Markets Wake Up to Reality, and Has Nvidia Come Too Far Too Fast? 4/4/23

0:02Right now on Fast, Wall Street's reality check. From the fade in industrials and cyclicals to the continued downside moves in the banks, is this market starting to wake up to the real risks of a recession? Plus, NVIDIA's bull run, the stock going parabolic this year, up nearly 90%. Is this now the short of a lifetime where can the stock keep defying gravity? And later, BABA's bullish breakout, C3AI's jaw-dropping plunge, and the tussle one of our traders is having with the man behind Tesla and Twitter. I'm Melissa Lee. This is Fast Money. We're live at the NASDAQ Market Site. On the desk tonight, Tim Seymour, Karen Feinerman, Dan Nathan, and Guy Adami.

0:37We start off with the market finally waking up to the reality that a slowdown may in fact be coming. Groups tied closest to the economy taking a hit today. Industrials dropping more than 2%, nearly giving back all their gains over the past week. Energy stocks also giving back recent gains. The S &P's biggest losers today include Valero sliding 8%, Marathon Petroleum down more than 7%, and another rough day for financials. The S &P Regional Bank ETF sliding over 2%, closing just a hair off its lowest level since the collapse of Silicon Valley Bank. All this as Wall Street heavyweights raise their own red flags for the economy.

1:12J.P. Morgan CEO Jamie Dimon warning in his annual shareholder letter the banking crisis is not over. Starwood Capital CEO Barry Sternlich predicting on Squawk Box that we are going into a serious recession. And B of A's top strategist Savita Subramanian saying market sentiment is now below its financial crisis lows. So are investors finally starting to pay attention to the warning signs around us? Guy? If you look at today's market action, not necessarily. I mean, markets showed some resilience today, I thought. I mean, it was lower, clearly. But given what's transpiring, not bad. With that said, I mean, the banks are important.

1:48I mean, we talk about the XLF. You look at it trading 31.5 or so. And we mentioned this the last week, I think. You go back to February of 2020, it topped out around 31 before it cratered like everything else did. So past resistance becomes support. We've tried this a couple times now. You get through that 31 level, 30 and a half, and then it makes you wonder. Berkshire Hathaway, JPMorgan, MasterCard Vs, that's about 40 percent. That's worrisome. And in terms of, I think, these energy stocks which sold off, Paul Sankey talked about it last night. He said you probably don't want to be in refiners.

2:20He specifically mentioned Valero last night. That probably contributed a little bit, But he was right in terms of the performance. So I think at least through a certain lens, I think the market's figuring it out. But in terms of the price action, not so much. I mean, can you have a chart like the regional banks and whatever story they seem to be telegraphing with the continued declines that they are seeing and believe that it will not infiltrate to the other parts of the economy or the stock market? I mean, it seems hard to believe. If you think there's a problem there, there's probably a problem on Main Street.

2:47That chart we talked about yesterday scares me. I think there were things about today's market, though. Guys, absolutely right. The headline surface looked fine. The gold moves 2 % and is having an emphatic break. It's just a breakout, but like, all right, I'm leaving that last resistance behind. That was resistance of all time. Or it's actually 258, 2058. But basically the resistance that we've seen. The move in interest rates, you know, we'll get to that. And Jim Bianco is going to have some great thoughts, I think, there. But when I look at the semiconductors now underperforming the S &P by 4 % in the last eight days, you know, that to me is one of those things I'm looking at.

3:21I'm looking for the cyclicality underperformance. And as long as those cyclicals were outperforming, I said markets were going higher. I don't like gold. I don't like the data over the last couple of days because they really have put in people's face. We talked about yesterday's ISM and we used a lot of hyperbole. Today, that jolts number doesn't deserve the same kind of hyperbole. But we're down from, you know, two million jobs a couple of months ago. Now there's significant job contraction and jobs per people and things that, you know, we're measuring. Labor market's still strong. But can you imagine if this job market wasn't strong and what the market would be doing?

3:54Yeah, I'd just say this. I think it was called Keitania. He tweeted out this morning a stat from Apollo talking about the Q1 performance of the S &P 500. 20 stocks gained$2 trillion in market cap. The bottom 480 gained about, you know, a couple hundred billion. And, you know, when you think about that, you can define it as breadth. You can define it as participation, however you want to do it. We've been in this position before. We know that it doesn't particularly, you know, end that well. I mean, listen, people want to concentrate on the stuff that they feel best about, where, you know, if you look at these large platform companies, they have these monopolies.

4:27They have huge cash hoards. They have great managements. They have lots of room to kind of weather the storm. They also have a lot of fat to cut, too, when you think about it from a cost standpoint. And we're starting to see that. And maybe that's why they've been rewarded. But then the flip side of this, look at the Russell 2000 closing down nearly 2 % today. And you talk about some of these cyclical areas. You talk about the exposure to financials. You talk about the exposure to Main Street. You talk about on the other side of whenever this banking crisis is done, credit's going to be harder to come by.

4:52It's going to be more expensive. This is something we're going to start seeing in Q1 earnings and in Q2 guidance from companies. They're going to start telling us this. So to me, I just think that the only thing that sticks out like a sore thumb to me that is not screaming recession is kind of the VIX at 19. It just seems like this is what we've become accustomed to is just buy dips here. And if you're buying, but you're not buying dips here. You're buying these stocks that are up a whole heck of a lot, these 20 stocks. And I just don't think that's a safe proposition at the moment. I mean, Apple and Microsoft alone are north of 13 % of the S &P 500 in terms of weighting.

5:26So that's why we're seeing the market look decent ahead of. We've got job support on Friday, even though we're not going to be here. It's going to be a quiet day. It's going to be a quiet day on Friday, volatile. We're ahead of banking earnings, which I'm sure we're going to learn a whole lot in terms of what has gone on and what is going on, Karen. Right. Well, there's something that I thought was sort of interesting today. You know, we've seen the last couple of days between ISM and some of the jolt number today, things that would seem like the economy is slowing down. Right. But in the past, when we've seen anything that would show that we get this Fed put or pause or whatever, and the market seems to think of that as the most important factor and rally on that.

6:06And yet now today that not doesn't seem to be the case anymore. I thought it was interesting. Jamie Dimon in his letter had a few things, of course, you know, he had a picture. There was a picture. So I read that for a while and then looked at the text. And a couple of things I thought were interesting. Inflation, which he does not see as over and talked about some of the continuing things that would be sort of supportive of higher inflation. So he would disagree with Barry Stern, let's say, who's, you know, the Fed has gone way too far. That I thought was sort of interesting. He also really talked about the need for commercial.

6:40I'm sorry, community and regional banks and how important they are to the economy. And so if we've talked about this a lot, if they're shrinking, if they're going to be regulated more heavily, this is going to be bad. Contraction of credit is going to be bad for the economy. So I'm a little more pessimistic on the economy. I don't know if that's good for the market or not. But he said that consumer is still in good shape. Consumer is in good shape. I mean, he said that for quarters now and even now. And so how do we feel? I mean, if the consumer is in good shape, then that's really good. They're not feeling the impact yet.

7:13So getting back to some of those jobs data, because if you have a job, the consumer is fine. I mean, within within a certain scope. Right. So if you think about where we were from 2015 to 2019, there was 0.93 jobs per person. That's where we were. Jolt's data out today. It's one point six. So even though we pulled back from 2.0, and this is a little inside baseball, but tells you how strong the labor market is and how resilient it still can be. Or at least it can still give up a lot of jobs and not even be where we were in a period before we went into COVID. It's interesting. Health of the consumer.

7:43I get it. Jamie Dimon sits in a great seat. That's fantastic. Consumer debt's now 16 and a half trillion dollars. I mean, CNBC.com had a thing the other day, you know, in GDP in this country is what, 22 trillion dollars? I mean, we're getting into sort of uncharted territory in terms of where the consumer is now. Maybe that's fine. Maybe that's the type of economy we have. But if credit gets tighter, people start losing their jobs and there's some fear that comes in. People stop spending on a dime. We've seen it before. So when you have an economy that's 73 percent driven by people buying stuff, when those people get scared, the economy slows down.

8:16It's also amazing. You know, we're talking about this oncoming recession. And there is an oncoming recession, whether it's this year or, you know, two years or five. It's going to happen. But what happened in, Guy, you use this term all the time, is that the Fed is kind of alchemy these out of the normal business cycle. And when you think about 2020 into 2021, I mean, our Treasury, our White House, our like all the powers that be, they threw five trillion dollars at a black swan event. And they kept things kind of all these conditions we're talking about the consumer, why their balance sheets in shape, because they were infused with cash.

8:48Businesses were infused with cash, so they didn't lay people off. So the idea that some recession that's going to happen is some horrible thing, it's actually pretty natural. We talk about zombie companies. We talk about all the goofiness that we've seen in the private markets and in the public markets. I mean, the private markets was highlighted by what we just saw with SVB. But think about SPAC. Think about unprofitable tax. I mean, listen, that is at the feet of the Fed guy, to give you that one. By the way, guy, alchemy. When I say alchemy, what do you think? But, you know, it's an album. Dire Straits.

9:17Sorry, Ben, I apologize. I mean, you guys are brothers in arms here. Oh, nice. I just think that, like, so bringing it back to the market is like, you know, where we are with valuations here. It just doesn't really discount a recession. You look at the VIX, like I just mentioned, at 19. That's not telling you that there's any fear. Well, listen, I'll tell you what's going to happen right now. Look at this Blackstone. Okay, so Blackstone round trips and goes back to the mid-60s. We were talking about Blackstone doing this at the same level. Remember when they put their gates up for the B-8 back in October?

9:46Well, here it is. It's coming back. This stock barely sees an uptick. It's the most well-defined downtrend that you will see ever on a chart going back a year and a half from the all-time highs. So when I look at what's going on in the regional banks and I look at the KRE making new lows, I look at Schwab that touched 50 today. And after, why is, if Jamie is putting out manifestos and he's still talking about, you know, how basically we are not out of the woods, there are more shoes to drop here. And ultimately, that's the thing that's going to work itself into, like, I think the major money center banks.

10:15And just look at a Bank of America, how poorly it acts. It really does act very bad relative to, let's say, JP and some of the investment banks. So I think we're going to learn a lot. Like you said, on April 14th, all these guys are reporting here. And I just can't consider a scenario where any of these CEOs want to be too optimistic about this future that we just don't know. It's about as, you know, cloudy as it's been in three years. Why should they be, right? Why should they be? They've got a perfect free pass right now. We just had a banking crisis. Yeah. Every day I look at First Republic Investor Relations website to see if they're there.

10:48It looks like their earnings have come out April 14th, but they haven't said so yet, which is fine. They don't really need to yet. But at some point they're going to have to tell us it's not even about their earnings. Who cares about their earnings? Right. Right. It's about what is the balance sheet look like now? How much they have left in deposits? How much in the whole are they and what is their plan? That's the curious thing. Our next guess is in the camp that the banking crisis is not over and could have severe economic implications. Jim Bianco is president of Bianco Research. Jim, great to have you with us.

11:16We were just talking about First Republic, and I know you retweeted something, and I thought this was very interesting. And for those of you looking for a high interest rate deposit, listen up. You know, First Republic, along with a lot of these other, you know, banks that might have seen deposit flight, are now offering very high rates to attract deposits, which tells me that maybe they are still seeing flight. They still need to replace the deposits that had left. You know, when you're talking about 4.95 percent on a liquid seven month CD, that ain't bad. And that's what First Republic is offering.

11:45What does that tell you? Well, it tells me what you just said, that they are probably still having a deposit flight problem. But the bigger picture of what's been happening is the deposit offflows from all these banks. It really picked up starting around Thanksgiving when rates went above 4 percent. We're in a new world now. We have mobile phones. We have 120 million mobile banking apps. It's not hard for you to pick up your phone, transfer your savings from a zero yielding account to a four and a half, a four and three quarter money market account. It's the rational thing to do. We should expect that when the H8 report, which shows banking numbers, come out week after week after week, that we will see deposit outflows.

12:27Why would people automatically say, I want to watch Fast Money because I want stock tips, but I got$250 ,000 in a zero-yielding bank account. I'm not going to spend three minutes on my phone to rectify that situation by going to a 4.5 % money market yield. And as those deposits keep coming out, eventually these banks are going to be impaired on their ability to continue to lend, and that could hurt the economy. So basically, even if deposits go up or seem to stabilize, at the drop of a hat, they can leave just as quickly as they left during this banking crisis. And so there really is no, I mean, in your view, is there a safety period where we can say, oh, that was over?

13:08Because it seems like you can't really put up gates on the world of mobile banking and prevent this from happening again. You don't want to put up gates. That would be the wrong answer to do, is to put restrictions on your money or my money. Really, once the banks start offering deposit rates that are competitive with market rates, then you would say there's no reason for me to reach into my pocket, pick up my phone and move my money. And then things would stabilize. But other than Pacific West, First Republic and a couple of other banks that have been in the news that have raised their deposit rates quite a bit, the vast, vast majority of banks are still offering deposit rates down around half a percent, if not with the big money center banks down somewhere near zero.

13:51So they're not offering anybody any kind of incentive to stay other than a safety incentive. And once they've reset their password, they're going to start looking elsewhere. And a lot of them have in the last month. Hey, Jim, it's Tim. So a lot of what you're talking about now, but certainly the things that have built in this conversation are about bond market volatility. Guy talks about all the time. You've talked about all the time. I think we all do. You know, a 3 % two year to me is a 3 ,500 S &P. And I'm just curious your view on the moves we've seen over the last couple of days when we finally got in kind of that devastating economic data that I think has probably got more behind it.

14:27Yeah, you're right. You know, whether rates go up or down is not nearly bullish or bearish for stocks. It's why. If we're going to get a 3 % to your note because the economy is falling apart or is having a problem, that is not good news, because typically the worst time to own the stock market is when the Fed starts cutting rates, because then they admit that there's a problem. They're trying to stop a recession. They're usually too late and they can't. Now, they're not cutting rates now. They're still talking about raising rates. But if we ever got to that position, it would be problematic. Bond market volatility is still very, very high right now.

15:04It's the opposite. I've heard you guys talking about the 19 VIX. The move index, which is the version of the VIX in the bond market, is at 147, which is almost a two standard deviation high. that's inside talk for, it's very high. And it is suggesting that the bond market is still somewhat unsure about what's going on and very chaotic, unlike what you're seeing in the stock market. Jim, on a very first level, I read your notes, technology is routed because rates have gone lower. I mean, that's just sort of a knee-jerk reaction. But at a certain point, people wake up to the understanding that, wait a second, credit's going to be tighter, they are cyclical, and they're not going to be able to get access to capital the way they used to.

15:41So what is your sense about technology here? Yeah, that's it. That, you know, technology, to use a fancy term, is a long duration asset, meaning they're going to earn a lot of money in the future, not a lot of money now. But when rates go up, then that future money is worth less. When rates go down, that future money is worth more. That's why they've been rallying, because rates have been going down. But if they're going, why are rates going down? If they're going down because the economy is slowing, technology also needs people to buy their products. And if they're not going to be buying their products or doing with less of their products because of a slowdown in the economy, they're going to have problems as well.

16:17So the knee jerk, you're right, is that lower rates, good for technology. But why are we having those lower rates that could wind up becoming a negative four or two? Jim, always great to get your thoughts. Thank you. Thank you. Jim Bianco, Bianco Research. What do you think? I mean, if they're offering higher rates banks, they're paying out more money to get deposits. Right. So they're paying out more money. Obviously, their debt interest margin will be smaller for sure. It's a question of, you know, if for some banks, they have more than enough deposits. And I would bet that a JP Morgan right now has more than enough deposits.

16:56And it's sort of this this value proposition. If you're a big company, you want to be able to have a banking relationship somewhere. And it absolutely, we see, should be at a G-SIB bank, right? Even though you thought you probably were in one-ish, if you were an SVB, you weren't. And so I think there will be deposits for those biggest. It's concerning, though, for the more than$250 ,000 depositor who's with a smaller bank, you've really got to, it almost seems irresponsible if you're a small company CFO. I hate to say that. But that comes down to credit standards. And so why were all of these companies that were private doing business with SVB?

17:33because, A, they were pushed there by a lot of their capital providers. They had no credit. And then they were given credit lines. They were giving private debt. And so that's the stuff that JP and some of these other large money centers wouldn't do. And so it is interesting to me that Jamie Dimon. No, they would do that. Well, not really, but like what's worse terms. And that was the whole promise of the Silicon Valley Bank, keep it in our ecosystem here, and we're going to be able to get a better look at what you guys are doing and be able to compete better than you would if you were to go to.

18:02So that goes private. It doesn't necessarily go to a J.P. Morgan. And there's a lot of private debt players moving in. But it just means that the cost of capital for a lot of these companies can be higher and therefore their valuations are going to be lower. And I think that's the thing that's also seeping in, I think, into the public markets. Thus, the small cap index that we just mentioned, the Russell. Coming up, an A.I. audit. Shares of C3 A.I. tumbling on a short seller's accounting accusations. What the company had to say next. And speaking of shorts, should you be taking the other side of this NVIDIA surge?

18:30shares nearly doubling already this year. The traders have been bracing for a dip in the chip how they are positioning when Fast Money returns.

18:41Welcome back to Fast Money. C3 AI powering down today, plummeting more than 25 percent after a short seller alleged accounting missteps by the company. C3 AI responding to the accusations made by Kerisdale Capital. Deirdre Bosa has been tracking this story. Debo, what's the latest? So Carousel Capital is alleging that C3AI is engaged in serious accounting and disclosure issues. Remember that C3AI has really been a darling of this AI movement because there are so few names for investors to get into. It's down 26 % today, but it's still up more than 100 % year to date. Here's what the company said in response to that report from Carousel Capital.

19:21It says, the Carousel letter appears to be a highly creative and transparent attempt by self-acclaimed short seller to short the stock, publish an inflammatory letter to move the stock price downward, then cover the short and pocket the profits. Without comment on the legality of stock manipulation nor the innuendo replete in the letter, we will note that their allegation that C3AI's financial disclosures regarding Baker Hughes are somehow incorrect, manifests a fundamental misunderstanding of U.S. GAAP accounting practices and principles. It goes on to say the accounting disclosures and financial statement referenced in the letter have been reviewed by our independent audit firm for which we have an unqualified opinion and are complete and correct.

20:02Now, Melissa, it's a long statement, but to break it down, it has been a difficult company to read, some analysts might argue, because it switched from this subscription-based model to a consumption - based model, and that made its results difficult to read. And so on a lot of the earnings calls, You do have analysts asking, what's a pilot program? How do you count your customers? Also on the last earnings call, you know, Tom Siebel, the CEO, who's been a fixture in enterprise software for many decades, he was asked how they're using generative AI. He said, the honest answer is we haven't figured out how to monetize that yet.

20:35We haven't put a price on it, but a potentially very large market there. So not exactly proving out that model. And in this environment, we should note as well, when you see a stock that has more than doubled in just a few months, it is ripe for short sellers. We'll see how this all shakes out. But like you said, down 26 percent in the session today on that short selling report. So, Deidre, other software companies use this consumption based model. And so how how does their accounting differ in terms? I mean, one of the main facets of the Keresdale letter and accusation is the ballooning receivables.

21:07And I'm wondering how that stacks up to other companies that have the same sort of consumption based model. Right. So if you take a snowflake, right, which is kind of a poster child of the consumption based model or even at a bigger scale in AWS or Azure or Google Cloud, these have been consumption based models for years. So investors were able to figure out how to do year over year comparisons. C3 AI switched at a really tough moment, not just for itself, but for tech companies in general, when people were having trouble reading these things. So they switched in the middle of sort of a new environment and more recessionary forces that were slowing down consumption or subscriptions, however you measured it.

21:47So that's what made it difficult and different from other models. It didn't it just made this switch pretty suddenly and said sort of gave the financials. But there weren't good year over year comparisons, to put it simply. All right. Deidre, thank you. Deidre Bosa. Dan, what do you make of this whole thing? I mean, Carisdale, to be clear, in the letter states that it is short. I mean, listen, the first response is always blame the short sellers for doing something. Again, I think Guy has some views on this. I think we all do. It's like oftentimes a lot of these short reports end up uncovering some truth here.