagues made. It's been a really good day for the Fed. It's only one print. If you look at core inflation, still running pretty hot, 4.1 % annualized over the last quarter. So people tend to get really bowled up. And it's an interesting pattern. when the Fed is done. The Fed won't announce it, obviously, but the market gets ahead of it. And you see this enormous move in treasuries.

17:04We saw a bit of that today. I think it's a little bit early, frankly. I mean, I think I ask everybody this question when I get a chance to interview, you know, strategists like yourself, Michael, and that is, do you think the Fed sees this reaction in the markets and think, you know, this market needs a talking to? And when they have that press conference, you know, in a couple of weeks, they're going to be extra hawkish to convey to the markets that every meeting is in fact live and you cannot assume that the doors close at this point because the markets are acting like the doors is closed or done.

17:36Markets are acting like it's five o 'clock somewhere for sure. They're having a good old time. And I think for the Fed, the real challenge has been the Fed can talk about a rate hike or two and people sort of get that. But where it's really failed to convince the market is, hey, we're going to be once we get the policy rate where we want it, we'll keep it there for a long time, a year, year and a half. Powell's talked about two years. The market does not believe it. I'll give you some numbers. So if you look at the amount of rate cuts priced by the market for 2024, right now it's about 125 basis points.

18:08One week ago was 80, 8-0. So the market said, oh, if the Fed's about done, that must mean a rate cut's around the corner. That's good news. We can all go out and do our thing. The Fed wants to try and walk that back. Michael, how much of this is nuance versus science? Do you think if the market gives them a little more room to raise rates a little bit further, will they take it? And it has nothing to do with their game plan. Perhaps. I mean, I've never bought that argument entirely. But if the Fed's leaning toward a rate hike, which it seems to be doing, and the market's priced for 85%, something like that, let's say on the morning and the meeting.

18:48Yeah, it probably takes it. But does it necessarily want to push more onto the market if it's not really ready? I don't think so. So it's not so much the market giving the Fed permission, but if they both line up, it makes the Fed a little more comfortable. It's Karen. Thanks for being on. What do you think is going to happen to the shape of the yield curve? I mean, I know we have some big financing's coming up, but this inversion is quite pronounced, and it's been that way for a long time. Yeah, it's interesting, Karen. I was in Asia a couple weeks ago, and that was the question we got from pretty much every client.

19:20When is the curve going to steepen? It's hurting my business, et cetera, et cetera. And when you look at the historical data, and I think this applies to this case as well, what typically happens when the Fed is done hiking is this enormous move down in yields. But it takes a while for the curve to steepen. And I think you will not get a positively sloped curve, let's say two-year versus 10-year Treasury, until the Fed actually cuts. So it could be quite a ways off. So perhaps a little bit of steepening, less, let's say, inverted, but positive slope, we think that's quite a ways out. And you think that yields on the twos and tens are going to go lower.

19:56You're saying to buy Treasuries at this point and that there will be more pressure on the dollar? Almost there, Melissa. I think for us, we'll probably wait another few weeks, perhaps another month or so. But we're just about at that point. It's pretty clear the market's amped up to buy. Again, I think it's overshot in the last couple of days. But if the Fed goes once more on the 26th of July, we think it's probably a pretty good sign to hop in. So we're just about at that point. Are you going to release the kind of trade that's like buy five minutes before and sell 14 minutes after. Exactly. Right.

20:32Wait for the announcement. 27 and a half minutes later and not a second more than operate in. That's the kind of trade we love to do. All right. I'll get the egg timer out. Michael, thank you. Good to see you, Michael Schumacher. Bono, what do you think that yields will go lower? I think it depends where in the curve. He had an interesting piece. I think that intermediate to longer term, and I want to say intermediate because long term is technically 30 years. But that five to 10 year period is probably where you want to look. I think some of the free money on the front of the curve might be coming to an end.

21:03And hopefully investors have kind of benefited from that in the meantime. Yeah. Yeah. I feel like I want to make a little more front end bets just because it's almost been a year since I started. So if those are rolling over and right. And I feel like your first ever treasury. Yes. My first ever treasury. And now I have a few of those. And I feel like that's still particularly as the market has had such a nice run. Now that five plus percent risk reward seems compelling. I'm going to do more of that. Coming up, a talk, a talk about a dual motor. One animal is getting even more bullish on GM looking for the stock to double the driving force behind that call.

21:42Next, plus live from Sun Valley, LinkedIn and Inflection AIC co-founder Reid Hoffman joins us to talk investing in the A.I. space. what he sees next for the growing industry. Don't go anywhere. More Fast Money in two.

22:03Welcome back to Fast Money. Ample upside ahead for GM. That's our call of the day from analysts at Citi. The firm says strong pricing in North America could help the company beat EPS estimates for the year and sees positive catalysts from its EV and cruise businesses. Citi raising its already bullish price target from$85 to$89. And that is 120 % higher from today's close. Tim Seymour, can you see that path to$89? Well, you can't see me right now, but I'm not sure I can see the path to$89 either. The path has been 30 % up since June 1st for the stock on a few dynamics, including just industrials.

22:47We talked about that last night. They report on the 25th. If you look across the street and you look at the city outlet, they're at the upper end of the range on EPS on 2023. They're calling around$775 a share, I believe. Most of the street is only 5 % to 10 % lower between$720 and$745, and yet they're somewhere around$40 to$45 a share. So, look, I believe more in Citibank's view than I do a lot of the street. A lot of the street's also pretty bullish here. The valuation is compelling at, you know, five and a half consensus P.E. And the fact that they continue to show that they are growing free cash flow, that they are certainly the most efficient of the big two left in Detroit.

23:34I think you stay long here. I'm not sure you're getting 89. The excitement is not around Ford and GM. Ford and GM are value stocks, if you will. The graphic that we just showed with Tesla up 120 % year-to-date, GM has trailed even Ford. Ford's up 30%. It's been lackluster. The excitement is around EVs, whether it's Rivian or whether it's Tesla. That's where the growth seems to be coming from, not these old automakers. Yeah, Rivian is up 85 percent in just the past month. Bonwin, where would you stand here? Yeah, I mean, I think the lack of excitement is exactly why you want to be kind of buying the names.