Investors on Edge as Debt Ceiling Showdown Takes Over White House 5/9/23

0:01Right now on Fast Debt Ceiling Showdown, the president meeting right now with congressional leaders. Will today sit down, grease the skids for a deal or make a default more likely? A live report from Washington is straight ahead. Plus, Disney on deck, the media giant reporting earnings tomorrow. The stock's up almost 18 percent this year, but has been stuck in neutral for the past month. So does Bob Iger have some magic to reignite Disney's mojo? And later, what's got shares of Carvana all revved up? A look at what's behind the 65 percent rebound over the past week. I'm Courtney Reagan in this evening for Melissa Lee.

0:34This is Fast Money live from the Nasdaq market site. On the desk tonight, we have Tim Seymour, Karen Feynman, Dan Nathan and Guy Adami. And we start with the debt ceiling showdown. President Biden meeting right now with congressional leaders from both parties in the White House. They've been at it now for just under an hour before the meeting truly kicked off. The White House pool was in the Oval Office. The president said he wouldn't take any questions and ignored reporters asking him and House Speaker McCarthy about whether they would cut a deal to prevent a debt default. Investors on edge ahead of this meeting.

1:06The major average is closing the day slightly lower. The Dow now down six of the last seven sessions. Let's get more on today's meeting and the behind the scenes wrangling on the debt ceiling from NBC White House correspondent Monica Alba. Monica. Hi there, Courtney. That's right. This meeting has been going on for about an hour. Incredibly high stakes here with the White House and the president firm, they say, on their position, which is that they don't want to be negotiating at all when it comes to raising the debt ceiling. They believe this is Congress's constitutional duty to act as it has for decades under both Republican and Democratic presidents.

1:42So this is a meeting that, of course, is taking place face to face and significant in the fact that it is occurring, because for weeks now, the White House has said they didn't want to come together to negotiate on something that they essentially believe is essential to do because of the repercussions of a default, which, of course, has never happened before in American history. So during this meeting, we know that the White House is going in saying they don't want to pursue a short-term extension, something that Republicans have also taken off the table for now, it seems. Speaker McCarthy telling our own Garrett Haake earlier today that that's not something they wanted to do.

2:17They don't want to kick this can down the road. They want to deal with it right now. But both sides are completely dug in into their respective positions. So the goal of this meeting today is to find a little bit of common ground. But when we look to any potential off ramps, it's just unclear where this is going to go. And the calendar is really squeezed down to just a couple of weeks with the president set to go overseas to Australia and Japan for much of the next week or so. And so that will, of course, then, again, make this even more difficult to try to get something done. But today is likely the first of several talks.

2:52So we'll see when they commit to speaking again. Courtney. Monica, thank you very much for that update. Guy, what do you make of this? Obviously, the market's sort of quiet today as far as trading action goes, as we're waiting to see if we'll get any resolution, although it seems that it's going to be an 11th-hour decision, as it always is. I agree with that. And I think as long as the market stays where it is, This is one of those times where our world collides with the political world. And I'm sure they're watching and saying, well, you know what? The stock market doesn't seem to care. So there's no reason for either side to sort of acquiesce, again, in my opinion.

3:24If something starts to break in our world, then maybe cooler heads will prevail. But until something like that happens, I think they're going to continue to sing up until the 11th hour, which it turns out is probably less than two and a half, three weeks from today. So I do think it gets worse before it gets better in terms of the rhetoric. And I think at some point, the market's going to start to behave that way. Dan, what do you think the market is expecting out of whatever the resolution will be? Yeah, listen, I think that just look at the VIX right here, under 18. And it doesn't suggest that there's too much fear as far as investors are concerned.

3:53Look, with the S &P 500 is trading right now. So, I mean, I think that, like to Guy's point, that there will be some sort of agreement. I don't think it will come with spending cuts. If you think during the Trump administration, the debt ceiling limit was lifted three times. There was no deal on that. This is Congress's responsibility. I think you have a speaker in the House who's got very little control over his caucus, and they're going to dictate that he kind of pushes it as far as he can here. And, you know, ultimately this thing will get resolved because I don't think it's in anyone's best interest to have our country default on its debt, not being able to pay its bills, and all the repercussions that would happen throughout financial markets and the credit markets and the like.

4:29So to me, I just think it's a bit of a sideshow until we get there. Karen, I don't know that any of the lawmakers are paying attention to what's going on in the markets. Do you think they are? Well, they do trade stocks. They sure do. We know that. We know that. So they're very focused. I do think they get nervous when their constituents get nervous. And to the extent that their constituents are invested in the market, I think that they do care about that. But they feel like, oh, we got all kinds of time. This is, I mean, you know, May 9th, we got all kinds of time. Why do we need to do anything?

5:01I think it was good that Yellen sort of, I don't know if it was artificially or not, sort of made this June 1st deadline, because I don't know what was going to change if it was later. So hopefully we'll get something done. But I'd be very, very surprised. I think the least likely outcome today is that we see anything productive. Tim, do you have any concern about what's going on in the Treasury market, some of these short-dated Treasury yields? Four-month bills trading more than the six-month T-bill. And yes, and I do think that the Treasury markets are more susceptible. And certainly the stock market is showing no sign of concern on this.

5:36I'm going to I'm going to say I think stocks haven't priced in one iota, whatever an iota is, not one basis point, not anything. And that's concerning because we're coming out of a period where I also think we've had the best of of of the earnings that we could have seen from the most important companies in the market. And so I think that the bond market is telling you more about where leading indicators are in the economy. Bond market's telling you we are moving towards a place where the economy will significantly weaken the curve. We talk about the inversion all the time. I just feel like markets have not priced this in.

6:10But like everybody, I expect an 11th hour decision, especially because the public is of the view, whatever our politics are, I think the public is of the view is that each side is culpable here and that each side has a role to play in that. And that may be why something is actually more negotiable than it appears right now. Today, I think, is theater. We're going to hear all about it maybe for the next hour, what's going on in Washington. And it's fascinating. But I think markets should be concerned just because I see us up near the edge of a really a six month range on the S &P around 4 ,200.

6:45Now, maybe if we're holding this range and you're coming at some point, you consolidate that level. I think the bulls will tell you that you're actually setting the stage to take it through and at least challenge 4350 on the S &P. But again, we're coming through earnings season where we've had very strong numbers relative to expectations by the most important companies. And yet here we are with this issue. Guy, do you think that the market cares more about what we're going to hear about inflation and the CPI and the PPI later this week than about what's happening with the debt ceiling? It's a big deal.

7:12CPI is a huge deal. I mean, we can continue that trajectory lower or do things stabilize and make the Fed's job harder? And, you know, again, I'm not an economist. Joe Devourney will come on. I'm not humorless enough or smart enough to be one. But I'll say this. Be careful. Be careful on both of us, Bob. Maybe one or the other. CPI is going to be I think it's going to be hot. I think PPI is going to be weak. And people will say they'll mitigate it. No, because to me, PPI is more reading of the economy. So you get a hot CPI and then on Thursday get a sort of a softer PPI. That's not a great environment to be long stocks in, in my opinion.

7:46Dan. I mean, and it comes back to valuations and it comes back to our rates are and it comes back to your question about CPI and PPI. If those just kind of hang tight here. Right. And we're really worried about inflation with unemployment at record lows, 53 year lows or whatever, at 3.4 percent. All that does speak to me about a stagflationary environment with a whole heck of a lot of uncertainty about domestic economic policy here. OK, like let's be very clear. I think we don't mean to sound really complacent as it appears the stock market feels about this debt ceiling thing. I mean, listen, the risk will come all at once if there is a massive impasse here.

8:22You know, ultimately, the markets will start pricing it. And we had a VIX that was above 20 last week. I can't remember what it was about, but then it made a new 52 week low. It'll be back at 23, 24, something like that, like that. So I guess what I would just say is that if we're in a stagflationary environment here and we have all this uncertainty, We have geopolitical uncertainty with what China might or might not do with Taiwan, what that could affect supply chains. You know, we're going to talk about chips, I think, a little bit later with this global foundry situation. I mean, that situation could make what happened with Russia invading Ukraine and the disruption of supply of natural gas and crude that we had last year.

8:56That was really one of the major reasons for the inflationary spike that we have. That could make that look like just like a child's game. I mean, if you think about the disruption to the chip supply chain. And so to me, I just think there's a lot of risk lurking out there. And the stock market is not pricing it. But to Tim's point, there does seem to be some trepidation in the in the Treasury yield market. A couple of things I'd say about the markets themselves. The semiconductors and the higher growth parts of the market have been underperforming the S &P. And so if you're looking for market direction, I continue to think you at least use that as a guide.

9:26If you look at the SMH relative to the SPY, you see it running up into that resistance around, you know, 30.30. and it's done it three times. I'd be careful about that. Okay. We're looking at a live shot of the White House right now. That meeting between the president and congressional leaders has ended. We will bring you any comments as soon as they happen. But for more on what's at stake, let's bring in Joe Livornia. He is the former chief economist at the White House National Economic Council. He's now chief economist at SMBC, NICO Securities America. Joe, thank you very much for joining us.

9:56What are the risks at stake here when we're looking at the economy if we do, in fact, default on our debt? What could it cost us? There will not be a default. And by default, we mean technical default, like we will miss an interest payment. I do not expect that to happen. As we've been through this a couple of dozen times since the early 80s, there will be an agreement. But as everyone basically on the panel said, it may be the market pushing Washington to actually make that 11th hour decision. And it will likely have to come from much lower equity prices, because I could tell you, being in D.C., Congress folks don't really know the difference or the peculiarities in the Treasury market and how the bill curve should trade relative to the belly or longer end of the yield curve.

10:47But the equity market will capture their attention. And right now, as everyone said, volatility is low, the market's well bid. But I fear that this will drag on late in the month and there will be a deal, but only after markets really kind of tumble and force both sides to the negotiating table. Last time this happened, or that we got close to this, was in 2011. And we did get a downgrade of the United States debt. Do you fear that that is something that could be in the cards this time around as well? It could if it gets really messy. I don't think it's that likely, Courtney, for the simple reason that the rating agencies put the downgrade watch in place.

11:23Joe, I'm going to have to ask you to stop for just a moment here. We actually do see Kevin McCarthy and Mitch McConnell are walking to the podium after this meeting has ended at inside the White House with President Biden. We are going to listen in to their remarks and see what they have to say here. And if we've gotten any closer, I came down to see him saying, let's work together in responsible, sensible way that we can lift the debt ceiling and find a way that we can curve this increasing debt that is affecting every American family with inflation. And now three banks of our fourth largest banks have closed are in the debt problem.

12:01Nothing has changed since then. The only thing that has changed is the House has raised the debt ceiling and passed the bill. That's why we had a meeting today. Everybody in this meeting reiterated the positions they were at. I didn't see any new movement. The president said the staff should get back together. but I was very clear with the president we have now just two weeks to go. If Chuck Schumer could pass something we'd go to conference right away and solve that but I don't think Chuck Schumer can pass anything they haven't dealt with it. Unfortunately the president has waited 97 days without ever meeting.

12:40Every day I asked could we meet and he said no. The house has raised the debt ceiling in a responsible manner, curve our spending at the same time, bring us economic growth. And I asked the president this simple question. Does he not believe there's any place we could find savings? He signed a bill that the House passed, became law that the pandemic is over. We have 50 to 60 billion dollars that have sat out there that's been appropriated for more than two years that we could pull back and save the taxpayer money. We could put in growth packages that help us economically, cutting the red tape so we could build things in America again.

13:21We could have items that he actually voted for, like work requirements that just passed in Wisconsin with 82 % of the vote, to help our supply chain get stronger. I would hope that he would be willing to negotiate for the next two weeks so we could actually solve this problem and not take America on the brink.

13:43Well, as I think all of you know, I've been through a few death dealings over the years. Let me first make the point, the United States is not going to default. It never has, and it never will. However, elections have consequences. We now have divided government. We didn't have a divided government last year. In 2019, I told President Trump, who was no fan of Speaker Pelosi, that they needed to work it out. Why? We had divided government. The solution to this problem lies with two people. The President of the United States who can sign a bill and deliver the members of his party to vote for it.

14:34and the Speaker of the House. There is no sentiment in the Senate, certainly not 60 votes for a clean debt ceiling. So there must be an agreement, and the sooner the President and the Speaker can reach an agreement, the sooner we can solve the problem. Mr. Speaker? Yes. Did the President tell you that there were any spending cuts that he would be open to? Well, I asked him numerous times, are there some places we could find savings? He wouldn't give me any, so I'm hopeful that we'll be able to find him. You can't spend more money, which his budget does, than the pandemic. They added$6 trillion in the majority, and what happened?

15:23We got inflation. We hurt every family in America. I think the best thing we could do is find places that we can eliminate waste, find places that we can grow this economy. And that's exactly what the House bill does. Look, I would have loved to have spent from February 1st on working together and negotiating something. Unfortunately, he would never meet with us. So I had to look for things that Democrats had agreed to before. Like, Senator Manchin believes that we should cap the growth going forward. So we would take the next 10 years and we would spend more each year, but only 1%. That would save us a lot of money.

16:01We'd find savings like COVID money bringing it back. We'd find ways to grow the economy by making us energy independent, lowering the cost of energy, but at the same time changing the red tape on the permitting reform so we could build things again. I thought that was a common ground idea that we can all get together on. So we had made sure that we wouldn't go into default, so the House raised the debt limit and also had growth for the rest. Yes.

16:35I didn't feel I didn't see much difference in the statements from the president or from Chuck Schumer for that fact. I mean, Chuck's whole idea before was to take us to the brink and someone's going to have to break. Right. I don't want to play politics with this. I think this is too important. That's why three months ago I came to the president. Can't we find a way? I know we're both going to have to give and take. That's the way the founders have created our government. A House, a Senate, the executive branch. So let's sit down together, find places we can agree upon, and get this done. Because they ignored us, we had to go on our own, and we passed a bill to do that.

17:13Yes? What are the odds of default now after this meeting, and what happens now? Well, the House made sure we wouldn't have default because we raised the debt limit. Now, the Senate hasn't done anything. Well, the Senate hasn't done anything. That would come down, really, to Chuck Schumer and the President. The House made sure we wouldn't default. We are ones who raised the debt limit. We've sent it to the Senate. We've sat with the President. I've tried to. For 97 days, he's had said no. I think the only reason we are actually here today is because we passed something. But I hope you only got about two more weeks to try to get this done.

17:50So, Mr. Speaker, Congress does have the constraints here. And if you are not able to prevent default, are you prepared to own it? Well, I don't see how we would own it if we raised the debt limit. So if I look back, the House raised the debt ceiling, the Senate has not, and the President hadn't negotiated. So I find that very odd. Yes. Mr. Speaker, did the President bring any proposals to this meeting? And is there a plan for another meeting after this? When would that be? One question to you, Mr. McConnell. How is the president's posture in this meeting different than how you've seen him in the past over this very same issue?

18:26The first part, and I'll turn it over to the leader. The staff will get together, and we'll get back together the principles on Friday. Well, I can tell you how it was done in 2019. After I told President Trump he didn't have any choice but to deal with the speaker, He designated the secretary of the treasurer, Mnuchin. The discussions began. Out of that was a debt ceiling increase and a caps proposal that lasted for two years. So I come back to where I started. The solution is between the one person in America who can sign a bill into law and the Speaker of the House. And the sooner they get together, the better.

19:13if they get together, the bill will pass both the House and the Senate on a bipartisan basis. Mr. Speaker, Mr. Speaker, Mr. Speaker, Leader McConnell clearly said the United States will not default on its debt. Can you say the same, that the United States will not default on its debt? Yeah, because the House raised the debt limit. I'm Speaker of the House. I'm not the leader of the Senate. I'm not the President. So your question is it will not default? I've done everything in my power to make sure it will not default. We have passed a bill that raised the debt limit. Now, I haven't seen that in the Senate, so I don't know.

19:49What gives you that confidence, Senator McConnell? The President has said that he's willing to negotiate overspending, but he's not going to do so with a gun to the head of the American economy. Did you reiterate that to you today? Well, what's interesting is I would never want to put any gun to anybody's head. That's why I came February 1st. I sat out here. I want to have something responsible. I want to have something sensible. And then I just say to you and the American public, would it be wrong if you took hardworking taxpayer money and you had billions of dollars appropriated for a pandemic that is now is over?

20:25Why wouldn't you pull that back? Would it be wrong to put some control? Remember what we're talking about. A debt ceiling is like your child having a credit card. We've reached the limit. We're responsible for paying it. But would you just raise the limit without seeing how you're spending your money? That's all we're talking about. So I understand that the president has to sign it and it has to pass the Senate. So why couldn't we for the last 97 days talk about this? Why would it when a president who was vice president before, if you look at all of his quotes, this is a man who prided himself.

21:03They called him the Biden negotiations. This is a man, the President Biden when he was Senator, he actually voted against debt ceilings because they said they didn't cut enough in spending. This is a president who, when he was Vice President Joe Biden, when it was a$14 trillion debt, said, we have to do something about this big debt that we have. It is now$31 trillion. I think every single household believes you need to be able to do something responsible and sensible, and that's what we've been trying to do for the last three months. What gives you that confidence after this meeting? When you said that the U.S.

21:43has never defaulted, it never will, what gives you that confidence right now?

21:50The United States of America is not going to default. We are having a debate here in conjunction with raising the debt ceiling as to whether or not after dropping$2.6 trillion on the American people in the last Congress on a partisan vote, we ought to have at least some restraint on our spending related to the debt ceiling. And this is not unusual. We've been here before. Debt ceilings have frequently carried other measures. what we have here is we're running out of time and it's time for the president to get serious and to sit down with the speaker and get a solution we're going to go back to joe lavonia we just heard remarks from the speaker of the house kevin mccarthy and mitch mcconnell joe it doesn't sound like there was any movement i think the quote exactly from mccarthy was quote no new movement obviously a lot of finger pointing which you might expect in these days of very bipartisan politics.

22:56What do you do now as we're watching the markets here and the leaders are going to meet again on Friday? Right. So Speaker McCarthy mentioned the principals are going to meet on Friday. Is that both parties or is that just the speaker staff? That to me wasn't clear. If they are meeting, if they're all meeting again on Friday, excluding the president, that's obviously positive because the conversation keeps going. But again, it seems to me, given the fact there's been no movement, there's just nothing to suggest this isn't going, unfortunately, to come down to the 11th hour. And that's a worry, because even though I don't expect there to be a default, the markets, which are going to push Congress to do the right thing, but just we're not there yet.

23:41And that's my fear. I hope that that is true. Janet Yellen called a default, quote, economic catastrophe. And of course, we just heard McCarthy say he's done everything in his power and he does not believe that there is a default. But of course, we don't have any further movement on these negotiations. Joe, thank you very much. I mean, Tim, what do you make of what we just heard? Well, it's it's political brinksmanship. I mean, you know, the lines are like straight out of like central casting. They really are. And on some level, no one really cares. And again, 97 days or 15 votes. I mean, you know, now you look at McCarthy's world.