Powell’s Balancing Act.. And Ford’s Sales Pick Up 4/3/24

0:04Live from the Nasdaq market site in the heart of New York City's Times Square this is fast money. Here's what's on tap tonight. Powell's predicament. The Fed seemingly missed the surge inflation on the way up. And now the question is, are they going to get it wrong on the way down? The market impact of the shares next move straight ahead. Plus, an ugly day for Ulta shares, tumbling over 15 percent as the company warns that demand is slowing in the first quarter. Is this yet another sign? The consumer is nearly tapped out. We'll debate that. And later, tuning in to why Spotify is surging. Ford's revved up quarter for hybrids and EVs.

0:36and what happens at Disney now that Bob Iger won the big proxy battle against Nelson Peltz. I'm Melissa Lee, coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Karen Feinerman, Dan Nathan, and Gaia Dahmin. We start off with the Fed Chair Powell's balancing act, the central bank chief towing the line between spurring economic growth by cutting rates and tamping down on persistently high inflation. Earlier today, Powell suggested he is not yet ready to say that battle's been won. On inflation, it is too soon to say whether the recent readings represent more than just a bump.

1:08We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent. The Fed's key inflation gauge has now been above its target 2 percent rate for three straight years. It's not exactly as transitory as Powell originally said it would be, and That sparks our question tonight. Will the Fed be as wrong on inflation on the way down as it was on the way up? Some other, you know, interesting things that he said today. He thought monetary policy was tight. I thought that was interesting because I don't know what I don't know what I don't know what it meant.

1:45Yeah, I don't know what through lens what lens he's looking through to come up with that. But I'll say this. Can they be as wrong? Well, I mean, this was a Fed, by the way, that says we're not even thinking about thinking about thinking about cutting rates. way back in the day, if you recall, or raising rates, excuse me, back in the day. That proved to be completely wrong. So I don't think it's possible to be that wrong again. With that said, I'll give him credit. I think he's trying to tell the line here, and I think he understands that inflation is a problem. Forget about gold for a second, which is its own animal.

2:14But, you know, through the lens of soft commodities, we brought up the DBA. I get it. A lot of it's cocoa, but that's been off to the races. Freeport, McLaren, throw a chart up there, FCX. Copper's been off to the races. That's making like a three-year high in terms of that stock. And obviously, energy and the refiners continue to grind higher. So the inflation battle is far from over. Yeah. Tim, what do you think? It's interesting because interest rates in the dollar are struggling with what the Fed's got to do. But everything else is telling you that the Fed has inflation still to deal with and there's nothing that they can do.

2:43So, as Guy said, look at the commodities, look at the CRB, whatever measure of the Commodity Research Bureau indices. There's a number of them that you want to read. No matter what you look at, we're somewhere between 50 and 65 percent above where we were pre-COVID in terms of core commodities. Gold has had a huge run. That's all we do. It's all we talk about. But look at uranium. Look at all the other kind of the world is coming to an end plays. And all the folks that have been saying it's going to happen, you know, that's the place that at least I think you're seeing a lot of really interesting price action.

3:13So if you look at Fed Fund futures at this point, Dan mentioned this yesterday, it's pretty much priced out. You're at 523 right now in June. You're at 517 in July. and you're around 507 in August. So that kind of tells you what the market is saying in terms of the Fed that really can't cut. We've said no cuts. I think Guy said yesterday not a bad thing for the economy if that's truly the state of where we are. But right now, I'm not sure that the Fed, you know, back to your question, are they going to screw it up on the way down? I don't think they can. And if we actually because there's there's no way they can, meaning they cannot afford to as opposed to they cannot.

3:47I'm saying that's a good point. I think that they can probably do it. But I think they're better off erring on the side of making sure that the inflation genie gets as much stuff back into that bottle as they can, because this is a genie they started way back in 2008, if not probably somewhere in 2002 or three. And he also talked about how detrimental it would be if inflation actually did. It wasn't just a bump and it was a more sustainable rise. Right. It's become embedded in wages. I mean, we're going to get a good read on some of that on Friday morning. But I'll just say this. I think the most important thing that's probably happened in the last, call it, four months or so is at mid-December, the Fed said they were expecting 1.4 percent GDP growth for 2024.

4:26And in mid-March, they said they're expecting 2.1 percent, which really kind of signals to some degree how they've changed their views about the strength of the economy and what they might do with policy to counterbalance what's, say, a weakening economy. because you can say, OK, the inflationary forces, a higher dollar, a higher commodities, higher interest rates, those are things that are going to basically weigh on growth or the potential for earnings growth in the near term if you want to bring it back to the stock market. But to me, I don't think there's any rush to do anything on the policy front right now as long as things seem this stable.

4:59And we're going to get earnings and we're going to get Q2 guidance in the not so distant future here. And that might really reinforce all this sort of stuff. And so to Tim's point about 5.23, what's being priced in by Fed fund futures, that might start ticking up. I mean, like you might see cuts go out the window and then you might say, when do they have to start raising? But if GDP growth is accelerating, then that's fine, I guess, because look what's happened with rates over the last, you know, in the stock market over the last year and a half. They've kind of moved together pretty well. I agree with all the gentleman here.

5:31I think that to... Do you think she knows our names? Panelists. I went with gentlemen. Okay. I think that if you weigh the balance of doing one thing or the other, the downside of going too early so, I mean... Outweighs. So far outweighs a maybe we should have done it a quarter or two, I mean a quarter, three months ago or so. I don't understand why there's... I don't know that he feels a need to talk somewhat dovish sometimes, I don't understand why they would need to do this. I think that to have made the mistake on the way up, why would you, you know, get out potentially not when the job is done?

6:14It doesn't make sense to me. Do you think that enters this mind? Do you think that there is a mind game that the Fed is playing with the markets in terms of, you know, trotting out all these Fed speakers and saying, you know, we should sound dovish? Can I just add one thing? I don't know what the game plan would be there. This morning, was it Bostick? Yeah. Who was very, I mean... He said one. Yeah. Maybe. Right. So I think that makes sense. Can I make one point here? And if you look back over the last 25 years, though, think back to 01, think about 07, 08, and then think about, you know, 2020.

6:42It was actually an unforeseen sort of thing. And if you think about those were the three worst market periods that we've had, and they also corresponded with the Fed basically getting about as easy as you can possibly get. And so I don't have an answer, and I'm not obviously hope that nothing remotely happens, anything similar. But at some point, it's the thing that you can't see. We spend a lot of time sitting here talking about this number and that number and what this could mean and that. And again, you know, we don't know. But like there does seem to be always something lurking out there that causes them to make a big move lower.

7:12And obviously they stair step it higher. So I think the potential for a mistake, you know what I mean, to me, probably lies exactly what Karen just said. Why go early when everything seems to be OK on autopilot right now? If it was as simple as, you know, calling markets, too. I mean, I think if you came into 24, what were the biggest? You know, I go back to this Bank of America fund manager survey that I participate in on a monthly basis. One of the questions is always what are the things that you're most worried about? Is it Fed risk? Is it and they're usually big macro kind of tail risks. Geopolitical is the part of this that I think is what a lot of these asset classes are telling us.

7:48And it's not just, you know, U.S., China. It's not Russia, Ukraine. It's all of it. It's xenophobia. It's essentially a pullback and on-shoring. And it's certainly a political cycle, not just in this country, but the one in this country as it is for almost everything else, both in terms of the markets and in terms of sectors, in terms of companies. It's going to be a lot bigger and a lot more powerful. And I think that's what a lot of the market dynamic is telling you right now. And we're not going to know. Yeah. I mean, you mentioned Ukraine. You mentioned China. But, yes, U.S., U.S. in terms of the elections, but also how the elections will then impact geopolitics.

8:23So you have two different things that you have to handicap in order to get the outcome, and that's even harder to do. And then you have the political weight or the political pressures being put on. Without question, I mean, Jerome Palacino, we talked about it a couple weeks ago. Senator Warren and Senator Sanders writing him an open letter basically saying you have to cut rates and you have to do it in a meaningful way very quickly because people are hurting with rates this high. But, you know, that might be politically expedient. It's the absolute worst thing they could possibly do because the people they're trying to help are going to be the ones that are hurt the most by that, as counterintuitive as that is, because inflation is what's killing people.

8:55And if you think, what are you talking about? The reason why, if all the economy was was the stock market, Biden's approval rating would be 75, 80 percent, if not higher. It's historically low. So clearly the market has nothing to do with it. It's about people paying too much for things and they're feeling the pain. All right. For more on the Fed's inflation battle, let's bring in CNBC's Rick Santelli, who is at the CME in Chicago. So, Rick, this is the question we started the show with. Is Powell getting inflation wrong on the way down? You know, this group, whether it's Tim, Dan, Guy, you guys nailed it in the opening.

9:30And, Karen, I'll answer your question. Why? Why is he air on sounding like a dove? And everybody knows he does. He's painted himself into the corner all by himself. Why? To goose stocks. They're playing this game. And I'm not saying it's a bad game. Maybe that's exactly what Fed guidance should be. Try to stroke the markets not to get too ugly and kind of keep everybody alive as to what the Fed may or may not do. But ultimately, what I heard today finally from the chairman is the same thing that you've been discussing. It's not quite soup yet. And if he goes early and ends up with a 70s style resurgence in inflation, all is lost.

10:11And I think their credibility is already in question. With a seven plus trillion balance sheet, there's not much room for error. How much more could they stimulate if they get it wrong with inflation? And I'll just go in one direction here. Just the state of California alone, what they're mandating with bottom of the food chain, trucking, how they're trying to upend that industry. That's not going to end well. Us old people remember beta versus VHS. Whether it's fossil fuel or EV, we're going to end up with both standards being more expensive because nobody's ready. And just look to Europe. They were in for a pence, in for a pound.

10:49They're trying to extricate themselves for all of these EV mandates. That alone will make sure inflation isn't going to be slain. And even if it gets to 2%, it's going to bounce up again. I just don't see how it can't. I think that's interesting. You're talking about policy-induced inflation. And we've talked about it with nearshoring. But, you know, obviously what we saw in terms of you mentioned California, the wage increases for minimum wage fast food workers, that's really going to hurt. And we're going to start hearing about that in this next quarter. But, Rick, I just wanted to discuss Friday's jobs report.

11:22Everybody's looking to that. But you say those numbers are a little bit more complicated because of the immigration factor. Yes. You know, oh, my goodness. Just consider this. You know, Paul today was talking about climate change. Why? Because he sees he's getting painted into another corner to be an active person, entity with regard to what happens with climate change. But he's going to be even more in the corner with things like immigration, because if you consider the fact that the demographics of the country augur that good immigration is highly needed. And all of a sudden in an election year, in the last three or four weeks, when I see the two biggest planks going into November are the economy, which is really inflation.

12:05And the other one that keeps showing up is immigration. But the problem is, saying immigration is good is a great thing. But there's two types of immigration. There's the good immigration where we have good records and we have some quality skills coming in. Then there's the type of immigration on the southern border. That's a huge dynamic in the election. Draw your own conclusions. When I see leisure and hospitality and I see those jobs moving up and I see the immigration story, I get it. But, what, maybe 10 % of the immigration is going to go into that mode? the one on the southern border now, but the other 80 or 90 percent.

12:40What's the cost benefit to society? How much is it costing to do what we're doing on the border? How much is it costing when we look at the drugs coming in? How much is it costing for the social services and the entitlements, which, by the way, are fueling the very GDP that the Fed chairman has to contend with when he's deciding what to do with rates? Very complicated. Immigration is going to be a real hot button if the Fed keeps talking about it in terms of jobs when it's such a big platform going into November. Hey, Rick, I love the passion and agree. And in fact, you know, immigration in the border is now, I think, a bipartisan issue and something, you know, we all think about.

13:20And I'll tell you, I guess I go right back to you who are the guru of bonds, a guy that stands in the pits every day and certainly in some of its heyday. Where are rates going? Because ultimately, the two year trend on the long end is higher. Everything that people want to believe in terms of what the Fed and what they have to cut for tells you they should go lower. And is it a little bit of both and sequencing on that, please, if you can? I think a little bit of both is the answer. Hence, it's a steepening yield curve trade, in my opinion. I think the short end is going to be massaged ultimately, ultimately lower.

13:55It was the one maturity yesterday that didn't close above its high yield closes for 2024. But I think the long end is going to have to contend with so much. I mean, just on the deficit side alone, some of these numbers are so underestimated, what's coming down the pipe with regard to deficits in issuance, that I ultimately think the long end, we could call it, you know, that anecdotal vigilantes. But in the end, it is unsustainable. Einhorn said it today. All the big institutional traders recognize what's going on. And ultimately, Tim, I think it's going to be the unraveling of the longer maturities and the steepening of the yield curve and the presence of stagflation that's all going to be grouped together.

14:42Rick, always great to get your take. Appreciate the time. Rick Santelli joining us from Chicago. Karen, what's your trade on TLT these days? Well, I covered some. It's moved a lot, although, you know, listening to Rick, I was just thinking about it as he was talking. All right, well, do I want to be completely out? No, probably. But, you know, we could get a little bit of cool data. It would move a lot. I think we're more likely to see hot data, so that would bode for staying in it. But now I have like a half position, so I don't know what I wish for in terms of that trade. When Karen's talking about staying in it, just staying short in it, But it's important for people to understand that.

15:22I think that trade says yields will go higher. Which I happen to agree with. I know Tim's been in that camp for a while. But that's not what the market's prepared for. I don't believe that yields, which close to, I think, 10-year, 435, if they head back to 4.75, what does that mean for the broader market? I don't think it's particularly encouraging. Well, look at yesterday in the S &P 500. So we're down a little less than 1 % today. We didn't get a whole heck of a lot of that back. And if you look at that uptrend that's been in place from the October lows, Maybe they could throw that up here. I mean, yesterday's gap lower and the close was below that uptrend that's been in place since late October.

15:56I think that's nearly, what, 28, 29 percent off of those lows. And just from a technical perspective, if you think that the 10-year yield, if that number at four and a half or something is the one that, like, alarm bells go off a little bit, I mean, we are so much higher in the S &P than where we were the last time that we were at four and a half percent on the 10-year. If you go back to September or so, I think we were 4 ,600 or something like that. So at some point, I mean, somebody is going to care about some of this stuff when it all comes together with a dollar that's pretty stuck here at higher levels.

16:25Crude oil that's in the mid 80s, you know, yields where, you know, it seems that the pressure is higher based on what's going on, whether it be reshoring, whether it be China reawakening, whether it be just some things going on in the soft commodities. So to me, I get it. I just think the only piece of the puzzle here that doesn't make a lot of sense right now is the S &P 500, 5200. Yeah. Turning now to the battle for Paramount, the entertainment giant soaring as much as 17 percent today on the news that the board will enter exclusive merger talks with media company Skydance. That after Apollo Global offered twenty six billion dollars in cash for the entire company over the weekend.

16:59For more, let's bring in Lightshed Partners, Rich Greenfield. Rich, great to have you with us. This is wild, Melissa. This is really wild. Why? Well, because there supposedly is a$26 billion bid. You would presume that would be an all cash bid for the company. Yet if it was a cash bid, why was it turned down in favor of essentially a merger of Skydance into Paramount? It doesn't make a lot of sense, because if you're thinking about this from a Paramount shareholder standpoint, remember what happened to Paramount this morning? If you go back, if you pull up the chart and you look at Paramount, the stock was down this morning because shareholders were looking at a transaction that actually was immediately good for Shari Redstone and the National Amusements owners because it was going to take them out.

17:49But then it was actually going to dilute Paramount by including Skydance or merging Skydance into Paramount. And so the stock was actually down on that transaction. The sort of exclusive negotiating decision that they made, the stock was down. Then the stock soared on a bid that wasn't accepted, assuming it was real and fully financed, that they excluded that bid. And so everyone's just trying to understand. Investors are sort of baffled. How could you say no to a cash bid and pursue this alternative transaction for the next 30 days? Something doesn't add up. It just doesn't make sense to me or to any of the investors I'm talking to.

18:26What is your intuitions? I mean, you've been following the company for a long time. What do you think is going on, you know, behind the scenes and in particular with National Amusement and Cherry Redstone? Look, there's no doubt that National Amusement has made it pretty clear. The Redstone family made it pretty clear that they want out. They want to monetize their stake. I think they see the challenges facing the media universe and they're certainly looking for the best option. And it's surprising that if this Apollo bid was real, it's surprising they didn't take it. I'm literally I can't really give you a good answer of why you would say no, unless it isn't as you know, again, it wasn't we don't have the what were they paying per share?

19:10All we have is this sort of twenty six billion dollar enterprise that was in The Wall Street Journal earlier today. Maybe there's more to this than meets the eye. I don't know. Obviously, there's regulatory approval you would need because Apollo obviously already owns TV stations. Not that I think it's a huge problem, but you would need FCC approval for that transaction. I don't think the Skydance merger would have any issues whatsoever from a regulatory standpoint. Hey, Richard, Tim. So help us understand the sum of the parts of this. And because I think it also feeds into other plays within media right now.

19:43Now, we all know in media, some of the parts doesn't add up to what the holding company is worth. Time Warner, one of the great, great examples of just destroyed value. But Apollo started with an$11 billion bid for just TV and studio. So that gives you some baseline. And yet the stock, in terms of market cap at the end of that date, even for a week following, traded around$8.5 billion. So what should this tell investors who are looking at media assets, understand that private equity is looking at media assets, and understanding that there could be some, you know, some come to value moment here for some of this stuff.

20:18Well, Tim, I got to correct you just to be clear. It was when you say 11 billion dollars, that was for the studio. But remember, Paramount, while its market cap was 8 billion, its enterprise value was 20 billion. It's got 12, 13 billion dollars of debt. And so that was they were only buying a piece of Paramount. And so it makes sense why the stock didn't react strongly on that just acquisition of the studio. Obviously, there's taxes to pay. And then you're left with sort of a very challenged TV business. If you sell off the sort of the crown jewel, which is not just the film studio, but selling the TV studio, that is really a valuable asset that was being sold in that transaction.

20:59So I can understand if I'm sitting in national amusement shoes, I could understand why I don't want to sell the studio. First of all, it doesn't get me cash. It just gets the company in better position, but it doesn't cash out national amusements. The shift from buying just a piece of the company, assuming this twenty six billion dollar bid is real. That's where you start to that's where the real head scratcher comes in is like, how could you say no to that? If that offer came in over the weekend, why would that not be more attractive than pursuing a pretty complicated transaction? That's probably going to end up with a lot of litigation because you're basically only taking out for cash one shareholder.

21:40Rich, good to see you. Thank you, Rich Greenfield. Thanks for having me. Do not miss CNBC's exclusive interview with Bob Iger tomorrow morning at 9 a.m. He'll sit down with David Faber, discuss his proxy battle win over Nelson Peltz in Tryon. Didn't even talk to Rich about that. But, of course, Disney's also on the docket here for discussion. 100 percent. We've talked about this. I think you stay long in earnings on the 8th of May or so. But just going back to Paramount real quick, I mean, the price action date was actually interesting. And Rich mentioned it opened, I think,$11.40 or so. And then, obviously, at the end of the day, it was off to the races.

22:11It also traded north of 60 million shares. So this might be one of those days where, you know, everything we talked about. But if you're looking to trade from the long side, you might have gotten a little capitulation today in terms of the potential move higher. So this it's such an odd situation that we're in. I wouldn't be surprised if it ends up in Delaware court somehow, because how can that one shareholder? But they are there is control. Yeah. Right. So this can't be the first time this has happened. But I would think if I were Paul, I really wanted to make a tender, put a lot of pressure on them.

22:42Yeah. Coming up, Beauty Buzzkill, Ulta's ugliest day since 2020 after the company warned of slower growth this year. What it might take for this stock to make up the numbers next. Don't go anywhere. Fast Money's back in two. This is Fast Money with Melissa Lee right here on CNBC.

23:12Welcome back to Fast Money, an ugly day for Ulta Beauty. As the stock sees its worst session since the start of the pandemic, the company's CEO warning that demand would cool off in 2024 and that the slowdown would be, quote, a bit earlier and a bit bigger than expected. So what will it take for Ulta to glow up after today's drop? The way they talked about the slowdown, though, is like every category, every price point across all segments, they saw softness. Well, some more than others, and they had some explanation. It started out perfectly great. Hey, thanks for having us here at the conference.