High Conviction Trades.. And The Media Shift Into Streaming 5/9/24

0:01Live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast move straight ahead. Plus, game set and match with all the talk of rebundling the bundle. Can we now declare Netflix the winner of the streaming wars? And does that mean everyone else is praying to be the runner up? We'll debate that. And later, the chart master and the ambassador and a fast money face off. An amazing achievement today for Amazon and a white shoe Wall Street firm with a noteworthy winning streak. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Carter Worth, Guy Adami, and the original big short investor, Danny Moses of Moses Ventures.

0:49The stocks closing the day in the green with the Dow jumping more than 330 points, extending its longest winning streak of the year to seven days. The S &P and Nasdaq also closing near their highs of the day. Still, markets are in a bit of wait and see period ahead of the next big round of data, CPI next week, and VD earnings towards the end of the month. So while we wait for these potential catalysts, we thought it might be a good time to ask the traders what they see as their highest conviction trades. Guy, we kick it off with you. It's exciting time. I was hoping. I'm baited breath. Oh, stop it.

1:19Come on. What is it going to be? So that means the one I feel most strongly about. Strongly about. Yes, exactly. GDX, Melms. Why? Look at this. Pull up a chart. Finally, the gold mining stocks are catching up to the underlying commodity, that obviously being gold. And gold has been under pressure until today. But you know what? The mining stocks have been hanging in there and actually going higher. As a matter of fact, I think today or the last couple of days, we made a multi-year high. So So I think gold is absolutely in play. I think it's basically held in there like a champ in the face of many things that historically would take it lower.

1:52And here we are. So gold goes sideways from here, which I don't think is going to happen. I think it's going higher. I don't think it matters because I think the miners can play huge catch up in the back half of 2024. This has been a trade that you have liked as well, Tim. I was going to say, if I didn't have my high conviction trade tonight, I would have guys high conviction trade. I think the miners have had a little trouble with the inflation story. There's an element that they don't have the operational leverage to overcome a lot of the inflation, although I'm not sure that that's right. I also think the GDX could be flawed if you look at the size of Newmont and what that's meant to the overall return.

2:22I think gold miners are going higher. I think gold's going a lot higher. I think PGM's precious metals are going higher. I mean, if you think about just timeframes are arbitrary, right? Year to date could be one month, could be six, but 12 months is not arbitrary. That's a trailing 12-month data. The S &P is up 1 % over the past year. Gold miners are up 26. It's been a great area of the market. What it has lagged, though, is the commodity. And so there's leverage and operating business relative to the underlying commodity. Ultimately, they've been great already, up 26 % in the past 12 months, but there's more to come.

2:53Oh, okay. I know I'm expected to give a short idea always when I come on. And I want to say I'm glad to be back when the market's up again. This is like third time in a row, so it feels really good to be here. But I'm watching the lower-end consumer. First of all, I love the gold trade. Thank you, Danny. I'm watching the lower-end consumer, and a rate cut two or three is not going to help them at this point. And you are already seeing what's going on kind of in subprime auto and kind of the subprime consumer. Discover is being bought by CapOne, so no one's really paying attention to that. But I'm looking right now on some of these names right now in subprime auto, CACC, right?

3:23Ally Financial, which had a good quarter, but you can see delinquencies picking up. But specifically two names, which we've talked about on the show before, Affirm and Upstart. This is your high conviction trade. The high conviction or Affirm and Upstart continue to be. Yes, you've got to deal with the ebbs and flows of the shorts, short covering and so. But I think we're in motion here. And just think this economy has been so strong for so long. Imagine if unemployment ticks up what people are looking for. There's casualties to that in some of these companies because they're really lending companies.

3:48Haven't we heard this for a long time, though, and that that tick higher has not happened in a firm's delinquency rate was only 2.2 or 2.3 percent. If you bring up a Carter chart of a firm, you'll see that it's been on the downswing. It's had pops that have come up. The bottom line is they're handcuffed by how much funding that they can get. And they are expecting an uptick in delinquencies here going forward. So just imagine if you couple that with unemployment rising, those are the people who get hit the most when unemployment rises are their customers. We just talked about this last night in terms of these firms don't even know what other buy now, pay later loans these same consumers might have on another platform.

4:19This has been a very, the room is getting louder in terms of the voices talking about it. Danny's hitting something that I think we all fear the consumer. Today, he had a jobless claims number, which was, you know, it's a volatile series. It was up 20 ,000. It's still historically very low. But all we do is talk about the consumer that has a job. There's no question the Fed is targeting the labor market, whether they say it or not. There's no question they're going to succeed at some point. So at some point, these credit issues, and again, whatever your timing is, it will play out. And to the extent that there's been a there was a moment when buy now pay layer and a firm and these these a lot of these essentially a lot of this funding came to market.

5:02It was a case when the consumer had all kinds of money to spend. And I don't they don't have that same pocketbook. So, Danny, what do you mean? Obviously, up at one sixty a firm one point now straight down to 30. Are you thinking down into the teens, that kind of thing? Yeah, I do. And I think upstarts much more precarious. The book value in upstarts five or six dollars. That's how it should be valued. It's a financial company. I just don't think people realize it yet. I know we're going to talk about another company later that's posing as something else. It's really something else. We're going to get to that at some point.

5:25But, yeah, those two are the way I would play it. That was very cryptic TV. It is. It's always so shocking. I want to watch to find out what that is. I have no idea what that is. Stay tuned. Who could guess? But in terms of this trade, Guy, timing is everything. Timing is everything. When you're shorting something in particular. And look, I've pulled up a firm chart real quick. Since December of, well, basically this December, this past December, this stock has made a series of lower lows, lower highs, in a very defined downtrend. And there's your chart right there. And that's in place. Of course, the problem with a trade like this is exactly what you just said, trying to catch the timing.

5:57I think what you're hoping for, and you saw some of it today, you actually had a decent day to the upside on a decent amount of volume. So you get a couple more days where shorts capitulate, and then that's probably your opportunity to put that short position back on. Do you see those levels that Danny is hoping for? Yeah. I mean, that's why I asked, because it looks as though it's going lower. Now the question is just how much. Right. All right. Tim, let's get to your high conviction trade. Well, you outlined a scenario with what markets are doing. They're grinding higher. They're waiting for the next catalyst.

6:24And we're within 50 bips of an all time high once again on the S &P. Say what you want about the Fed. Also, it's a waiting game. But we're in an environment where probably the central bank that's going to be cutting first is the ECB. My highest conviction trade is Europe. And it's again, it's European blue chips. And if you look at the euro stocks, 50 or the euro stocks, 600, it's finally outperforming the S &P for the first time maybe in a decade. And this could just be a small window. But there is a dynamic here where there are technical and structural reasons why European indices have underperformed the S &P and certainly the NASDAQ over the last five to 10 years.

6:58And they have a lot to do with the mag seven. In other words, when you have the biggest tech companies in the world that live in the United States, it's kind of tough to get fund flows and passive fund flows into Europe. But when you have companies like SAP and Sanofi and ASML and Novo, you have some pretty sexy, you know, pharma, biotech and tech companies that are getting their just due. And if you look at the performance of Europe over the last year, these companies have had the same disproportionate outsized, you know, return profile to the overall index. So I think we know that in the Blysept, the I is iDevo, which is my international ETF.

7:33I think you have a dynamic here where international really has a backdrop, even with a stronger dollar. And again, the dollar will strengthen if the central bank differentials favor the Fed being tighter than the ECB. But it's still going to be good for European stocks. Look at the European banks. I know it's easy to pick on Deutsche Bank over the years. But if you look at Deutsche Bank's performance this year, look at a Santander, look at a BNP, look at a UBS. These are stocks that are up 20 to 25 percent outperforming U.S. money centers. So I like Europe, and I think it's going to continue. We've had strategists in recent months put forth their version of the Mag 7.

8:08I think today you mentioned that the latest is Granola. Yeah, I mean, you can spell any word you want. They like acronyms too, Guy. But you don't get as high a multiple with Granola. I was so happy with Tim because he's playing the game correctly. With iDevo, it's the eye and blicep. It's appropriate, right? You seem disappointed. I am disappointed in you now. In what? Well, there's no such thing as blisep, Tim. You know this. So, I mean, you know, you were playing by the rules and you decided not to. But anyway, granola. I mean, let me hear this. Well, granola, you know, again, you could spell it out.

8:43So you've got GSK, you've got Roche, you've got L 'Oreal, you've got Sanofi. Granolas. There's a couple of S's in there. There's a couple of N's, too. I mean, they really bent the rules when it came to spelling out granola. Well, again, people have done that in our acronym game as well. I won't name names. But the point is that they're very interesting companies with it. Also, it's essentially an anti-technology bet. Yes. It's all about Europe's no weighting in technology, right? And a heavy weighting in big banks and big pharma, not a lot in retail. So it's a very different index than the S &P.

9:14And it's because of that that either it's a value story. Yeah, there's no question. And if we've been struggling and if the MAG7s are having trouble making new highs, and I think, you know, let's wait for NVIDIA to really see what happens. I think it's interesting. There is one company leaving Europe, coming to the New York Stock Exchange, which is Flutter. So let me give a long out as my favorite idea. It's Flutter. And I know Tim knows it very well, which is FanDuel. And they're going to be listed on New York. They're moving from the LSE here at the end of May. They report numbers next week.

9:40We all see what's going on with wagering. We saw the money come in on the Kentucky Derby. It's much cheaper than DraftKings on a multiple basis. So Flutter. It trades at half the multiple. It really is. And just going to the U.S. exchanges, Danny's totally right. I mean, this is going to see fund flows. Most people don't know what Flutter is. I can finally be on the right side of passive flows coming in. I'm always on the wrong side of that for some reason. Quickly, this is sort of, I'm sorry, Melissa. I am actually. Are you going to hijack the show right now? You are. No, I'm not going to. You totally are.

10:08When you say that, it makes me, because there's such a bad connotation about hijacking. Okay, so what are you going to do? The Kentucky Derby was this past weekend. What's this gentleman's name to my right? Danny. Danny. Who normally sits in the seat? Dan. Dan, what was the winning horse in the Kentucky Derby? Mystic Dan. Did you bet on that horse? No. You had the other six horses, though, to finish in the top seven. Yeah, I wanted to be the contrarian. Why would I go after him? The people out there might want to listen to Danny Moses, but understand that he had six of the top seven horses, and he still lost money.

10:38Guess who made money off of me? You did not. Fan duel. Back to you, Melissa. All right, Carter, what's your highest conviction trade here? So, John Deere, and we can look at a charter, too, in a second, but obviously this is an important American franchise. Think 1804, about 220 years. Caterpillar didn't start itself until 100 years later. But it's a stock that after basically a four bagger off the low of COVID has consolidated for almost four years. So let's go to the charts and see what we can see. This is a comparative chart, two lines, two colors, and you can see the divergence with Caterpillar.

11:09So that's part of the setup. Second chart is the here and now chart of John Deere. And that setup is something that's about to move above a well-defined downtrend line. And then finally, look at the long term chart. And again, this is what's important. The stock goes from 100 on the COVID low to 400 in basically a year, a four bagger in a low beta sort of industrial sleepy name. And then after that has spent three plus years going sideways. So is it worth more or less than it was three years ago? In principle, it's worth more. Play for the breakout. How do the fundamentals line up? I like it on valuation.

11:45Despite the move that it's made. And again, whether you're looking at a three year or even a one year or even a 10 year, it has had at least a move over some time here. The multiple it's it's probably cheaper than it was five years ago. It's a company that not only is getting some of the benefits that the other industrial companies are getting from A.I. and efficiencies, but it's a company that I think is probably in the sweet spot right now of an ag commodity cycle that I think goes on. Put it on the 16th before the bell, May 16th, that is. You don't have the EPS growth. However, you have a valuation that basically is discounting a lot of that.

12:20I think it trades at less than 14 and a half times next year's numbers. It's been building this base. We've seen decent news out of Caterpillar. We talked about the base yesterday. The base, we did. We talked about a base. Don't get mad at me for that. I didn't bring it up. I wasn't going to bring it up. This is on point. Carter mentioned a four-year consolidation. Right. Longer than base, the higher than outer space. Big base. Yeah, and that's, of course, the great Luis Yamada. Yes. That's what we're setting up for. Sorry, Melissa. I'm a little agitated now. Join the club. Meantime, those weekly jobless claims coming at the highest level since last August, raising hope the Fed may start cutting rates at some point this year.

12:56But our next guest isn't too convinced. He still sees the 10-year climbing back over 5%. Ben Emmons is a senior portfolio manager and head of fixed income at New Edge Wealth. Ben, great to have you with us. What are the factors that will drive us above 5 % at this point? It seems like we found like a nice little range here in the 4.5 % range or so. That's what it looks like, Melissa. But, you know, I was again watching Japan. We talked about it on the show before. The latest there is that the Bank of Japan is now really openly out saying we may have to move faster and sooner than we thought before because they're looking at the yen that continues to struggle.

13:32And the connection there, obviously, between the 10 yen and the yen is pretty strong. but I think it's really the Japanese bond market that's now going to play here because that's inching towards 1 % of the 10-year yield. That's sort of a psychological barrier, right, if you think about it. Just like in our market when we went to 4 % now, close to 5%. So we have to really watch this because as much as that's a market controlled by the BOJ, as they say, that can just as much move as fast as Treasuries, just really little liquidity. So I think it's going to be really interesting from here how Bank of Japan is going to manage interest rates with the yen, it's going to factor it.

14:07So if the BOJ does make a move, it would seem to me that that would be a permanent move. And so a permanent move, meaning they'll stay at that level, higher levels, right? And so therefore, the 10-year yield would stay at higher levels. So do you think that this is a sustained move above 5 % because of this, or is this just a pop above? Because markets have been able to deal with a pop above here and there. But if it's sustained, that's a little bit of a different story. No, I think it's a good point, because if the link is there that Japanese interest rates go higher and the correlation with U.S.

14:38rates is there, then that sustained move, as you talked about, would be a completely different world. Now, we've got to put in context of what 5 % yields in the U.S. would do, as we talked before. It would likely put more pressure on the U.S. economy, right? And that would lead to people discounting that there would be rate cuts coming at some point down the line. But I do think that in the global rate space as it's being traded, that Japanese government bonds have never really played a good role driving out of interest rates. That's changing now. So you could have, let's say, a period of the 10-year hitting 5 % or higher and stay there, and then we're going to keep debating it.

15:14So I think there's this risk that we're going to go higher on rates. Ben, I want to say I agree with you that rates are going higher. I want to put that out there. The flip side of the coin is, though, GDP came in very disappointing. The data that's been coming out over the last couple of months has been soft. That would suggest rates should go lower. So you have this tug of war going on, and you're suggesting it's going to be won by the supply side of things, right? The supply-demand side of the equation and probably throw some inflation in there. And that's why you reveal it's going higher. But is there a chance that obviously the economic side wins out and rates go down?

15:45There is, but I'm more on the side of what you're saying. I guess the supply side is driving it, whether it's the issuance or whether it's the supply side of the economy. because it seems that higher rates have not really impacted that. And that's, I think, really a function of we continue to put a lot of money in the economy every day. I'm on this, like, Inflation Reduction Act and Infrastructure Act tracker, so to speak. Every day I see emails from all kinds of projects across the country. I think that's driving productivity higher. And that's, I think, part of the push behind rates that makes it hard for them to go sustainably down.

16:19I mean, the other part of that is that we have no real downside pressure yet in inflation. We're kind of stuck where we are. Could develop, but I think it's not likely in an economy like this, until we get really moved down of headline inflation below 2%, that I could see rates lower. So I think it's struggling here for the Treasury market to make real gains. That's why the long end of the curve, I think, will continue to stay under pressure. The global central bank experiment began in Japan decades ago, right? So now they're right in the middle of it again. And to Guy's point, if the 10-year yield starts to move in the U.S.

16:49based upon supply and demand versus inflation expectations, I don't think a lot of people are in that camp. So if we start to go north of 5 % while inflation may be coming in, it may get people a little exercise, as Guy likes to say. And what do we do at that moment, you think? I mean, we're already backing away from QT here. I guess we could lower it completely, and who knows, maybe someday go to QE. But what's the tipping point here that gets people to think about the deficit and the debt levels in the U.S. and what that means to higher rates? Yeah, I mean, that point, Danny, is about the real tipping point is the interest rate level in itself relative to where GDP is, right?

17:21If we're getting interest rates 3%, 4 % above GDP, people start calculating how the debt to GDP level is going to balloon. And that's going to be even higher rates. That's what Europe experienced like about 10 years ago. It's hard to pinpoint the exact level of rates because who knows? But I do think that you have to make a fair point here that this is another aspect of the supply side. We can't ignore the deficit. We know that nothing is happening on the deficit front Neither president is making any kind of statement about it or do it do anything perhaps about it So the market is gonna have to discount a risk premium my estimate is and it's some studies on this too It's at least 30 basis points in the 10 year.

17:59That's that seems to be the case That seems small, but that's incremental right? So talk about sustained You take 30 base points atop the 10 year and you get a little data surprise We're above 5 % and the calculus changes. So it's a real risk, this deficit problem. Ben, thanks for coming by. Thank you. Ben Emmons, where do you see yields going? Yeah, I mean, I guess I just don't, the higher for longer, when you hear mantras, when something becomes very popular, like could be granola, for instance, or something that, you know, or.com or whatever it is, or AI, it's usually right to sort of question it, not just embrace it.

18:32So we know this. At the end of 2022, in Q3, we were at 435. That's October of 22. We're now May of 24, and we're 445. So unless I'm doing the math wrong, we're up 10 basis points in 20 months. Is that higher? It's not higher. It's maybe Goldilocks. It's the stock market. I mean, that period where we've gone up 10 basis points, copper's up 40%, gold's up 40%, S &P's up 40%, and yields are up 10 basis points since October of 2022? do. But so I hear you on that. And again, you pick two points and you're usually always very, you know, you could pick and you point that out every time. But but we do have an uptrend in rates.

19:15And you could go from July of 2020 and we have an uptrend that's doing this or for you at home, something like that. And I just think that Ben's right. We're all right to be pointing out the difference between rising interest rates related to inflation and rising interest rates. And it's absolutely a credit issue for the U.S. government. Whenever it comes to roost, we don't know. I don't think it's going to happen as long as Europe's as bad as they are and Japan's as bad as they are. I just think that that's given us a lot of credit that maybe we don't deserve. That's fair. But I would say what I try to grapple with is the Fed's talking about easing.

19:47I would think that that's good for the economy. But I would think the 10-year yields wouldn't come down because of that. I think they would actually go up in a healthy way. We had 5%, 6%, 7 % 10-year yields back before the government intervened years ago. So it's normal. and the economy is doing very well with these rates up here. I think it's starting to have an impact. I think we're starting to see a lag. I mean, the human condition is to want to see change, right, because something's not moving. You're bored. You move on to something else in any part of your life. What about if it just sits in any part of your life?

20:12Right. Don't you want to? Very true. We don't need to go into that. Except that we've been here for 17 years. But anyway. Point being, I mean, you know, we're always looking for something that's maybe moving. What if it is just, and I have a lot of big clients who say, we're just in a sweet spot. it's going to be this four to five, three and a half to four and a half, and that's where it's going to sit. What about if that's the case? Then the whole conversation is higher. Maybe so, right? Or it's not worth talking about yields. Right. All right. Coming up, Equinix topping the tape. The data center REIT reporting blowout earnings and surprise saying AI is helping them grow.

20:46Inside the big move next, plus Roblox wreckage. The online gaming platform falling more than 22 % on earnings today. We will look at the numbers behind this buzzkill right after this. This is Fast Money with Melissa Lee, right here on CNBC.

21:11Welcome back to Fast Money. Equinix topping the tape today after last night's blowout earnings report. The data center operator saying that the rapidly evolving AI landscape continues to be a catalyst pushing growth, the stock putting in its best day since 2020. AI optimism also helping to boost Amazon to a fresh all-time high. The tech giant is up 25 % this year and investing in plenty of AI of its own as of late. The last earnings report really helping. Guy, what do you make of this new high here? So Amazon is breaking out. Carter, I think, did work on this a couple of weeks ago, and he outlined this exact move.