Fast Money 8/28/26

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1:25We're going to break down the big week for the IGV and look ahead to another big semi set to report its earnings. We're talking about Broadcom. And later, we're going to go inside Tim Cook's final days at the helm of Apple, the big buy now, pay later boost for shares of Affirm and our retail rebound for the record books. It is our chart of the week. I am Frank Holland in for Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, we have Steve Grosso, Courtney Garcia, Julie Beal, and Mike Coe. We're going to get things kicked off with Kevin Warsh and his most important speech as Fed chairman this morning in Jackson Hole.

1:58Walsh refining his inflation warning, expressing concerns about prices running hot. The two-year and the 10-year jumping on the back of Walsh's remarks, the move coming as the street digests higher odds of a rate hike ahead. On CalShe, it's now a virtual dead heat that the Fed will hike 25 basis points in September. On the CME's FedWatch contract, the odds of a hike are just a bit higher now, sitting just below 56 percent. Meanwhile, as the street-to-base rate hikes, Chairman Warsh took a different kind of hike today, and the only person he stopped for was the one and only Steve Leisman. Hi, Steve.

2:32How you doing? It was great. Love being out in the rain. What kind of hike did you do? Well, we're going to maybe modify it. I'm not sure. All right, Steve's wrapping up his long day with us right now. Welcome, Steve, live from Jackson Hole. You got to chat with the chairman right there. A lot of interesting comments. I think the biggest one is him saying that the trend, the trend of higher inflation seems to be worrying. Yeah, that's a good way to put it, Frank. And, you know, good lesson in life. You might as well ask. You never know if somebody is going to answer. Well, Worshin is inaugural speech at Jackson Hall delivered.

3:07It was a more detailed speech and a more hawkish speech, I think, than many expected. That was certainly some of the comment I hear. He said inflation is too high. There are a few signs that the Fed is too restrictive and he's not confident inflation is moving back to the Fed's 2 percent target. The responsibility for 65 months of sustained elevated inflation sits squarely with the central bank. And that's where it belongs. So here is my standard. We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do. And for the first time, Worsh provided details on indicators that he's watching to gauge the economy, reacting to critics who had said he's not offering enough information on his thinking.

3:58Here's some of the things that he played out for us to take a look at. He likes PC inflation, look at the 12-month to 6-month. like private domestic final purchases. That's a derivative of GDP. Credit spreads, growth of earnings, second derivative of growth of earnings, by the way, and the inflation breadth. That is the percent of inflation that's above 3%. That kind of hawkish inflation analysis led futures markets, as you said, Frank, to increase the probability of a September rate hike, now at 57%, up from 35 % before the speech. And then you can see it gets to 90%. And it even goes up, starting to begin to price in a second hike later next year.

4:32But with Warsh not revealing more about which way he's leaning on rates, markets have to figure it out on their own, a point that critics say leads to more volatility and higher bond yields. What I'm saying, Frank, is he was criticized for not delivering the reaction function, gave us some functions, but not a lot of reaction. So, Steve, I want to bounce this off you as well. He said this. I'm kind of summarizing. We should not indulge in a regime in which market participants are looking primarily to the Fed for the next trade. Who's the we? Who is he talking about? Is this about the Fed officials and their communications with the market as they come out and make comments about inflation and other things?

5:05Who's the we in this case? Yeah, Frank, this goes back to something that Ben Bernanke talked about in 2004. I believe he was a Fed governor. They call it the Hall of Mirrors problem. And it works like this. You set rates where you think I'm going to put them, and I put rates where you think I'm going to put them. And so it's this feedback loop that doesn't ever really look at reality here. So Kevin Warsh wants to break that cycle and he wants to ease off or back off how much he gives the market information about what he's going to do to see what the market thinks he should do. Markets complained about that.

5:41And you heard a lot of that criticism. And he kind of met him halfway and said, OK, I'm not going to tell you what I'm going to do. But here's a whole bunch of indicators. One of the first things I did after this speech, because I noticed it was unusual or different about what he communicated before, Frank, was I put it into chat GPT and I said, give me a list of all of the indicators that Warsh put in that speech. And they were like, I don't know, 10 or 12 of them. I showed you four earlier from my hit earlier. But he's now given us a set of functions and what he thinks about them. And now we've got to make our own determination because he wants that unfiltered look about what markets are saying, where the Fed should go with the data that he provided.

6:18Steve, you know, you've got to be vague. You've got to say AI. We don't want to support one foundational model over the other one with all the competition out there. What did I say? Oh, yeah, sorry about that. Yeah, don't worry about it, Steve. But on a very serious note, based on your conversations with people there on the ground, based on what you heard today, are we on pace for a rate hike and then a wait and see Fed or a Fed that wants to do a series of rate hikes? You know, I don't think that other prediction market. Oh, Cal sheet. We can talk about them, right? You can talk about them. I don't think they're a whole lot.

6:49I don't think they're very we have a deal with them, apparently. I don't think they're wrong to put it 50 50. There's still some data to come in. I don't think Kevin Worsh necessarily wants to hike rates, but at some point, if the inflation data remains where it is, we just talked to Raghuram Rajan here, and he thinks that the underlying problem is structure. We have an underlying inflation problem, not one that's based upon the top issues or the ones that are going to go away, things like oil prices or things like tariffs. There's an underlying problem. We've heard that from several Fed officials, and they're going to have to hike to address that.

7:21So I would say by December for sure, September remains up in the air. Now, Steve, I'm curious what you see when you're looking at the rate curve and how it reacted to this, because I think one thing markets are really on edge about right now is where the short end of the curve versus the long end of the curve is going. And after you saw this talk today, you saw the short end react one way, but the long end actually came down a bit. And I'm curious what your thoughts are on that. So did it end up down? What I was surprised about when we were done, we were below 472 because it went up to that. Where did we end up with the 10?

7:55No, 472, it actually, the yield actually went up before, after war spoke. And I was surprised about that. You could argue that a hawkish Fed chair is a curve flattening event. And you did see the two-year rise and the 10-year rose as well. I was surprised that we didn't get more reaction from the 10-year in terms of either falling or not rising quite as much as it did. And I think that's telling me that there's not so much a Fed problem in the 10-year. It's more either a supply problem or a growth adjustment there. So I was surprised the 10-year and the third year didn't react by either falling or not rising at all.

8:32That was what I was thinking was going to happen. Senior economics reporter Steve Leesman, live from Jackson Hole. Great work as always, Steve. Frank, Frank. Yes, sir? Frank, Frank, one more thing. I got to say thank you to my great crew here after three days of coverage. Dave, Jerry, Vinny, Betsy, Crystal, Tom, John and Andy. The terrific crew we had here that brought you this wonderful shot and reporting from the mountains. That is a hardworking crew. You're hardworking yourself. Steve Leisman and crew. Thank you from Jackson Hole. You have a great weekend. Steve Grosso coming over to you. A lot to digest from from Kevin Worscht.

9:05I want to ask, are you looking to the Fed for your next trade? I mean, the Fed is definitely sucking up all the oxygen in the room right now. And I don't like the Fed leading the market. So I agree with with Chairman Warsh. You know, when we had Chairman Powell, there was so much information to digest. We used to joke around about it that you would do the reverse of the reverse of the reverse of what the initial. Yeah, it doesn't make sense. Right, Frank. So you had to chase your tail when there was too much information. I don't like to trade on that much information. I think you're back to where you started.

9:38I think you're going in a circle. So I do appreciate being able to just trade markets, keeping the Fed in the background. The Fed, by their own admission, can't really do anything about rates. Right? They could change the Fed funds rate. They could lead where the market's going. But the market interprets where they think the Fed is going. So the market raised rates even when Powell was cutting. The market does the heavy lift. So for all apparent purposes, why do we need the Fed to be the focus? I think it's healthier for the bond market to just do what the bond market does. But I will tell you that the Fed says their neutral rate is 3.1.

10:17If their neutral rate is 3.1, the Fed funds rate is at 3.5 to 3.75. So they are actually tight. I gauge it against the two-year. I think they're a little more dovish because they should be where the two-year is. But we're in a supply issue right now with the Iran war, and I think it's all coming from there. All right, we're going to talk a lot more about oil coming up. Julie, I want to come over to you. Agree, disagree with what Steve is saying, that he isn't like the Fed leading the market. Do you agree or disagree with what Kevin Warr said? Is that a lot of people are looking to the Fed for the next trade.

10:48Yeah, I completely agree with Steve. I don't think that the Fed should be driving as much of the market forces so much as, you know, what is going on with deficit spending, what's happening with growth. I think that the market actually does a better job discounting that. But we've also gotten so used to having the answers to the quiz ahead of time. And people have really built whole careers around being able to really trade around the Fed. And so taking that away is really hard. The other thing I think that they're really trying to do is to just let the actual fundamentals drive more of the market.

11:18This is hard to do if you have Scott Besson also doing intervention on the side. It's a little bit like when your mom would slip you money when you were in college, but your dad wanted you to live on your own two feet. It's like that kind of push-pull action that's happening in the market. It does actually make it hard to get real direction. Mike? Yeah, I mean, just talking about the rate curve here for a second. I mean, it did flatten, but I actually think that there is some rationale and some health in seeing 10 years staying where they are or even going marginally higher. And what I would say to all of that is that, you know, there ain't no economy so bad that high inflation can't make it worse.

11:58The Fed can do a lot about inflation. And if they're going to, hopefully this isn't just jawboning, but they are going to do that. As you take a look at the long end of the curve, there's two things that are going to get baked into that cake. And one of them is inflation and the other is growth. So to me, I think that this signals something good as far as investors are concerned on the growth side. That is to say that they don't want to have inflation rates running hot over 3 percent persistently, as they have been. And they actually think that this is some healthy commentary coming out of the Fed.

12:31All right. We now want to bring in CNBC contributor David Zervos, chief market strategist at Jeffries. Zerv, great to have you here, man. Good to see you in New York City. See you, Frank. So you took this as being slightly hawkish, right? Yes. Or more hawkish than previously. Is that meaningful, just slightly more hawkish? I don't think it's that meaningful. I think at the end of the day, we're seeing this Federal Reserve under Chairman Warsh kind of roll things back. He's just saying, I want to go back to the Greenspan era. I want to be less involved in the market, kind of follow the Steve map of just, I'm not this leader, this maestro that you all need to follow.

13:07Go figure it out. I think what was missing for me from today's speech was just more focus on the supply side, the AI story, the productivity story and the disinflation over the long run that we've all been thinking about with that story. He has been a big believer in that. And it seemed like he kind of pivoted to the other side where many of his colleagues are worrying about demand side inflationary flare ups. And that's that's, I think, what got us hawkish. Now, he may be also trying to just make friends and do politics around the table and give everybody their good kumbaya feeling. We'll see how he comes out.

13:46I think it's going to be a very dangerous road if he moves into a sort of super hawkish place. So you're thinking he's trying to give a kumbaya feeling. What did you make of the response from bond investors, at least on the short end of the curve? I believe the two-year went up about 15 basis points or so. So that doesn't seem very kumbaya, at least to me. How did you know? So I said, I think that is a move that people are basically saying this is there's a much higher probability that he's going to push through or endorse or be part of a hiking process. And I don't think that the market was really there for that.

14:19So we've got to reprice from thirty five, forty to sixty. It's not a done deal. I really don't think so. And I'm certainly of the opinion that it's less likely than 50 percent. But you have to move up a little bit after he pivoted away from some of these supply side stories, which would have grounded you back into doing nothing. These percentages change with with every meeting. Right. So they could they could drop it, too. So I don't put much credit into those. But when I look at the Treasury secretary and I see where he stands on the swap deals, do you think in just, you know, there was all armchair.

14:52Do you think that they know that they're going to raise rates in September and they're getting ahead of that? Could be that. It could also be that in the event that they do, they're telling the market we have the tools to kind of make that not hurt so bad. And that could be another part of what this is. So there is a turf battle of sorts going on. The Fed had encroached on fiscal policy for nearly two decades with QE, taken the debt management process and really run with it. And I think you saw some quotes even yesterday in the Wall Street Journal from Treasury spokespeople saying, you know, we're kind of taking that back.

15:34And that to me is more of the interesting long term discussion here. And I do think that it creates the market is very aware that tool and that bazooka is available. So that tempers a lot of the moves, particularly at the long end. All right. So you basically said the underlying trends have not meaningfully improved. I said that to Steve as well. Does that mean that Kevin Warsh, the FOMC, they don't see the war in Iran and the energy spike as temporary. They see this as a longer-term situation. So that's why I said I think he's kind of going to the traditional Keynesian demand side guys and siding with them, which is not where I expected him to kind of land in the end.

16:09Now, maybe he'll pivot back to the more supply-driven guys, talk about disinflation and productivity. We'll see. But I was a little surprised there, Frank, as well, just when we got these good numbers, right? We got these surprises to the downside and some of the inflation numbers. People felt a little better about them. That's why the odds started going down. And he's digging into the guts and saying it's not good enough yet. Again, we'll see how that all comes out with the data that we get in the next few weeks. We've got the meeting September 15th, 16th. I think it's the 50-50 bet seems like the right bet.

16:44Here's the most important thing, though. I really don't think it matters that much. The hike doesn't matter. The hike doesn't matter that much. We should really be spending our time on the biggest fundamental story in this economy, which is not whether the Fed goes 25 or not, or even if it goes 50, or if it cuts. The biggest fundamental story is the AI trade, the technology, the productivity, and what that's bringing to growth. Well, that brings the question. I know you said you expected more about AI, but is this Kevin Warsh saying that he actually hears? He's talking about the market listening to the Fed, but is he listening to the market that's starting to question the return on investment of AI and exactly how transformative it's going to be, at least in the near term?

17:19Is that something that Kevin Warsh is also hearing? Or maybe, maybe, Frank, he's also saying, I don't want to guide you as much there either. Like, I just feel like I want to pull back all my guidance. Right. I don't want to tell you that I know something that you don't know about productivity and let you guys go figure that out. I don't know. I think it's he's got a very politically complex situation around that board table with with 12, 11 other figures that want to go in a lot of different directions. And also, look, there's a lot of history. There's a lot of animosity. When he left, he didn't say the nicest things about his colleagues.

17:53He's sort of coming back. He wants everybody to be friendly. And so just watch the politics, watch the games. This is not markets. This is politics. This is Washington, D.C. It's a very different place than Wall Street. There's somebody with a very big social media handle that wants to go in a totally different direction as well. But we've got to leave it there. David Zervos, it is always a pleasure to see you. Good to see you, Frank. So, Courtney, coming over to you, we're talking a lot about what this means for the market. at least even Kevin Warsh is, what his hawkish tone means for the markets.

18:20Let's get back to that. Cyclical trades, does it change your view on those? How are you viewing the aftermath of Jackson Hole? Well, I think the good news is markets were relatively resilient to this. And I think there was concern that markets weren't going to do well if Fed is raising interest rates. But the question is why that's going to happen. So odds went up that they're going to raise rates. But that's happening because we're in a strong economy. So when you're citing, oh, we have a really strong consumer, we have really positive earnings growth, like all of that is really supportive of a good economy.

18:46I mean, it's not saying, oh, we're going into a recession. We're not overly concerned about inflation as much so as the growth that's happening. And that's, I think, what markets are hearing, which is ultimately supportive for markets. And that's why they're liking this story. And I think the idea is that if we do tackle inflation with a shorter-term raise in rates, that is longer-term, again, going to be beneficial for the market. So I think this ultimately is a positive. And seeing them digest this news the way they do, I absolutely like to see that trade. Julie? Yeah, I agree. I think that the focus needs to be much more around what's happening in terms of the fundamentals.

19:19And I think the key elements of whether or not this growth is going to be inflationary is do we have more improvement in productivity? We had this really nice bump at the end of last year, and now that seems to have flatlined a bit. I think there's a lot of opportunity for AI to improve that. But just like desktop computers and just like the Internet, some of that productivity really does take time to show up. And that is going to be pretty central to keeping the lid on inflation going forward. All right. Coming up here on Fast Money, a tale of two fintech stocks. All the headlines sending shares of PayPal and Affirm in opposite directions today.

19:53Plus, low energy. Crude posting its first losing week in the last three weeks. The next move for the energy trade straight ahead. Do not go anywhere. More Fast Money is back in tune. You're watching Fast Money here on CNBC. We'll be right back.

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21:51Mike, turn it over to you. Hey there. Sorry. I was just actually looking at a situation from a trade that was breaking on me earlier today. So I was really interested in this PayPal situation because at this point, this thing has just gotten pretty dirt cheap. So they have a buyback authorization, probably 25 % of the float still outstanding. The thing has got a free cash flow yield of about 9 % to 10%. So to me, I'm thinking, I don't know that another buyer steps in, but I do feel like it dropped back down to that 45 level. Basically, the pre-bid levels where we were before is unlikely. One of the things we definitely saw was highly elevated options volume on both the call and the put side.

22:36More on the put side, probably not surprising when you have a deal break like this. But there do seem to be some people who are speculating that it's probably going to find some measure of support and not at those prior lows. So I know you're talking about the stock price, but really quick, the market cap's now at about$46 billion. Does that change how you just view the company, the fact the market cap's about$7 billion or$8 billion, whatever, below the offer price? Well, I mean, it's the enterprise value and the market cap. So enterprise value, when you're looking at a company that's going to be acquired, that's probably more interesting than the market cap.

23:07In this case, it happens to be about the same. But, you know, this is just a situation where I think that those people who are taking a look at it, I mean, look, when a deal bid gets abandoned, you're going to see some air come out of it that was on the basis of that. There were some concerns about their business. It's a competitive marketplace, right, in the payment space. And so that's one of the reasons why the stock was already trading at such a steep discount. But just the mere fact that there was somebody that was in there taking a look at it, willing to kick the tires and pay a higher level than where the stock is currently, and looking at its free cash flow, and the fact that it's not really high growth on the top line, but it's about 4 % or 5%.