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tv   The Exchange  CNBC  April 5, 2022 1:00pm-2:00pm EDT

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spending >> let's look at the market. it's an interesting day with the comments from lyle braynard. nasdaq down a little less than 2 %. that does it for us. i'll see you in overtime "the exchange" is now. thank you very much, scott hi, everybody. i'm kelly evans. ahead this hour, hawkish words from a usually dovish governor inflation is high and balance sheet reduction has to be rapid and the fed may have to get more aggressive we'll look at the fallout as rates climb higher a day after the stake in twitter is exposed, musk is joining the board. twitter shares soaring more than 30% just in those two sessions we'll talk to an analyst who is downgrading the stock. and we'll get the trader's take on four major stocks. three buys and a bail. can you guess where fedex falls
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on the list today? first, let's get a check on the markets as we just mentioned the dow is down 91 points right now. only a quarter of a percent decline. the s&p 500 is down about three quarters of one percent. the nasdaq giving back the gains yesterday. and down 265 points or 1.3%. stocks are breaking the winning streak in april. let's look there the ten-year yield firmly back above 2.5% here's the two-year ten-year spread you see curves steepening. it's back in positive territory as a result by about four basis points all of this comes why? investors are anticipating less future bond buying by the fed. federal reserve governor says she's watching the yield curve for increased signs of downside risks to activity, but and this is where things get really interesting. she also says it's of paramount importance to get inflation down here's the key headline.
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brie nard today also saying the fed will begin to reduce the balance sheet at a rapid pace, as soon as our may meeting so what does rapid mean? what does that look like that's exactly what the treasury market is trying to digest today. let's put it in perspective with the chief financial economist at jeffries how big is rapid how significant balance sheet shrinkage do you anticipate? >> so look, it was said explicitly, they're going to be caps that implies balance sheet reduction. she did not mention asset sales at all and so i think the base case is still that the -- about 100 billion per month. that would be double the caps that we saw in the prior cycle that means they'll only be able to reduce the balance sheet by about a trillion per year. so yes, it's a lot faster than the last cycle, but i think that type of reduction is already in
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the price. so if that's the case, then we really didn't learn much new from braynard today. >> you think we could already be figuring in balance sheet reduction. talk about the cap and the type of securities where we're seeing runoff and even though this might be a status quo kind of announcement, we are seeing some steepening, what do they call it, bear steepening today what do you read into that >> so i think she does seem to be assuming quite a bit of tightening through the balance sheet this year. we pegged her for someone in the 6 % to 7 % hike prior to today she said she wants policy to be basically at neutral this year either she is a lot higher in terms of hikes than we operated or she doesn't expect much more tightening to come through the balance sheet.
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it's possible that she's assuming that even though they shrink the balance sheet at a trillion dollars a year, the market is going to front run the next several years and she pointed specifically at the mortgage market where i think you could easily think that's, in fact, what has happened the 30-year mortgage rate is up 160, 170 basis points year to date and that's clearly the market front-running the idea that side of the portfolio will be running down >> and that -- look, if i'm the fed, i might say this is what i want to achieve. i want to slow the housing market so prices aren't up 20% a year i want to steepen the curve, and investors have been debating how much is going to be rate hikes and how much is going to be balance sheet. you've been saying they might have to be more hawkish than what's priced in what is the mix between more rate hikes, more balance sheet >> so i think it's going to be a little bit of both
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i think for now runoff is the base case with 100 billion cap that gets you to about a trillion per year. i think asset sales are potentially on the table i think the conditions for going to asset sales is if it's steeped on the fed and mortgage portfolio, slow to something like 10%, that means the mortgage portfolio runs down by about 20 billion a month and that's -- where they're going to asset sales but they're going to have to supplement that regardless by a pretty steep rate hike trajectory >> and even though we have players in the mortgage market, there's not a big appetite to take down a lot of supply. they're facing a conundrum and could even face losses on the portfolio at the short end there are many more chapters still to the story we'll leave it there >> thank you
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now, tech stocks in particular are taking it on the chin here with the nasdaq down 266 amid rising rates after starting off the month with gaen gains. bob has more for us. >> reporter: it was great at the open it was said the comments may have been status quo the market is not taking it that way. we lost 50 points in the s&p 500 when she made those comments a little after 10:00 eastern time. as you see here, and we got right up against 4600 again, and failed that's a real resistance level right now technically and yes, people are watching technicals very carefully let me show you the sectors today. not surprisingly, interest rate sensitive sectors, utilities, a historic high. we also saw reits doing well tech has been having the problem. that's been an issue for the markets. the new high list is basically
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oil stocks we've seen for many days as well as utilities that's basically it. it's those two sectors in terms of what tech is doing, very interesting to watch as we've had one heck of a tech rally in the last two and a half weeks. everything has gone up cathie wood stocks, megacap tech there's a bifurcation today. here you have high quality tech. these are -- they have growth and they have high margins micron, nvidia, alphabet, pay come, apple. they're all down 1%, 2 %, 3% if you look at the other side, the kathy woods stuff, they have growth but little or no profits at all they're down a lot more. most of this v stocks are down 5, 6, or 7%. kelly, that is what traditionally happens when people -- when the market is more concerned about interest rates. most of all, because those more speculative tech names get hurt a lot more in concerns about interest rates
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for two weeks prior, essentially the market was more concerned about growth and buying anything they think could withstand a growth slowdown. and that includes almost any kind of tech with the new emphasis today on interest rate concerns, you see a little bit more of kathy woods stuff selling off. every day kind of the market deals with a different challenge. kelly, back to you >> well-said, bob, thank you very much. amid all this, my next guest has two tech stocks. joining me is allen boomer, the chief investment officer at momentum advisers. these are larger stocks. we are very familiar with them microsoft and meta tell me why these jump out to you and what your strategy is right now. >> sure. first, thanks for having me. we've got to talk a little bit more macro, and i'll get into the micro. macro, big picture, i'm concerned about a lot in this economy. we have about 5 million jobs that are going unfilled. not enough workers to fill the jobs i don't know if the fed can really help that or not, and
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then we have inflation and so when i think about a market where there's not enough workers and where prices are rising, i want to be in companies that are very, very profitable that have a really high profit margin when i look at metaand microsoft, these are companies that have above average ebita markets. >> where would you definitely not be >> so i would be avoiding companies on the opposite end of that spectrum. companies that trade at high multiples, that are sort of not profitable, or companies with really thin margins, because you really want to be in companies today that have pricing power, that are not overly reliant on labor also >> right so, again, microsoft meta feel kind of like safe places to be they have a proven track record. the p/e rations look more appetizing than the price to sales ratio.
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then i see prolodge us on the list >> that's a high margin business i love the space they're operating in, e-commerce e-commerce was already on the rise prior to covid. it's continuing to be strong and they're leasing to e-commerce players and in order for goods to get from a warehouse to your home, they've got to shop -- they've got to stop through one of the distribution centers that's what prologis is in the business of. >> can you explain why prologis, it's like a techie commerce play, is basically at all-time highs at a time when fedex is down 33% off the session highs what gives if anything, i think an e-commerce play would do worse because we're supposed to be having a post pandemic normalization hangover >> when you think about the transports, what's the big cost input? gas, oil, jet fuel
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and those prices are through the roof, but when you talk about the real estate, they're not as exposed to those commodity pressures. >> but -- so what do you mean by that they versus who? >> sure. what i'm talking act are prologis, very much a staple in the value chain of getting a good from a manufacturer's facility to the end customer the real estate is being leased to, again, some of these producers that have to go -- they have to use warehouses. they can't just ship it directly to the consumer's door it has to be reassembled it has to be stored for a little while. even if that period is the short period of time i think the real estate is less exposed to the commodity prices. that's why they're doing better than the transports. >> it's fascinating. so you take prologis, stock at almost all-time highs. you love it here meanwhile the transports are
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doing poorly they have labor and fuel costs to contend with, but what macro signal am i supposed to take from this? does it tell me e-commerce activity overall is strong and that's a good sign for the market and the economy that's what it sounds like >> yeah. we've got consumers that are in a really strong position on average. they've adjusted through covid they like the buy things online. they're working from home in some cases and some cases working in the office. but folks have a lot of income, and money to spend, and money in the bank on average. and so, again, i think e-commerce is a trend that's not going away i think it's getting stronger, and i think the real estate involved in e-commerce is a safe way to play it >> prolgis versus the transports gives me something to think about. it's great to have you on today. still ahead, shares of twitter are climbing again after
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yesterday's 27% gain on news of elon musk becoming the largest shareholder. now he's joining the board one analyst is downgrading the stock, saying musk will cast a long shadow over twitter for the foreseeable future he'll join us next and an a biotech giant hitting an all-time high, and a trader calls it one of his favorite clarts. as we head to break, the nasdaq the biggest decliner down about 230 points 1 .6 % and the ten-year up at 255 stay with us
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[ cheers ] are we actually going? yes!! and once in a lifetime moments. two tickets to nascar! yes! find rewards like these and so many more in the xfinity app. welcome back elon musk's moved to buy up shares of twitter and now to buy the board as investors wondering what his next move with the company will be. my next guest downgraded shares of twitter to neutral saying musk could cast a long shadow for years to come over the company and the likelihood of twitter being brought public has risen. let's bring in our guest just to get this out of the way, wouldn't going private be a bullish thing, or do you think it wouldn't be much above current levels >> it would be a bullish side.
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they went a little bit about current levels but not too high. the way i framed my upside down, it was probably low 60s, israel i think a go -- on an up side scenario could shake out not far away from where we are right now. the downside right now, total users, russia, europe, so q on q is nonbullish. downside is almost $35 stock we think it's fair and balanced. >> $35 is your bottom. you think those would be positive catalysts there's been a lot of chatter. shouldn't be there more engagement on twitter's platform, and if not, why? >> even during some of the last quarters, twitter has had issues holding onto users twitter has had a steady and
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probably an elevated step up in turn rates if you look at what's happened in the last six quarters, maybe 5 million to 7 million users every quarter. during the peak pandemic, they added more than 2 million. again, the way the last few quarters have trended, while we see that slight step up in users is possible, but we don't see that completely deviating from the last six quarters. >> if musk found a way to bring trump back on the platform, would the stock be a buy, and if not, what else would be a positive catalyst? >> in terms of a positive catalyst, again, it's a classic show-me story in my book they need to show that they can add users. they can hold onto those users and those users can engage we have seen many, many quarters where users have come on to the platform and a couple quarters later heard negative user trends so there is a possibility that
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we may get excited by one quarter phenomenon where users come on to the platform, but a quarter later we see users go away so i think the engagement with what twitter can do to hold on to the users, be it audio or video subscriptions, i think all those things need to come together, a cohesive consumer app is what is missing at twitter right now. >> it's interesting you say that even anything that would bring new people and they don't the end to stick around. a lot of the excitement i've heard is from users or the public in general who thinks this will move twitter in a decentralized way that allows them to see more experimentation on their platform. what some would call more free speech i don't quite understand that. i think advertisers like the platform the way it is now with a little bit more cure ration, let's say. it probably gives them some comfort, becomes less of a headache for them. which way do you think this is likely to go >> this is a very hard problem for a company of twitter's scale
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and size to solve in terms of the velocity of information that they have, and the likelihood of having some misinformation slip through as they are a realtime engagement platform. so twitter needs to walk the fine line. it has been very hard over the last couple years for them to thread that very carefully it's an expensive problem. they need to launder content to a certain degree, but also have free speech. i feel there is no clear way to solve this problem, and that's where twitter is struggling. open source have been turned around by jack dorsey in the past how they will play out on the twitter platform, it will be months if not years in the making >> it sounds like you would be more bullish if they went after the -- >> twitter has been doing a lot
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on the performance marketing direct response marketing. which is the basic kind of gravy train, if you will, for large platforms like facebook, instagram, even tiktok and snap are doing a pretty good job in that last year analyst day, that's been the main goal, and product target for twitter we are yet to see real traction off their response and just essentially elevate their monetizing game plan they're early if twitter shows traction in that, i think twitter can do wonders with monetizing >> in the meantime, you say fair value is 49 and stock is at 52 downgrading it to neutral from buy. thank you for joining us today >> we have a big news alert on the housing market diana has the story. >> the average rate on the popular 30-year fixed mortgage just crossed 5 %
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5.02% according to mortgage news daily. that's the first time we've seen a 5 handle since 2013 stay for one day in 2018. it couldn't come at a worse time home prices up today up 20% from a year ago according to core logic. the average rate on the 30 -year fixed was 3 .38% one year ago. we're talking several hundred dollars more for the same mortgage you would have gotten a year ago >> wow highest rate since 2013 except for one day in 2018. and this is a huge -- these psychological numbers matter we may not see this filter through into closings for i don't know maybe a week or so. what's your guess? >> well, you'll see them in the mortgage applications a week from now so we'll get that data next wednesday. but yes, it's going to affect home refinances and again, anyone out shopping for a home right now knows how competitive this market is how incredibly pricey it is, and the higher rates are just going to push more people to the sidelines and remember, we are in the heart of the spring
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housing market, the all-important season >> anything you would add amid the comments from fed officials about the balance sheet today about the possibility of selling down the mortgage portfolio or their concern that we heard from our guest at the top of the hour that because of high rates, the pay downs may slow down, and that's actually a problem for the fed if it wants to tighten more quickly >> well, we've already seen they're pulling out of the mortgage market. that essentially propped it up from the beginning of the pandemic i don't know if you recall, but in 2020 all i kept coming on and saying is we've hit another record low in the 30-year fixed. with inflation, it's making it harder for consumers shopping for a home >> a banner afternoon with the 30-year fixed back up above 5 %. still ahead, two legacy auto makers from different parts of the globe teaming up to develop lower priced evs and could this be a tipping point for mass adoption and how quickly can they put the cars into service we'll explore that, plus you know the old saying if you build
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it, they will come but next, we'll look at how the worst drought in over 1,000 years is wreaking havoc on home builders out west. diana back with that story in a moment as we head to break, look at the dow heat map with unh and j&j leading the way. you're a one-man stitchwork master. but your staffing plan needs to go up a size. you need to hire. i need indeed. indeed you do. indeed instant match instantly delivers quality candidates matching your job description. visit indeed.com/hire
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flexshares are carefully constructed. to go beyond ordinary etfs. and strengthen client confidence in you. before investing consider the fund's investment objectives, risks, charges and expenses. go to flexshares.com for a prospectus containing this information. read it carefully. welcome back to "the exchange". dow given up a 190-point fwan to turn negative by about 20 points. it's the outperformer with the s&p down half a percent. lodss accelerated after we heard hawkish remarks from bray nard
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qualcomm and lamb all down more than 5%. the cloud names al getting hammered with monday.com asana and elastic down the wisdom tree cloud computing etf with the worst day since early march. starbucks sliding after suspended buybacks today web bush downgrading them to neutral saying there's a lack of catalyst. they cut the price target from 101 to 95. and carnival is outperforming peers after reporting last week was the busiest booking week ever today's move turning the stock positive it lags behind royal craribbean and norwegian. now to tyler here is your cnbc news update at this hour.
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the u.s. and a it will lies will announce another round of sweeping sanctions against russia tomorrow. this according to a report, the sanctions will ban all new investments in russia, increase curbs on financial institutions and target russian government officials and their families personally the former proud boys leader has pleaded not guilty to charges tied to the january 6th insurrection on capitol hill he's accused of conspireing to block congress from certifying president biden's election victory. the judge in the case says he will grant a request from prosecutors to postpone the may start date for that trial. and in texas, a fire at a wood palet facility is expected to burn for at least three to four days. a suspected lightning strike started the blaze as severe storms rolled into the area. firefighters say they even had to seek cover when they
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suspected a tornado approach the storms that hit texas are now threatening the southeast, and some 21 million people there. details on the latest weather damage tonight at 7:00 eastern on the news with shep smith. kelly, i'll see you in a half hour >> thank you very much still ahead, three buys and a bail the buys of biotech standout and a couple megacap names my next guest says when the tide recedes, the weak get even weaker we're back in two. ♪ ♪ ♪ ♪ ♪ ♪ ♪ ♪ ♪ ♪ ♪ ♪
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welcome back to "the exchange". stocks are lower for the first time in three days as earnings season is about to ramp up and investors fret about the yield curve. with the sector rotation and confusion, where are the buys and what's one name to stay away from we have the managing director from oppenheimer he has three bails and a buy for us welcome. let's start with regeneron you say it's one of your favorite charts, hitting a fresh all-time high and the fda green
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lighted a -- >> yeah. and it fits into the yield curve story as well. death cross of economic indicators where you back tested actually, markets continue to do well, what we found is that this isn't the time where leadership changes. you want to stick with what's working. that high momentum has outpaced low momentum going back to 1978. typically when the yield curve is inverted. where is the momentum, the leadership it's the large cap biotech, the s&p 500 biotech industry above its 200 -day average on a relative basis versus the s&p for the first time since july of 2020 i think it's all the more exceptional when you consider what's going on on the small cap side of the industry regeneron is one of our favorite charts in the industry why? it's breaking through multi-year resistance going back to 2015. i think you stick with that strength the breakout point at 65 is now support. and some of our conservative up
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side projections point to closer to $800. >> wow a seven-year breakout is pretty notable to begin with. could people then kind of look across large cap biotech for similar opportunities or do you think this is a unique one >> it's the broadness across the industry as well we're seeing it in am jen, now, insight reversing a multi-year decline as well. it's broadening out. and again, small cap biotech still has issues, but that money has got to go somewhere, and it's going into large cap. it's a theme it's across the board in all those large cap biotech companies? >> yeah, and the timing makes sense to you given everything that's happening in terms of the macro backdrop let's move to walmart. maybe a more straightforward story. it's already near an all-time high of 154 when people are debating the strength of the consumer you think it's poised to break
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even higher? >> coming into its all-time high, i think you get the breakout this fits our market outlook nicely reasons to be cautious going into the summer months, that we think low volatility stocks are warranted in the portfolio really just given really still poor and weak internal breadth and looming weak seasonals about a month away one of those low volatility industries that are a standout to us is food and staples retailing. why? again, it's the broadness. the leaders in the group have been costco, kroger, bnk's wholesale breaking out as well i think that strength broadens out to walmart next. it's rallied right into its peak going back to 2020 that's at 154. but again, with the industry tail winds behind it, aside from a near-term pause to refresh some overbought conditions, i think we're talking about a breakout looking at the next few months >> yeah. and on that note, amazon, you're seeing kind of a similar setup that stock is up 13% in the past
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month, even though it's a tough slog since the pandemic set in for pandemic, and it's facing unionizing head winds. this is acting out >> the strength is meaningful when you consider what's happened the prior 18 months 2021 pretty much a flat year for the stock. had a sold off to start the year was 18 % below the 200-day moving average if you look at the last decade, it doesn't get much worse than that for amazon. about 18% below the 20 0-day average. we think the strength we've seeing is a meaningful turn. this is a bit more of a longer-term rotation could use a little bit more time and it could get whipped around by the market over the near-term, but i think as some of our cycle work strengthens again in the fourth quarter of this year, i think we're talking about a breakout to new highs above 3800 for amazon. >> so amazon, walmart, regeneron, those are your buys and the bail is a transport stock. it's already down for the fifth
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straight session today fedex. this after last week's announcement that the founder and ceo is stepping down june 1st this stock is 33% off the highs. and you think we maybe should brace for even worse >> the charts are still pointing lower. so the industry, the transports industry has had a tough week last week. sold off and fedex sold off with it and this was the laggard going into that weakness i am of the view that when the market tide or in this case the industry tide recedes, the weak do get weaker. if you look at fedex, look at 20 0 -day average it's pointed lower that's indicative of a bearish trend. to me, this is a stock that looks like it wants to test that march low at 199 at the least. >> i know you don't do this, but i have to ask because i'm going to be obsessed with prologis for a while. it's an e-commerce play, a
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warehouse play this is not exposed to labor and fuel costs that other transportation plays face. but does it make you feel better that that stock is doing so well to see prologis at all-time highs while the rest are lagging. is that a better macro signal than if all the stocks were rolling over right now what do you think? >> yeah. i think this is obviously a market where there's some haves and have notes some of the stocks are doing better than others prologis gets lumped into the reits category i think it has one of the better charts, even in the riets. again, maybe a market where you can find some pairs, some stuff is going to do better than others i don't know if prologis is really the bellwether that i'm looking for for the economy. but again, it does -- and i led in with this the market internals just aren't there. small caps are still having issues and i think that does
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argue for some cautious as we go into the summer months and especially with the rollover in transports. some look better than others the rails are holding in there with the selloff in air freight and the airlines never really making that comeback, again, there are some warning and yellow lights out there. >> jet fuel is a nightmare that's a storyline to watch. you'd think it would be under pressure because of the rise in reits. does the market feel late cycle right now, or what do you think? >> i think we're about halfway through whatever you want to call it. a small bear market, a cyclical correction i think there's another leg lower if you look at through history. i don't think we're out of the woods. we haven't had that full washout just yet and i think that does lurk in the summer months. it lines up with the presidential cycle as well midterm years. historically the worst year of that four-year cycle it strengthens in the fourth
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quarter. we're following that road map. when you add it up there, as the market especially as it rallies back into resistance levels, i think we are set up far difficult summer ahead >> i appreciate the big picture and three buys and a bail in that context thank you for your time today. >> my pleasure great to see you still ahead, latin america stocks on fire lately. the ilf, tracking the biggest 40 stocks in the region it's not just a currency thing can the gains last we'll look at some of the het winds next and natural gas jumping 7% as traders watch a possible drop in domestic production a programming note, energy secretary will be on "closing bell" today in a first on cnbc interview around 3:00 p.m. eastern time we'll be right back. welcome to ameriprise. i'm sam morrison, my brother max recommended you. so my best friend sophie says you've been a huge help. at ameriprise financial, more than 9 out of 10 of our clients are likely to recommend us.
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our neighbors the garcia's, love working with you. because the advice we give is personalized. hey john reese, jr. how's your father doing? to help reach your goals with confidence. my sister told me so much about you. that's why it's more than advice worth listening to. it's advice worth talking about. ameriprise financial. flexshares etfs are built with advanced modeling. to fill portfolio gaps and target specific goals. strengthening client confidence in you. before investing consider the fund's investment objectives, risks, charges and expenses. go to flexshares.com for a prospectus containing this information. read it carefully.
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welcome back latin america stocks seeing a
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good start to the year, but there are some risks to the rally. seema has more on that >> it's one of the most frequent questions. j jpmorgan's latin america team is getting. after gaining 46% in the first three months of the year, is the in intro of their declines. one of the risks they highlight is the upcoming presidential election being a source of volatility the current president is facing off against the left wing leader and foreign president who is currently in the lead. at first there were concerns desilva would usher in a leftist agenda the concerns have dissipated as he positions himself as a moderate his running mate is also a center right leader who is expected to bring more market friendly policies should they win. that's not the only political event. in mexico, the president is poised to win a referendum expected to accelerate his policies not pro business.
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it's one of the reasons capital economics says mexico has underperformed in recent days. politics have been known to move things in latin america. investors are keeping a close eye on these events. >> as you say, it's brazil, the key market to watch right now, an maybe pet row is an example of that. >> an important company. one of the largest in the world. they currently don't have a ceo who recently stepped down. the company is looking at ushering in a fuel subsidy as lower income consumers struggle with higher fuel prices. it's an interesting dichotomy, brazil is an exporter of oil, but as we've seen with the lower average income among most households, they're getting hit by higher fuel >> is that a head wind for the company? you know what i'm saying? >> absolutely. it cuts into their margin. it's something the current president is discussing with the
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company at this point. >> they're hanging onto a 14% gain year to date. thank you. we appreciate it still ahead, it's a tug of war between water shortage and a housing one. the latest on the rising risks from climate change. and during april, we're celebrating financial literacy month and featuring our cnbc contributors here is jim with what financial literacy means to him. >> financial literacy to me means that an investor understands not just the potential returns from an investment, but the risks. and when i say investment, it could be more than just a stock or a bond. it could be an entire investment plan, an entire asset all allocation but it's very important that an investor through financial literacy understands the returns and the risks that are inherent in any investment.
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you can't buy love. happiness. or confidence. but you can invest in them. at t. rowe price our strategic investing approach can help you build the future you imagine. ♪ ♪
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california just saw the driest start of the year in history. the western drought now in its
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third year, threatening every aspect of the economy, especially housing it's a tug of war between a water and housing shortage we have a continuing series on the rising risks from climate change >> reporter: on a vast swath of land in arizona just west of phoenix, the howard hughes corporation is developing one of the largest master plan communities in the region. flooding the desert with house there's a shortage on the ground right now of homes that are needed. >> reporter: the howard hughes ceo claims water will not be a problem. >> every home will have low flow fixtures natural desert landscaping, drip irritation >> reporter: 100,000 homes with big public names expected to build them and it's just one of more than two dozen developments in the works around phoenix all as the west is in the midst of a 1,000-year drought
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>> they're expecting the growth in this area to be a million people and there isn't the water to sustain that growth. not with ground water. >> reporter: a senior water research fellow produced a documentary about the state's 1980 ground water management act. it the problem is that with climate change, there aren't back up water supplies that you can use to save a development that's based totally on ground water. if it uses all of its water supply, there's no water to back that up. >> this whole area is clearly at the cross roads of construction and climate, but the u.s. is facing one of the worst housing shortages in history it's estimated we need over a million more homes just to meet the current demand and the
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phoenix area is one of the most active for home construction >> i don't think the answer is to tell people that are looking for an affordable home in arizona, you can't live here, go somewhere else i think the responsible answer, the thoughtful answer is to build them affordable home, but to build it in a self-sustaining manor. >> mark staff is director at the carey school of business should wall street be concerned about investing in housing in arizona? >> no. >> why not >> because i think there is the understanding of this particular risk and there is sufficient evidence and facts that support the continued growth based upon what we know today >> but staff conceded concerned development plans exacerbate them >> i would say there's a legitimate concern about our future and policymakers are very aware of this. >> a report just last spring from asu's kyle center for water policy warned the amount of ground water in the sub basin is
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considerably less than regulators estimate and that without a change in direction, the physical ground water supply underneath buckeye will decrease and not be sustainable >> the bottom line is that there are places in this state, in this valley, where there are sufficient water supplies to support new growth we don't need to go way out in the desert and pump ground water to build and the land is cheaper out here well, at some point, there's a cost to that >> that report also says the hundred-year model for ground water is constantly changing especially given the change in climate. the state's department of water resources is now in the process of determining if the basin does have 100 years worth of water. >> are there other options to replenish ground water >> you used to have reservoirs from the colorado river, but
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because of the drought we're in, those back up plans are drying up >> it's one of those things where you're going to look back and say this package outlined it perfectly and this is how we got here thank you. she mentioned five big home builders take a look at all of these stocks which are down with the market today and all five are coming off their worst quarter since the start of the pandemic with losses of between 20 and 30% as we've seen rates rise in fact, as diana told us earlier, the 30-year fixed mortgage this afternoon crossed above 5% it is down nearly 30% to start the year still ahead, gm and honda joining forces to develop more affordable evs is this what's needed to spur mass adoption? the dow near session lows. stay with us
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general motors and honda expanding their partnership to co develop evs with a more affordable price tag phil lebeau has more >> this story is important and this agreement is important because if the auto industry is ever going to get to mass adoption of electric vehicles, the prices are going to have to come down because most of them cost well over $50,000 here's what general motors and honda have announced they are agreeing to co-develop several lielectric vehicles over the next decade. production likely to start in 2027 and they're going to be targeting popular styles for example, think about a small crossover utility vehicle. 13 million more sold around the world last year. if you can come in with a low priced model at that target, it could be very successful the agreement calls for both companies to use gm's battery technology that will be important because it gives the scale, if you can
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do this around the world to bring down battery costs, and that's the key to selling the lower priced evs but keep manyin mind, these two companies are nowhere in the race when it comes to electric vehicles being sold in the united states. look at the first quarter sales. tesla dominates the category then hyundai, kia, 9%. vw, ford you don't see general motors and honda. as you take a look at shares of gm -- honda, it didn't sell any because their first pure electric vehicles in the u.s. will be coming out in 2024 who's building those general motors eventually, honda will be building its own bottom line, the holy grail in terms of mass adoption of evs coming in with something that could sell for $25,000 or less and you need scale to bring down the cost in order for that to happen that's what this is all about. >> and there's a bigger opening
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than there was because the price of tesla's model 3 has gone up substantially and this model 2 seems years in the distance given everything else they have to produce first there are a couple of lower cost models whatever happened with the bolt? there's a nissan option i think is much more affordable, is there not? >> the leaf. >> how quickly could gm and honda bring this new model to market and why aren't the two selling more rapidly >> first of all, this agreement calls for production to start in 2027 so we're a ways from any of these lower price vehicles hitting the market worldwide and they'll both be building off of the same agreement at their respective plants. and in terms of low cost options that are out there right now, yes, you've got the nissan leaf. the bolt, remember they susp suspended production last year because of the issues with battery fires. bottom line, we are long ways from seeing that $25,000 ev.
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now it could happen in the next few years if costs come down dramatically, but as of right now, we're a ways from seeing that happen. >> it would probably need to be in the works now in order for us to have it available that quickly. thank you so much. that does it for the change. don't go anywhere. "power lunch" begins right now indeed, it does. kelly, we'll see you in a couple of seconds welcome to "power lunch. here's what's ahead on a busy tuesday. an economic riddle is a recession ahead or is this a reset? the consumer is sending conflicting signals leading some to say we're witnessing a massive spending shift from goods to services. my wife said the other day, there's only so many times you can go to homegoods. we'll dive into that >>

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