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CNBC's Last Call podcast.

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Get the stories behind the numbers. There's

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investing news that impacts your money and your portfolio.

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And the people behind the business. And

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there's business news that impacts your

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Brian Sullivan hosts Last Call.

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Follow and listen to CNBC's Last Call

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on your favorite

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podcast platform today. You're

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listening to The Exchange. Here's

0:34

today's show.

0:39

Thank you, Scott. Hello and welcome to The Exchange.

0:41

I'm Kelly Evans and here's what's ahead today. The

0:44

skip is in and the Fed is not going to hike again.

0:46

Our market guest is sitting right there. He's going on

0:48

the record with that view. And it's not what

0:50

the broader markets are expecting. So who's

0:52

getting it right? We will definitely debate.

0:55

Plus, Coinbase sharply lower. The SEC

0:57

suing the crypto platform for breaking market

0:59

rules. SEC Chair Gary Gensler comparing

1:01

the crypto compliance process to Catch

1:04

Me If You Can. But if companies can

1:06

just operate overseas, does the

1:08

SEC's verdict

1:08

matter? We've got the very latest. And

1:11

the brand new CEO of Academy Sports and Outdoors.

1:13

A disappointing quarter for sales and profits. Could

1:16

student loan payments be yet another headwind

1:18

ahead? Before all that, let's get a check on these

1:20

markets. The Dow just off the session lows down 54.

1:23

The S&P only half a point away from its 52-week

1:26

closing high, but it's in the red by about a point again.

1:29

4305 is that high. And for the Nasdaq, it's 13,240 or so. That's

1:31

the new 52-week closing high. A

1:35

little below that. But below that right now, anyway, it's

1:37

up three points. And if the

1:38

Nasdaq is positive on the week, it'll be the seventh

1:41

straight positive week. The longest win

1:43

streak since late 2019. Got

1:45

to mention what's going on with the Cary Regional Bank

1:47

ETF. Up as much as 6% today. A

1:49

little off that right now. Third positive day

1:51

in four. Live Oak, PacWest, Western

1:54

Alliance seeing some of the biggest gains. As you

1:56

can see there, gains of 6% to 10% today. All of this comes as

1:58

the bank's earnings are up. to posit wars continue,

2:01

and we will have more on that ahead. Markets

2:04

expect the Fed to keep hiking after it pauses at

2:06

this June meeting, seeing almost 80% odds

2:08

of a hike in July. My next guest

2:10

sees it differently. He thinks this skip will evolve

2:13

into a pause and says September will confirm

2:15

the end of the rate hike cycle. Let's bring

2:17

in Barry Knapp, director of research and managing

2:19

partner at Ironsides Macroeconomics.

2:22

And on set, welcome, Barry. Thank

2:24

you. You know, I'm really playing it up like this is a

2:26

contrarian view. It

2:28

seems natural that it's going

2:29

to evolve this way, or maybe there have

2:32

been other times when we pause and then started hiking

2:34

again, but that would just seem so odd, even though

2:36

that's what the market's betting on. Now, listen,

2:38

I think probably the best analog

2:40

for this is the 90, a very aggressive 94,

2:43

95 rate hike cycle. And

2:46

in that case, the Fed tightened 300

2:48

basis points in a year.

2:51

The stock market rallied from that

2:53

maximum point of hawkishness, the 75

2:55

basis point hike in November,

2:58

through when they confirmed the pause in June, 22%.

3:01

We rallied something like 20.

3:03

So there's lots of similarities, but the big difference

3:06

though is we had a similar

3:08

magnitude of yield curve flattening.

3:11

Two's tens came down 180 basis

3:13

points or so, but only to zero. Now

3:16

we're stuck 100 basis points negative,

3:20

and the banking system has an ongoing

3:22

problem. I think

3:23

what we're going to find over the next three

3:25

to four weeks as treasury ramps

3:28

up issuance is that the money

3:30

is not all coming out of the RRP program.

3:32

It's not going to be government money funds that buy

3:34

every dime of that treasury bill issuance.

3:37

It's going to put more pressure on bank reserves

3:40

so that we have another leg lower in that

3:42

deposit growth. Credit growth is decelerating

3:45

rapidly. I

3:45

just wanted to mention, we're literally about

3:47

to talk with my next guest, Brian Reynolds, about

3:49

that exact issue of deposit flight

3:51

going into money funds. Your point

3:54

about that is simply that we're going to see renewed stress

3:56

on the banks and maybe on broader

3:58

economic growth. Correct.

3:59

So I've described it as

4:02

the Fed's trilemma. We are going through

4:04

disinflation. That was my main thesis for

4:06

the first half of the year. We're going to lap

4:08

two very hot comps for CPI. We're

4:11

bottoming right about now, but we won't, of

4:13

course, know that till July. At that point, CPI

4:16

is probably going to be 3.4%, meaning

4:19

by the time we see the June number, that

4:22

takes some pressure off the Fed. It doesn't

4:24

get them back to target, but they should be patient

4:27

with respect to that. Though

4:29

at the same time,

4:29

the pressure on the banking system is going to build,

4:32

I suspect by the fall, bank

4:35

reserves will fall from their current level

4:37

of 3.2 trillion down to about 2.7.

4:41

That will force the Fed potentially to

4:43

stop quantitative tightening. Yes, and Jamie

4:45

Dimon has alluded to this already. Correct. And

4:47

we saw they tried to start it in 2019 and they

4:50

very quickly had to back off. Let me ask

4:52

you, so 1994 was a soft landing.

4:54

And it seems like

4:56

because of certain things like the tightness in the senior loan

4:58

officer survey, that we don't have the

5:01

same setup now that we did then, unfortunately.

5:03

I mean, do you think that we're heading into recession

5:05

here ultimately?

5:06

Well, this is the point that

5:08

we're at, right? The

5:11

probability of recession is much higher in

5:13

mid-2023 than

5:15

it was in 1994, because

5:18

of the fact that that yield curve is a hotter basis

5:20

points inverted, the banking system is in a much

5:22

more tenuous situation. No term

5:25

facility is going to work when

5:27

you own assets that yield 3% and

5:29

you finance them at 5%, right? So

5:32

the only way out of this really is for

5:34

the Fed probably to reverse some of the rate hikes.

5:36

And I think they should do a reverse duration

5:39

twist, sell some of their longer duration

5:41

treasuries, buy short duration treasuries,

5:44

increase the reserves, disinvert

5:47

the yield curve, right? Steepen it, of course.

5:49

And then the banking system can earn their way out

5:51

of it, particularly when you talk about adding more

5:53

capital, which isn't gonna happen right away,

5:56

but still.

5:56

If someone was listening to this, they say, wow,

5:58

this sounds pretty bearish, but you've been-

5:59

overweight equities. And why

6:02

so in a lot of people have said Spallazani and others

6:04

have said, you know, the market's rallying because it's rallying

6:07

on the pause, you know, this is all about the Fed

6:09

laws or pivot, whatever you want to call it. But if that's

6:11

true, why do they still 80% chance

6:14

of a hike in July, right? Like, I could understand

6:16

if the market was rallying and thought like you

6:18

think that the Fed was going to be done here, but I don't

6:20

understand why they would rally if they think they're going to keep going. Yeah.

6:24

One of my core themes for the first half of

6:26

the year was until we got a debt ceiling deal,

6:29

we were going to have plenty of liquidity in the system.

6:31

But once that debt deal got done,

6:33

then we were going to have what I'm calling liquidity,

6:36

another

6:37

extreme liquidity climate change storm,

6:39

right? So when the Fed started with Q,

6:42

QE created all this

6:44

abundant reserves, it's called an abundant

6:46

reserve system, they created

6:49

a situation where

6:50

we were going to have these violent storms. Now, I

6:52

think we're due for one of those storms. Because

6:55

of all this issuance that we get, we will probably

6:58

have a risk off episode. I

7:00

don't think that equal weighted S&P will go down very

7:02

much at all. The cap weighted one could

7:04

go down, we could take a lot of the froth out of AI

7:07

stocks.

7:07

Exactly. Exactly. Just to put a point on it,

7:09

then for you're not going to be one of these people saying

7:11

I'm getting in on the Nvidia trade, I'm, you know, I'm

7:14

piling in on the NASDAQ. Not now.

7:15

I mean, I love the idea that we're going to have a very

7:17

strong productivity cycle throughout the whole

7:20

of the 2020s because of deeper

7:23

capital expenditures because of higher

7:26

labor dynamism, and because

7:28

of technology investment diffusing

7:31

to different industries, not just the producers of

7:33

that technology, but the consumers.

7:35

But right now, we're about to have

7:37

a bit of a liquidity shock. And so things

7:40

like buying equal weight and selling the cap

7:42

weight S&P, lightening up your tech

7:44

exposure, I think you want to be doing those things because

7:46

we have a storm coming.

7:47

We will leave it there. Perfect place or maybe

7:50

worst place. But Barry, thank you so much. Appreciate

7:52

you joining me today. All right, Cal. Barry Knapp with Ironsides.

7:54

While the markets move on from the debt ceiling deal, my

7:57

next guest says not so fast, just like

7:59

Barry, he's

7:59

warning the agreement could cause more trouble at

8:02

banks as people drain cash to chase higher

8:04

yielding money market funds. U.S. banks already

8:06

saw their larger deposit declines ever in the

8:08

first quarter, about two and a half percent of total

8:10

deposits. That's the largest outflow recorded

8:13

by the FDIC since they began collecting

8:15

data in 1984. Let's bring in Brian

8:17

Reynolds. He's chief market strategist at Reynolds Strategy.

8:20

Brian, welcome. And tell me exactly

8:22

about

8:23

sort of how this might play out in the effects on the market

8:25

and the economy. Well,

8:28

I've been on with you the last couple of years saying

8:30

how complicated this environment is.

8:33

It's going to become more complicated because

8:35

we have money market funds surging and

8:38

bank deposits declining because

8:40

people are realizing that money

8:42

market funds yield much more than

8:44

banks. And so we're seeing

8:46

a shift. It was a crisis

8:48

in March when SVB bank

8:52

went out of business. But that woke people

8:54

up to the idea that money market funds yield more.

8:57

And so we're seeing a transition out of banking

9:00

into money market funds. And that means

9:02

less lending for consumers and businesses. And

9:05

absolutely. So now that you've heard what Barry

9:07

just said about that, you know, a lot of people, I think Brian,

9:09

recognize this dynamic. But

9:12

some of them remain bullish or sort of look

9:14

at the stock market and say, OK, well, look

9:16

what risk is doing or OK, well, the Fed's

9:18

going to respond to this and have to pause. I

9:21

mean, you know, so kind of play this story

9:23

out to the conclusion you think it's

9:24

headed towards. So

9:26

the results of stocks has been it's been a choppy

9:29

environment for the last year and a half. You've

9:32

had negative things go on like the

9:34

bank crisis, like the surge in

9:36

the money market funds. But you've had positive

9:39

things like companies building up for buybacks.

9:42

Buybacks don't lead markets. So

9:44

I think there'll be a negative surprise due

9:47

to lending from banks. And I

9:49

want to be a buyer of that surprise because eventually

9:52

buybacks will take over. I

9:55

think it's going to be choppy for the next part

9:57

of this year. But next year, I think it'll

9:59

be a better. environment. So I want to be a

10:01

buyer on weakness. I want to

10:03

be a seller on strength in the near term

10:06

eventually leading to higher stock prices.

10:09

I was going to ask about that because so far this year

10:11

and we've been talking about going into the summer your concerns

10:14

and how you would be selling any rallies. Is

10:16

that a change of view now. Have we hit an inflection

10:18

point and if so why.

10:21

I don't think we've hit an inflection point because

10:23

all of a sudden with the debt deal people

10:25

started worrying about the supply of treasuries

10:28

that the government's going to start issuing. I

10:32

think that supply will be overwhelmed by demand

10:34

because we run under buyer strike during

10:37

the debt ceiling battle. But right now

10:39

people in the stock market are worried about that. If

10:42

they're worried about that we've seen in the last year and a

10:44

half that pushes stock prices down.

10:47

I want to be a buyer of that. And if we

10:49

rally too much in the year term I want to be

10:51

a seller of that. So range. I'm

10:53

surprised to hear you say that you're a little bit more optimistic

10:55

as we head into 2024 which is exactly

10:57

when a lot of people say

10:59

if we haven't been in recession by then then

11:02

for sure. Twenty twenty four would be the moment.

11:05

Well I think that will be a positive surprise. And

11:08

I think we'll start to see buybacks start

11:10

to lead because companies have been announcing

11:12

more buybacks even as they

11:15

slow their actual buybacks. That

11:17

buildup of buybacks I think will lead

11:19

us in 2024. But

11:21

I think we need to get through 2023 first.

11:24

Final question Brian. How did companies behave

11:27

in terms of buybacks leaning

11:29

into them or maybe backing away

11:31

from them during the financial crisis. It's always my understanding

11:33

that they tend to kind of buy high not

11:36

low. And it sounds like you're expecting

11:38

them to maybe start picking up those buybacks

11:41

if a recession

11:41

were to come. They

11:44

used to buy high 20 years ago but

11:47

in the last decade they've become

11:49

laggards. They followed stock prices.

11:52

They buy when prices go up but

11:54

they don't buy when prices go down.

11:56

Do I think we have a downturn in stock

11:58

prices that will slow buybacks even

12:01

more. But then on the ensuing

12:03

rebound, I think they'll pick up and lead

12:05

us into 2024. Well, that

12:07

would be a very different and welcome perspective

12:10

based on what most are bracing for. Brian, thanks

12:12

for your time today. We appreciate it. Brian

12:15

Reynolds with Reynolds Strategy. Still

12:17

to come, the crypto crackdown. Regulators

12:20

announcing charges against a second crypto

12:22

firm today. What does it mean for crypto holders

12:24

and the exchanges themselves? Plus

12:26

three key consumer names giving us a read

12:28

on the economy. We're talking soup, spirits

12:31

and skeeball ahead in earnings exchange. And

12:33

as we head to break, here's a quick look at the markets as the

12:35

Dow tries to go positive. It's only

12:37

down eight points. The S&P is back up by five.

12:40

The Nasdaq's up by 28. And the Russell's up by 44

12:42

as the regional banks power that today. The

12:45

10-year yield, 370.

12:45

We're back after this.

12:54

This is the exchange

12:57

on CNBC.

13:03

CNBC's last call

13:05

podcast. Get the stories behind

13:08

the numbers. There's investing news that impacts

13:10

your money and your portfolio and the people behind

13:12

the business. And there's business news that

13:15

impacts your life from Wall Street

13:18

to K Street and Main Street.

13:21

The markets may close. Your money

13:23

never stops. Last call is really

13:25

about spotting tomorrow's opportunities tonight.

13:28

Brian Sullivan hosts Last Call.

13:31

Follow and listen to CNBC's last call

13:33

on your favorite

13:33

podcast platform today.

13:42

Welcome back, everybody. A shocking twist

13:44

in the world of professional sports. The PGA

13:47

Tour teaming up with rival Saudi backed

13:49

live golf. The two entities signed an agreement

13:51

to enter a deal and a memo to players.

13:53

PGA Tour Commissioner Jay Monahan acknowledged

13:56

there is much work to do to get us from a framework

13:58

agreement to a tentative agreement.

13:59

but that a partnership will, quote, supercharge

14:02

the PGA's future. While the Saudi Public

14:04

Investment Fund governor told our own David Faber

14:06

this morning, he expects the merger to be done

14:08

in a matter of weeks. The deal would end the multiple

14:11

antitrust suits live in PGA have filed against

14:13

each other in recent months. But one outstanding

14:15

issue are concerns about Saudi Arabia's

14:17

human rights violations and whether it's using

14:20

these deals to quote unquote sports wash. Joining

14:22

me now to weigh in on it all is NBC

14:24

and golf channel sportscaster Mike Tureko.

14:27

Mike, thank you so much for your time this afternoon.

14:30

Kelly, good evening from Paris. We're

14:32

here getting ready for one year out in the build

14:34

up for the Olympics. And we had a sports

14:36

bombshell drop on us over here.

14:38

Unbelievable. And yet, I mean, listen,

14:40

Donald Trump, I saw a year ago

14:42

he had told players in the PGA tour to take

14:44

the money because he thought they might end up combining. So

14:47

perhaps it's just deal making. What is

14:49

the real significance of this? And what do you say to golf

14:51

fans who are like, so is the PGA

14:53

tour now controlled by the Saudis and sort

14:56

of must feel a little confused?

14:58

Yeah, there are a lot of answers that need

15:00

to come. And some of them are going to come, at

15:02

least for the membership of the tour, in a

15:04

few hours when J. Monaghan has

15:07

a players meeting at the Canadian Open,

15:09

the RBC Canadian Open, which is happening this week.

15:12

A lot of the guys who stayed on the PGA tour, Kelly

15:14

had opportunities to take big money, eight,

15:16

in some cases, nine figure deals. That's

15:19

what was reported for Rory McElroy

15:21

and Tiger Woods to jump over to live golf.

15:24

Those guys didn't. They stayed loyal to the PGA

15:26

tour. They know their reasons. They've

15:28

expressed some of their reasons for staying loyal.

15:30

History of the game, legacy of the tour,

15:34

some of their feelings about where the money was coming

15:36

from. All of those things factored for many

15:38

players. Other guys went

15:40

Dustin Johnson, Bryson DeChambeau, Phil

15:42

Mickelson leading the charge. So now those

15:44

guys get to come back with their money and

15:47

compete on the PGA tour. And the guys

15:49

who stayed, they have nothing to show

15:51

for it. Somewhere between a business

15:53

deal gone bad and guys

15:56

let down by their leadership in some regards

15:58

as well.

15:58

Will somehow the rest of the.

15:59

to the players be compensated, the ones who held

16:02

out? I mean, will this somehow make the PGA

16:04

Tour more lucrative for them? Because otherwise, I'm

16:06

not sure how they must feel. It must feel

16:08

pretty upset.

16:10

It has become more lucrative for them for

16:12

a variety of reasons. We're talking about Saudi Arabia's

16:15

PIF, their Public Investment

16:18

Fund, which is part of their Project 2030

16:20

as they try to go to 13 different sectors

16:23

and spread Saudi Arabia's impact

16:25

around the world.

16:26

There's also this thing called the PIP, which

16:28

was the Player Impact Program.

16:31

And that was a pool of money that

16:33

the PGA Tour players got for

16:36

who moved the needle the most. Everything from how

16:38

often you're on TV to Google searches and all that,

16:40

that came about with a little bit of this showing

16:43

Liv at the doorstep and offering money.

16:45

How do we get the best names more

16:47

of the money than just having to go out and play for

16:49

it? So they have received some

16:52

money, but nowhere near what they

16:54

could have otherwise. There

16:56

are so many questions. What is this new entity

16:59

going to look like? This for-profit entity,

17:01

while the PGA Tour says it will remain a 501c6, there

17:03

are a lot of questions

17:06

that need to be answered in this. And

17:09

at this point, this isn't an MOU. This

17:11

is not a done deal. So the

17:13

deal making is going to answer a lot of the questions

17:16

that we all have right now.

17:17

And just back in February, LPGA

17:20

star Anna Norquist had ended her endorsement

17:22

deal with the Ramco due to backlash

17:25

over their partnership. So again, you have that

17:28

pushback in one direction with this bombshell

17:30

announcement going completely the other way. So

17:33

perhaps as you intimated, there could still be

17:35

something that makes this fall apart or perhaps if the Saudis

17:37

throw enough money at it, they can kind of push

17:40

over some of those concerns. What

17:42

do you think their ambitions might be next?

17:44

Kelly, this is a hard dance because everything from

17:47

Jamal Khashoggi to 9-11 to

17:49

sports-washing, all of these and other

17:51

human rights issues have come up regarding

17:54

Saudi Arabia's government. On the

17:56

flip side of this, you've seen Saudi Arabia continue

17:59

to invest in.

17:59

and be a part of the sports world. And

18:02

separately, let's look at the U.S.

18:04

government relationship with Saudi Arabia.

18:07

Secretary of State Antony Blinken happens

18:09

to be in Saudi Arabia doing a couple

18:11

of days of meetings, which is furthering

18:14

the meetings that President Biden went over

18:16

to Saudi Arabia to have last year. The

18:19

U.S. State Department just put out a memorandum

18:21

today talking about the relationship between

18:23

the United States government and Saudi Arabia,

18:26

pointing to the eight decades of partnership

18:28

together along the way, and talking about building

18:30

a new embassy in Riyadh. So

18:32

the U.S. government is speaking

18:34

and acting as if Saudi Arabia

18:37

is a partner. That was the word used in the

18:39

memo from the State Department today. So

18:41

you parallel that with the concerns on the other

18:43

side for what Saudi Arabia might be

18:45

doing to clean up past transgressions

18:48

with their money involved in American

18:50

sports, where we hadn't seen international

18:53

money dominate American sports. Sponsors,

18:56

yes, here and there, but not dominate American

18:58

sports as they tried to do here with Lyft

19:01

Golf. Fascinating, tough to answer. I don't

19:03

think we have the answers right now,

19:04

but man, this has really

19:07

stunned the tour. A lot of the big names

19:09

in golf had no idea this was coming. Wow.

19:11

Mike, thank you. Joining us, as

19:13

you said, on a very busy day over there in Paris,

19:15

getting ready for that. We really appreciate your time. You

19:18

got it, Kelly, thank you. Mike Turico with NBC Sports.

19:21

Now to crypto, under increasing pressure

19:23

from the SEC. In the past 24 hours,

19:26

they sued crypto exchange Binance and its

19:28

CEO for US Securities Violations. Then

19:30

today sued Coinbase for operating as an unregistered

19:33

exchange and broker. Those shares are down 13%

19:35

and 20% in two sessions. And

19:38

based on what SEC chair Gary Gensler said this morning,

19:40

there could be more charges on the way.

19:43

This is a field that's built.

19:46

The whole business model is built

19:48

on non-compliance with

19:50

the US securities laws. And we're asking

19:52

them to come into compliance and they're going a bit

19:55

of catch us if you can.

19:57

In the meantime, Bitcoin hitting its lowest level since mid.

19:59

March in the 25K range before rebounding

20:02

to around 26,000 now. And all

20:04

of this as one of the world's largest fintech conferences

20:07

is taking place in Amsterdam. CNBC.com

20:09

tech reporter Mackenzie Segalos is there. Mac

20:11

what's the feeling on the ground.

20:14

Hey Kelly. So virtually every crypto firm

20:17

I've spoken to on the ground here at

20:19

Money 20 20 says that the U.S. is

20:21

looking a lot less viable as a home base

20:23

for their operations in large part because

20:25

of this whole regulation by enforcement dynamic

20:28

spearheaded by the SEC. Names like Tether

20:30

Bitfinex Fireblocks and Worldpay

20:32

are all in Amsterdam for this conference where everyone

20:35

is bullish on Europe as a new destination

20:37

for crypto firms. The Netherlands is part of the

20:39

wider EU block falls under a new

20:42

and pretty revolutionary set of crypto regulations

20:44

called MECA which provides hard

20:46

and fast rules about how to operate a compliant

20:49

digital assets business which is what many

20:51

of these firms say that they have been craving for almost

20:53

a decade. Now with MECA the licensing

20:56

regime for crypto becomes much smoother.

20:58

It also translates to easier access

21:00

to the entire EU instead of individual

21:02

countries. You have the ability to passport

21:05

rights so you can launch in one country

21:07

and have that license apply in other

21:09

EU member states which definitely presents

21:12

major opportunities for quickly scaling a business.

21:14

So if

21:14

anything folks are still bullish on

21:16

the space or just bearish on America.

21:20

What about. So we've seen some outflows.

21:22

I understand McKenzie from Binance

21:25

for instance. What do we know about the impact this

21:27

is having on Binance and on Coinbase

21:29

at this point.

21:31

Yes. So Kelly we saw this almost instant

21:33

erosion of confidence after that Binance news

21:35

yesterday. Trading activity took a hit.

21:38

Nansen data showed that investors pulled seven hundred

21:40

and ninety one million dollars from the

21:43

crypto exchange in a 24 hour period after

21:45

Binance and its founder were charged

21:48

with 13 different securities violations by

21:50

the SEC. There is this big concern

21:52

that retail money is just not coming back into

21:54

the space. Meanwhile Binance is native

21:57

token which is a good indicator of confidence

21:59

in the platform.

21:59

overall hit its lowest level in

22:02

three months after having its worst day of the year

22:04

yesterday. Meanwhile, you said in your intro

22:06

Coinbase stock is way down in the last, you

22:08

know,

22:09

since in this trading day, since we got the news. Absolutely.

22:13

Mackenzie, thank you. We appreciate it. Mackenzie

22:15

Sagallo's reporting. Will the SEC's actions chill interest

22:17

in crypto assets like Bitcoin? We've still

22:19

seen plenty of involvement from major financial

22:21

institutions in offering crypto up to clients.

22:24

For more here, let's bring in Emily Parker. She's executive

22:26

director of global content at CoinDesk. And

22:29

here on set with me, crypto skeptic

22:31

and actor Ben Mackenzie, also author of the

22:33

new book Easy Money, Cryptocurrency, Casino

22:35

Capitalism, and the Golden Age of

22:38

Fraud. And so I don't know how many times it's going to take

22:39

Ben for me to not feel a little star struck,

22:41

you know, maybe, maybe five, maybe 10. So

22:46

as I just try to, you know, put my, my

22:47

crypto, you know, head on while I talk.

22:50

Okay. Let me actually start with you because do you

22:52

feel vindicated to some extent? Or let me read

22:54

a tweet from Bill Miller

22:56

Quattro IV, who said, it's

22:58

a great day for Bitcoin and self custody. Shutting

23:00

down the bucket shops will bolster confidence in the

23:02

legitimate technology. Well, let's hope

23:04

so. Right. Let's hope that shutting

23:06

down bucket shops leads to, you know, whatever

23:08

crypto is supposed to do in real life. But

23:11

I spent the last two years investigating cryptocurrency,

23:13

traveling around the world, going to El Salvador, the

23:15

only country in the world that's trying to use crypto's money.

23:18

It's not working. Interviewing

23:20

people like Sam Bankman Fried, going to the Miami

23:23

Bitcoin conference where you interviewed me. They

23:26

were talking about Bitcoin as an inflation hedge back

23:28

then.

23:29

I don't, I'm not sure how that worked out. So

23:31

the story will keep evolving. But

23:34

I think the question is really, what is the innovation

23:37

here? Right. Blockchain's not new.

23:39

It's over 30 years old. It goes back to 1991. Stuart

23:43

Haber and Scott Stornetta Bell Labs building

23:45

off the work of cryptographers like

23:47

David Chom.

23:48

So what's the innovation? Is the innovation

23:50

separating retail traders from their money?

23:53

Let me ask this, which came out from the CoinDusks

23:55

CEO himself, who said, if all of this

23:57

is the case, why did the SEC let us?

23:59

register as a public company knowing our business

24:02

model. Well, anyone's allowed to register, and

24:04

Coinbase did file the right paperwork. Gary

24:06

Gensler came in, I believe, a few days after Coinbase's

24:09

IPO. So you can blame Gensler if you want,

24:11

but he literally wasn't in charge then. That's

24:15

an interesting question, and a question that I cover in

24:17

the book. How did crypto metastatize

24:20

to such a degree that some 40 million

24:22

Americans bought it? I think

24:24

there's one of the answers to that is

24:27

that there is a gray area

24:29

between commodities and securities regulation.

24:32

That, you know, obviously, manifests in the CFDC

24:34

and the SEC, but also different committees

24:37

with different jurisdiction.

24:38

And basically

24:41

the notion that what is a commodity versus

24:43

what is a security. If something

24:46

has a futures contract under the CEA,

24:49

the Commodities Exchange Act of 1936, it

24:51

can be classified as a commodity if

24:53

it has not been classified as a security. That's

24:56

created a gray area. In the case of Bitcoin,

24:58

thank you. So

24:59

it's an area that I think

25:01

crypto has exploited. Let's bring Emily into

25:04

this conversation. And Emily, what do

25:06

you think the typical retail holder of these

25:08

crypto assets is likely to do in response to everything

25:10

that's happened over the past 24 hours?

25:13

Well, all I can say is that if you look at the prices

25:16

right now, I was just looking at CoinDesk's price page, it's

25:18

remarkably green considering what's just happened.

25:21

I mean, the SEC has just filed lawsuits against,

25:24

A, the largest cryptocurrency exchange in the

25:26

world, and B, the largest cryptocurrency exchange in

25:28

America by a long shot. And you have

25:30

crypto prices by the standards of

25:32

crypto volatility are relatively

25:35

static. I mean, you're not seeing

25:36

major changes, again, by the standards of crypto, as

25:38

we know, which is quite a rollercoaster. So in

25:40

that sense, I would agree with what you just reported. This

25:43

is actually kind of bullish for crypto. I mean,

25:45

if this isn't going to take crypto down, I'm not sure

25:47

what will. So yeah, I

25:49

think if you're looking at crypto prices itself

25:51

and specifically Bitcoin, I think this is, you know,

25:54

for Bitcoin maximalists, this is kind

25:56

of like a proof of concept because Bitcoin

25:58

appears to be...

26:00

One of, if not the only token that

26:02

is decentralized enough to not be considered

26:04

a security, at least in the United States. So Bitcoin

26:06

is not reacting that much to

26:09

this news, at least if you look over the past 24 hours.

26:12

Do you think that institutional investors will, I mean, so how are

26:14

they supposed to engage

26:17

with these platforms or is it fine to engage

26:19

with these platforms or are these platforms ultimately going to

26:21

be moved overseas and what would the impact then

26:23

be?

26:25

Well, right. So there's two separate issues here. Finance as we

26:27

know is already overseas. So I think it's an

26:29

open question how much this will impact finance

26:31

over the long run. Finance is very active

26:33

all over the world. So I'm not sure how critical

26:35

the U.S. market is to its survival. You

26:38

know, Binance has been saying all along that it doesn't have

26:40

U.S. investors. Obviously the SEC argues with that.

26:43

Coinbase, you know, also has been

26:45

threatening to move overseas. But

26:46

again, you know, this is crypto is not

26:48

primarily a U.S. phenomenon. I think the price action

26:51

really indicates this, that, you know, there is

26:54

crypto investment, there's crypto trade having all over the world.

26:56

So worst case scenario and these these

26:59

companies really can't make it in the U.S. It's

27:01

definitely not the end of the crypto story. In fact, far

27:03

from it. I mean, we're seeing, as you just reported, Europe is

27:05

becoming an increasingly important player in crypto in

27:07

Asia, you know, which has been an important player for a while.

27:10

And you now you have Hong Kong welcoming crypto. So

27:12

the story is far from over regardless of what happens

27:14

to these

27:15

two platforms. Ben, I'll give you the last word. It's

27:17

not an honest market. I don't

27:19

know how else to say it. What's not honest

27:22

about it? If I'm if I'm the retail

27:24

trader who says I like the Bitcoin white paper

27:26

and I like the community and I want to hold it. Great.

27:29

As long as you're willing to put real money into something that calls

27:31

itself a currency that is not a currency by

27:33

any reasonable economic definition. It's

27:35

gold. It's like digital gold

27:37

kind of. It's an investment. Right. They

27:40

want to market as digital gold. That's fine. As long

27:42

as you're willing to separate from your real money in the hopes that

27:44

you can make something out of this investment.

27:46

Go for it. I would just caution you

27:48

and I would encourage you to read my book or listen

27:51

to my book. I'm doing the audio book. I just came

27:53

from that. So you can you can listen to it for the bros

27:55

out there that don't want to read. Just

27:58

I don't know. Take a gander. I spent. I spent two years

28:00

looking at this. I interviewed Sam before he

28:02

was arrested. We talk about

28:05

Binance. Jacob and I wrote an article about Binance

28:07

in the Washington Post last year. There's

28:10

a heck of a lot of fraud. So let's see

28:12

how much fraud there is and then

28:14

see where that leads us. Yeah, and where we are, I'd

28:16

be curious, even just six months, even a year from now, as

28:19

the dust settles. Thank you both for your time today. Really appreciate

28:21

it. Ben McKenzie and Emily Parker. Coming

28:23

up, the world's largest venture capital firm is breaking

28:26

up. Is it about China or internal

28:29

drama? That's next in today's tech check,

28:31

Dows Down 69. The exchange is back after

28:33

this.

28:38

Welcome back to the exchange.

29:00

Sequoia Capital,

29:02

one of the world's largest and most vaunted

29:05

venture firms, is splitting up into

29:07

three independent entities, one focusing on the

29:09

US and Europe, another on Southeast Asia

29:11

and India, and another that will focus solely

29:13

on China. Is this a preview of more

29:15

corporate breakups to segment their China business

29:18

or something unique to this company? That's the subject

29:20

of today's tech check with Deirdre Bosa. Hi,

29:22

Deirdre.

29:24

Hi, Kelly. It might be a little bit of both, of course,

29:26

with geopolitical tensions rising. And remember

29:29

that Sequoia has that big investment in

29:31

ByteDance, but they largely operated

29:33

separate. That is Sequoia's US-based

29:35

business and its China business. So there may have

29:37

been some pressure there, but also, just look at the

29:39

nature of venture capitalism. It has been changing

29:42

for a decade.

29:43

Basically, the returns were huge.

29:45

You just had to kind of throw a dart and hit a company

29:48

and it was growing so fast. The environment that

29:50

we've been in over the last few years, when valuations

29:52

have come down, when maybe the

29:55

VCs have had a little bit more control, whereas

29:57

the founders before could just pick who they wanted to work

29:59

with, that is...

29:59

changed a lot of it and Sequoia has been hit hard

30:02

by this changing environment. Early stage,

30:04

yes, a lot of their investments are fine, but Roloff

30:06

Botha, who leads the firm, has still had to see

30:09

the write downs of billions of dollars in valuations

30:11

in their portfolio companies. I also thought it was

30:14

interesting, Kelly, what the

30:16

leaders of the other units

30:18

had to say about this move. There was Neil Shein, who's

30:20

going to be leading the China unit. He said many

30:22

Chinese entrepreneurs probably don't even know how to

30:24

spell Sequoia. And then you have the head

30:27

of the India business, who's going to be taking

30:29

that over, Shailendra

30:29

Singh, saying, we love Sequoia, but

30:32

our brand is our relationships and we feel that our

30:34

own brand is strong, which is quite

30:36

a statement because as you said, Kelly, Sequoia

30:38

is sort of seen as the gold standard in venture

30:40

capital. It has such a prestigious name.

30:43

It's known all over the world. But what they are essentially

30:45

saying is that,

30:46

you know, the brand isn't what it used

30:48

to be, at least in these markets, and they want to

30:50

strike out and do it there on their own. Yeah. Why

30:52

would they jettison the brand if

30:55

it's the most important asset that they

30:57

have? And yet that's

30:59

what they're issuing in a couple of these

31:01

key markets. Yeah.

31:04

Well, I spoke to Rolloff Botha this morning

31:06

shortly after the news came out. And he said

31:08

that this was largely a business

31:11

decision. The markets have become more

31:13

complicated. He said that founders have global ambitions

31:16

and borders have become fuzzy. They're seeing more

31:18

instances of portfolio conflicts

31:21

and brand confusion. And that is the idea that

31:23

a venture capital firm could become so

31:25

big that they invest in different companies that

31:28

ultimately end up competing with each other. Take, for

31:30

example, a square and a stripe, right?

31:32

One is sort of

31:34

the back end and one is consumer facing,

31:36

one's physical, one is web only, but they're

31:38

kind of merging now. And so he's saying that

31:40

there's conflict almost between

31:42

their portfolio companies. He says that, but I

31:45

would note, Kelly, as well that there's plenty of other

31:47

venture capital firms, I think, about a tiger

31:49

or a soft bank or, you know, DST that

31:52

has similar

31:53

relationships between their portfolio companies

31:55

and a presence in areas like China

31:58

where geopolitical tensions are

31:59

I'm not sure we're going to see them separate

32:02

their businesses. Exactly. That would be more

32:04

of a tell, I think. Deirdre, great reporting. Thank

32:06

you so much.

32:07

Our Deirdre Bosa. Coming up, a check

32:09

on the consumer. Three names reporting all

32:11

lower on the year. We've got the action, the story,

32:14

and the trade on them. There's a little preview.

32:16

It's coming up next after a break.

32:19

You just came from China. Yeah.

32:25

And you visited

32:25

Taiwan. Yeah. What's

32:28

your message to American CEOs? They're trying to still do business

32:31

in China. Is that possible? What's

32:33

the path to doing that now? Yeah. government.

32:37

And I think if you listen to Secretary Blinken,

32:39

Secretary Yellen, National Security Advisor

32:42

Jake Sullivan, the president, they're talking about

32:44

the right things. What are those things we need to do to make

32:46

sure we have national security? Certain

32:49

rare earths, kind of sillin, semiconductors.

32:51

And then they also want to deal with unfair trade. But

32:54

this takes time. It will take a lot of work. It takes

32:56

professional, proper policies. You know, not

32:58

just thoughtful stuff. So I think they're

33:00

doing the right things. They're getting a lot of help from the business community

33:03

about what's the right way to do it without damaging

33:05

American international businesses. The other very

33:07

important thing is these things need to be done on a

33:10

kind of a bipartisan basis and

33:13

with our allies. We got it. We

33:16

have to keep the allies together in this. When we do certain things and the

33:18

allies get mad at us, that's a mistake. Did

33:20

you get a sense of what the threat is to Taiwan? You

33:23

know, I'm not going to talk about that. But

33:26

we went there. I had to say I had to have Taiwanese employees

33:29

and clients and companies. I was thrilled to be

33:31

there. They were thrilled to have me there. And so I'll leave

33:33

the top foreign policy questions to the people whose

33:36

job it is to do that.

33:37

So the meeting was off the record, but can you give us broad

33:39

outlines of what messages you gave to these lawmakers on

33:41

the economy? You should ask them. They

33:44

said you were positive on China.

33:48

I've written a lot about China.

33:50

Read what I've written about, yeah. But

33:53

the thing about the economy is that today it's still doing

33:55

fine. It's in great shape. Home prices have gone

33:57

up for 10 years. The asset price has gone up.

33:59

That's in good position. It's

34:02

okay. We have issues down the road. And

34:05

the excess money is being spent down, quantitative

34:07

tightening, this war on Ukraine, oil, gas, etc. And

34:10

we have to deal with those. So hopefully

34:12

we'll get through all of that. They did just deal

34:14

with the debt limit without a catastrophe. Does that make

34:17

you more optimistic? Yes. Is there a potential

34:19

here for avoiding

34:21

a recession and having a

34:24

strong economy the next year?

34:26

Well, let me separate the two. I think it's fabulous

34:28

that we didn't have a debt-silling crisis. I applaud

34:31

everyone who voted for it, Democrats and Republicans.

34:33

I think it's great, these folks were strongly in

34:35

favor of not having a debt-silling

34:38

crisis, stuff like that. If I had my druthers,

34:40

I'd get rid of it one day. It's just one of these

34:42

things that each side will torch the other side

34:44

with when they can, when they feel like they've been mistreated.

34:47

But it is potentially terrible.

34:50

And when you travel around the world, you have to understand

34:52

the United States is the fundamental

34:54

foundation of the global economy.

34:56

The U.S. dollar is the fundamental

34:58

reserve currency. People rely on

35:00

the consistency standards

35:03

that we have, the rule of law, our

35:05

vested protections. We shouldn't be challenging

35:07

that. And so I hope one day we do something

35:10

to eliminate this as a problem. And

35:12

yes, it's a small positive for the economy. Or

35:15

put it the other way around, it'd be a huge negative if

35:17

it hadn't been passed. So this is the last question.

35:19

Do you think there needs to be more initiative from the White House

35:21

or even CEOs to tackle this challenge with

35:24

China?

35:25

Oh my God, I think they're

35:27

all talking about it. They've given extensive

35:29

speeches and comments. They're talking

35:31

in the business community the right way to do it. I think they're talking

35:33

in the alley the right way to do it. It's just a little more

35:36

complicated than a binary thing. There's

35:38

a great poem. Remember that poem? If

35:41

you can keep your head about yours and everyone else is losing

35:43

theirs, that's what you should do in this one. America

35:45

is in very good shape. They are not

35:47

a 10-foot giant. We have $75,000 GDP. They

35:51

have $15,000. We made some mistakes

35:53

in the past. We're going to fix it going forward. We

35:56

have the most prosperous economy the world's ever seen. We've got

35:58

very good demographics. All the food we want.

35:59

We need no war in North America, South America.

36:02

We got the Atlantic and the Pacific, the world's

36:04

strongest military. Take a deep breath. Is that

36:06

a campaign speech? Ha ha

36:09

ha. Thank you, sir. Thank you. That's

36:11

not a complete no. No, no. No,

36:13

no. What do you want to say?

36:15

Is that a campaign speech? You heard

36:17

Amen. Our Amen Javer is asking that

36:19

question to J.P. Morgan, CEO Jamie Dimon, who we just heard from leaving

36:21

his meeting with House Democrats on Capitol Hill, referencing

36:25

if the Rudyard Kipling poem, among many

36:27

other comments. Meantime, we've got a consumer-focused

36:29

edition of earnings exchange standing ready. We've

36:31

got Campbell Soup, Brown Foreman, Dave and Buster's

36:34

all about to report earnings. Let's get right

36:36

into it with Campbell Soup down 11% this year. As

36:39

investors watch to see just how much pricing

36:41

power is left in their tank, they hiked full-year

36:43

guidance last release, but also fueled some concerns

36:45

about margin compression. Jeffries and Bernstein

36:47

have both flagged increased promotional spend lately.

36:50

Rival Smucker this morning said they expect

36:52

inflation, supply chain snarls, and

36:55

a tough macro to continue to impact results into

36:57

next year. Jeff Kilburg is here with our trades

36:59

today. He's KKM Financial founder and

37:01

CEO and CNBC contributor. Jeff, it's good

37:04

to see you. We're going to run through these three stocks. Campbell

37:06

Soup down 2.5% today. Would

37:08

you be buying it?

37:09

You know what? I'm a seller here at Kelly. At the end of

37:11

the day, this has been a laggard. I want to own

37:14

General Mills instead. I think a lot

37:16

of the efficiencies and cost seems implemented.

37:18

Those have already been priced in. So this looks like a broken

37:21

chart to me. I'm staying away even though I love

37:23

Campbell Soup.

37:24

Yeah, no insult to the soup itself. We've

37:26

got Soup, Whiskey, and Dave and Buster's an interesting trio

37:28

here. So let's move on to Brown Foreman Jeff shares

37:30

of that company behind Jack Daniels and Corbell

37:33

down about 4% this year. Perhaps

37:36

indicating that booze is not recession-proof.

37:39

Although yesterday the company did announce plans to distribute

37:41

brands in Japan starting in 2024. Analysts

37:44

watching margins, forex conditions, input

37:46

costs. What would you do with the stock?

37:49

Well, Kelly, to piggyback off of Jamie Dimon

37:51

there. Let's take a big deep breath and maybe even take a sip.

37:53

Let's remember Brown Foreman. This is

37:55

Jack Daniels. This is also if you ever had a

37:57

Manhattan with Woodford Reserve in it. This

38:00

is their brand. This is their premium brand. So here's

38:02

the $30 billion market cap company I want to be a buyer

38:04

of. I think it has the ability to take over its

38:07

50-day and 20-day moving average on

38:09

great earnings. It's really fascinating to see

38:11

that distribution component you talked about. They're taking

38:14

it back in-house over in Japan. And Japan's

38:16

whiskey market is growing at 10% a year. Currently,

38:18

it's about $4 billion at Japanese

38:21

complete market. So it's going to be projected in 2032 at $10 billion.

38:25

And if you have Jack Daniels and Woodford Reserve, that

38:27

puts him in a great spot. So I want to be a buyer

38:29

even though it has been a laggard year to date. I thought maybe

38:31

your taste buds were just speaking for you. But

38:33

maybe you've convinced me with those remarks, Jeff. Let's

38:36

move along then to Dave and Buster's, one of the best

38:38

tickers, Play. Shares are down 8% this

38:40

year. Comps and revenue in both food

38:42

and amusements did beat last quarter because

38:44

people are spending on experiences. And I can

38:46

speak firsthand. You need to bring your kids somewhere. They're

38:48

expected to be helped by lower food costs now. And

38:51

guidance will obviously be key to watch. Are you

38:53

surprised the stock's doing what it's done so far? It's up 4% today.

38:57

You

38:57

know what? I'm not surprised, but it is interesting

38:59

to see a little jump before earnings. But Dave

39:01

and Buster's a place that is near and dear to my heart with

39:04

all my kids. But at the end of the day, I think it's a

39:06

range-bound stock. P-L-A-Y

39:09

is the ticker symbol. It's a very small

39:12

market cap. It's under $2 billion. So you have to understand

39:14

that this is twice the beta

39:16

of the S&P 500. So this is not really a long-term investment. From

39:19

a trading perspective, you have support at $30. I

39:22

think you buy it here, get out the whack-a-mole, dodge

39:24

the bullet, and watch it go back up to $40 because this is a stock

39:26

that goes up and down. And if you look

39:29

at a chart, it's really provided traders,

39:31

not necessarily investors, Kelly. It's provided traders

39:33

an opportunity to get in and out.

39:35

You're right. Billion and a half market cap. It's tiny.

39:38

I usually try to be right for you, Kelly. Come on.

39:40

Jeff Kilburg,

39:42

thanks for your time today. Always good to see you. You bet.

39:45

And that does it for this earnings exchange. Switching

39:47

gears to private equity, last year KKR

39:50

sold garage door maker CHI to Newcore

39:52

for $3 billion. Well, what's

39:54

the big deal? It was a huge windfall for the private

39:56

equity firm, but also to the employees,

39:59

thanks to an ownership.

39:59

structure ginned up by Pete Stavros,

40:02

KKR's co-head of global private equity.

40:04

Our Leslie Picker has been following this story and

40:06

is here with the latest and with the latest company

40:09

Leslie that KKR is hoping to shake up. Hey

40:11

Kelly that's right KKR announcing it plans

40:13

to be the new owner of pump manufacturer,

40:16

Cercor, but as part of the 1.6 billion

40:19

dollar take private every Cercor

40:21

employee including hourly factory

40:23

workers will also get a stake

40:26

in the company. Broad based employee ownership

40:28

has been championed by KKR Stavros

40:30

since 2011 KKR portfolio

40:33

companies have awarded billions of

40:35

dollars in total equity value to over 50,000

40:38

non-management employees. Stavros

40:41

says the payoff is huge.

40:44

The program encompasses a lot more than just handing

40:46

out stock. It's about giving people

40:48

a voice in their work teaching

40:51

financial literacy driving a really robust

40:53

employee engagement effort and it's

40:55

all of those things taken together that

40:57

deliver the kind of outcomes we've seen at

41:00

the other you know the other 30 times that we've done this.

41:03

When it's done well all of those metrics go

41:05

in the right direction value is created and everyone

41:07

participates at the end.

41:09

They'll likely hold on to Cercor for

41:12

a while but down the road when they do

41:14

ultimately exit those employees will

41:16

get cash in a sale or stock at an IPO.

41:19

Depending on those returns these payouts can be

41:21

worth six figures. He says

41:23

that's created more workforce loyalty especially

41:26

in a tight labor market.

41:28

You can see people

41:30

less likely to quit their jobs more engaged

41:32

on the job. If you look at federal statistics

41:35

on turnover

41:36

we're living in a world right now where

41:39

almost four in ten Americans quit their

41:41

job every year.

41:43

70% of Americans according to Gallup

41:46

are not engaged on the job.

41:48

These statistics are they're bad for

41:50

workers because people are bouncing around for jobs

41:52

to jobs and not

41:54

advancing their skills

41:56

and it's bad for companies. Of

41:58

course this program is incumbent. upon the deal

42:00

closing, which is expected in the fourth quarter

42:03

of this year subject to various approvals.

42:05

Henry McVeigh first told me about this, how KKR

42:08

always tries to do this with equity ownership among

42:10

employees at companies that they buy or that

42:12

they're involved with. I wonder if it should

42:15

be more widespread. Are there any downsides or trade-offs?

42:17

I mean, do people have to take lower kind

42:19

of annual comp to make up for this? They

42:21

don't. It's a great question. And I just

42:23

spoke with Stavros about that as well. It's an added

42:25

benefit as part of the program. They don't have

42:27

to take any wage cuts in

42:29

order

42:29

to make this happen. They're not taking

42:32

on any additional risk as a result of that

42:34

because that was my concern, too, given

42:36

kind of what we're seeing with regard to wage inflation.

42:39

Is this a way that companies are trying to kind of work

42:41

around that? No, the answer is it

42:43

isn't. The pushback they do get from

42:45

CEOs is just time management, the ability

42:47

to kind of oversee this, manage

42:50

all of this. It does take some time, especially

42:52

the financial literacy component of

42:54

it, the awarding of the stock, kind

42:56

of how to divvy it all up. So he says

42:58

that's the number one pushback

42:59

they get. Or do people just sell the shares? And

43:03

sort of like if you want to be incentivized to have the company

43:05

perform well, you've got to hang on to them. There might be people

43:07

who, once they can, just say, I'd rather diversify because

43:09

I don't want all my corporate and stock ownership

43:11

eggs in the same basket. Well, they're in a take private

43:13

like this. They're locked up just alongside

43:16

KKR's investors. So they

43:18

will get liquidity here when KKR investors

43:20

get liquidity. So they are, from

43:22

that standpoint, incentivized to stay on until

43:25

there is some sort of transaction down the road, which

43:27

these funds oftentimes are 10 years.

43:29

It can last a full decade. So fascinating.

43:32

Leslie, thanks for taking us inside. We appreciate it.

43:34

Leslie Picker. Still ahead, shares of Academy Sports

43:37

and Outdoors hired today despite an earnings miss

43:39

and weaker than expected comps. We'll talk to

43:41

very newly installed CEO, Steve

43:43

Lawrence, in his first TV interview since taking

43:46

the job. That's next.

43:56

Welcome back. Shares of Academy Sports and

43:58

Outdoors hired today despite missing

43:59

on the top and bottom lines. Weaker than expected

44:02

comps, a lower revision to its full year outlook,

44:04

but the shares are up a percent and a half. They're seeing 680

44:06

to 750 a share of EPS this year

44:09

and full year sales a little over 6 billion.

44:11

Management saying customers are dealing with macro headwinds

44:13

and are being cautious with how and when they spend.

44:16

Joining me now in his first TV interview since taking

44:18

the helm less than a week ago, Steve

44:20

Lawrence is the CEO of Academy Sports and

44:22

Outdoors. Steve, welcome. And it's nice to meet you and

44:25

have you here. It's

44:26

nice to meet you virtually too. You know, we always

44:28

enjoyed speaking with Ken and I'm curious

44:31

about the timing of this because he got to tell us about all

44:33

the good stuff that was happening and now you have to come in

44:35

and tell us about some of the things that are weakening

44:37

somewhat.

44:38

Well, I'll point that out to him. But, you know, I'll

44:41

be honest, it's been an honor working with Ken for the past

44:44

four and a half years. He's a legend

44:46

in the industry and certainly got big shoes to fill

44:48

following him into this role. Well, and people really took

44:50

notice of the stock after they said, you know, hey, you should

44:52

really check out what's been happening with Academy Sports. And

44:54

by having him on, he was able to highlight the

44:57

business model, the growth, you know, where you guys have been

44:59

making inroads. But a lot of that was hyper

45:01

fueled by the pandemic. And what happens

45:03

now?

45:04

You know, so we just announced

45:06

back in early April, a new long range plan

45:09

that has three pillars to it. First,

45:11

new store growth. We're going to open up 120 to 140

45:13

stores over the next five

45:15

years. A lot of those stores are going to be new

45:17

markets. So, you know, our geography right

45:19

now is in about 18 stores. We think there's

45:21

a lot of opportunity to expand our store base into

45:24

new markets, new states. We

45:26

think there's still a lot of growth for us in

45:28

our dot com business. We're at about 10 percent

45:30

penetration. We think longer term we can

45:32

get into the 15 percent range or higher.

45:34

And then we've got to make sure that we increase

45:37

productivity, our existing store base. So we're

45:39

also focused on that as well and making sure

45:41

that the existing stores we have are productive

45:43

and profitable. So that's kind of the three pillars that we rolled

45:45

out.

45:46

And we're very confident our plans to move

45:48

forward. Who are you taking share from? Is

45:51

it a Dick's? Is it a Walmart? You know, when

45:53

you move into markets where you haven't previously had

45:55

share?

45:56

I think it depends upon who the competitive set is in that

45:58

marketplace.

45:59

you know, honestly, we're not as focused on who we take

46:02

it from. We just know that when we go in the

46:04

value proposition that we offer, the

46:07

strong operating model we have, it translates well into

46:09

new geographies. And so we're kind of agnostic on

46:11

where the share comes from. We just know that the

46:13

share we're going to pick up.

46:14

Yeah. Ken used to always give us a little bit of insight

46:17

into what was selling. Remember one time it was, you know,

46:19

bicycles or he's, you know, jerseys were a hot

46:21

seller. And lately we've had to kind of flip the question

46:23

a little bit and say, you know, what are some of the weak

46:25

spots that you're noticing? You know,

46:27

and where do you see the consumer behaving

46:29

differently? Maybe in 2023 than in 2022.

46:33

Yeah. We've seen a real bifurcation in

46:35

the customer, I think so far in the first quarter

46:37

on one end of the spectrum, you know, the customer is gravitating

46:40

towards value. So any place

46:42

they can stretch their dollars, that's working for them.

46:44

The other place though is newness.

46:47

You know, we certainly have seen customers drive

46:49

towards if we have a new brand or new idea, we've got,

46:52

Hey dude, that's in our store less than a year. We launched

46:54

Birkenstocks it's past year, Blackstone

46:56

and griddles is working very well. Over

46:59

in a big brand like Yeti where they have new

47:01

colors and a new water bottle called the

47:03

Yonder that's worked very well for us on

47:05

the flip side. You know, customers aren't

47:08

paying more for the same. So in some cases, there's

47:11

been some supply chain pressures out there that push prices

47:13

up and customers aren't accepting

47:15

that if it's the same at a higher price. So we've

47:18

had to be very thoughtful as we've navigated this and make sure

47:20

that we're representing value and newness to the

47:22

consumer. Cause that's clearly what they're

47:23

voting for. That's interesting. Crocs investors will be relieved

47:25

to hear that, Hey dude, is a big

47:28

area of focus. I thought maybe you were going to talk

47:30

about pickleball as well in terms of new sports.

47:33

Pickleball is another one for us. That's growing very

47:35

fast for us. You know, and that's,

47:37

that's the point is we've got newness across a lot

47:39

of different categories. It's really our job as a retailer

47:42

to go out, find that newness, highlight it and

47:44

make it a big deal in our stores and make sure customers

47:46

know we have that.

47:46

Yeah. And I'm a sucker for those Yeti colors. I

47:49

go, I know this is irrational, but it's new and it's

47:51

pretty, and I like it. A final question then,

47:53

as you mentioned, customers are pushing back somewhat on price.

47:56

What, you know, when you talk about how much

47:58

you can see ahead three months, six months.

47:59

I don't know quite what the horizon

48:02

is. How do you expect the summer

48:05

kind of into the back to school season to go for you

48:07

guys?

48:08

Yeah, I mean, so we revised our guidance down

48:11

from where it was before,

48:12

where we thought on the upside

48:15

we could be up to, maybe down one to down four

48:17

and a half, down seven and a half. So we

48:19

think it's going to be a challenged environment for the remainder of the year.

48:22

That being said, we

48:25

can control the things that are in our power, right? We can make sure

48:27

that we're delivering against value. We've got a strong stable

48:29

of brands, private brands, we can deliver value against.

48:31

We've got a lot of pipeline of newness coming in. So

48:34

we're going to make sure we're delivering against the thing the customers

48:36

want. And I think that's going to help

48:38

us gain market share.

48:39

Are they all just, you know, on a plane or

48:41

trying to get to a Taylor Swift concert? Or

48:43

is that the problem? I

48:46

don't know. My daughter certainly partook in the Taylor

48:48

Swift concert. Yeah, exactly. Steve,

48:51

thanks so much for joining us. It's a pleasure to have

48:53

you on and good luck. Thanks. Appreciate

48:55

it. Steve Lawrence with Academy Sports and Outdoors.

48:57

As the Dow hits a hundred point decline, that does it for

49:00

us on The Exchange. Power Lunch will pick things up next.

49:02

Taking a look at this company with shares of more

49:04

than 4% on the back of an earnings beat. Another

49:07

read on the consumer with the CEO of Boot

49:09

Barn. Tyler's got his cowboy hat ready. I'll

49:11

see him on the other side of this break.

49:13

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