The Housing Side Of The State Of The Union… And The Semi Surge Continues 3/7/24

0:01Live from the Nasdaq market state on a day where the S &P 500 closes at a record high. This is fast money. Here's what's on tap tonight. Housing handout in tonight's State of the Union. President Biden will lay out a plan to help make housing more affordable tax credits, incentives and a push to boost supply. The impact on the sector and the challenge this could present to the Fed. Plus, the chips keep charging. NVIDIA topping nine hundred dollars a share today, climbing another three plus percent for the year. It is up more than 85 percent. I can't keep this up, right? We'll debate that. And later, Netflix putting Iron Mike into their sports ring.

0:35Another a weighty move higher for Novo Nordisk. Rivian all revved up after its big reveal. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Bono and Eisen, Dan Nathan, and Guy Adami. We start off with a countdown to the State of the Union. President Biden expected to announce a slew of policy proposals at his address tonight on the agenda, a call to increase the minimum corporate tax rate to 28 percent and the rate for billionaires to 25 percent. He's also looking to up taxes on share buybacks, Also a crackdown on junk fees on everything from airlines to credit cards to health care, as well as so-called shrinkflation.

1:11But what really caught our attention, a proposed$10 ,000 tax credit for first-time homebuyers in an attempt to boost the housing market. Could that actually heat up that market? Let's bring in Diana Oleg, who has been diving into this one. Diana. Well, Melissa, housing affordability, as you know, is still near a record low. Just 38 percent of both new and existing homes sold in the fourth quarter of last year were affordable to families earning the U.S. median income, which is the$96 ,300. Now, home prices in January also hit another record high and showed the biggest annual gain in a year. So the Biden administration is unveiling a plan to tackle home affordability.

1:48And first, they're urging Congress to pass a$10 ,000 first time home buyer tax credit. Now, you may remember during the financial crisis, Congress passed a tax credit that ran from 2008 to 2010. It was seventy five hundred dollars and acted as an interest free loan that had to be paid back over 15 years. Now, the Biden credit, though, is not just for buyers, but also for people who might want to sell their starter homes. That is those lower cost homes which are desperately needed in this market. Biden is also calling on Congress to pass a mortgage relief credit. That's$5 ,000 annually for two years, which would be the equivalent of lowering today's mortgage rate by one and a half percentage points on the median price home.

2:31So around 7 percent to five and a half percent. He's also pledging to build and renovate more than two million homes, as well as lower rental costs by expanding the low income housing tax credit. And that, of course, is for apartment developers. Melissa, a lot on the plate. Yeah, I'm just curious, Diana, according to the people you speak with, is 5.5 percent, would that facilitate Greece a lot more transactions? I think it would. I mean, that's what the homebuyers say they're buying down mortgage rates to. When you talk to the builders and they tell us about all these rate buy downs, it's always down into that 5.5 percent range.

3:03And that tends to get the buyers into the house, whether it's just the affordability or the idea that they don't have a seven handle and they have a five handle makes them feel better. But I think the tax credit is really interesting. I was talking to the NAR's chief economist, and he said that in 2009, that tax credit, that$7 ,500, boosted home sales by 20 percent in one year. That's something. Wow, that's a lot. Diana, thank you. Diana Olek. Imagine what Fed Chair Jay Powell will think when, you know, if transactions were up 20 percent because of this. I mean, that's just sort of a side thing.

3:39It's great for homebuyers, for people looking to buy a home. But in terms of the impact on the economy, there are a lot of implications here. There's huge implications, especially when you consider the Federal Reserve in the past, especially after the financial crisis, was targeting housing prices and the wealth effect that comes with it. They were talking in the stock market. So the flip side is also true. We have an enormous bubble out there in terms of assets. There's financial liquidity everywhere. And this isn't making the Fed's job any easier. As someone that's thought the XHB and a lot of housing exposed stuff was toast and that we had seen the highs, that have totally been wrong on this.

4:09The dynamic around the supply and some of the demographics that are working, obviously you also have baby boomers going in for the second home. I know that seems a little bit greedy at this point when people are looking for the first, but there's a lot of demand on the housing market and there's not a lot of supply. And a$10 ,000 tax credit in and of itself doesn't do it. I think the buyer-seller dynamics are interesting. The government has a contractor who's fixing up houses and flipping them scares the you-know-what out of me. So it's important news. And again, if you look at the XHP, it's been almost a 60 percent move off that market pivot from October 26th.

4:45It's amazing. Tim hit the nail on the head in terms of supply. I mean, you can't you can throw all the tax credits you want. That's not going to fix the supply side of the equation, which we've talked about for a while. And I will say that last year, I think we were universally sort of loving the homebuilders for a myriad of different reasons. But look at the move over the last, I don't know, nine months or so in names like Toll Brothers and Pulte Homes. They're trading like some of these technology stocks. I mean, put up a chart over the last year and a half and you will see. I mean, these things have gone vertical in ways that these stocks shouldn't do that.

5:14So I understand the want to do this. I understand the want to sort of buy votes in the political expedience of this entire thing. I don't think it does anything to solve the problem. And at Tim's point, it makes a Fed's job, which is difficult, that much more. Yeah, no, it is interesting that this is obviously coming out of the State of the Union. This is an awesome time for him to kind of frame what his kind of next four years might be. And if you think about where he's having problems right now, this is President Biden. It's with maybe a first time home buyer. You know, I think all of us can think about I think Tim has been on this point about financial conditions and the wealth effect.

5:47And, you know, like we're getting to a point here where you're going to be able to connect a lot of dots, where if a couple of things go wrong in the economy, we're going to see lots of things come down. I think the whole issue about the lack of supply in the housing market can get fixed by a good old fashioned recession or the unemployment rate getting above 4 % or interest rates staying higher for longer, you know, like some of those sorts of things. So to me, I just don't think this sort of credit is like any cause for alarm about reflating a bubble because I don't think the bubble really exists in those first-time homes right now.

6:17I mean, I'm going to jump in here and I'm going to echo a lot of the same sentiments in terms of the supply-side constraints. That really is what has fueled that XHB and those homebuilders and homebuilder-adjacent types of stocks to the moves that, to Guy's point, are beginning to get slightly concerning. You know, I do think that in terms of first-time homebuyers, this situation kind of resonates with everyone. It is essentially the American dream. So I can understand the political type of support that something like this might garner. With that said, in terms of mechanics, even if you are buying that rate down at that 5.5%, keep in mind that a ton of the existing supply still exists between that 2.75 % to 3.5%, 3.75%.

6:54So that's still not incentive enough for the supply side holders to release said supply. Unless you have to. I mean, there's a whole cohort of people out there who have to sell for whatever reason because they've had a family, because somebody has died in their family, because they need the liquidity. And maybe this is enough to get them to offset the new rate that they're going into on the new property that they're going to buy. It will. Well, but at least Bonwin's referencing the dynamic around where there's a lot of sweetheart mortgages out there that people are hanging into, but they are going to roll off.

7:27And it doesn't bode well for the housing market in the future, both in terms of velocity of sales action and just where the affordability dynamics are. And I think that will then take down prices. Again, if you if you can't go out and get a mortgage over a house essentially in terms of monthly kind of burn rate costs you now twice what it did four years ago, three years ago. So that's not great for house prices, even when all the other things for the industry. And that's been my view. But again, back to like a Williams-Sonoma or a Masco or a Vulcan Materials. These are stocks that have not only moved in line with the sector, they've exceeded the sector.

8:01And the question is, when you look at the multiples on a lot of these stocks, they're not terrible. They're also companies that are actually getting through a lot of supply constraint dynamics, a lot of post-COVID. Again, I call this like the delayed normalization of the economy. And I think these are places where I think you can still play. William Sonoma is a name we like. I know Guy shops for a couple of particular items there. And it happens to be a particular problem. They're Dutch ovens. Yeah, the Dutch oven is probably on sale right now. They have a wonderful array of them. They do. I mean, Tim makes fun of the Dutch oven.

8:29I mean, that's some of my best cooking is done in a Dutch oven. I bet it is. Well, William Sonoma reports on March 13th. So next week, Tim mentions valuation. Trades it 16 and a half times, which is not ridiculous. They may not have the earnings growth that people want. But even with the move we've seen, it's still reasonable stock. Of course, the problem is we've seen some pretty ridiculous moves both up and down in this name. So, Williams-Sonoma specifically, if you've enjoyed this run, given some of the nuttiness we've seen in this sector, I mean, you've got to do something in earnings next week.

8:58I think if you're long and doing nothing, to me, that's the wrong plan of attack. All right. For more on the nation's housing shortfall, let's bring in Skylar Olson, Zillow's chief economist. Skylar, great to have you with us. Yeah, thanks for having me. Will this work? Will this actually facilitate inventory onto the market? Will it facilitate sales, do you think? You know, in a market that is so short on supply, we honestly could, you know, really could use all the help that we could possibly get. I think, you know, what's going on right now or this proposal that's, you know, the White House is setting forward here is a lot of incentives to, say, a first-time homebuyer to move forward.

9:37You know, I don't know that they need those incentives to move forward. But if you size, you know, 10 grand, it's kind of like compensating you or letting you handle the 50 basis points mortgage swings that can change your buying power by as much, if not a little bit more, that we've seen happen as recently as, you know, over a month. So I think it really could incentivize a lot of buyers to move forward and could, you know, spur forward sales. But we need those new listings to be there in the first place. We do have pent-up sellers. So these incentives for someone to provide a starter house could do a bit.

10:16But we do need a lot more to get back to pre-pandemic normals. We're still down a big shortfall. And then if you think over just building, how much for shortfall and just how much more in the housing stock do we need, Two million is ambitious for what we've been able to provide, certainly in the starter home space. But our shortfall is more around maybe four million, 4.3, if you think of all those households who live with non-relatives that really cannot afford to pop out right now. I'm wondering, how technically would this work, as far as you know, in terms of somebody, let's say I'm a first-time homebuyer and I see this tax credit and I think that that's amazing.

10:56It's going to bring the mortgage rate down to equivalent to 5.5%. but I have to still go in and get qualified. Do I get qualified against a 7 % mortgage rate, and therefore the affordability factor isn't solved for me until I get that tax credit after the transaction? Yes, I think. So a couple of things to kind of clarify here. It will amount to dropping your, you know, I think the press release or the fact sheet that came out clarified that it would be the equivalent of dropping your mortgage rate for 1.5 percentage points for just for the first two years. So that's kind of similar to, say, other popular mortgage products out there, like a 2-1 buy-down where you can get your seller to pay for the same kind of thing, right?

11:38Your mortgage rate falls for those first two years. Now, because it is a tax credit, though, you're not going to get it at the time, you know, or built into the mortgage as you pay. It will come later. Now, you know, hopefully, and if we think about someone who has the potential to become a home buyer, they're generally someone who has been saving for a while. So maybe they can carry it on until they get that tax credit. So for that marginal buyer, it probably will still have that beneficial impact. But when you think about how to size these numbers and what it might mean to you as a buyer, mortgage rate fluctuations are a big deal to, on scale, in other words, with this kind of benefit.

12:22So as an active shopper, be sure to be watching, be ready for the inventory that's available and get pre-approved to figure out what you can afford and what this kind of benefit would mean for you in your area. Because in expensive housing markets, it'll mean a lot less. Skylar, Bono and Icen here, thanks so much for joining us. So you drilled down on something that I find very interesting. So speaking about this marginal buyer and how there will be some fluctuation in terms of mortgage rates a few years out. Can you speak to what might be the second or third order effects in terms of default rates that might that need to be considered as we're trying to find ways and engineer ways for people to stretch to get into these first time homes that might just be at the brink of affordability?

13:07Yeah. So if I'm understanding your question right, what you're saying is if we incentivize a bunch of people in order to become first-time homebuyers that maybe otherwise would not have been able to, do I introduce a lot of risk into the system and will experience pain later? You know, I think when we're thinking about credit markets and we're thinking about access to home ownership, there's a lot of space to improve how this process works. So, for example, there's probably folks who have, let's call it like their fundamental credit worthiness is worthy, right? But the way that we calculate credit just might not count for that.

13:45So, for example, credit scores have not traditionally included ready payments of rent, right, or successful payments of rent over time. You'll get dinged, you know, when you don't pay or for an eviction, right? But that successful payment signal is completely missing. So there There is room to provide access to homeownership to more groups. And then if we just think about what is the big barrier right now for a lot of folks, I mean, that down payment and the change and the impact of that affordability, it has happened regardless to those individuals. So I think it is a challenge and we will over time kind of see fewer people become homeowners and more people turn to rentals for that reason.

14:29Right. Skylar, thanks so much for joining us. appreciate it. Skylar Olson. Thank you. So we outlined before that in addition to this, we're also expecting President Biden to speak a lot about other things, including something we talked about yesterday, like drug pricing. All those fees could impact the credit card industry. What are where some of the sectors that you'd be looking to tomorrow for potential impact? Well, it's pretty clear that that pharma is always a target. And it's pretty clear that also energy at times are always places that are that are wrought with kind of political undercurrents.

14:59And I think we're going to see that. I think in the case of the banking sector, what we've been getting over the last few days, and it's been coming from different corners of the government and policy, is that banks probably have less of a target on their back than they did a year ago right around SVB. And that's part of this breakout. As we talked about the housing sector, I was just looking to see what some of the mortgage servicing companies and some of the consumer credit companies, you'd think they'd be bouncing in a big way. But they're also reflective of consumer credit concerns that haven't really hit the fan, as they say.

15:27They'll talk about the billions and billions of dollars, the profits of the energy. I'm not privy to this, but my sense is that will come out. So there'll be a bullseye on energy, as there typically is. But don't underestimate, I think, consumer products, because he actually talked about this around the Super Bowl, how packages are getting smaller. Shrinkflation. I don't like saying that because, you know. Packages? Excuse me? How packages are getting smaller. Like your cereal boxes, Tim, for example. I'm not really sure what you're talking about, but a 16-ounce box of Cheerios is now 12-ounce, but you're paying the same amount of money.

16:01So there's obviously, well, what they'll say is, listen, we want to keep the price point the same. This is how we're doing it. You want a 16-ounce box? We're going to jack it up by 25%. I think consumer products, whether they realize it or not, they have a bullseye on their back, too. Interesting. All right, we've got an earnings alert on Broadcom. On the move in the after-hour session right now, the Sunday stock reporting a beat on the top and the bottom line for the first quarter. Christina Parts-Nevelis has got the details. Hey, Christina. Hello. Well, expectations were high going into Broadcom's results with the stock up, went over 50 % just in the last three months.

16:29And although the company, like you mentioned, beat Q4 earnings, they did not update their fiscal year or full year 2025 revenue guidance of$50 billion,$30 billion, which should come from the semiconductor business,$20 billion from software. So in the quarter, revenue from their semi-business came in a little lighter than expected, but was offset by strength in software, which is what you're seeing on your screen. Recall Broadcom acquired VMware for roughly 69 billion bucks about 18 months ago, helping drive that software growth. Broadcom also benefits from the AI upswing, given it makes these custom silicon chips that are often used in AI infrastructure, but they're still exposed to other cyclical segments like storage, networking, etc.

17:09And so that dynamic is expected to be discussed on this call that started maybe about a minute ago, especially since expectations were so high going into this report. And also high for Marvell's stock faring much worse despite a new $3 billion stock buyback program. It's the weak Q1 outlook that is causing the sell-off. Management saying they are forecasting soft demand, impacting consumer carrier infrastructure and enterprise networking in the near term. But they promise those revenue declines will only occur in Q1 this current quarter. Investors a little unsure, hence the stock drop. All right, Christina, thank Thank you, Christina Parts Nevelis.

17:47These two stocks in particular were mentioned in a Mizuho reports, and there could be an air pocket in chip land that there's a lot of near-term risks here associated with this. Obviously, NVIDIA was among them. But the setup here, stocks, massive run going into it, and in line or missing is just not acceptable. Yeah, and it'll be up tomorrow. So, I mean, just they can't get enough of these things. You know what I'm saying? So, like, if you see them down in the morning, that's a perfect opportunity to make money, Mel. Red in the morning means green in the afternoon. Your buyer. All right, let's hold on.

18:17Well, I'm just listening to what you're saying. You're an opportunity. There's no sarcasm. You need like a button. It might likely be down in the morning and up in the afternoon. I mean, like we just talked about the supply-demand dynamic in the housing market. There seems to be a thing here. But, like, I'm just looking at the estimates, and I'm looking at this current fiscal year, you know, trading at 30 times earnings, 12, 13 times sales. You know, we're looking at mid-teens at best, you know, expected, you know, earnings growth here better than expected sales growth. But they're not beating those expectations.

18:50So this is something we're going to see at some point this year. And I don't know if Broadcom is the first of it. I think it's interesting that all of us were not sure if you actually meant what you said or if you're just being completely passive and meant the opposite of what you said. But I'm glad we clarified it. There's a really good chance that if it is read tomorrow that it opens up. Do you agree? Well, I'm just going to point out the absurdity of the semiconductor move. I'm not going to get in the way of it until semiconductors stop outperforming the market massively. They're up 28 percent versus the S &P since January 4th.

19:21So they're up 42 percent on their own. They're up 28 percent against the S &P. This is extraordinary. I mean, if you look at the market overall, all of the move and if you stripped out NVIDIA and Broadcom, but really AMD added the NASDAQ, it's actually underperforming the S &P. It's all about semis right now. And I think this is something that's concerning. And at the same time, I'm not sure anybody knows what to do with it, including the analyst community who keep upgrading these stocks. Fair point. Fair point. So I know we spend a lot of time essentially saying whether or not NVIDIA has the power and those adjacent stocks, AI adjacent stocks have the power to essentially levitate a space that I think is what we're seeing.

19:55And I think those are the risks that both of these panelists are kind of underscoring. These companies here give you a bit more insight into the cyclicality that still exists within the semiconductor space. Aren't we more to you than just panelists? I feel like we've been doing this for so long. You know what I mean? It's said with the utmost respect. I didn't know you got so sensitive about titles. When you're this sarcastic every day, I mean, like, come on, man. It's probably a good time for a commercial or something. I cannot tell. I think Broadcom it 25 times next year. I mean, the EPSB was significant.

20:27The guide people got concerned about, the revenue guide for the year. I wouldn't be as concerned. It looks like an expensive stock because it's$1 ,400 a share. Valuation-wise, and we've said this for the last year and a half, it's actually one of the more reasonable ones out there. All right, coming up, a move that will make your heart skip a beat. We will dig into the headlines sending this stock surging again today. That's next. Plus, Iron Mike is back, and this time he's on Netflix with a boxing champ deliver a knockout punch for the streamer. We'll slug that one out right after this break.

20:58This is Fast Money with Melissa Lee right here on CNBC.

21:11Welcome back to Fast Money. Novo Nordisk stock surging 9 % to a new record high after disclosing results of an obesity drug trial at its annual Capital Markets Day. Participants who took M. Cretin for 12 weeks lost 13 % of their weight on average. The drugmaker is also planning to expand research in cardiovascular disease and other obesity comorbidities. Competitor shares were broadly lower after this news, with Viking losing nearly 19 percent, Structure Therapeutics falling 10 percent, and Lilly closing flat on the day. What's important about this drug, it's an oral drug. It's a once-a-day drug.

21:43So presumably, it's easier to make. It's easier to transport. It's easier to take, et cetera, with your side effects because the dosages on a daily basis will be lower. It's also proving to be as effective, more effective, I should say, at 12 weeks versus Wagovi at 12 weeks. The weight loss is much more significant. So that's another key aspect to this particular drug. Unbelievable. Without question. Now it's a 600 billion. So you add the two, Lilly and Nova together, we're probably approaching 1.4 trillion-ish in terms of market cap, which again, if you think revenues are going to grow the same way that a lot of analysts think they're going to grow, in other words, going from $50 billion now for an Eli Lilly to$150,$200 billion in the next three and a half, four years.

22:26As Dan would say, stay with it, have at it. If you think there's going to be some hiccup along the way, these stocks have gotten themselves a little extended. I mean, you can put up a Novo chart if you want proof positive and take a look. You did an amazing doc. I mean, big shot. Everybody should watch. But I think they would be surprised by, I think, the stock moves they've seen over the last few months. Yeah. So you talk about like nice round numbers. So$50 billion is the expected for Novo next year. Start looking at 2025. If you talk about supply-demand dynamics, we know that demand is going to be there forever.