tv The Exchange CNBC July 7, 2021 1:00pm-2:00pm EDT
bank which has 6% dividend yield, very new york focused, which has been bet against i don't think you bet against new york city. they will do well whether interest rates stay flat or go up it was upgraded last week with a $19 price target >> don't bet against the big apple. jon najarian last to you, quick. >> mel coe is $10 under the high >> thanks everybody. "the exchange" starts now. thank you, scott i am morgan brennan and here is what's ahead we've got interest rates falling to 10-year down. technical levels point to an even bigger drop in an hour we will get the minutes from the fed when the committee started to sound a bit more hawkish we're going to debate which way rates are going to go next chinese stocks selling off again. did u.s. investors overrate. and how welcoming is it to outside investors?
plus more people are playing with crypto. you heard that right more people are drinking hard seltzer too, and some people are working less but getting paid the same that is coming up in rapid fire. bu but we are going to begin with the markets on "the exchange." the numbers are green at this point in the market right near session highs we're going to put gold stars next to the s&p 500 and nasdaq both of those major indicis hit record highs at some point earlier in the session keep an eye on those as a point of reference we are tilting high right now at the highs of the day we are up roughly 15 points at the s&p and the lows relatively 14 points that's where we are in a trading range. you mentioned the interest rate picture. mid-february that's the last time we saw ten-year yields trade at these kinds of levels. as you watch those particular trades happen, is there more weakness ahead in yields, more strength in those treasury bond
prices that's going to be a key one to watch. as for the reverberations, two key parts of the market that are impacted in some way by this are financials you can see bank of america and citigroup both relatively weak on the day those big banks key focus on the rates. lower interest rates helped power the more growth oriented technology valuations. apple and amazon both up on the session right now. so, that's something else to watch. and speaking of interest rates, housing. a very big focus as interest rates creep higher, the affordability goes down. but when interest rates go lower, check out these home builders, all among the best performers in the s&p 500 today. so, morgan, everything has in some way affected by interest rates. those are the key ones to watch. i'll send thengs back to you >> all right that's a good way to kick this off. let's get more on the sharp move we have seen lower yields ahead of the fed's minutes from the june meeting rick santelli is here with a
look at what is behind the slide in rates rick, i'm hear ago i lot of different narrativing kick around right now >> there's lots of different narratives but the best narrative is follow the money and know where the positions are. we had a parking lot that was looking for higher interest rates. doesn't happen overnight when you start to redirect the cars out of one trade maybe into another. here's an intraday chart notice that scalloped pattern lowering yield and on the two-day you can see it accelerating under yesterday's low yield. that's classic momentum building and the reason, yesterday you had the service sector ism, for example, the employment index dipped below 50. jobs, jobs, jobs always important. we learned this morning, 9,209,000 job openings but the trick is matching openings with the people and it may take a bit longer and gets a little bit messy productivity with the supply
issues, all of those are a growth story that we're taking away some yield on the treasury complex even though maybe inflation might have moderated a bit, many are saying it's inflation and less growth. there you go if you look at the chart, we haven't closed ten years at this level as dom pointed out since the 10th of february -- i'm sorry, 18th of february. 30 year bonds made it all the way down to 191, 193, and that trade we haven't seen since the 10th so, it is very important watching the entire curve. very quickly, look at that dollar index it's jumped over the last two significant tops on pace for the best close in three months >> i'm glad you brought up the dollar index, rick the fact we have seen that strengthening, what is that indicating giving the broader conversation we are having about rates? >> it really is counterintuitive rates going down shouldn't be good for a country's dollar, but it is in this instance and i
really do think it's technically driven on both sides rates are going down for technical reasons. the dollar is going up look for the dollar move to last longer than the rate move. >> thank you what will this mean for investors if rates continue to drop jason brady, president and ceo of thorn berg investment management joins me. gentlemen, good afternoon to you both i'll start with you. do you agree with what rick santelli just said about why we're seeing the move lower in rates right now? >> yeah, i mean inflation fears at least as the markets are pricing them in kind of came through in mid-march or so since that point we've been declining in inflation pricing and my sense is that a lot of real money buyers, such as funds and pensions, were a little bit shorter than target duration after the sell off early in the year and with inflation expectations declining, giving a little bit
of an all-clear signal, they've been wading back in over the course of the last several weeks. the last few days, however, is more about financials. financial institutions who have been adding assets, adding duration after the end of the second quarter reported period >> jason, i want to get your thoughts on this and specifically whether you think yields are going higher or lower in the near term and what that means for how you're positioning or how you think investors should be positions themselves and other markets, for example, equities >> sure. clearly rates are driving a lot of the narrative today and frankly over the course of this year, really since november when we saw the shift from growth to value and now a little bit back again the other way i want to sort of cast our minds back a little bit and remember when the actual fed meeting occurred and folks got really scared about much higher rates since then what we've seen is not a rollover in the economy at all but a slight moderation from what was really a huge and aggressive reopening trade
so, look, i think in the near term we still have positioning ultimately i would expect higher yields not because growth is going to be blowout but because yields are really low and on the horizon is not a fed that's going to be aggressive but a fed that is going to be tapering >> would you expect -- i guess -- i realize you expect rates eventually to climb up but in the near term the rotation we've seen out of the so-called reopening, reflation trades into things like big tech, for example, do you expect that to have some legs here? or is this really just summer gyrations? >> i mean, it's definitely summer gyrations i think what we'll get is earnings shortly from the financials in particular daniel pen toe was on the tape recently talking about how trading conditions are going to continue to improve all year, albeit with tough comps from last year. i think the catalyst for reexamination is going to be
earnings it's going to be fundamentals. that will be a time when financials and other reflation nare trades regain traction. >> dean, i want to get your thoughts on what you expect to see from the fed minutes later today. a couple weeks ago we got a less dovish fed but still a lot of question marks about a taper timeline, about what constitutes substantial progress are you expecting any kind of changes to that narrative or that dialogue this afternoon >> we're very unlikely to get any sort of bright lines out of the fomc minutes so, from my standpoint, the biggest shift that accompanied the june fomc meeting was the slightest hint that policy makers were less confident in the average inflation targeting regime, right? and so that raised concerns about perhaps premature rate
hikes in the event of slightly higher inflation numbers and that's a lot of what i expect is behind the flattening curve in the subsequent period now, the fomc's minutes, they tend to massage or emphasize certain points that the fed wants to make that have emerged between when the meeting happened and when those minutes are released so, i think what we'll see actually is a few lines on greater confidence in reinforcing policy makers' belief in their average inflation regime rather than a discussion of tapering itself. and in the absence of further buying on the part of some of those foreign banks and other financial institutions i mentioned a moment ago, that could be the end, or the beginning of the end, if you will, of the most recentrally in the long end of the curve. >> we'll see what we get in the next 50 minutes. thank you for joining us today, kicking off this hour. >> thank you well, despite the drop in rates, mortgage applications fell for the second week in a row, hitting their lowest level
since january of last year so, that is before the pandemic. applications to refinance also took a hit and are now down 8% versus a year ago. that's after trending lower for about four months. at the same time, core logic's latest report shows that home prices in may saw the highest year-over-year gain since 2005 they expect higher prices to persist until the middle of next year, meaning it might be a while before we see demand tick up again with mortgage apps and rating falls at the same time, could this be the first time of a slowing house market and with it the sectors that have soared my next guest says fears of a slowdown might be overblown and names that built big gains -- get it, built -- on housing boom will continue to rally let's bring in senior home builders and home products analyst at jpmorgan, michael great to have you on i read all those different data points, and the headline is
inventory. not enough inventory inventory shortage i know dianne na olick has been talking about for a long time. given the p landscape, it has been on fire, there just isn't enough of it right now what do you consider to be buys or investing opportunities within your coverage universe? >> great thanks for having me on. you know, we cover both the home builders and the builder products names and on the home building side, it's our contention that some of the softness you've recently seen in terms of mortgage purchase apps or other industry data points is more being driven by not just supply being tight but by a lot of the builders being sold out or managing their sells pace, so really not being as much of a demand issue as more of a moderation by activity by the producers themselves. and that's, in effect, a good problem. you know, we're positive overall on the home building side with
an upside potential to our price targets of over 30%, as we believe that the housing cycle isn't over, that there's at least two or three more years to go and that earnings can continue to grow over that time. that being said, on the product side -- i'm sorry. go ahead >> no, go ahead. on the product side. >> thanks. on the product side, we have a report out today in which we highlighted top picks for the back half of this year on the building product side, there's a little bit of a different dynamic where diy demand is starting to slow a little bit and so we favor certain names that have easier comps on the back half, that didn't participate in that strong robust rebound in the back half of '20 that would be whirlpool and mohawk while at the same time we
downgraded masco to underweight. that's really more caught in the eye of the storm right now in terms of deceleration. excuse me. in terms of deceleration and having some tough comps, specifically with diy and paint as well. >> when you say the housing market has legs, this could go another two or three years, what are the biggest risks to that? we just talked about it. the talk of taper and mortgage backed security social security a part of that equation. if you start to see the feds start to unwind some of that -- if you do start to see rates begin to climb up, does that impact this entire investment thesis or no it doesn't matter, there's just not enough homes and it's a resilient trade >> so, the way we think about rates is that, you know, during the period of a sharp move up in rates, that will almost always cause a pause in activity.
you know, what's interesting right now is that rate versus actually receded, as you were saying before, but, you know, with the 10-year at 1.3 and just a few weeks ago, 1.5, i don't think you really get significant damage to the housing market until you're in a 1.8-2.0 type of range and even then it's more of a temporary impact, more cause of pause in activity. but when you take a step back and look at the longer term, you know, housing starts right now are just getting back to plus or minus long-term averages i think the most recent data point was 1.6 million. you go back to the last cycle. there were eight years well above those long-term averages and we're coming out of an unprecedented 12 years when we
were below those long-term averages >> how can we forget, right? the great financial crisis and the housing boom and bust that brought us to this conversation today. thank you for joining us >> thank you coming up, u.s. listed chinese firms are in the red again, as beijing's tech crackdown continues to ramp up is there a china discount that the market is ignoring, or are companies not warning investors enough about the risks to start with we're going to explore that, debate where all of this goes from here. plus the end of the jedi the pentagon cancelling its up to $10 billion cloud contract. but it is launching a different cloud contract under a different name both microsoft and amazon hitting all-time highs today on this news. we're going to break that down back after this. >> announcer: this is "the exchange" on cnbc.
enough of the risk joining me now to dig into both of those key questions, fred kemp, atlantic council ceo and marco papitch, chief strategist -- ugh, she can speak. thank you for having me. fred, i'll start with you. it seems like the question, the overarching question here, is this really -- this crackdown we're seeing in china, is this really about data and ramifications for national security or is this a sea change in terms of chinese companies looking to list overseas and the country not liking that? >> well, i think what it does is it underscores the chinese communist party, which celebrated its 100th birthday last week. and don't forget didi wanted to do its ipo for june 30th, one day ahead of the party decided not to ring the bell decided not to market it so, it knew that something was a
little off here. and it shows that the party is sending a message to the companies, particularly tech companies, we're in charge you're not in charge and it's got to be sending a message to investors, particularly u.s. investors but not only, that we can change the rules that are going to reduce the worth of a listed stock overnight. and there's no way you can predict that so, i don't know how one can actually disclose risk when the only people who know what the risk is are the leaders of the party and president xi jinping, and he can change the rules on these companies at any time. >> i mean just to dig into that a little bit more, marco you go back to last fall, right, and what we saw in terms of china's scrutiny of ant financial as that company was looking to go public as well there have been a number of incidents in recent months so, it raises the question, has the market here and investors here overlooked or perhaps underestimated the risks of investing in chinese tech
companies? >> well, i think -- >> marco >> was that for me >> that's for marco. >> okay. sorry. >> yes so, no, i would say not really because if you look at the internet stock companies, chinese internet tech companies, they have been underperforming non-internet tech companies since february that's the first issue and there's really three things going on here. first of all china is starting to show it cares about data privacy as much as the u.s there's a little bit of tit for tat. second, regulators on didi do not do an ipo. just because shareholders want to cash out, we have more digging to do. didi decided to side with the shareholders, not the regulator. obviously that irked beijing investors have to understand beijing doesn't understand the soft debt companies as innovation if you look at the sci tech
innovation star, that is ipo change technological innovation is something china favors china believes in those innovation companies as the true future and this modification of business model is not something beijing favors and will continue to crack down on internet tech companies. tech companies overall have done very well since february in china. >> just to piggyback off of that question which i know you clearly have thoughts on, deal logic says that chinese companies have raised over $75 billion in u.s. ipos since 2012 reportedly there are another three dozen in the pipeline to go public in the u.s what does this do to future companies and the fundraising possibilities? >> there have been 35 launches this year in the u.s., new listings of chinese companies. and i think what the investors have to do is look at which of
them are involved are beta, which are involved in internet, which are involved in ai and those are the ones i think one has to take a fresh look at. i think what you really touched on is the -- this is more about lost potential than lost money now. you know, we work with the atlantic council and sort of extrapolating out what reforms in china could be worth. and you could have by 2030, $45 trillion falling to the chinese market but if the party continues to crack down -- and they're not just cracking down on companies, there's also more repression internally it's what's going on in gin zhang province it's what's going on in hong kong if this continues to be the trend i think it will have a chilling impact on the potential for the investment coming into china but also companies being able to tap investment in places like new york. and don't forget the reason these companies go to new york is new york investors are more
willing to bear risk and take risk than at this point hong kong or shanghai investors are >> marko, as we have this conversation, we're seeing the powers and review potential expanding as well. now you have reports that the biden administration is going to continue to expand that scrutiny and that regulatory ability as well looking out over not only the coming months but now the coming years, do you foresee a greater decoupling of these two economies at least from perhaps a tech or financial standpoint >> you know, morgan, fred is right. there is definitely greater scrutiny on the chinese side, and there is also on the u.s. as you point out. i would actually say that far more relevant, holding the foreign companies accountable act which has been accelerated
i think over the next two years you will see a lot of delisting of the biden administration, much like the trump administration, maybe even more focused on this issue. what is the winner here? fred is right. there isn't much appetite for risk chinese regulators are saying we're not going to let the star platform be able to non-innovative business model innovation companies like internet stocks. but that does open up an opportunity for the hong kong financial system, which many investors actually left for dead in 2019 after the protest. because you have -- you basically have beijing and washington in agreement in a way. none of them want ipos in the u.s. markets china doesn't want them on share. shares are not ready for this. so, the real winner here is hong kong >> all right we're going to leave the conversation there, gentlemen. i'm sure we're not done talking about it either. thanks for being with us today coming up, shares of this
seltzer maker have fizzled out over the past several months one firm is upgrading stocks saying seltzer is on track for a turn around. we're going to bring that name for this mystery chart next. and am track is full speed ahead with a multi-billion dollar investment in its fleet we are going to hear from the ceo on what it means for the future of rail and infrastructure in this country finally as we head to break, check out some of the names that are trading at all-time highs today, alphabet, chipotle, costco, american express and target so, stay with us and don't forget, by the way, bcu can watch us live using the cn app "the exchange" will be right back with a hybrid, you can do both. that's why manufacturers are going hybrid with ibm. with watson on a hybrid cloud factories can use ai to automate the little things so they can focus on the next big thing.
♪ welcome back to "the exchange." i'm rahel solomon. here is your cnbc update ame merrick garland has been briefed on shootings of two undercover police officers in chicago their injuries are not considered to be life threatening and no arrests have been reported just yet efforts are underway to medevac haiti's first lady to
miami. she is in critical condition after surviving that attack that killed her husband a ticker tape parade to get through the pandemic 2,500 people and 13 bands took part in the parade and on "the news," what would we have done without them. thanking covid heroes as america strives to get back to normal. and morgan, the grand marshal of the parade was the first person in the u.s. to get the vaccine, that nurse out in queens so, really nice to see today's festivities. i'll send it back to you >> that's fantastic. i didn't realize that. we got a front row seat. >> that's cool markets right now are losing steam. the nasdaq is back in the red as you can see right there. but barely it's basically flat for the hour right now. the dow is hovering near the flat line as well. that is up just a mere 28 points and the s&p right now is up about .2%. energy is the biggest laggard.
that's continuing after notching the best first half of the year since the sector's inception the opec's goings on are in focus. here are some of the movers this hour more specifically though, electronics-focused retailer which speaks to the meme mania get a load of this chart it is up 460% in the past two days and in fact this stock had a market cap of less than $10 million at the end of june it is now valued at more than $20 billion. let that one sink in also tesla and nio are moving lower as mizuho reiterates it has a buy rating we're seeing pressure there, selling there. the firm says they are well positioned as legacy makers struggle to balance between combustion and evs for more on that call you can head over to cnbc.com/pro.
now in the meantime, coming up after this break, "rapid fire" is next. that jedi contract is back in play or maybe we should say not back in play there are new rules for hard seltzer, and iceland's experiment with a four-day work week those are all stories we're going to be digging in on after this ♪ ♪ when technology is easier to use...
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welcome back let's catch you up on a few stories that should be on your radar today. it is time for "rapid fire." here to break down the headlines host and senior editor of marketplace tech, and mike santoli. good afternoon to the three of you. first big news out of the pentagon the department of defense is calling off the up to $10 billion jedi cloud contract which was awarded to microsoft by the trump administration and had been the source of multiple protests, including a legal fight between the u.s. government and amazon for the better part of two years now the dod is announcing a new program. this is a new multiavenger contract that it's going to be looking for requests for proposals from microsoft and amazon expected to be the potential winners there
in the coming months that program called joint war fighter cloud capability or jwcc, not quite as sexy as jedi. but mike santoli, the fact we are seeing these big heavy hitter tech names at new highs on a potential new government cloud competition says what about the market more broadly? >> well, i think the market has been trending in the direction of those types of stocks in the first place. we have apple up today it's not really in the running for something like this. i do think it comes as a fairly pragmatic solution here both because it was going to be caught up in some litigation for a while. and, you know, never had to be a wi winner-take-all single thing i think the market has moved on from the idea this is going to be an endorsement of one company or another's better mouse trap it reinforces the idea there's
multiple plays in the area they can all kind of thrive in some corners of it >> molly we're talking about a very specific contract or a very specific agency within the u.s. government it does speak more broadly to this turf war, if you will, that we have seen within cloud whether it is microsoft or amazon or to a lesser extent google or ibm right now. >> you have the department of defense writing a brief that says we're going to restart this contract process even though only these two companies, which are named, have the technological capability to meet that contract. that is kind of a weird position to find ourselves in when really there are only three providers, microsoft, amazon and google, that do this at all. and you have dod saying, you know, the future of our military depends on these two stopping fighting and maybe both of them getting a trophy >> it's such a key point because you're talking about
capabilities and security clearances that literally translate to life and death, frank collins. and i think it speaks to and it's been a focus for investors on the private sector side as we come out of the pandemic, the digitization of everything where not only the future of warfare in case of the cloud contract with the dod but the future of everything as every entity tries to become a tech entity essentially. >> you know, basically just from a business perspective, amazon appears to be the winner they went from getting nothing out of this deal to potentially getting a piece of this new thing, isn't as sec xy microsoft made a pretty solid point in their blog post is that a lawsuit can hold up technology that the department of defense held up as critical for defending troops and this country. and the lawsuit has held things up and there's only two people who could have done it and they know who the people are and their internal review found one company was better
>> it's such a key point because we've always seen the more established defense contractors -- protests are not uncommon to the dod, but we tend to see them protest to the gao you have the amazon z and microsofts and basically startups, if you will, who are coming to do business now and are taking a much more legal approach and so far, notably, they've been wing. that's not to say that amazon won in court here because they did not. but the fact that jedi was even scrapped because of how long it was taking is notable. so we're going to move on to another hot topic right now. that is signal crypto. the signal crypto is going main stream visa says consumers spent more than a billion dollars through crypto linked credit cards mast card found 93% of north americans plan to use cryptocurrencies or other alternatives payments in the next year. crypto started red hot but cooled off with bitcoin with
doesh coin all negative in the past month and molly, i should start with you. so much of the long term, i guess, bull case around something like bitcoin has been not just trading or a hedge against inflation but this idea of broader, more main stream payment usage and adoption as well is this a sign we could be moving more in that direction? >> this is the key to the whole thing and it's been such an interesting place for financial institutions to be in. ultimately the aim of cryptocurrency, its development was hinged on the idea of undermining and even overthrowing traditional financial institutions and here we are in a position where unless visa, for example, makes it easy for people to pay with cryptocurrency, it never becomes a currency and it nevers more than, you know, a really big asset class with increasing climate concerns attached to it so, this is the key to widespread adoption of cryptocurrency and the potential
future where banks find themselves in a position they don't really want to be in >> yeah, absolutely. but in the meantime you do have these companies like visa, also mastercard, that have been making more moves in the crypto space as well. and you've got to think when you see numbers like this that that's potentially a good bet. >> well, first we've got to put this in context. this 1 billion is just a fraction of the daily payment activity on a network like mast card or visa when i spoke to visa's ceo about this, he said they have a lot of volatility but it's up to the consumer to manage that. if you want to spend your cryptocurrency on speakers or at the grocery store, they're just trying to make it happen this would be a really encouraging sign, the $1 billion in the first half of 2021, multiple times higher than 2019 and 2018 so the trend is variable >> we're going to move on to topic three. the bank is upgrading shares of boston beer saying it's seltzer
brand can drive a 60% rally from here it's best equipped to take on the, quote, new rules emerging in the hard seltzer segment. frank, what are these new rules? >> well, the new rules according to credit suisse is that drinking is not just for bars anymore. whether it be through sponsorships or samplings. people haven't been to bars where they can try a new brand of hard seltzer. if you're drinking one before the pandemic, you're probably still drinking that one because you have haven't had chance to venture out to new ones. and there's the possibility for your favorite athlete to sponsor one. white claw is the dominant player in the market but if you look at the growth of hard seltzer without white claw, it's 132% higher as opposed to
5% higher. so, white claw sells are decelerating hard seltzer sells have been decelerating as we enter the summer as things open up, it's travel sensitive. seltzer consumption is going to triple by 2025 they believe. >> to that point, mike santoli, boston beer has not had a particularly good run. it's down over the past three months >> right but it's really just giving back a chunk of this massive gain that happened beforehand it was very much an unexpected stay at home pandemic play if you look at a two year chart, it just actually started to race higher right in the spring of last year. so, it is suffering, i think, on the back end of it probably also because that market share scrap -- i mean 29% share is maybe not the place you would want to start if you have multiple players coming in and the big brewers trying to ramp things up. and who knows what that means for exactly how things go in
term of distribution and pricing. i get it in terms of this being a good tail wind for the business overall as a company much more expert in the on-premise distribution in bars and things like that. but i don't know it seems also a little bit of a muddled brand message because sam was always about craft and not the mass producing seltzer, does it even slide into that at all. >> it's true it's going to be interesting to see what thc-spiked seltzers are going to do to the entire debate over the coming years. we're going to move on to our last topic let's head to iceland. the country's government and capital city conducted large scale trials of four-day work weeks. they found working fewer hours for the same pay led to improved well being and no productivity loss iceland is a different country than the u.s., but even here a 2020 survey found that four out of every five workers favor a
four-day work week perhaps not surprising to hear, especially coming out of the pandemic and the fact that folks have been working at home and the lines have been blurred, et cetera i think what was most notable i it was conducted over four or five years pre-pandemic. >> i think the iceland study mimics what moms already know, which is that the less tomb i waste, the more time i get done. we waste and realize this even more during the pandemic so, i don't think it's just about a small work force in iceland. what we realize is we waste a lot of time in meetings, we waste a lot of times walking up and down hallways when we could be multitasking. where can we cut more waste and get more done and be happier as people and it comes down to measuring productivity and success in slightly different ways. >> i think until the markets
move to a four-day work week we're probably all going to be here working five days i know that's going to be the case for you all thanks for joining us. it was a great "rapid fire." see you guys later amtrak meantime getting a big chunk of infrastructure money. we're going to hear from the head of the company about the spending and what needs to be fixed. the exchange will be right back. ♪ dream, dream that's the thing to do ♪ ♪ music ♪ when you see value in all directions, you add value in all directions. accenture. let there be change. this isn't just a walk up the stairs. when you have an irregular heartbeat, it's more. it's dignity. the freedom to go where you want,
the world's first fully autonomous vehicle is almost at the finish line what a ride! i invested in invesco qqq a fund that invests in the innovators of the nasdaq-100 like you become an agent of innovation with invesco qqq welcome back president biden's infrastructure plan includes $66 billion for passenger trains some of that money is going to be going to amtrak seema mody today speaking with the head of amtrak with the improvements that money will help buy >> morgan, it's one of the railroad's biggest investments, a $7.3 billion contract to build 83 new trains outfitted with better wifi, usb ports, more leg
room the goal is the fleet with replace about 40% of aging trains it comes down to funding while amtrak has secured about $200 million from congress, ceo william flynn says it's going to rely heavily on president biden's infrastructure bill that has yet to be passed in washington, as well as state and debt financing >> the states will also contribute and pay for the capacity that they use and if at some point in the future there's a lapse in funding or a gap in funding, we're well-positioned to take on and finance that portion of the overall acquisition. >> now, just as more people check into hotels and get on planes, ridership for trains is improving, approaching 60% of fiscal year 2019 levels. and over july 4th weekend, demand levels reached 80% of what it was two years ago.
the hope is that by delivering modern, faster trains with a fresher design similar to what you get riding down to the coast of italy or even in japan or china, the goal is to get more passengers on board, about 1.5 million new passengers a year with this modernized fleet. these trains will be manufactured by semens in the m couple years >> all right, we'll be watching. well, coming up, the fallout from falling interest rates in the past month tech is up 8% while banks are down nearly 5% most people expect rates to go back up eventually so should you buy the banks now? that we're going to debate next on "the exchange."
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welcome back let's end today where we began, the rate dilemma usually when interest rates drop, so do bank stocks. after starting off the year with a bang, the sector has slowed down this past month, financials, that is, as rates have fallen again. so is it the hot bank trade over my next guest says no. so with us is david conrad, large cap banks analyst. david, i mean, we have seen a
flattening of the yield curve which i know matters to investors in the big banks why do you still say they're a buy? >> we think the summer will be difficult. the reflation trade got a little bit too tilted we're seeing an unwind which may be unnaturally pulling down the long end of the curve. we think about the fed beginning to taper and that all speaks to a steeper serve curve. that's a time when banks do outperform other sectors it's not just the short end or the long end it's more of the long and steepening that drives the performance. >> going into another earnings season with those big bank names starting next week, what are the key factors and of the names you
cover what do you like the most going into the season? >> we like morgan stanley the most longer term wethink the dynamics is a transformational story we think they have a lot of funding benefits with the e-trade deal coming through. they've restructured their business which will have more historically but it's really the momentum and the wealth management and now investing management we think will drive expanding versus a group that might be challenged near-term. >> what would you stay away from >> the banks that either, a, have high er derivative exposure the other aspect is who is investing in the long end of the curve right now and who is
reaching for earnings. truest is one that is expanding their securities book more than we're comfortable with and regions financials has the more heavy derivative income benefits that we think is really not sustainable when we get a higher interest rate. >> yeah. i realize this is a little bit of a longer term question but given the fact we are starting to see some m&a, some partnership struck as those fintech lines between the banks and the startups begin to blur, at least the competition begins to blur, how does this landscape continue to shake out since the banks are beholden to so much more regulation in fintech >> well, some of the pressures that we've seen are in the consumer business. and some in the perhaps lower income scale of the segment, we think one of the real are in the
service area, heavier reliance on overdraft fees. that the business transforms itself we've seen pnc restructuring their business and technology to give the customer more control if they've overrelied on overdraft exposure historically and we would put regions in that camp >> david konrad, thanks for joining us >> thank you, appreciate it. >> that will do it for "the exchange." i will join tyler mathison to break down the minutes from the fed's latest meeting right after this break knowing he'll be okay. goes a long way. this is financial security.
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