Speak. Numbers will move around this morning. Dow would open 150 points off. Nasdaq down 60 s p would open off 18 points treasury yields. 10year treasury at 4. 223. It moved up. 2year treasury at 4. 96. As joe mentioned, in the last half hour, fitch warning it may downgrade dozens of banks. The Agency Cutting assessment of the Industry Health in june. Fitch rating stating if the industry is downgraded again, that translates to negative reaction fitch wants to significaal that downgrades not a foregone conclusion he will join us in the next hour to breakdown what with is happening here. Im looking for a trade, courtney i dont see it yet home depot is saying things are crappy in line with the crappiness they talked about you saw it yes fiscal earnings down Single Digits you want to go through the numbers . I dont know if the stock is impacted by the comments exactly we knew they had been looking for the year of moderation fiscal year earnings down it could. Home depot is reporting earnings here of 4. 65. Revenue of 42. 9billion that is 20 cents better. Joe, reaffirm bing the previous guidance they refer to the year as year of moderation. Home depot total sales down 2 in u. S. , sales fell 2 that is better than the 4 drop analysts were expecting. It is the Third Quarter in a row of falling sales in the u. S. The way i see it, the only quarters of falling comps as far as 2014. In the release, the ceo ted decker said there was continued pressure in the big ticket categories i spoke to the cfo and asked him if the Consumer Behavior accelerated from the last quarter based on what they are seeing he said continued caution on the past consumers with the larger ticket and more Discretionary Spending they are deferring larger promise and taking advantage of the smaller ones cash is used as a primary Funding Source for projects. When it comes to inflation, we dont expect to see meaningful inflation for the second half of the year we have decreased retail prices. I really look at it as a settling out of prices in our market and organized crime is a topic and that is something i follow with home depot and before the pandemic he said it has been in line with what we have observed in the last quarters. We are continuing initiatives to mitigate that. We will take different approaches based on the market of course, they are not quantifying it target kwaun quantifying it wit shrink 331 to 334. They have the machines which are great. Tiffany comes to mind. You can grab a lot of items. Smashandgrab. Think of walgreens. For prilosec . I want a lot of bank for my buck. Have you tried to buy a tube of toothpaste . I can get a crack pipe, but not prilosec home depot helped me with a long 2 by 4 things are more easily r resold i followed along on a sting. Drills and power tools. I saw the videos yesterday. I was at a nordstrom i dont know what you mean. There are a lot. Did you see 100,000 of stuff . Courtney, stay with us lets bring in brian nagel here from oppenheimer about what you were expecting. The company was transparent about what it was expecting. Good morning, joe this is as expected. Courtney summed it up well the numbers are better than the published estimates. The underlining tone from home depot in this release is very much what we heard the past couple quarters. We are muddling through 2023 with eyes on 2024 and 2025 when with the expectation is the Home Improvement trends solidify and begin to improve again courtney, you looked at this closely. Brian, what im interested in is why do you think they reaffirmed full year guidance when they beat the quarter by 20 cents. What does that suggest remember, home depot lowered guidance after the furs qirst qr which is a rare move we will hear on the Conference Call at 9 00 the factor behind the choppiness is weather weather disrupted q1 my sense is on q2, there were weather disruption, but not as severe as q1 there is a lot of year left. Q3 and q4. Home depot knows how to manage expectations well. There is no benefit for them given the ongoing weather and macro concerns for them to lift guidance the idea is get through 2023 relatively unscathed and play for 2024 it is our expectation that you should see the resumption of expansion within the Home Improvement space. 2 comp sales was less than what analysts expected what about the year guidance is that better or is it a wide enough range to be pretty bad . The guidance for 2023 is what they said previously no changes going back to q2, they did a negative comp. If you look at the street estimate, they were down. 3. 5 does that mean p not necessarily 2 to 5 for the year . Maybe they keep it at 2 . Thats what it means. Take q1 and q2 and that probably means p right now they are tracking toward upper end of that guidance. That is probably what they will say on the Conference Call given the year, we are tracking at the upper end of the died an guidance brian, in the old days, you used to be able to win a contest where you have ten minutes in the shopping cart and take whatever you want out of retail. The big store. I dont know how fast you can run. You got two shopping carts and you are not going to use it, what do you grab from home depot . Which aisle . What sbis the best stuff . It is interesting i follow closely with best buy we have seen innovation for years. We are seeing that with the Home Improvement channel. A lot of the products which used to be old school are technical in nature. Theyre expensive i go to the tool category tool category or the light bulb category they are significantly more advanced today than five or ten years ago. I leave the lumber to you. Brian, before you wrap it up. Is there an Interest Rate level which home depot makes less sense as investment . Meaning people are no longer investing in homes are they using cash instead for the Tipping Point . Great question, courtney. I dont know if there is a specific level there is a spsychology behind this this might sound silly, but higher rates and higher mortgage rates, i think, have been a positive for home depot in that you have a large portion of the home owning population of the United States trapped, if you will, or stuck, in the low fixedrate mortgages that is encouraging people to stay in the existing homes or work on or enhance the home. That is the stance where higher rates are positive if you look at it from what you are asking is a lot of bigger ticket projects for home equity. The rates are loans are higher there is no magic number the loans have gone higher and that is a plus upon the bigger ticket projects. All right brian nagel, thanks. You have a strong buy . A much higher price target what do we do with this thing . We have a 360 price target which is upside to current levels we said to our clients is 2023 is a reset year. My recommendation is buy on weakness in an anticipation of 2 being cheaper. I was looking at that that is a step down from the pace they bought back 5 billion in the last quarter. Well above 400 not longing ago. 2021 thanks, brian. Thanks, courtney you are leaving in. I guess so. Hang out. Why not . China unexpectedly cut Interest Rates overnight as policymakers ramp up support for the economy. Oneyear medium term loans by 15 basis points the second rate cut in three months it cut shortterm rates by 10 basis points for overnight and one month. The central bank injected 28 billion in reverse repos. You see the decline in the yuan. After the rate cut announcement, the government released data points that fell short of expectations retail sales rose 0. 2 in july Industrial Production rose 3. 76 . Missing the estimate fixed assets fell short. China National Bureau of stats said it is suspending release of youth Unemployment Rate which soared to record highs the bureau said it is reassessing the methodology. We will take you live to beijing at 6 30. Japan gdp 1980 met exports remember when japan was going to take it they bought pebble beach then what happened they paid too much. Then 20 years and no one had a kid. Stagnation. Is that reversing i think it is reawakening i dont think about the kid part you know who has been right Warren Buffett once again about japan. Once again. He gets it right. Coming up, more of the top stories and an offer by the Hollywood Studios to striking writers to provide protection from a. I we will talk about that. You are watch wiing squawk box and this is cnbc announcer this cnbc program is sponsored by Truist Securities wake up, achievers. Youre making the most of every hour of your life. Except the hours that youre sleeping. So why do we leave so much Untapped Potential on the table . This is a next level bed, for a next level you. My circadian rhythm is kicking your circadian rhythms butt its not a competition. I know, but im still winning so, it is a competition. Save 50 on the sleep Number Limited Edition smart bed. Plus, free Home Delivery when you add a base. Shop now only at sleep number. Nice footwork. Man, youre lucky, watching live sports never used to be this easy. Now you can stream all your games like its nothing. Yes thats what im talking about. [ cheers ] running up and down that field looks tough. Its a pitch. Get way more into what youre into when you stream on the xfinity 10g network. So, youve got the power of xfinity at home. Now take it outside with xfinity mobile. Like speed . Its the Fastest Mobile Service around. With the best price for two lines of unlimited. Only 30 bucks a line per month. Thats hundreds in savings a year when you wave bye to the other guys. All on the most reliable 5g network nationwide. You really shouldnt walk out the front door without it. Switch today at xfinitymobile. Com. Welcome back former President Trump and allies indicted on charges in the attempt to overturn the Election Results of 2020 in georgia. He was charged with racketeering he denied all wrongdoing the indictment including Rudy Giuliani and mark meadows and others involved in violating the r r. I. C. O. Act it is quite something to watch this is now the fourth state not the fourth state, but fourth jurisdictionindict. Update on the hawaiian wildfires. 99 people confirmed dead officials will identify the dead today. Moodys said the Economic Cost from the wildfires could come to 7 billion. Now to the Hollywood Studios. Making an offer to the writers with concessions on a. I. And access to viewer data. The report stated the studios offered to ensure humans are credited for writers of screen plays rather than replacing them with a. I they would share data on the numbers of hours viewed on streaming services so writers can see how popular the programs are. The report says netflix ceo and Disneys Bob Iger have been strong forces for agreement. And coming up, whale watching we look at the moves of the wealthy investors in the latest regulatory filing. Thats next. Squawk box is coming right back the thought of getting screened for colon cancer made me queasy. But now ive found a way thats right for me. Feels more easy. My doc and i agreed. I pick the time. Todays a good day. I screened with cologuard and did it my way cologuard is a oneofa kind way to screen for colon cancer thats effective and noninvasive. Its for people 45 plus at average risk, not high risk. False positive and negative results may occur. Ask your provider for cologuard. I did it my way the first time you made a sale online with godaddy was also the first time you heard of a town named dinosaur, colorado. We just got an order from dinosaur, colorado. Start an easy to build, powerful website for free with a partner that always puts you first. Start for free at godaddy. Com how can you sleep on such a firm setting . Gab, mine is almost the same as yours. With a partner that always puts you first. Almost is just another word for not as good as mine. Save 50 on the sleep Number Limited Edition smart bed. Plus, free Home Delivery when you add a base. Shop now only at sleep number. Portfolio moves revealed by the worlds richest investors. Lets get to less lie picker mike, good morning. Some managers are doubling down on big tech in the runup in the Second Quarter others appear to be crystalizing gains. Tiger global paring back amazon and microsoft cut in half tiger boosted in meta by 15 to hold 2. 5 billion worth by the end of the quarter a lot more by nvidia other managers buying into the rally is dan loeb telling investors its exposure to microsoft and amd and google were undersized and profits offset by losses elses wh elsewhere. He took a position in amazon and sold more than half of the stake in alphabet. Apaloosa boosting stakes in amazon and nvidia and adding to chinese tech names buying shares of 1 million for alibaba and 2 million in jd. Com. The opposite with chinese tech with li auto theres positioned for the end of the quarter and they may have changed in the six weeks guys leslie, during the Second Quarter, nasdaq pwas up 15 the decision was if you are invested in the tech stocks, do you sell out or dan loeb says we dont have enough exposure you chase up that way. Interestingly, i think the debate all year was if apple the and microsoft are 13 of the s p, most managers are ben benchmarked to the s p and they are looking for absolute returns and some of them feel they cannot ignore them reporter thats right. You know, i think as was made evidence with the Third Quarter letter, an lot of managers foud they were underweight. That is what was interesting about the filings was to see who basically had to play catch up or a little fomo action and who decided to sit it out and who crystalized gains. You get a sense of what is happening with the investors in q2 the run up continued in july and they backed off. From the end of the Second Quarter, basically flat. Leslie, thank you. See you later in the show with more 13f revelations and more from Berkshire Dow is not Getting Better no help for home depot, mike they backed off 329 bid closed at 330. It was 331 or 334. Any Slight Movement were seeing barely. Global markets. I have 329 bid. 330 ask. A trade there. The bid now is 329 coming up, a surprise rate cut by the China Central bank overnight after the disappointing Economic Data overnight. As we head to break, a look atners and losers announcer winners and losers is sponsored by state street global advisers. The biggest ideas inspire new ones. 30 years ago, state street created an etf that inspired the world to invest differently. It still does. What can you do with spy . Good morning welcome back to squawk box. 240 points down on the dow you follow the averages. 104 points down on the nasdaq. This morning, if anything interesting happened, in the two weeks i was out, it was yields on the long end. The market did nothing as soon as all the bears flipped and that was the top sdp. You know, the boa survey out confirming that. Capitulation on three quarters. Staying negative. It will be a soft landing lowest cash level since early 2022 they put it to work in the Second Quarter people did give in to the rally. I think were digesting that soft landing. Thats the greatest thing we could hope for and is it good for the markets . The news was baked in or did the fed say it it is not soft enough, perhaps, for the fed that is why yields are doing what they are doing. Higher for longer. Not hard enough for the fed they want a harder landing they got a soft landing. Theyre not done. Reacceleratreaccelerating not hard enough for the fed. True. Not enough of a landing. Some zpack in that bottle they have to take. Unless Energy Prices filter thr through. Energy is now a problem. Lets talk china news out of china overnight. Central bank announcing the surprise Interest Rate kcut afte july Economic Data came in barclays is cutting 2023 gdp from 5. 3 to 5 . We will go to eunice yoon in beijing with more. Good morning reporter andrew, as you said, china cut in the surprise move policy rate by the most since the start of the pandemic three years ago. This is a big signal that the authorities are concerned about the state of the economy the central bank reduced the oneyear lending rate bigger than expected to 15 basis points n. Points in addition, the cut of the key rate for shortterm liquidity. The move came at the same time when the authorities here released a downbeat data for july retail sales were up 2. 5 , but compared to a year ago, when most of us were locked up in our homes. Factory output was a miss. The private investment contracted. 50 . Real Estate Investment tumbled all of the problems we are seeing in the property sector down 8. 5 . Urban unemployment worsened at 5. 3 youth unemployment was unexpected china no longer as of august will report the youth unemployment number. What is interesting there is that that youth unemployment has been at a record high. In june, it hit 21. 3 . One in five young people here were not able to find a job. They decided to suspend the numbers, reporting ithe numbe, is not raising confidence. Eunice, thank you for the report we will continue to talk about this with manager director Dewardric Mcneal lets talk about the downgrade and the slow growth in the country and how you think it effects the relationship china has with the u. S. And how aggressive china may or may not be with the political issues we have been dealing with here . Thanks for having me, andrew. I think lets deal with china domestic economy first here. I think the story here, andrew, is the data continues to trend in the wrong direction we have seen a lot of policy support. The rate cut overnight 24point plan over the weekend. None of the measures is working to boost economy in the sector businesses are not confident i suspect, andrew, a lot of this is confidence in the leadership ability to manage the economy through a crisis we dont talk about that as much, but there is real concern if this group of guys, and largely guys, are prepared to do what it takes to get the economy up and running again on the u. S. Side, i think this is not going to change u. S. Goals in terms of longterm strategic competition with china. I dont believe it will make china more aggressive. There are major problems at home that is the balance. Does it give the United States any more leeway for the u. S. To be aggressive . A lot of people believe, a an andrew, when your competition i down, you press the pedal. They stated clearly not to tank the chinese economy. They are focused on National Security there are many people who believe you should press to your advantage. We have not seen that playbook from the biden administration. It is protecting u. S. National security and to the degree this helps to do that, fine i dont think you will see them press the gas on anything to tank the chinese economy that hurts us all. You believe the gentlemen running china dont know what to do is there something you would do . Look, i think at the end of the day, andrew, you have a situation where perhaps xi jinping, lets be clear here, may have overestimated the resiliency of the chinese economy. I think he may have underestimated the value of the private sector of the economy. You are starting to see some slow unwinding of the earlier aggressive policy moves against the private sector we need to step back and allow for those individuals who understand what the private sector can do to help the economy really do it im not sure yet that xi jinping is prepared to take his hands off the wheel. That is one of the major problems in my view sdp. When you think of the nike and multinationals like starbucks, how big of an impact when it comes to earnings . If you look at the latest from starbucks and apple, that is one place we see doing fairly well and some people out buying coffee and buying iphones. It depends on the sector youre in i think when the economy is this bad means we will see impact on earnings it will have to be a real look at which sector youre in. Automobiles, tesla for example, you will see an impact on the bottom line. That is a saturated market Chinese Companies like byd, fra frankly, is eating teslas lunch. It depends on the sector, andrew we will leave it there. Thank you. Thank you speaking of tesla, coming up, the company releasing cheaper versions of two vehicles reminder, you can get the best of squawk box in the daily podcast. Follow squawk pod on your favorite podcast app and listen any time well be right back. Baby i hearn. Okay. Ill work on that. Save 50 on the sleep Number Limited Edition smart bed. Plus, free Home Delivery when you add a base. Shop now only at sleep number. Welcome back u. S. Equities at this hour still under pressure s p down a bit more than. 50 . It was up yesterday that much. Nasdaq down 93 points. Dow poised to open down 225 points tesla rolled out cheaper versions of model x and s vehicles in the u. S. The model version is 10,000 less than the remegular model. The versions have a cheaper driving range than the standard models the cheaper model s range is up to 269 when will you buy an electric ev i would probably go toward hybrid before electric living in manhattan, it is not convenient thats the hardest. You had a storm on saturday did you see that yeah sdp. Did you see the lightning the power was out in large part of northern new jersey for almost 24 hours. Longer in some places. There were lines at the wawa station. I couldnt figure out what was wrong with the charging station. If you dont have power at your home, you cant charge your car . Do i have that right correct the flip side is about to happen which is save up in the solar panels you can use your car to power your home . Correct that is a cool thing it would be good. Car itself can be a generator. The idea is most people dont have a generator the flip side, of course, if you dont have power in your car, you cant go anywhere. You have seen tesla with the panel on the back with the gaspowered generator just in case 93 octane hydro carbon. Sticking with the ev news. Fisker signed agreement with tesla to use the charging network. It will cover all current and future fisker vehicles. Shares of u. S. Steel taking a breather today have you noticed the symbol of the company . X will he buy it from them i dont know. It is confusing. Twitter. Is it u. S. Steel or twitter . 40 with the highest level since move the move after another bidder emerged for the steelmaker it is making a 7. 81 billion all cash offer remember when esmark was one with of the biggest takeover plays to break it up now it is still around the same days when u. S. Steel and bethlehem steel were still on the dow that would top 7 the 7 billion u. S. Steel rejected the Cleveland Cliffs deal. Steel would not comment on esmark he will join the parties involved in the Strategic Alternatives partners. And landmark ruling on the Climate Change in montana. The judge ruling the state agency violating a constitutional right of citizens in the state to clean and healthful environment by allowing fossil fuel the judge found the policies the state uses for permits which does not allow agencies to look at Greenhouse Gas emissions is unconstitutional now it is up to the state regulator to see how they bring the state into compliance. They are seeking to overturn the decision on appeal a lot of Oil Companies are looking at that decision there are a number of cases brought in other states. Interestingly in montana, the States Charter says they are allowed to have a clean environment. Children above 2 months to 18 years old when it was filed. The interesting part is a state or agency can look at this and say we looked at the Environmental Impact and the other impacts it doesnt pass the smell test they have 1 the million residents. Greenhouse emissions of 1 million residents versus china and india. 0. 3 do you honestly believe montana and the residents of montana have harmed the environmental lives of their children based on the minuscule amount of Greenhouse Gas emissions . Im not taking that on. The reason this is an a decision is they looked at the Environmental Impact and we looked at the other Economic Impacts and we have taken this into consideration and we dont know you know the crazy judge down in texas that says i dont think this is a crazy decision. Totally crazy decision. You can still land 1 million residents harm the environment. The children in that state and their environmental lives have been harmed by emissions of 1 Million People versus chunina a india . The legal argument is consideration. The answer is they probably can. That should not change the fact to decide they have drilling in the state. It is considering it they are allowed to consider it. What part of the area of montana is less clean or where is there harm to the people . Environmental harm to the people. It is all to decide you are on that agency and you can say there is no harm you can do that. The point of consideration of it the truth is, by the way, relative to all this, that montana, they actually talked about it in court and i know you dont believe the co2 has anything to do with it more co2 coming from the state of montana than all of argentina. The point is there is something going on the question is how much and then you, as the state agency, get to determine it. You at least look at that as an is issue. To do you believe the residents of montana have been harmed by the environment of montana i couldnt get 1 million divided by 3 billion i think it is china and india this is not about blaming anything this is blaming you are saying they hurt these children i didnt say that this judge. I dont know her i dont know who appointed her or other decisions the first time you connected your godaddy website and your store was also the first time you realized. Well, we can do anything. Cheesecake cookies . 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Nvidia shares, investors wait for the kay to report next week joining us is jean munster nvidia is the clincher argument for a lot of people who feel as if theres a transparent play on a. I. , and you have seen earnings for nvidia double, and what other tech stocks, if any, are in that category, and how do you feel of nvidia in terms of evaluation right now we need to think a lot about nvidia, because as nvidia, so goes the report, and all eyes are on the datacenter and thats an 8 billion expectation. If they exceed that that will send the Broader Market higher, the broader nasdaq higher. Morgan stanley pushing the stock up 7 , and talking about the upside to the datacenter number. I want to agree with the analyst and put context into why i think this will be a good number and why this is a path forward for the nasdaq in the next few weeks, and the ceo made the last Public Comments prior to going into the meeting, and given strength across the globe they are not worried about nearterm issues related to trade. Thats a pretty powerful comment going into the quiet period and i think they will ultimately deliver on that. And one fine point on nvidia, and when you think about a. I. , you said it best, their business is going to be up 110 plus year over year in the july quarter. Microsoft is arguably the Second Biggest Company focussed on a. I. And thats up 10 . This is apple and oranges when it comes to the leadership in a. I. This seems to be a head scratcher, and the numbers have come up. Right now its trading at about 35 times next years earnings. Its going to grow earnings just over 35 its a one peg, so this, shockingly, is still reasonably priced given the opportunity i guess the bigger question is when it comes to nvidia, how much are we seeing customers to build the capacity and scratch and how much is going to be over the next five or ten years the same annual investment in that magnitude . That onetime piece is referred to as training, and it will be a two or three aggressive investment cycle so there will be a bigger investment cycle around that after we go through the training period, and theres a inference, and this is taking the models and getting an answer to it. As the number of queries around a. I. Come, when you put it together its five plus years of growth they will have in front of them. You mentioned microsoft, and nothing really wrong with the numbers but microsoft is like 11, 12 off of its high. What does that tell you about the broader positioning among the tech stocks . I think investors needed a pause. The nasdaq down 4 since the beginning of august, and microsoft is down 10 . When it comes to microsoft, investors talked a lot about a. I. In the last few quarters, and understandably so. The 10 is small compared to what we are seeing with other a. I. Companies, especially nvidia it tells us investors need to be patient. I think they are reflecting that, and ultimately, for microsoft, you start to see some of the benefits and we are probably a year plus away. Yeah, obviously not just on a. I. Thank you. Thank you a new warning on the banks dont gonyer awhe. You have to hear this. Squawk box is coming right back rock star . What do you know about rock stars . Billy idol . I mean wheres the skintight leather . My shoes are leather. Wheres the unnecessary zippers . That thing billy, rock star is just how doug feels when he uses workday. Thanks, rory. Ill show you rock star be a finance and hr rock star. Workday. For a changing world. Billy idol just stole your golf cart i need it cool at night. You trying to ice me out of the bed . For a changing world. Baby, only on game nights. You know you are retired right . Am i . Ya save 50 on the sleep Number Limited Edition smart bed. Plus, free Home Delivery when you add a base. Shop now only at sleep number. This is cynthia suarez, cfo of gogo foodco. , an Online Food Delivery service. Business was steady, until. Gogofoodco. Go check it out. Whaatt . overnight, users tripled. Which meant hiring 20 new employees and buying 20 new laptops. So she used her American Express business card, which gives her more membership rewards points on her business purchases. Somebody ordered some laptops . Cynthia suarez. Cfo. Mvp. Built for cynthias business. Built for your business. Amex business. There are some things that go better. Together. Like your workplace benefits. And retirement savings. With voya, considering all your financial choices together. Can help you be better prepared for unexpected events. Voya. Well planned. Well invested. Well protected. Book a work trip. Earn onekeycash. Shake some hands. Do not forget to laugh. [laughing] book a getawayfromwork trip. Use onekeycash. Order some sides. Do not disturb. Join one key to earn and use rewards across expedia, hotels. Com, and vrbo. Good morning u. S. Futures under pressure, and a little bit off the lows. Down 200 points. Fitch is warning, though, it may be forced to downgrade dozens of banks. Details on that story straight ahead. You heard of a hard landing and soft landing, but what about no landing can the economy just float around like a hot air balloon . We will talk about that. The second hour of squawk box starts right now good morning welcome back to squawk box. We are live with mike santoli and joe kernen nasdaq is opening down at 89 points, and the treasury market is interesting right now because we were talking about it earlier. The twoyear close to five now 4. 9. I want to do the threeshot and say caption a caption contest yeah. A caption contest. There will be three guys in blue shirts, and what about manny, moe and jack the three amigos. A cultural misappropriation i dont think we can do that and get away with it tpany other trios . The bee gees. But then one died the stooges yeah, we got the stooge market corners i did want to mention the 4. 23, you have the bond market, and it shows you that pricing out not only just the recession risk, and obviously treasury supply has been an issue japan released global yields to the upside, and all this stuff going on and here we are its worth mentioning last year when we were having these stories what it meant for the bond market being high, and it just takes time. At what age do you think somebody should be interested in locking up money for ten years at 4 . Well, i dont think thats the equation i know. But you know what i mean yeah, nvidia was up 7 yesterday, and i dont get it. Kelly evans is at home going 4. 2 shes so excited about 4. Why . People are discovering you can have a safety yield. Amazing. There are lots of bands with four people in them. Thats a good idea. The quartet. Dom yeah, theres a fourth Rice Krispies guy recently. What . Yeah, recently. If you had a fifth player, then you can be a Basketball League yeah, briefly dom i am liking the manny, moe and jack i like barney, fred and bam bam. What about pebbles . Yeah, we could use her. We have four dudes on the screen right now. I will get the four dudes off as quickly as possible you have stock down, home depot, and it was less than 10,000 shares of Trading Volume when i came on to the the report, so earnings and revenues and reported a smaller drop in sales growth at established locations, and it affirms the full year forecast the ceo said they saw strength in product categories in tune with smaller Home Improvement projects, but they have big tickets, discretionary products. The shares are off about twothirds of 1 on the Financial Services side, we have a shakeup at discover financial. There was less than 1,000 shares when i came up here. And then roger is stepping down from the role immediately and he will transition to the advisory position those shares down again, 5. 5 . And then the hottest stock, nvidia, up another percent this morning and tacking on to the 7 rise joe mentioned because of the Morgan Stanley call. New this morning, analyst of wells fargo and ubs, and both firms have maintained their buy equivalent ratings and uvs goes to 540, and both are remaining bullish. Joe, back over to you. Okay. Ghostbusters how many ghostbusters were there. Three only three. No, i think there was four. Thats a possibility. All right. Our next guest describes the current market environment as an unstable equilibrium and said the last rate hikes were excessive. Joining us is the economics partner and director of research why do you say that, barry it seems like the economy surprised everybody. Andrew, how long has sternlicht been singing the blues for months. He was saying consumers were tapped out and everybody was borrowing, and we need these rate increases to bring down inflation. I dont think the rate increases have had all that much to do with bringing down inflation in actuality most of the improvement has come from goods prices, which was supply chain we have had a lot of improvement with energy, and thats lacking the whole russian invasion, and so our whole thesis on what caused inflation in the speech back in november has no empirical support whatsoever there was a lot of churn, and when that was complete rates seemed to come back down towards their prior level. I dont think the fed has contributed all that much to the disinflation when you consider what they caused was inflation in miscellaneousing, and that has not corrected. But the Banking System and the magnitude of the yield curve inversion, and i was arguing the equity market could work higher because its funded at the back end, and the rates are relatively low compared to the front end, and the economy can adjust to a 4. 25 ten year. Its the Banking System and Small Services that we talk about the curve inversion, and whether it forecast a recession or not, and we only had three in our history this deep. October of 73, and 89 and i am not arguing that, but the fed needs to cut rates next year so the Banking Sector and the Small Business sector will get worst thats what i am referring to. You think fitch is on to something with the banks its a nuance. You cant blame the fed, and maybe they didnt have anything to do with the inflation coming down, but where inflation is where it was and the economy was staying as strong as it was with the first friday of the month with the labor market, what did you expect them to do . You knew they were going to keep going higher i did, joe. What i wanted them to do early on, and i discussed it with you as well, but the economy is eased by buying back mortgage securities, and i wanted more aggressive action on the Balance Sheet and a little less aggressive action on the rate hikes so they didnt cause the deep curve inversion that is a threat to Small Community banks. Had they done this differently, they would not have the curve inversion. We would not have the problem with Small Business credit this is like the silent killer we dont even see this underlying issue that you are talking about right now, but you say its there how will we find out about it . How will it finally come out where there be something that breaks again well, there has been evidence of it, joe there was a report a couple weeks ago, the Business Employment dynamic that goes back and digs in on the labor market turns out that all the jobs that the model that looks at Small Business employment created last year never existed, and it was estimated 1. 3 Small Business jobs were created in 2022, and turns out it was 60,000. We are going to have a big lastminute revision, and Small Businesses are struggling far more than it appears based on the big mac ro data. Its reversing that at least the last three hikes you were talking about goldman sachs, and we need to see our way clear in order for the rally to push forward, and that means okay, were tight here but inflation is coming down at the last press conference, you said we will be even before we get to two. I personally dont think inflation is going back to two, but i think they need to be in a position to reverse the hikes so the curve gets inverted and takes the pressure off banks and Small Businesses the cuts need to come early next year barry, we appreciate it did that go out . Was that a finger . Thats in the next one. Just a minute commercial real estate facing a wall of worry with more than a trillion dollars of debt coming due in the next couple of years sk years, and we will talk about that fitch warning it may be forced your busines banks including jpmorgan patio. Clink dr. Marshall used part of his refund to give his practice a facelift. Emily used part of her refund to buy. I run a wax museum. Let Innovation Refunds help you get started on your erc tax refund. Stop waiting. Go to innovationrefunds. Com you really got the brows. There may be another downgrade coming for the Banking Industry fitch is saying it may be forced to cutting rating of big banks, including big ones like jpmorgan what is behind this potential move hey, mike i think a little context here. Fitch lowered its assessment of the u. S. Banking industrys health from aa to aa minus, and it went largely unnoticed. I think fitch was concerned at the increasing risk they would have to cut it another notch taking that industry rating from aa minus to a plus, which is one level lower. The problem that introduces, mike, you have four institutions that are top rated credits, bank of america and jpmorgan, and they hit a rate of currently aa minus, and you cant have banks ranked higher than in what they operate, and so cutting them would potentially set off a cascade of examinations of the entire universe of banks covered by fitch, and then they would have to maintain the gap between the top banks and the lesser credits, mike. I suppose this is still based on a lot of the issues that we have been aware of for months, which is higher cost of deposits, and some deposits like take some unrealized losses on bonds, and the deterioration of the economy down the road, and this will raise the cost of borrowing for the institutions debt and deposits are the raw material for what banks produce, right . Do you think that might be the case well, obviously the markets are a dynamic thing, and moodys cut, and they believe theres a risk some of the banks could be locked out of debt markets all over, and if you increase the cost of debt, that pressures increases the pressure on the profit margins, and thats one of the big stories of the year i think its important to point out two things the factors that would potentially push fitch to do this would be credit normalization. If commercial credit obviously we are talking about office loans, if its worst than they expect, if that is worst than what they expect they would have to look at that Interest Rates, if the fed has to keep rates higher for longer, thats something they would have to look at as a trigger for a potential downgrade. Yeah, we are coming off such a low credit loss environment. The idea of the potential for higher borrowing costs for banks and aggregates is interesting given the fact that regulators are floating the ideas that smarter banks to raise longterm debt as a capital cushion so they have it locked up right you are running into the possibility that the market just it doesnt have a great appetite for some of the lower rated credits. The interesting thing for my money, the down grades were largely small and midsized banks and we are talking about jpmorgan and bank of america here, and the cascade affect that would have. It would be an interesting test of the markets view of those issuers. We will have to see how that plays out. Thank you very much. You can read that story on cnbc. Com we are going to discuss the nations debt, and fitchs downgrade of the u. S youre watching squawk box. jack were standing up for our right to be lazy. jan by sitting down. ronald and reclining back jerome cause we work hard and want to relax harder. damon we, the lazy, are taking back lazy. doreen . On our lazboy furniture. vo lazboy. Long live the lazy. B welcome back to squawk box. Occupancies slowly kicking back up as workers return to work, and duh elinquencies are on the rise what is happening here in terms of the office, and we are seeing people be demand back to the office, and its going to be competitively aub s obsolete we have signed 1 million square feet of leases in midtown south and Grand Central area, and those are leases where they are highquality locations what happens to all the other locations . Its a challenge skprpbgs its something we will have to try and address. Only so many conversions can happen its hard to do a conversion well, especially given where the elevators and stuff often are. You need the prices to come down significantly, so we are having to do repricing and to make it work its 200 a foot, and to convert an Office Building and make an investment on the conversion. We have made commitments of over 1. 2 in equity. There are people going to the class a buildings. All the folks in the class b buildings, what are they doing they are deciding not to go to the office anymore i dont understand some are still going, but if you think about it, if you are trying to retract your forces back to the office and you want places where people can gather together and in neighborhoods that are exciting where there are restaurants and bars, and you want to create an environment that is compelling class b, bad air, bad light, people dont want to be in those buildings. We have the wall street journal front page, and raising funds trying to find i guess Distressed Properties that are sellers, and its in the mode that we will have to take the pain i think what we are starting to see, you know, that banks have been very slow. We are starting to see ourselves, and we have invested about 2. 5 billion, and its an Office Recovery strategy we are able to buy loans at discounts, and we are buying banks interest at their discounts, and the smart institutions realize if they get there quicker they have a better chance of getting a better chance roll the story forward, though one of the things everybody is worried about, and we are talking about the fitch downgrade of the banks and everything else, and what does this do to the larger banks come 24 or 25 somebody is going to take a hair cut in a big way i think there will be losses at the bank level, and losses at the investors levels, and theres an article about San Francisco and the valuations coming down 50 , and people asking for Real Estate Tax reductions for that amount, and what does it do for municipal budgets . Multifamily is where its spread throughout why do you say that when you see that mostly multifamilies are stable and we are seeing rents going up what happened was you had record levels of multifamily investments, and they were saying i am buying Interest Rates low, and the rents stayed flat and Interest Rates spiked and cap rates have gone that and values have gone down, and so if somebody put a multifamily, they would have to invest a lot, and if its not the office i am not saying office will be the issue, but if you look at the amount of loans around the country,the biggest segment by two times is multifamilies, and thats spread throughout the country and financed by the Regional Banks some of the bigger banks that have the Office Buildings, but when you think about the Regional Banks, thats where its at. I think they will have challenges, and i would not be surprised if there is 5,000 less Regional Bank in the next two years. What do you think the average number of days people will come into work . I think three to four hybrid work is here to stay. I mean, thats a given people like that flexibility but i dont think the full remote work works. You have seen it with zoom and others, but hybrid work is a good balance three to four days is what will happen people like it. They like, you know, fatty foods and eating six meals a day, too, but doesnt mean i can do it i work five days a week, scott five days a week i work five days a week, too. Three to four i would i am being realistic. Flexibility people like flexibility good i like a lot of things its where you find productivity they used to trade on saturdays, too, and sometimes the workweek shrinks coming up, a lot more on squawk box, got a lot to talk about with the down grades and more take a look at the futures before we head to the break. We have red on the screen, unfortunately. The nasdaq opengni down, and the s p down as well squawk box returns youre watching cnbc nvestor. In invesco qqq, a fund that gives me access to. Nasdaq 100 innovations like. Wearable training optimization tech. Uh, how long are you. Im done. Im okay. New natures bounty hair growth. Clinically shown to help grow thicker, fuller hair with just one capsule a day of advanced hair complex. Conquer hair thinning. And fall in love with your hair all over again. Only from natures bounty. School is back and Dicks Sporting Goods has everything you need to gear up so you can show up. With the widest selection from the hottest brands, like nike, jordan, on, carhartt, hoka and more. The looks you want, the backpacks you need, all under one roof. When you cant make it to the store, dicks. Com is always an option. And with our best price guarantee, if you find a lower price, well match it. With looks this good, its never been easier to sport your style. A federal debt levels named at once of the reasons duh for fitchs downgrade, and joining us now, phil swagel, director of the budget office, and goes all the way back to different administrations as well the deficit this year is not helping. Its getting worse as revenue is weaker than expected were looking at about 1. 7 trillion thats 200 billion more than was expected in may, and about 5 of gdp. The threeyear average is well, Interest Rates are going up and isnt it going to get worst . Its a challenging and unusual situation. The economy is recovering and we are past covid and the labor market is looking much closer to normal, and yet the deficit is still wide its an unusual and challenging fiscal situation yesterday we had a couple people on, and it just seems so hopeless that just the realities of entitlements and an aging population, and medicare and social security, and nonDiscretionary Spending and all of these things. I said what is the answer . They said growth is the only way to get out of it, and i said actually, it was kaplan, the former dallas fed president , and he said growth will do it, and what is the likelihood we will engender in growth to take care of it, and he was not that positive thats part of the challenge. Growth will help i agree with rob that growth will improve the fiscal situation. The challenge we face is the fiscal deficit and the trajectory is so difficult that even super optimistic growth is not enough by itself to make it sustainable. Growth will help and make the policy environment better but ultimately policymakers need to make choices whether on spending or on revenue. Then you have the ageold argument and debate about what is best for private sector growth is it public praoivate partnerships with the government, is it lower taxes or higher Corporate Tax rates to lower the deficit . Is it lower Corporate Tax rates to try and spur growth how do you do it look, its completely d diametrically proposed solutions to get there yeah, you have listed all the choices and thats what the policymakers have to make. Theres a fairly large amount of money added to make the investments and chip manufacturers and other things and infrastructure, and will those be done in an effective way and will they contribute to growth in the future or be money that is not placed effectively, and we know that, like california, with the high speed infrastructure yeah, the record is not there. Is there any good record the railroad act we have to go back a couple hundred years. There are some historical some positives, and i can name a lot more negatives, usually. Yeah, certainly, to their credit the administration seems pretty aware of this yeah, the team they assembled at the department of commerce is private sector focused thats a positive. We will just have to see how they do. Kaplan mentioned childcare. Which is it . Which is it . Childcare will expand the workforce and eventually spur growth and add to gdp. Thats one side. The other side would say its another unwielding federal program that would cost too much and add to our problems. Which is it . How do we do it . It could be both or either. How much additional childcare or how much workforce participation will suffice women could drop out of the labor force to care for their elderly parents. We have options. If we want a larger labor force and use that to spur growth, we have also immigration. There are lots of challenging issues around immigration, but thats another lever to boost growth in the future why not use the strength of the dollar and the reserve status of the dollar knowing that we can do as much as we want, and were always going to be able to borrow but lets ramp it up, and lets engender the 5 gdp growth in spending, and the other torpedos we will deal with later, and people think you can do that. Print enough money why doesnt that work . Yeah, we have seen the down sides of that over the past couple of years, and the inflation that resulted and that was the supply market constraints, and we can print and people will continue to buy, so is there a breaking point the mtp people dont think there is at some point there is, whether theres inflation that contributes to higher Interest Rates, and investors will balk at buying more u. S. Debt if we dont cut spending, we cant tax the billionaires in the 1 enough to get what we need, can we do we need across the board higher taxes on everybody, would that help to cut the deficit thats the choice policymakers have to make is find the right tradeoff, the social and political and economic and all those things contribute to the fiscal adjustment at least we have the greatest people that go into politics typically. Our choices are so great with the people that pursue that line of work doesnt make me very optimistic i appreciate their service, but we are in a very strange i dont know, a strange environment right now in this country that were facing. Are you optimistic or pessimistic, phil . I am optimistic because i have seen our country come together when theres a challenge we come together it might take us time but we will come together and deal with this thanks. Its still fixable why dont you run you heard what i said, do we have the best people that we can find to make these decisions who is your opponent . You run against hillary coming up, you heard of a hard landing, and we just had one right now, and then a soft landing, and then the no landing means the economy continues to grow despite the feds best efforts, and we will talk about that listen anytime touo r podcast. Im looking for your vote, people squawk box returns after this. My cpa told me i wouldnt qualify for the erc tax refund, so i called Innovation Refunds. Their team of independent tax attorneys will work with your cpa to determine if your company is eligible. [whip sound] take the first step to see if your Small Business qualifies. Coming up, a break down of the no landing scenario and what it could mean for investors. And we are going to take a break. The dow is indicated down 250. 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Now that Market Sentiment shifted to a consensus expecting a soft landing, another risk emerged, what if theres no landing at all Steve Liesman joins us why is that a risk and not a good thing well, inflation declines and the inflation rises a bit, and its something below but not a recession. Thats the soft landing many economists forecast, and what if little of that happens thats the course we are potentially on right now heres data. Gdp is running 2. 1 so far and its looking to be running hotter this quarter. Unemployment, 4. 1 is there a forecast . Its running 3. 5 . It has to do 4. 90 for the rest of the year to hit its goal. They are a percentage core high at 4. 1 so far this year harvest economists warning yesterday if inflation does fall to 2 , we should celebrate and engage in more soul searching understanding the economic models, but if it doesnt u. S. Fed must be prepared to go further to bring that down to an acceptable range and then it could delay the pivot to policy easing until well into 2024 oxford is still forecasting a recession as their baseline brought on by fiscal drag in inventory swings, but whatever the outcome, the fed will need some form of rising unemployment and soft growth to feel comfortable about cutting rates. No landing, guys, i think is probably not okay with the fed here what might get we might get a feel for more of this concern in the minutes tomorrow, and we get more data on just the nature of that landing at 8 30 with retail sales. Mike all right, steve, stay with us lets also bring in kathy bos bostjancic so welcome to you both c kathy, do you believe the nolanding scenario is one we should see right here. Are we seeing a reacceleration in the economy at the moment, or is it potentially just a little bit of a head fake, an interlude . Well, good morning. Mike happy to be with you so i think we are seeing some signs of a no landing and agree with steve that this presents risks. Yes, we should celebrate the resiliency of the u. S. Economy, and, you know, as jason furman said, if inflation continues to disinflate, even though were running well above our underlying potential, thats terrific, and we need to reexamine our models. But on the other hand, theres this risk. And inflation, especially core inflation, is still running quite hot. And the fact that weve accelerated growth, we went from 2 to 2. 4 in the Second Quarter, and now were on path for at least 3 , i do think that raises the risk that the fed has to do more, tighten more, and thats starting to be priced into the bond market. You see that with the curve, kind of longterm rates particularly rising, but yields across the curve rising. But pricing in more growth and maybe even higher inflation expectations, as well. Steven blitz, i mean, i guess theres no way around the idea, even if its a nolanding scenario for now, that its a latecycle backdrop, i assume . It can stay late for a long time and weve learned that from prior cycles as well is there a chance that not only do we have inflation continuing to trend lower, a lot of confident predictions that that might be the case, but well lose some of the fiscal support and there may be some undertow from what rate hikes have been in place what do you expect for growth for the rest of the year in the fed . I think growth is going to slow, and that is oxford, like myself, i think recession is the base case. And thats simply because were only now getting to the point where the funds rate is finally at tight levels and because of the shift in treasury financing, were finally at the point where the where treasury, where qt is just now beginning to bite. Qt has been more inflationary than deflationary in its impact up until really since the debt ceiling was lifted so, i still expect the recession and i think that were seeing that on top of these high Interest Rates are well, theyre not yet, theyre only just now at a point where theyre going to really start slowing down growth, but i think high Interest Rates by themselves are damaging to an industry tech and a lot of finance thats basically grown over the last 10 to 15 years, in a zerorate environment. Having said that, i want to underscore a little bit of what kathy said inflation is a lagging indicator. And what ive been telling clients is that if we dont see a recession or really a sharp slowdown in growth by september, october this year, after which the management of the tga account disappears in terms of it being a drag in and of itself, if we dont see that, youll see inflation starting to creep back up. Im not going to tell you its going to creep back up to 8, 9 , but it will creep back up into, say, the 4 range, 4 to 5 kind of range a year from now and that means the funds rates will have to get to at least 6. 5 and it also means that what would have been a more mild recession today becomes a high enough Interest Rates to create a broader decline in real activity Steve Liesman, you mentioned that were going to get the minutes. It seems like a very interesting moment for fed messaging you have seen some officials start to mention the risk of overtightening youve seen this acknowledgement out there by chair powell that theyll probably cutting rates before we get to 2 inflation. That if inflation goes down, just Holding Rates Steady is in fact becoming more restrictive on the one side, you have that on the other hand, you have to express some vigilance if inflation doesnt cooperate. Yeah, and i really think that jasons quote is important you know, we have to go back and reexamine, do some soul searching on the standard economic models. Under what context, at a 3. 5 unemployment ate, with an economy thats running, as kathy suggested, above potential, do you sit back, fold your arms, put up your feet on the table and say, hey, everythings cool, inflations going to come down that said, we are in a period, the richmond fed had a paper last week that said, were in a period, the first time in the p postwar period we have had declining inflation with no change in the Unemployment Rate. Of course, all of that could be to come, it could be on the way, but right now, were living in an environment where i think its very difficult for the fed to say, under the current data independent guidelines that were running, that inflation is going to be okay here, they may just have to let it ride, mike, and say, you know what, were going to hold for a second and watch this happen, because we dont really have a model for this kathy, have we learned anything, do you think, can we say yet about whether the economy is less sensitive to short rates going up, as the fed has done, or perhaps can handle this very tight labor market and not have inflation resume higher i mean, you do see corporations, especially the largecap corporations have locked into low financing, so really not hitting the maturity wall until 2024 or 2025. So that does dampen the Monetary Policy channel by which the fed tries to slow down the economy also, consumers, you know, existing Housing Market has basically stalled, because people are locked into low mortgage rates, and they dont want to forego that. Only Housing Starts are doing well because Home Builders are buying down the mortgage rate. But you know, one thing i just want to point out, the Unemployment Rate did move sideways and its very low and inflation has come down, but we saw the prime age worker Participation Rate rise. That was above prepandemic. We dont have much more room to go there thats right. A lot of oneoff actors this cycle. Thanks very much, kathy, steven, and steve. Coming up, i see the dow is down almost 300 now. Home depot reported earlier this morning. Its now down a little bit, 329. 40 indicated a little lower than that right now well break down the results and the outlook for retails, straight ahead then, former kansas citi fed president Esther George will join us. That will be interesting well be right back. You got this. Lets go. Gobble gobble. Ive seen bigger legs on a turkey rude. Who are you . Im an investor in a fund that helps advance innovative sports tech like this Smart Fitness mirror. Im also mr. Leg day. 1989 anyone can become an agent of innovation with invesco qqq, a fund that gives you access to nasdaq100 innovations. I go through a lot of pants. Before investing carefully read and consider Fund Investment objectives, risks, charges, expenses and more in prospectus at invesco. Com. Good morning china surprising the markets with an unexpected rate cut overnight. It comes after beijing reports several Economic Data points that were weaker than expected and bank shares also under pressure this morning. Ratings company fitch telling cnbc that it may be forced to downgrade the Credit Ratings of u. S. Banks, including large lenders like jpmorgan and bank of america and were taking a deep dive into deep fakes. Federal regulators looking to crack down on ai imagery used in campaign ads the final hour of squawk box begins right now. Good morning and welcome back to squawk box here on cnbc, live from the Nasdaq Market site on times square. Im joe kernan along with andrew ross socrkin and mike santoli. Becky is off today we asked for some suggestions of who we could have. Did you see that picture i had you at mclovin you want to be mclovin . I want to be mclovin. Do you want to be whats his name jonah hill. Yeah, why not you dont want to be mclovin . Im happy im happy to be, you know im just happy to be here. All right all right. Youre mclovin it. The u. S. Equity futures are down, down but not out down about 260 points or so oh, now 295. Home depot part of beginning to be part of the downward pressure the dow has been down all day, home depot reported. Initially it was trading a little higher, because things werent worse than what the company had already suggested. And actually posted betterthanexpected results for the current quarter. Lets look at treasuries, which a lot of people say the long end is now coming around to the feds viewpoint, less so than the market viewpoint, which is that we would see cuts pretty soon although, what goldman say, there will be cuts Second Quarter of next year its really not about prepricing the fed, its about growth reaccelerating, global yields going up, and maybe we dont have as much help on inflation. Also some new this morning, some other things may be moving the markets. Ratings company, fitch, warned it may be forced to downgrade dozens of banks, including the largest two banks by assets, jpmorgan and bank of america the agency cut its assessment of the industrys health back in june now fitch analyst tells cnbc in an exclusive interview that if the industry is downgraded again, it would probably translate into negative ratings actions. Wolf says fitch wants to signal to the market that Bank Downgrades are not a foregone conclusion, but they are a real risk lets talk china. China just unexpectedly cut Interest Rates overnight, as policy makers, trimming the Interest Rate on medium and shortterm lending facilities by 10 to 15 basis points. That move comes as chinas retail sales and Industrial Production data for china, it did come in a lot weaker than had been expected. And chinas National Bureau of statistics saying that its suspended the use of its youth Unemployment Rate. The bureau saying its reassessing its methodology due to economic and social changes when you start to change the methodology, you know that there are problems amidst whats happening there. This morning, barclays now downgrading its outlook for chinas 2023 gdp in portfolio moves revealed late yesterday, some of the worlds richest investors, lets get to leslie picker for the details. Hey, leslie. Hey, joe. You say rich investors, you think Berkshire Hathaway that firm revealing a few new stocks in the Home Building sector the firm disclosing it owns a stake in d. R. Holton, worth about 276 million at the end of the quarter and showed smaller positions in nvr worth 71 million and lennar worth 17 million. Likely a pick by one of Warren Buffetts other managers in total, the home builder exposure is less than 1 billion, a small fraction, of course, of Berkshire Hathaways 350 billion in equity investments. Shares of d. R. Horton and nvr and lennar moved higher when Berkshire Hathaway revealed this after the bell, still moving higher today this showcases managers long equity positions and backdated to june 30th its not the firms first foray in the Building Product space. Privately, Berkshire Hathaway owns clayton homes, which does manufactured and sitebuilt home construction, and owns shaw which does flooring and benjamin moore. This declined 2 in q2, according to berkshires earnings release, where the firm said, the effects in significant increases in Home Mortgage Interest Rates in the u. S. Over the past year has slowed demand for our Home Building businesses and our other Building Products businesses we continue to anticipate some of our businesses will experience comparative declines in revenue and earnings over the remainder of 2023. But perhaps the publicly traded Home Building pure plays will fair better. If you look at the s ps home builder etf, its up nearly 40 yeartodate its likely berkshire benefitted from some of those gains, although it has kind of moderated in the six weeks since the end of the quarter, guys all right very good. Always good to follow those moves. Leslie, thanks great lets talk markets our next guest says equity is likely to keep jogging in place. In the nearterm, i want to talk about what jogging in place really means is that like being on a treadmill, and youre just jogging, not going anywhere. What happened . Do you have the treadmill like this, its a huge difference if youre up 20 to 30 . Perhaps a little bit of an incline when we think about where we are today if we consider the market environment, we are after the inflation spikes and the fed hikes, we are preeconomy souring, profit souring further. So theres not a lot of upside catalyst at this point, when we think about profits only better than feared. Its not like a hit workout at barrys boot camp, this is like a this is just like doing nothing. Or those ellipticals, which move themselves. I watch people do that, its like, youre doing nothing the moving stairs those are hard the ellipticals you have to push yourself on the ellipticals. It requires you to move. Both feet got to be off the ground at the same time for pat people to lose weight. Take my word for it. Sorry. So 12 months out, what do you think the market looks like . I think the challenge is right now, markets are priced for immaculate disinflation, priced for above trend growth, and we have seen four quarters in a row of above trend or at trend growth and tracking for a fifth one when we look at the atlanta feds tracker. But that peach can go from ripe to rotten really quickly you have a lot of anecdotes, i have to say. Thats dangerous. And theyre all healthy thats dangerous when you come on this show with anecdotes. We havent gotten to the carbs yet. Empty calories. Help us are you suggesting that people should be in cash right now . No. Because ultimately people who have been in cash and came into the year thinking, ill take that 5 income any day, i dont want to deal with whats going to happen in the bond or stock market, have been have experienced a huge opportunity cost in the fact that weve seen a big runup in markets. What i would simply suggest is when we think about investing, we want to stay invested, but get back to the basics when the macro environment is somewhat inconclusive as it has been in the last 18 months, when we go from every scenario to every type of landing, we want to think about price and we want to think about fundamentals. And ultimately, with earnings, lets look for the areas where youre actually seeing a bit more upside there and earnings have gone through somewhat of a rolling recession, where youre still seeing areas like energy and materials have some downward revisions, and yet areas like industrials, communication services, seeing some upward revisions. A lot of areas in the u. S. Equity market are a bit persp expensive. But it is about that relative valuation and where we can actually see what do you think about the overall market you look at the home depot news, and the market is selling off in part on that, in part on the china news it seems like a little bit of an unstable environment. And you have yields ratcheting higher do you think that that reflects a positive economic scenario or is that a challenge for equity valuations we think about the rise in yields that we have seen nor recently, there is the fundamental story, the technical story as well. On the fundamental side, i think its more about evaluated growth what we saw was a big pop in yields when that Second Quarter gdp number came out. And if you track yields, especially the tenyear yield against the city prize index for economic reasons, that has also continued to rise in tandem. Its really about growth yes, theres an inflation breakeven story here a little bit, but i think the reality is, Consumer Expectations for inflation have continued to come down and are pretty well anchored when you look at the feds data, the university of michigans data, and on the technical side, the supply piece is an issue there, too, when were seeing, its not just about the tbills. Its about the tenyear, its about the 30year maturities as well that has pushed a yields a little bit higher, but i think that growth is a big piece of this if we continue to see abovetrend growth, which i dont think will be the case for the next 12 months, and probably not even for the next six months, when yields can stay high, but i think the reality is, even if we dont see a recession, youll start to see those come down a little bit so therefore, you may want to actually own a little bit on the longer end of the curve . Unfortunately, what weve seen is a delay of the reset for the bond market. But i think that extends the window of opportunity when we think about entry points in bonds. And when the equity market is looking a little bit expensive and priced for perfection, there are cheaper places to go for investors. Mara, thank you for coming in this morning helped us with running, elliptical did you say peaches . Peaches morning metaphors yeah, its good come on back we cant get enough met metaphors. I dont know why it allows us to otherwise were just reciting nu numbers on a screen. Business news, you need metaphors. Thats right. D. C. Dives deep into deep fakes. An exclusive report on a new Ai Work Group thats looking to ouwhhete cpaeschomni shld be held liable for the content they generate. Squawk box will be right back. Its raising capital to help companies change the world. Opportunity is making the dream of Home Ownership a reality. And driving the world forward to a Greener Energy future. [applause] sometimes the only thing standing between you and opportunity is someone who can make the connection. At ice, we connect people to opportunity. Mlb chooses tmobile for business for 5g solutions. To not only enhance the fan experience, but to advance how the game is played. Nows the time to see what americas largest 5g network can do for your business. Wow, you get to watch all your favorite stuff. Nows the time to see its to die for. And its all right here. Streaming was never this easy, you know. This is the way. You really went all out didnt you . Um, its called commitment. Could you turn down the volume . Here, you can try. Get way more into what your into when you stream on the xfinity 10g network. Welcome back to squawk box. Members of congress becoming increasingly concerned about aigenerated images and videos it gets tougher by the day to determine whether theyre real or fake. Emily wilkins joins us now with a cnbc exclusive d. C. s deep dive into deep fakes. Good morning good morning, andrew. Well, the saying is, if it looks too good to be true, it probably is but thats becoming an issue for some lawmakers who worry that ai images look so convincing they could pose a risk to democracy and National Security. We have the exclusive this morning on a new Ai Working Group comprised of lawmakers from the new democrat coalition. Theyre a centrist group of lawmakers that tend to drive policy within their party. Congressman Derek Killmer is heading up the group and said one of the Top Priorities will be that deep dive into deep fakes and how they could erode confidence in democracy. The promulgation of deep fake technology, for example, poses a concerning threat, particularly when were talking about things like democracy and the capacity to have Major Political leaders saying things in Digital Content that they have never said. Ai has already been used in several campaign ads this year in one add, the Republican National committee used ai to imagine a hypothetical catastrophes during a second term for biden, with fabricated images of taipei being bombed by china and a run on banks wile the ad was transparent in its use of technology, lawmakers have introduced bill requiring any ai use in ads to be fully disclosed. The new working group will also focus on other ai issues, including building a safety net for workers who could lose their jobs to advancing technology and how to harness the opportunities that zplooi can bring. Andrew emily, thank you for that well continue this conversation and talk a little bit more about ai in washington federal regulators moving to crack down on aigenerated images and audit and political advertising. The federal election commission, i should say, unanimously agreeing to seek Public Comment on whether existing rules aimed at preventing fraudulent Campaign Advertising applied to ads that use Artificial Intelligence this comes amid a string of highprofile political ads that use deepfake images and audio joining us right now for more is professor of digital forensics, misinformation, human perception at the university of california berkeley, also the author of a new oped in the hill. Yes, we should regulate aigenerated political ads, but dont stop there lets start there, professor when you say dont stop there, where do you want to start we should understand that we have been manipulating audio, images, and video for a long time, well before there was ai this is not fundamentally an ai problem, its a manipulation problem, ai is just the latest tool in that i think if were going to focus on deception in political ads and deception in general, we should talk about deception and not the way you should get to deception. The other point, too, is that as you heard from the congressman, one concern is putting voice into another persons likeness absolutely, but the examples you showed earlier were not that we should also think about the different types of deception that go beyond impersonation when you talk about deception, ultimately, underneath the word deception is the word truth, i think, which is where youre going with this which is, you want at truth in advertising, right and the question is, what is truth in advertising when it comes to politics in this day and age, when people say things that may not be true and people do things that may not be true, and now people are making up images that may not be true. But whats the distinction in your mind . Good, i think you got to the nub of the question, didnt you . This is not really fundamentally an ai question this is what standard do we want to hold our politicians to and i think its eminently reasonable to say that you should be truthful you should be truthful when you speak, when you have advertisement, when you speak to your constituents and stand behind what you believe in but whos the truth we talk about the truth squad whos the truth police in this case how do you enforce you know, how do the truth police enforce the truth, if you will how does this all work first of all, i think thats a dangerous term, truth police lets stay away from that. This is not about policing, this is about disclosing. Youre asking an enforcement question, and im asking a policy question. You can say, if youre going to create a policy, what are the rules and regulations and how do you enforce it im starting with policy do we want to ask that our politicians be truthful . You can say no. You can absolutely say, look, its not my problem. But once you decide that, then you have an enforcement question i think when things are found to be objectively false and somebody has objectively lied and created a manipulated image, then there are the penalties that are associated with that, and thats how it goes thats what the fec is there for. We have a regulatory body for this we dont have to create a new body and so but again, i can see this in the ai context, something thats completely false and sort of made up, but then you get into these issues where there are people who are spinning, lets say, or shading the truth. And how that and i know you say this isnt about format, but its very hard to say, we want the truth which, by the way, i think we all want the truth. Unfortunately, we now live in this sort of uniquely weird age where people are finding their own truths, and that is to me the hardest part about this. Yeah, look, i think youre absolutely right that there are things that are true, there are things that are false, and theres all of this stuff in the middle and easter the thing if you get caught up worrying about the stuff in the middle, is this really true not true, youre never going to do anything i think this is actually relatively easy. You have a standard for, this is objectively false. It is provably false it is not a spin, it is not a slight distortion, it is not an exaggeration, and you enforce those. Everything else is, thats the way it goes. I dont think we have to get caught up in the middle ground this is also true with generated images at the end of the day, i can whole cloth create a video of President Biden saying something that he never said, that is clearly false, or i can do something very subtle like distort an image eversoslightly to make him look less commanding thats more of a spin thats not maybe quite as explicit. Theres always going to be gradations here. I say dont focus on the middle stuff, focus on the easy stuff force the types of images that youre seeing on the screen right now to say, we either wont allow it or we will force disclosure i dont think it has anything to do with ai, either. It just has to do because, there are certain candidates or former politician or present politicians where the ai stuff is not as crazy as the actual stuff. So its an enabling Technology Ai couldnt say crazier stuff than whats being said but what does bother me, professor, ive seen Fact Checkers and i can see that they just reek of a pov, of a point of view. And the facts that theyre checking, the Fact Checkers need to be fact checked so then those Fact Checkers need to be fact checked its a neverending thing. So i dont know how you get and the other thing andrew was talking about was the spin i think about the ways you can talk about Economic Data, economic numbers, performance, jobs, you know, added, you know, the deficits the stuff that you can say might be true, but its so factually incorrect or taken out of context that its useless its as bad as a lie we see that, too which Fact Checkers will look at those . I think youre absolutely right. This is the irony of the information age, getting reliable information somehow has gotten harder, not easier, despite the fact that we have access to an unprecedented amount of information. I think youre right here, by the way, is where i think that ai does make it a little bit easier. When you ewe ai to create an image, video, or audio, its whole cloth untrue so is it harmful, any create the types of images you saw at the type of this piece showing a dystopian future if President Biden is elected president , is that deceptive do people clearly know that is meant . Youll always have these gradations and dont get kacaugt up in the middle, in the gray area create rules that are unambiguous, deal with those rules, and well work our way through the nuances and complex tis later on. But i think there are clearcut baldfaced lies and conspiracies that we can actually deal with ill focus my energy there and declare victory if we can solve that problem but then youre back to, you know, which team youre playing for. Because there are certain people that would believe a dystopian future about one candidate, im not going to mention any names, and then with the president , say, this is absolutely absurd to see a dystopian future. But maybe with somebody else, they would be nodding, oh, yeah, that is whats going to happen democracy will end as we know it so once again, it depends on which Cable News Network you watch. Inlg tha think thats right. But i think you also said it right earlier. The majority of americans want to be told the truth and make their own decisions. I agree with you that there is a subset of americans on both sides of the political aisle that believe what they believe and theres no out at berkeley, what do people think no, im kidding whats the pov out there its 3 00 in the morning. There is in pov. Appreciate it thanks coming up, ai has been a major Sticking Point in contract talks between studios and screenwriters, but reports say a w fer ulneofwod tackle that issue. Details, coming up next. Coming up, the data point of the morning, the july retail sales report, we can get you the numbers and instant reaction were going to be joined by former kansas citi fed president , Esther George find out if she sees the central bank sticktoheing t soft landing for the economy or not squawk box coming right back with that number dont go anywhere. Dah, these bills are crazy. She has no idea shes sitting on a goldmine. Well she doesnt know that if she owns a Life Insurance policy of 100,000 or more she can sell all or part of it to coventry for cash. Even a term policy. Even a term policy . Even a term policy find out if youre sitting on a goldmine. Call Coventry Direct today at the number on your screen, or visit coventrydirect. Com. Power e trades easytouse tools, like dynamic charting and riskreward analysis help make trading feel effortless. And its customizable scans with social sentiment help you find and unlock opportunities in the market. E trade from Morgan Stanley. With powerful, easytouse tools, power e trade makes complex trading easier. React to fastmoving markets with dynamic charting and a futures ladder that lets you place, flatten, or reverse orders so you wont miss an opportunity. E trade from Morgan Stanley we are just seconds away from july retail sales and import export prices our good friend, Rick Santelli is standing by in chicago at the cme. Rickster what have you got . Our retail Sales Numbers are out, andrew. July out, much stronger than expected retail sales headline up 0. 7 . Thats the second best number of the year outside of january when it was up 2. 8. You strip out autos, its improving up 1 . Strip out autos and gas, it stays up at 1 and if you look at the control group, which is always important, it gets input higher up the food chain Economic Data points, its up 1 , up 1 that is a very strong number now, lets look to import prices, shall we headline number, up 0. 4 that is double the expectations. And if you strip out petroleum, well, it moves to unchanged. So you can see where some of the pricing issues are coming from the energy patch and if you look at import prices year over year, they are down 4. 4 , down 4. 4 . That follows 6. 1 that was down. Down 4. 4 is the lightest year over year import prices going back to february, when it was down 1. 1 . And this is the one, two, three, four, five, sixth consecutive month of big minus signs in front of those numbers and that is very important and if we look at the export side of the equation, export prices month over month, up 0. 7. That is four times expectations and in the rearview mirror, we see minus 0. 9 now becomes minus 0. 7. And up 0. 7 actually is the biggest monthovermonth increase in that since up 3 , and that was in excuse me, december of last year. So that is the highest export monthovermonth increase that weve seen for 2023. Lets take a bigger look if you look at year over year, minus 7. 9 that is following minus 11. 9 . So we see continued minus signs there. And empire, minus 19 . We are expecting down 1 so, much worse than expected there. Thats a lot of numbers. But if we look at the tenyear note yield to divine what we should Pay Attention to, it certainly seems to be concentrating on the strongerthanexpected retail sales, as Interest Rates have popped up several basis points from 423 to its current level of 426. Thats up seven basis points on the day. And it underscores how today is one of the potentially most important technical days for longend maturities to see if the intraday spikes that were looking in tenyear note yields turn out to move into the Closing Category because any closing yield above 4. 25 will be significant technically and equivalent to the 507. 5 level and twoyear note yields that they closed at for their highyield close in march, joe and the gang, that we have not been able to go back and close above. That was one of the catalysts to create the long maturities rates rising, you guys can say its the market getting more in line with the fed thats not what i see. What i see is we have a whole lot more data points and see some of the stickiness of inflation in various aspects but this could be the last hurrah, because i still say Global Forces are slowing in a big way. Andrew, back to you. Rick, thank you, sir. I want to get to Steve Liesman who joins us now is this the last hurrah . I dont know, but it sure is a hurrah, is what i can tell you. Its hard to know where to start with this number i think i may need to do some air graphs here, andrew. The way that the Second Quarter ended with Consumer Spending, it ended at a high level. And the way the gdp math works is, you only have to do zeros the rest of the in the next quarter in order to have a high level of Consumer Spending what we did better than that, we went up above the high level and i should also mention, they raised the june number, they revised that upward. So where are we . We did that story about no landing. Were more in the nolanding camp were more in the acceleration camp you heard kathy talk about a 3 gdp. Our cnbc rapid update is measuring two, with a punch of pessimists in there. So it looks like the economy and the consumer accelerated when i look across the board here at different aspects of it, you know, theres only a few negatives. Theres furniture in home is negative electronics is negative. But then theres a whole bunch of positives Sporting Goods up 1. 5. General Merchandise Stores up 0. 8. Nonstore retailers up 1. 9 that could be amazon prime day in there, in the middle of the month. I dont know actually if the Census Bureau has gotten to a point where its going the right job seasonally adjusting more that, because sometimes you get a falloff in august after amazon does prime day in july that actually moves the needle what were seeing here is strength and by the way, one of the negatives here was minus point three on autos and everybody thinks that autos was at least the same to a little bit higher. You are seeing the increase in gasoline station store sales up 0. 4 that is worth monitoring but overall, i think that this shows continued strength of the consumer, and its beginning to lock in a decent number for Third Quarter gdp. As rick said, that control group flows almost directly into gdp as one big component of the Consumer Spending number so things are going well here for the economy, and i guess you have Esther George coming up, and well ask her if thats going well for the fed, that wants to see some kind of landing here, and the question is whether no landing is something they can abide shes ready thanks, steve, stick around. Lets bring in Esther George, served as kansas citi fed president from 2011 to january of this year and im unhappy, president mandatory retirement in january. Have they heard of a guy named Warren Buffett or william shatner. I mean, thats ridiculous what year are they you know what, it is to our benefit, though, because now you can actually talk about some things that may be in the past, you would have been less inclined to talk about for example, i know youre willing to weigh in on the fitch downgrade. Lets just talk start out with this retail sales number and steves reporting. Did you foresee when you were at the fed that it was going to be a much stronger economy and maybe a no landing or soft landing . And what is really behind that is it all the stimulus that were still seeing, fiscally yeah, i think watching this recovery from the pandemic has been fascinating and difficult to judge the consumer as we saw today is so important to this economy and they really have hung in there, despite what has been one of the most aggressive tightening cycles that the fed has undertaken so this is an extraordinary time were watching these balances in the economy continue to work their way through. Some sectors not doing as well others like the consumer are really powering ahead. I guess i was channeling robert kaplan, also a former fed official, who said that, he thinks demand will stay strong because of, take your pick, the infrastructure spending, the chips act, the i. R. A. , and initially, that will cause rates to continue to go higher and inflation to stay stubborn, but longterm could be a positive. Do you share that viewpoint . I think its reasonable i mean, you think about the consumer has benefited from fiscal support that was a tailwind for spending, for sure you look at how tight the job market is right now. So wages are rising. People have jobs and that income also is supporting the fending that we see today. So that could put more pressure on the fed in. Im going to let steve in, but i want to get to that fitch downgrade and what your thoughts are now. I mean, does the fed share any culpability for some of the problems that we have, that it enabled fiscal spending more than it should have for a couple of years whos at fault for what could be 180 of debttogdp by 2050 . Well, we had a tremendous shock, joe, as you know, that caused both Monetary Policy and fiscal policy to come to the rescue and now, of course, were looking over our shoulder, trying to figure out how we work our way out. I think when you look at the fiscal side of the equation, which was so important, both to the transition to a recovery, but also now the consequence that you have to face, not just the fitch downgrade. I think if you look at what the Congressional Budget Office itself put in a report this summer, were not on a good path in terms of our fiscal situation. And so it will be important. Certainly for the longterm, but i think even now, watching how interest expense on Government Debt is growing, very important that this aspect of policy be addressed. And that, of course, separate from what the fed is doing, but equally important to our future. On the flip side, i guess some people could argue that the fed is like, this is like a nadia dismount, like a ten if you really orchestrate a soft landing, is that first time its ever been done, if it actually happens . But whats ironic is, if its too soft, the fed thinks they have to do more work to slow things down. Its a very strange paradox. Its a tough time who doesnt want a soft landing. I think everyone would hope for that but im reminded, inflation is not yet at the feds target. So its too soon, i think, to really make that call on the economy. Inflation needs to come down, we still have quantitative heightening. Sorry to interrupt. Steve, i know i probably youre probably ready to go two or three questions ago no, no, youve been doing a great job, joe i guess what i would just do is a be a little more direct, joe, which is, usually your job here. No. Thats in spite of myself i dont want to be that direct, usually. Talking to esther as president for all of these years, now, thank you for being here, esther, and really glad that you can be part of the discussion here. Yeah, i guess my question is the more direct one, you have not they have not slowed growth below potential. The Unemployment Rate has not budged you have done 500 basis points of tightening. Does all of up to telling you that the fed needs to do more here you know, i think by the feds own forecast, steve, they have projected doing more, even this year. And i think appropriate to wait and see how the data is coming in so far, i think what its telling them is that the economy is pretty strong theres still lags im quite confidenced theres more dom from the tightening thats been done but i wouldnt be too assured at this point that the inflation fight is over. Its proven to be pretty sticky, and that may mean more work for them let me just ask you from the other side, though, which is the extent to which you think and obviously, in your tenure at kansas citi, you had a banking expertise there and youve always watched the banks and you were concerned about the banks do you remain concerned about the drag on the economy from a decline in lending from the banks . It was a big concern in march of this year. It does not appear to have necessarily materialized well, i think some of these things, again, take time and i would not be sanguine at this point, given, again, the amount of tightening already in the system, that banks are going to continue to have to digest these rate increases its not yet, i think, flown through to the consumer base, to some of their borrowers, so i would still be mindful of watching how the banks and their customers are able to adjust over the next year go ahead, steve joe oh, you done . Ive never seen im shocked im sure youve got about ten more questions im just being polite i know thats unusual, but just being polite me not being direct, and you being polite keep going, steve. I know youve got more let me ask you this question, esther, the idea that inflation can be falling at the same time the Unemployment Rate remains unchanged, that is the sort of new idea and as joe pointed out, its unusual in the postwar period the richmond fed had a paper on this recently. Are you would you be willing, do you think the fed might be willing to kind of go on a flyer here and say, hey, you know what, we had this process of the phillips curve and the inverse relationship between unemployment and inflation and either stay on hold or even cut rates. And say, you know what, this is a weird postpandemic economy. Well, it is a weird postpandemic economy, i would agree with that. But i think the fed has to be very careful here. Both not to overreact, again, with further tightening. So i agree, this pausing period, this time of looking at how the data comes in before their meeting in september is an appropriate one. But at the same time, i think they will be careful not to make commitments about their rates until they see inflation being more convincing. And i hear that consistently from the fmoc members. They want to have better assurance that inflation is going to come down to that 2 target before they call off future rate increases, or certainly even talk about cutting rates. Were almost out of time, president. One last thing we had an individual on earlier whos saying, under the surface, theres some troubling things. Whether its commercial real estate or Small Businesses, because of the extent that the yield curve has been inverted that small banks, other banks havent been able to make money in the usual way and that that is eventually going to come to the surface is that part of the things that youre talking about right now that the fed needs to be wary and careful to acknowledge that maybe theres some things that we dont know about right now, that could go wrong in the next six months i think thats very much the case, joe. And i think history would tell us, again, we havent done away with lags in the policy effects. If you think back to 2005 tightening cycle, it took months for that full effect to work its way through. Today maybe different, for sure. But i wouldnt want to assume too much in that regard. So i think more will unfold in terms of the impact of this tightening many of the sectors have been hit early. Weve seen that, manufacturing, the housing. But i think well have to wait and see, as Rate Adjustments take place over the next months, even a year, what its full impact is going to be. You would make a great cnbc contributor, president not for im thinking out loud now. I dont know if weve talked to you or anything, but what do you think, steve, do you ever or text if it was up to me, i would have hired her months ago, joe esther has always been a great contributor thats what i mean. Even when she was at city. And now shes managed to land the world cup in kansas citi of all places, i dont know if that was you. Kansas scity they may play some other football out there, too. And not a kansas city is hitting above its weight thats my take on kansas city. Great place and its got two states kansas citi,sti city, kansas, ks city, missouri and one former president once congratulated the state of kansas when the chiefs won Esther George, thank you do you remember that i do not. It just happened. Coming up, home depot kicking off a big week for retail earnings. Well break down the report and find out what the companys cfo is saying about the health of a consumer as we head to a break, check out gas prices jumping after a labor regulator cleared the way. Were coming back after this. Home depot out with quarterly results. Courtney reagan with more on what it means. Home depot earnings Beat Estimates by a wide margin revenue and comparable sales all better than expectations u. S. Comparable sales did fall for the Third Straight quarter for the retailer its foreshadowing a bit for lowes when it reports next week the two reported comparable sales and have been tracking one another in recent quarters more details about the home depot quarter that starts in about 20 minutes or so i spoke with the chief financial officer, richard mcfail, and i asked him about Consumer Spending he said, quote, i wouldnt call it a deceleration, but a continued caution on the part of consumers when it comes to larger ticket home spending. It may be a function of higher Interest Rates so if consumers are it doesnt bode well for categories like home apparel, electronics mcvale also said categories like appliances are softer, not great for best buy higher margin, more discretionary categories have been pressured at multicategory retailers while staples like food have been stronger. Most analysts predict walmart will be a winner it has been picking up more higher income shoppers in that category hoping to pull them in other areas. Target well underperforming, down about 20 since the last report. How much do you think this is an operational issue at the Company Relative to sort of larger economic issue. Home depot . Yeah. I think home depot is running well i think the heir apparent knows the ins and outs of the company. Its a wellrun company. Its had tremendous growth over the last decade or so. Perhaps some of that is moderating and thats what they expected for this year i think the real question is what happens next year in 2024 can they rebuild from that base . Courtney, thank you ine folio strategy ahead of th openg bell futures in the red, 276 points off on the dow were coming right back. Just over half an hour until opening bell s p 500 down. 75 . Our next guest says theres little chance the fed gets to a 2 inflation target without breaking something for market strategies, lets bring in the chief Market Strategist katherine, good to see you. Inflation has come down from 9 or so to 3 . Nothing has broken, at least nothing too consequential. Why do you think from three to two were going to have to see something get disrupted . Its very unlikely we get to that 2 target some breakage with regard to the consumer consumer strength remains there. We have retail sales this mor morning. The soft landing appears to be happening at the moment its difficult when the vast majority of into nation at this point earnings estimates have flattened out and started to grow again it seems the market is okay with the fed going on the slower side, even if it does have to hike some more does that formula still work from here on out, do you think i dont think it works going into 2024. I think it works from now to year end because inflation trends are, like you said, positive the issue is, however, the u. S. Consumer remains strong in a consumptionbased economy with a real weighted positive full employment, near record low unemployment, that makes going from 4 to 2 its basically at multiyear highs matching where we got to in october does that present any kind of opportunity if youre looking at a diversified portfolio . At least bonds can do their job as a hedge against a weaker economy, against stocks, or is that a challenge for the most part terminal rates im still not looking at this point i think theres a higher risk the fed actually hikes a little bit more katherine, weve got to run appreciate the time this morning. Thank you. My pleasure. Down in terms of pressure this morning about the worst levels weve seen were going to be here tomorrow, santoli i think and lee might be joining us make sure you do squawk on the street is coming up right now good Tuesday Morning welcome to squawk on the street. Im Carl Quintanilla with jim cramer and david famer premarket is lower as the tenyear hits 427, up. 7 meantime china with the surprise rate cut home depot gets this weeks earnings train going july sales coming in stronger than
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