Why Markets Should Be Paying More Attention to Jamie Dimon’s Warning, and Why One Top Investor Is Wary of Investing in China 1/17/24

0:00John, thank you very much. And live from the NASDAQ market site in the heart of New York City's Times Square. where this is fast money. And here's what's on tap tonight. The Diamond Decree, the head of the country's biggest bank, warning that markets may be, may be making a risky assumption. What he said about what's propping up stocks and what it could mean for investors like you. Plus, China struggles. The ETF that tracks the region off to its worst start to the year since 2016. The latest headlines hitting that country and how you should trade the stocks. And later, a Ford freefall. The stock erasing all of its gains over the past month.

0:38Schwab shares sink after saying profit was cut in half in the fourth quarter. And insuring gains, a couple of health names bucking the downtrend in today's market. We'll tell you which ones they are and how to trade them. Good afternoon, everybody. I'm Tyler Matheson in for Melissa Lee, coming to you live from the studio B at the NASDAQ. On the desk tonight, Steve Grasso, Karen Feinerman, and Guy Adame. Welcome, folks. Good to have you all here. All right. Thank you. Good to be here, my friends. And we start with stocks trying to mount a late day rebound. Major indexes all closing, though, well off their lows of the day with an Aztec erasing most of a 1.6 percent decline, ending the day down half a percent.

1:20The Dow finished just about a quarter of a percent lower. But take a look at rates. The two year popping nearly 12 basis points, biggest jump in over a month and closing near its highs of the day. The move causing the yield curve to reinvert sharply. And then there was this warning from J.P. Morgan CEO Jamie Dimon over in Davos. I think it's a mistake to assume that everything's hunky-dory. And, you know, and when stock markets are up, it's kind of like this little drug we all feel. Like, it's just great. But remember, we've had so much fiscal and monetary stimulation. So I'm a little more on the cautious side that we are facing a lot of things in 2024 or 2025.

2:03I just want Guy to recognize that Mr. Diamond used a phrase I haven't heard in maybe decades. And that would be hunky-dory. Come on, Tyler. You're using that. I don't use hunky-dory a lot. I'm telling you. I just don't use it. But he's cool enough to pull it off. When you went to school in Virginia, I mean, you're a gentleman. That's something you probably said. Everything is hunky-dory. Your mom called you. Tyler, how are you doing in class? Everything is hunky-dory, Mom. Did you see how cool he looked, though, with just the gloves on? Just the gloves. You know what that looks like, though? It looks like a diamond thief.

2:31And get it? Diamond Thief. I just talked about it when I'm looking at him. Very cool-looking. Let me just say, though, I look at him and I see, yeah, hunky. Hunky. Hunky, Dory. Yeah, just the hunky. I mean, Kernan's there with scarves and hats. He looks like a Michelin, man. He's climbing Mount Everest. I mean, Jamie's there. He's going to a spot. I'm with him with Jamie Diamond. You're with Diamond. Look, you look at the market and everything seems fantastic. The last couple of days notwithstanding, but leading economic indicators now down, I think, 21 months in a row. I mean, historically, that has not been a good harbinger for the economy.

3:07Money supply has been slowing or, I should say, contracting now for quite some time. And if you look around the surface or around the edges, I mean, there are things that should be concerning. However, through the lens of the stock market, I think people are, in my opinion, mistakenly thinking maybe we've gotten through things. I still think yields go higher. I think that there's some dark spots in 2024. and what Jamie Dimon said sort of galvanizes a lot of my thoughts. Well, the market's been down most of this year so far, most of 24. Three weeks in. The game is early, but the market may be signaling something, or is it not?

3:38Well, I think, you know, it's always the, you can look at it, glass is half empty, glass is half full, however you want to slice it. But you would be hard-pressed to pick a time when Jamie has been positive on the economy, and I think that's what he does, right? He sets expectations very low. So we don't want. Do you remember back before the financial crisis? There were a lot of people who thought we would never have a down year in the market. We would never have a down day in the market. Pie in the sky people. They were the ones who looked the silliest. And I think because he was the one that was there at that point, he's the only one left that was there at that point.

4:17He sees things very differently than we do now. He's very realistic. So I'm not saying that everything that he's worried about is not a fantasy or a nightmare, if you will. But to Guy's point, if all these things are slowing, that to me means the Fed did its job. I think that's actually a positive. Landing the plane. Yeah. But the retail sales numbers are pretty good, right? Yeah. They're pretty good. They were pretty good. I think I actually am a little bit more optimistic that things are still pretty good. I think that I totally agree. It's Diamond's job. He's a lender, right? Best case, they get all the money back for much of his business.

4:55But I think it's, remember his meteorology days when he was, Moynihan was like, yeah, a little storm. He was like, ah, hurricane is coming. Hurricane, tornado, whatever it was, is coming. I think that's just his nature. But he does bring up the good point that we haven't yet faced, which is this deficit situation. It will come home to roost, only the question is when. We don't know. He seemed to think it was a couple of years off. I don't know. I think that that, to me, didn't sound like Diamond super pessimistic. Yeah, no. It sounds like cautionary dice. Let's just say watch yields. Do you think they're going higher?

5:28I do, but listen, I've been wrong for that for a while. But we have gone from, listen, we went from 5 to 3.8. Here we are, you know, either side of 4.05 up to 4.10. So they have been, I think, going higher in the wake of a lot of rhetoric. And I think a lot of people, I watched Steve Leisman today in the afternoon. He's sort of in the not March camp in terms of rate cuts. Yeah, he said May. He did. And I'm sort of, he's probably right. He might be a little early with that as well. I don't see. There's nothing compelling to me that would force them. That's what I ask. Why? Why? It's given away for free, sort of.

5:57Why would they do that? Why would you cut right now? You don't need to. You don't need to. And I'm not quite sure. You know, this level of the S &P 500, to me, suggests the best possible outcome. And I'm still hard-pressed to believe we can get there. All right. Let's take a little quick turn here. Some strong data out on the housing trade today. The NAHB's housing market index improving in January, rising to its highest level since September. That's because mortgage rates have pulled back from recent highs. Still, builders were largely down today in the market, with Toll Brothers leading the losses.

6:32Diana Olick has the details on this morning's numbers. Hi, Di. Hey, Ty. And actually, two sets of data out this morning show consumers are getting back into the housing market thanks to the recent drop in mortgage interest rates. the the mortgage bankers association reported that mortgage applications to buy a home jumped nine percent last week compared with the previous week. They were still 20 percent lower than the same week one year ago, but they have been rising steadily for the past few weeks. Now, mortgage rates last topped out around eight percent in October and now back in the six percent range, although they did make a move higher this week to now six point eight eight percent.

7:13And that's the highest since December 13th. In addition, we saw a big beat on homebuilder sentiment in January. It jumped seven points to 44 on the NAHB's monthly index. The street was looking for just a two-point gain. Anything below 50 is still considered negative, but it has now moved 10 points higher in the last two months, and it is now at the highest level since September. Builders say it's all about the lower rates. Of course, tomorrow we'll get a read on how all this new confidence is playing into housing starts and building permits. Tyler. All right, Diana, thanks very much. Let's trade some whole builders.

7:47Steve, what do you think here? So when you did that intro, I'm just looking at performance. And when you when you called out Toll Brothers, Toll Brothers for the last 52 week performance is up 76 percent. But for the last 30 last three months, it's up 36 percent. So these these guys, all of them. So if you look at Pulte, KB, Lenard, The lowest they've been up in the last three months has been 35%. The highest is 41%. So I think they got a little ahead of themselves. But they've had great performance. I don't think you should throw them all out, but maybe just take a step back and let it breathe a little bit.

8:22What a year. It was a bad year for them in 2022. They came back, and they were one of the leading groups, right, of 2023. Does it sustain this year? Well, the thing that's interesting about it, I mean, it's a giant rate bet at this point. And it had that very unusual situation where existing homes wouldn't come on the market because the mortgages were too cheap. People didn't want to sell them. That's a great environment. I mean, the mortgages were too high. People didn't want to sell. Right. Yes. So you had no supply. And all you had was new inventory. And so, I mean, you couldn't have created a better picture for them.

8:57But to me, it's just a giant rate bet. And if you are pessimist, if you think rates go higher, I don't know how this sector stays where it is. Do you own any of them? I don't, although I do own Zillow, which is, you know, that is related. A real estate play. Related, right. So not quite as rate sensitive, but that's sort of my biggest real estate. If you think rates are going to go up, this would not be where you would be putting money. No, but I'll say this. Last year, rates were going up significantly, and we were across the board bullish from homebuilders for the reasons that Karen just cited.

9:29So I understand that to a certain extent it is a rate play without question. It's also an employment play as well. So if the unemployment rate starts ticking up, I think that's going to be problematic. And I'll just throw this out there because I'm sure we'll have breaking news. But Discover Financial just reported DFS in a word, an absolute disaster. But why do I mention it? Because if you look at it, credit credit provisions for losses of one point nine billion dollars. It's up a billion dollars year over year. I mean, they missed EPS by about a buck to dollar fifty four versus two fifty one.

10:01And across the board, they're telling a much different narrative about the consumer than maybe the retail sales today. So this is all part of a narrative. If the unemployment rate starts sticking higher, if the consumer gets scared, those homebuilder stocks, which have had a huge tailwind, will no longer have that. And just a button up on this conversation. The reason why the homebuilders actually outperformed was that they were buying, they were helping buy down those mortgage rates. So you can't do that forever. That was obviously crimping their margins. But that was something, to Karen's point, why new home sales were more important than existing home sales for them.

10:35All right. Let's move on to energy now as we skip around just a bit. A mixed day for crude prices with WTI and Brent settling in opposite directions as a weaker GDP print out of China stoked concerns about demand. That move, coupled with ongoing concerns in the Red Sea, have ripple effects on energy equities. The OIH Oil Services ETF. There you go. That is your alphabet soup. Dropping a half percent, touching its lowest level in six months. Joining us now to go inside the move, Paul Sankey, president of Sankey Research. When you were here just a minute ago, I barely recognized you. You were all bungled up.

11:10You looked like one of those Kansas City fans. Not Taylor Swift the other night, but you looked like one of the Kansas City fans. Yeah, it's freezing out there, right? Yeah. Yeah. So under for much of my life, if there was anything that was going wrong in the Red Sea, oil prices shot up. Yeah. Stuff is going wrong in the Red Sea and they're not shooting up. Right. And it's a concern for people. And by the way, we have the same thing with with freezing weather and natural gas prices are not reacting that well. So I think it's been disappointing to oil bulls, if you want, that, you know, we've seen, as you say, a direct attacks on shipping, the re-reaching of shipping.

11:47So that alone is going to cause more time for the oil to move around the world and higher costs, obviously. And yet here we are. Here we are at prices that aren't markedly higher than they were six months ago. Right. But that's another point. I mean, we're still at about$75 Brent. We're still in excess of$70 WTI. So on the other hand, it's not the end of the world. You know, I mean, these are good prices for these oil companies that really start worrying towards 60. Last time, maybe a couple of months ago, I was on here talking about maybe Saudi needs to flush this market. And in that case, they would be taking it down, I think, below 60.

12:19If we're a 75 Brent, you're going to see very good cash returns from the oils this year. Supply is ample, right? Supply is ample, yeah, because of the spare capacity in Saudi Arabia and UAE. So you've got two or three. And again, this is another thing that we would never have seen 20 years ago, that you've got 102 million barrels a day of oil demand, all-time record highs. And yet you still have three or four million barrels a day of spare capacity. And that's simply an overhang on the sector and on the price. Karen? So you just said something about making money over 60. Where does it start to be where the equities really get worried prior to 60, I would think?

12:53Yeah, what they would do, I think, for example, BP changed CEO or at least confirmed the CEO today. Everything for them is planned at 60. So they're guiding towards$4 billion of buyback at$60 oil. You know, they already pay a 4 % yield. So you're getting towards a 9 % or 10 % yield from BP at 60. Now, they may pay down more debt. In the case of BP, they may pay more cash out to shareholders. But essentially, 60 is kind of the working number for the industry. Additionally, if you look at the marginal reinvestment decision for U.S. EMPs and the Permian, they talk about 60. So that's why it may be that we need to get below 60 to really calm down U.S.

13:29supply growth, which is essentially part of the problem with oil and a big problem, part of the problem with natural gas. Too much supply from these U.S. companies that are just doing a great job. Steve? So I get all of that. Just help me through this process, because when I look at Exxon, I look at Chevron and I look at the M &A, all four of those stocks are below where the announcement was. So I get the whole idea of the acquirer usually trades lower. The acquiree trades higher. All of them are lower. So we've had the times where they were correlated. I'm trying to break the correlation between oil that could fall and the stocks that could run.

14:06I just don't see it happening. Why do you think there's been such lackluster performance out of the merger business with the four names that I mentioned? Well, it's a tough one. I mean, I think the first thing is they paid with stock, right? So as soon as you pay with stock, both companies become linked to one another. And as the sector sold off, then the price of the deal simply goes down. And we've seen many deals here at relatively low premiums. Why have the managements not asked for more money? Partly because they can't. Partly, I've got to say it, because they self-enrich. they get change of control and therefore you see people selling out that you know perhaps going to get rich themselves the ceo will get rich without really caring too much about the premium that the companies demand from the exons and chevron so that's been disappointing but i think additionally there's just not that many bids there's only really chevron and exon that can do these kind of deals oxy we've seen pay a pretty high premium for crown rock which was a private in the permian but generally speaking these deals have just not been uh at great multiples, unfortunately, and that's been another negative for the sector.

15:06You have an interesting pairs trade that really isn't. We're talking about oil companies and mergers and all of this stuff. I'd like to come back to that. But the pair trade is fascinating because it's two sort of you wouldn't think of them together. Explain it. Oh, you're talking about tankers versus EVs? Yeah. Well, you know, I always love to come on here and give you guys because as traders, you know, give you a trade. No, we like to work. We as analysts work thematically, and the theme is obviously tankers, you know, for reasons that you can imagine. These are dividend-paying companies, so essentially very high rates translate into cash back to shareholders.

15:40We like that in oil companies. Tankers companies like? A good example that we like is Ardmore, but there's several of them, STNG. You know, there's several that you can look at, and they're all kind of much of a muchness, to be honest. But that's one that we've highlighted. And then on the EV side, it's just a rolling disaster, you know, frankly. And in the past, we've talked about shorting Tesla. And in fact, I was talking about shorting Ford at the time. But the question was, why don't you just short Tesla? That would have been a bad trade at the time. But now Tesla is obviously the standout winner in this sector.

16:12But everything else is sort of, especially with the Chinese entering the market in the way they are, it's very concerning for these EV stocks. They're the number one maker now of EVs, right? Yeah, the dominant. Yeah, absolutely. And of course, they're really batteries on wheels. And so China's position in batteries is also vital for the fact that they can really— They control so much of the manufacturer from the battery through the— Exactly. You want to jump in? Yeah, so the Red Sea situation, that's sort of monofahem for if you're a tanker, right? You've got to go around, and so you have less supply, and prices go up.

16:45I'm wondering, though, looking at Scorpio tanker, which has run so much, have we missed the run there? Yeah, I mean, I think it is a bit of a Mickey Mouse trade and coming in lace on it. You know, you probably should have thought this. You're saying I'm Mickey Mouse straight on Fast Money. You would do that. You know, I think that generally these things have got a bad long-term history and reputation and aren't trusted by the market. But now if you look at some of the more structural elements, the new tank is coming on, the ability to add tank capacity, the size of the global oil market, you know, all of these things actually point to more of a long-term structural upside for these names.

17:19Very undercovered on Wall Street, almost no coverage. which, you know, essentially an untrusted group that looks like it's gone up a lot, but you would say could probably do more with these current anchor rates that we're seeing. All right, Paul, thank you very much. You always bring it. Appreciate it. Always a pleasure. Yeah, Paul Sankey. Let's trade this whole area. Guy, why don't you kick it off? Well, there are some names. I mean, for example, Paul brought this two Octobers ago, Marathon Petroleum. I think it was a$60 stock at the time. It's within a whisper of an all-time high. It's still reasonable in terms of valuation.

17:47But, you know, I'll say this as well. Well, I understand to a certain extent what's going on here, but Tim talks about this. I've mentioned that these companies, energy companies are now, their balance sheets have never been better. They're operated better. Their profitability is probably levels we haven't seen. Oil demand, regardless of a global slowdown, is still at pre-COVID levels. All things should line up for these stocks. Yet, as Steve mentioned, you have Exxon below 100, Conoco Chevron not trading particularly well. I think a lot of it has to do with people, again, looking for the technology trade and sort of giving away the energy trade.

18:19But I do think the energy trade still should be in your portfolio. Boy, you hear an awful lot, folks, about energy being the area where there's going to be a lot of M &A this year. I mean, is there anything that is on your radar screen that tells you that or tells you the opposite of that, that consolidation is coming in this market? Well, Paul just said that there's really two big buyers out there, and they've already made their acquisition. So could there be other acquisitions? Yes. But to the question that I asked Paul originally, when you have the M &A and both stocks trade lower, it doesn't really matter.

18:51If you look at Hess, Exxon, PXD, Chevron, if you look at the whole group, Slumberger, all of them, they're all trading below all of their moving averages. All of them. Yeah. All right, folks, we'll take a quick break here. And all hail the king. Analysts at Bank of America giving Netflix the crown in the streaming wars. So should you binge on the sovereign streamer ahead of earnings next week? We will debate that one next. But first, talk about a season of giving retail sales data picking up the pace to close out 2023. Very merry holiday shopping season, it seems. And what it says about the consumer when Fast Money returns.

19:32Don't go anywhere. We'll be back in two. You're watching Fast Money here on CNBC. We'll be right back.

19:48All right, everybody. Welcome back to Fast Money. The consumer showing some signs of strength to finish out 2023. December retail sales numbers coming in a little bit hotter than expected. The headline number rising 0.6 % from the prior month, helped by better clothing and accessory sales as well as online shopping. Retail stocks, though, mostly lower today, with the S &P retail ETF losing six-tenths of a percent. Karen, you were pointing out some other issues here. Let's start with the overall retail picture here and how you characterize the consumer and then step to that idea that you have about malls.

20:23So I think the consumer is okay, right, still employed. Wages are growing more slowly, but they're still growing. And I think there was a lot of pessimism coming into the end of last year that in the third quarter, the consumer had markedly slowed. We saw a lot of retail misses. And then, so I think the expectations were low. How that figures into this data, I'm not quite sure. Along some retail, I'm mildly optimistic, although my biggest bet is in luxury, which isn't great. Today was particularly not great. Your biggest bet on the long side is luxury. Right, but there's an interesting article.

21:04The LVMH or those guys. LVMH. But there was an interesting article about that the consumer is really shifting, not wanting to be in the retail malls as much. They're further away. They don't like dealing with parking lots. They like the outdoor ones better than the enclosed ones. Really? That was sort of interesting to me. And I know that following Foot Locker that they have a big change in how they want to have their store base not in malls. They want to be away from malls. They want to have a bigger superstore. Super stores like a Dick's Sporting, which might not be in a mall, or if it is, it's in an outdoor mall.

21:39And nearer to the consumer. Nearer to the consumer. Any thoughts here, Steve? Yeah, so Tapestry had taken out Capri, a name that I was long. I'm no longer Long Capri. I am still Long Tapestry, but I've lightened up. It bounced off the high 20s or mid-20s. And I think these names, to Karen's point, are getting exhausted. So Ralph Lauren bounced off those lows, too. LVMH is a super high-end name. That one hasn't had that real bounce. It rolled over real early and never really got to a level where you could say, okay, I made some money. But retail, where Karen started off this conversation, if people have a job, they're going to continue to spend money.

22:18And until that softens, you're going to be able to trade these names. You might not be able to be investable, but you'd be able to trade them. Be able to trade not as a long-term hold. Right. What's that show you do? That Power Lunch? It's going to be called Power Lunch. We don't have power and we don't serve lunch, but forget it. I've heard you mention the Abercrombie and Fitch. That stock has tripled now in less than a year. And it's not because the consumer is all of a sudden better. It's because they're operating better. So you have to sort of be careful as to the reasons why. Not that it matters if you're on the stock, but I'll say this.

22:50Walmart, I think Piper Jaffray just had a note. They're going to win in 24, and they're within a whisper of their all-time high. And I do think that chasm between Walmart and Target that sort of contracted a bit as Target bounced is going to expand again. I think Walmart could do really well this year. I'm curious. People don't want to go to indoor malls or that merchants don't want to be in indoor malls. They'd rather be on open air malls. Well, I guess it's a chicken and egg. If the people don't want to go, then the merchants don't want to be there, right? There's that. I don't know when that sort of started changing.