Power Lunch 10/12/26

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1:02Oil and geopolitical risk colliding with a big week for earnings and economic data. Welcome to Power Lunch, everybody. I am Brian Kelly is off today. Happy Columbus Day, by the way, and happy anniversary to the four-year-old bull market. Stocks right now pretty much mixed because the bond markets are closed for the holiday. Not closed, though, the energy market, That market trading and it's higher. Energy hitting a record high after Saudi Arabia was hit with a number of terror attacks over the weekend. Also, does AI need an off switch? That's what the CEO of Microsoft is saying. And it's getting a lot of attention.

1:36Plus, can Europe fight off China in its battle over the automobile? Or is it already too late for Europe? Former Ford CEO Mark Fields is here. Hi, everybody. We're going to get to all of that over the next hour. But we begin with really a sad story from Saudi Arabia that is putting the entire nation and really the entire Middle Eastern region on edge. Over the weekend, the terror group Houthis struck the international airport in Riyadh multiple times. At least 14 people were killed, more than 300 injured in one of those attacks. Now, Riyadh is where energy executives and many others were flying into for the World Petroleum Council conference.

2:16I was actually scheduled to attend, but the trip was canceled on Friday. Many others did make it. The conference is underway and we wish everybody success and safety. In the meantime, Ukrainian President Volodymyr Zelensky says Russia already violated talk of some kind of energy ceasefire that President Donald Trump talked up over the weekend. Putin and his army launching a new round of drone attacks on Ukraine's energy infrastructure. And it's unclear if either Putin or Zelensky even knew about this so-called deal ahead of time. Now, rather surprisingly, oil is not up very much, at least not on the paper contract that you see on the screen right now.

2:56For more on all of this, the fast moving geopolitical developments, springing Halima Croft, head of global commodity strategy at RBC Capital Markets, also scheduled to attend the conference. And our best wishes to everybody there, by the way. I mean, 100 percent. Our deepest condolences to everybody that is in the hospital or lost their lives. Yeah, absolutely. Are you a little bit surprised that we're not seeing more movement in the energy market today? Or do you believe it's because the market perceives this as an escalation between the Houthis and Saudi Arabia, but not direct escalation perhaps on Iran itself?

3:33Or are market participants just saying this is more of the same of this eight-month war and we don't know how to price the regional escalation risks? So they're also contending with reports of, as you mentioned, President Trump talking about a deal for both sides to stand down on energy infrastructure attacks in the Russia-Ukraine war. Obviously, the news out basically indicating that Russia continues to attack Ukrainian infrastructure means that that deal is probably dead in the water. So I think it'll be interesting to see what happens tomorrow over the next couple of days to energy markets.

4:05And we're showing Brent crude and we're showing WTI and we could show the Merban contract in the UAE and we could show all the paper contracts on the street. It is what you need to be watching. So exactly. So on this morning on Squawk Box, I kind of said, listen, I didn't say don't pay attention to those numbers because that's what we've got. But I also didn't say don't not pay attention to those numbers, meaning how much of a difference is there, Halima, now between the paper contract and the physical delivery of a barrel of oil? Physical to deliver that barrel of oil because you have to take into account, of course, the incredibly high transportation costs.

4:39I mean, we talked about this last week. we're in a transportation crisis. The shortage is really now coming to ships, coming to crews that will move this product to refineries. So if you are a refinery in Asia, you are paying significantly more to take those barrels than what you're seeing flashing across your terminal screen. I mean, I've heard some refineries here. Well, look at that giant screen that we have behind you there. I reported last week,$76 million charter, Yes. Houston to China. Not on the screen. Seventy seven million for one ship. Houston to South Korea. That's two million barrels.

5:17That's thirty eight dollars added to a barrel of crude. So I could make the argument that while the contracts on the screen may show 90 or 95 bucks, you got to add probably thirty five to forty dollars to get to just the basic cost of a barrel of oil. A hundred percent. And then you have to think about insurance costs, all of these things. that are driving the price paid by an actual refiner much higher than what you're seeing on the screen. Yeah, and we're looking at a closer map there. We've got the Arabian Gulf. You've got the Strait of Hormuz. You've got the Red Sea, Suez Canal. A little bit lower, the Babel Mendeb.

5:54Around the corner, not on the map, is the Black Sea. I've spoken, I'm sure you have, with shipping companies, CEOs, CFOs, ship owners. There are a lot of huge companies that don't want their ships anywhere near that region of the world. I think going to your point, it's not oil. There's oil, right? There's oil. There's just not a lot of ways to move it. Move that oil inexpensively. I mean, some ship captains are commanding one hundred thousand dollars a month to go through Hormuz. So this is in no way an open for business situation. I think there's been a lot of complacency by a lot of people who look at this market saying, well, the barrels are moving.

6:34And we consistently say, Brian, at what cost are those barrels moving? Incredible cost to the U.S. military. The CENTCOM resources being devoted to escort those barrels are enormous. The cost to personnel in terms of risks you're willing to pay to get on those ships is incredibly high. And again, I think the attacks that we've seen, the devastating attacks we've seen over the weekend in Saudi Arabia, just underscore just because oil may be moving through the Strait of Hormuz, the situation is far from stable. What's the off-ramp? I mean, this is the challenge. You hear some people say the off-ramp is post-midterm escalation to change the nature of the Iranian regime.

7:16And then you have others saying, let the blockade do the work. Eventually, Iran will come to the table. And then some say we need to have a diplomatic solution as soon as possible. So there are kind of three scenarios there. The interesting fact about the Houthis is, is the Iranians try to maintain some plausible deniability, saying we don't control them. We know they arm them. We know that they fund them. I mean, they may not control their actual movements, but without Iran's money and weapons. 100 percent. You're not going to get this. So when you have the Iranians saying we're offering to mediate with the Saudis and the Houthis, is that the arsonist basically offering to put out the fire?

7:54It is. And there's a ton of military. We can show that wall again. Kuwait, Bahrain, Qatar, UAE. There is, and I can tell you this much, and you know this, there is a massive buildup of U.S. military might in that region. You've got a third aircraft carrier on the way, but there's amphibious vehicles. There's airplanes. There's refueling tankers. There's fighter jets. all sitting over there. Your first point is about how the off-ramp may be bizarrely an escalation before a de-escalation. What does that mean for the energy market, if that were to happen? And I'm trying to watch my words very carefully.

8:35And we're not saying necessarily it's going to go that route, but I think there is, given the military buildup in the region, given the fact that you have powerful voices saying, you cannot leave this Iranian regime in place or with the same mindset. So you have to either change them or change our calculation means that there is a non-trivial risk post midterm that we have some type of significant escalation targeting Iran beyond what we've seen so far. And the question is, is Iran full in the face of that or did they continue to target civilian infrastructure in the Gulf? Is what we saw in Riyadh sort of what could be the future?

9:15Well, this would—and the attacks were just devastating because they weren't on a pipeline. They were on people. They were people that were going on pilgrimages. Right. They were religious pilgrims. These were not military—this was not a military base. They targeted Terminal 3, which is a domestic terminal, with people going to do their religious pilgrimages in Mecca and Medina. So that also is what's been very worrying about the conflict since summer. I mean, you think about Kuwait. Kuwait has had power stations targeted. They've had desalination plants targeted. Going after the water. Right. Increasingly, civilians are being targeted in this war.

9:54Is this a sign potentially, though, and I'm trying to be sort of semi-optimistic, that there's a desperation here because the Iranian economy and the Saudis have been doing some work against the Houthis last couple of weeks, that maybe the Iranian economy is on the verge of completely breaking down to the point that maybe there is some regime change, although the people don't have the guns, they don't have any power. I don't know what the Iranian people can do against their own regime, which does have the guns and the money and the power. And what's the timeline for that? I don't know. And this is a regime that has suffered under sanctions before.

10:32The question is, what clock are we talking about? Well, the clock is running on energy markets, especially refined products, right? I mean, diesel fuel, we saw this weird sort of semi deal, no deal with Russia. And without getting into the politics of the deal, we're talking about like two or three days of diesel fuel demand, a couple hours of global demand. That's it. Right. I mean, this is the point that Israel Hain has brought up, you know, and officials brought up in Riyadh, is that this shortage of global refining capacity. Europe hasn't built a refinery in over 50 years. Where were new refineries?

11:09Neither have we in America, by the way. Where are new refineries being built? They're being built in places like the Middle East. Yeah. The newest, the youngest major refinery in the United States was finished, I think in 1978. Right. Same as in Europe. Yeah. And now we wonder how we got to this place when you give all the power to places that maybe don't always have our best interests at heart. Halima Croft, RBC Capital Markets, scary time. Wish the best for everybody. Yes. Thank you very much. All right, speaking of shipping costs, one ETF that is filled with stocks of shipping companies is hitting a new high today.

11:45The ticker is actually BOAT. It is the SonicShares Global Shipping ETF. It's up more than 70 % this year because, as we've been reporting, higher shipping costs are adding another premium to the price of oil and shipping. And you're seeing 1.5 % move for the boat. Some of the names in that index on the move today, Frontline, Hafnia, Torm, DHT. These are not household names. We get it. But when you look at you see a picture or a video of a super tanker, a VLCC, very large crude carrier. These may be some of the companies that own those or some of the other cargo ships that are literally moving the world.

12:23All right. We are just getting started here on Power Lunch. We've got a whole lot more coming up this hour, including Evercore ISI's newest initiation on a financial stock. It's been on a three year win streak until a rather rough patch this year. We'll give you the name. Plus, should we have an emergency break on AI models? The head of Microsoft thinks so. Talk more about that. First, the bull market for stocks turning four years old today. Will your money celebrate a happy fifth bull birthday? Weren't agents supposed to take things off your plate? Building another to handle the others is a bit much.

13:01Don't make more work out of work. Gemini is the one agent that knows all parts of your business and actually gets stuff done. You give it a project, close your laptop, and when you come back, the job's finished. No matter your industry or role, your agent has the skills to help every team stay in their flow. Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S.

13:36and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash marketupdatepodcast or find Schwab Market Update wherever you get your podcasts. Your call is important to us. Please hold for the next non-existent representative. Ever get a pit in your stomach when you realize your afternoon is about to become a bureaucratic cage match over a bill? Someone will be with you shortly. Skip it. Save time by letting Experian negotiate your bills and look for new deals and savings opportunities.

14:11Get started in the Experian app now and see how much you could save. Results will vary. Not all bills eligible. Savings not guaranteed. Available with eligible paid memberships. See Experian.com for details. Experian. All right, welcome back. The bull market turns four years old today. Of course, AI, you might have heard about this AI thing. It's helping power the run. Massive spending by hyperscaler, strong profit growth, big capex, big opex, all helping to drive the earnings and the bull market for the last four years. In that time, a little company called NVIDIA, not so little. It's up 1 ,800%.

14:48Meta up nearly 500%. Alphabet and Amazon all up triple digits. digits. But there are some signs of caution emerging. For example, Deutsche Bank just downgraded the tech sector. Yes, you can up and downgrade sectors to a neutral from an overweight, saying the sector's rally has pushed valuations near the top of its long-term range. The bottom line is this. Is tech due for a reset or is this bull market run going to enter years five, maybe six, and so on? Let's talk about it. Lizanne Saunders, chief investment strategist at the The Schwab Center for Financial Research. Peter Bookbar is CIO at 1.BFG Wealth Partners.

15:29And, of course, a CNBC contributor. All right, Lizanne, it's the crystal ball time. Four years, we've made a lot of money. Your clients, Schwab clients, they've made a lot of money. You talk to them. I talk to some people that you know. People, they're not nervous. But because they've made so much money, they're just kind of wondering what to do now. Well, first of all, the beautiful discipline that is rebalancing helps investors stay in gear without having to time some definitive inflection point in the market. I always say that neither get in nor get out is an investing strategy, and that's what rebalancing brings into the mix.

16:09I also think that there's a lot deeper story being told under the surface of the cap-weighted indexes. Just year to date, the S &P at the index level didn't even have a 10 % correction. was shy of that in that February, March period of time. But the average member within the S &P has had a 26 percent drawdown. And it's more extreme for the Nasdaq. The Nasdaq's average member has had a 46 percent drawdown. So I think we could continue to see rotation and churn that maybe eases excesses, sentiment, valuation otherwise versus the indexes falling by a significant degree in one fell swoop. This is interesting.

16:47And I love this data. And Lizanne, you bring it so well. And, you know, Peter, so let's say there's a class of 20 kids. Two of the kids have A pluses, right? Ten kids have C's and then a couple of kids are failing, right? And the teacher says, well, the whole class has got a C average, but there's kids that are failing. That's kind of what is happening in the stock market. I don't know if the average return belies how we're actually doing, because when I just listened to what Lizanne said, there's a lot of companies that aren't doing very well. How do we read it? Well, there's always this dispersion.

17:21There's always somebody doing well, somebody not, and everyone in the middle. This seems to be very unusual in that it's either AI or it's not. You're either getting the A or getting the D. There doesn't seem to be any grades in between. And we know that that AI is driving the economy. That is also driving the stock market, which in turn is driving the economy as well. One of the interesting things was Delta talking about their high-end customer that is driving their business, while that high-end customer owns stocks and a lot of it in AI names. I think that earning season comes just in time, because when you intro to it and you talk about a reset, well, whether we get it or not, well, we're going to hear from the five hyperscalers.

18:01I'm less interested in their earnings. I'm more interested in what they have to say about their CapEx numbers. And I will say this also. As we approach the Anthropic IPO, what is the competition? The planned IPO. The hoped for. The hoped for IPO. Because OpenAI, Chad GPT's parent company, postponing, right? I mean, what if it doesn't happen? The key that I think people should be paying attention to is what is the threat of China competition to OpenAI and Anthropic? Micron stock is down 3 % today because people are worried about CXMT and a new product they're coming out with. So I think U.S. investors...

18:40From$50 to$1 ,500 in five years, though, Peter. No question about it. But but but the question is, is what can upset the apple cart? And these are some of the things that investors need to have in their dashboard. So, Lizanne Saunders and my bad I did my own bad math. I was one of those kids that sat in the back that we just talked about. If two kids are powering the whole class, but the whole class passes because the two kids known as A and I, if they drive everything, do we care? Do we care that it's only A.I.? Well, we should care. And here's the concentration problem that I think is more relevant than the concentration represented by the size of those stocks embedded in a cap-weighted index like the S &P.

19:24If you look at calendar year 2026 expected earnings growth for the S &P, which is right around 35 % now, two stocks account for one-third of that, and that's NVIDIA and Micron at 18 % and 14 % respectively. If you go out to the top 10 best earners, which isn't all a tech universe, it's got, I think Chevron and Exxon are in there too, for somewhat obvious reasons. You are talking about two thirds of expected earnings growth is driven by those 10 companies. So that brings in the question of what if there is a miss, to Peter's point, or a downgrade of CapEx expectations? How does that not so much filter into how the market behaves, but how does that filter into forward earnings, which, of course, is the denominator in the valuation equation.

20:11I have described the stock market, and I don't mean it as a compliment, Liz, as a bowling ball sitting on top of pencil, because the bowling ball is all those companies that we just talked about. And so far, it's held up. And it's great. If you own the S &P 500, you've made a lot of money. I don't know if you actually care how many companies inside of it have done well, but I guess the risk has always been and will always be, and maybe it's even larger, is what if we get a slight stumble? You know what I mean? But Brian, you know, all we have to do is look back to earlier this year when you did see a meaningful pullback in a cohort like the Magnificent Seven, but you had so many other kind of formerly D students moving up to be at least B students that it didn't take the overall index down with it.

20:59So you could have a convergence where if there's some sort of disruption in the tech sphere that you see a pullback in those names. But money then shifting to take advantage of where there's been underperformance. It's too soon to tell whether that might happen. But we saw it as recently as earlier this year. Yeah, and we have. And that's another great point, Peter, because we've had a number of 20 percent drawdowns the last couple of years. Remember the tariff day and it was the shock? And then 2022, we actually had a market that fell 20 percent. A lot of people forget that. It wasn't all at once, but we kind of slid down.

21:34This is a market that I think has had two to three 20 percent drawdowns in the last five years. Obviously, COVID, 2022, and then the tariff tantrum. Well, if not, and when the market goes, it tends to go like that. Well, Lizanne would know this as well as anybody. Over time, you would have a 10 percent correction at some point during a calendar year. Obviously, if it's going to be this time around, it's going to be tech driven. You know, the question right now is, do the laggards catch up to the winners or do the winners eventually catch? Or do you just keep buying the winners? So that lasts until it doesn't.

22:12I like to say we all breathe the same economic air. The winners right now are producing a product, AI models, agents, whatever. Well, you need everyone else to buy it. You need everyone else to have a healthy business and cash flow that are going to buy the products that come out of technology. So the tech is doing great. Everything is not, to me, is not necessarily sustainable, even though we know tech right now is more a CapEx cycle rather than a product cycle. The product cycle then comes next after the CapEx is built out. Well, we got big banks this week. Then we got all the big tech earnings coming up.

22:46We'll get you both back on. And I just want to give a shout out to all the C students of the world out there, because as I like to say and remind everybody, C's get degrees. And it worked out. Listen, Saunders, thank you very much. Peter Bookbar, do appreciate that. All right. Did anybody actually think that Starbucks was going to buy Chipotle? Remember we talked about this news last week. Well, the company confirmed to Jim Cramer today there's no deal. Nothing is happening. Rumors or talk, actually, it wasn't even a rumor. It was like a report, I think, in somewhere in one of the leading papers that sent Chipotle shares higher, Starbucks shares lower.

23:26But today, the trade is reversing Starbucks up 1.1 percent, Chipotle down about 5 percent. Remember, Brian Nickel, who runs Starbucks, used to be the CEO of Chipotle. So I think because the Brian Nickel connection, maybe it added a little bit of fuel to that story that Starbucks might buy Chipotle. It never made sense to me. I promised that I would buy everybody Chipotle. If the deal happened now, I don't have to. I wasn't going to anyway. All right, coming up. It has not been a great 2026 for this stock, that one right there. But Evacor says that stock, that one right there, has some interesting upside.

24:04Take a look at the chart. Take a guess. Let Peter Bookvard know. We're back right now. Weren't agents supposed to take things off your plate? Building another to handle the others is a bit much. Don't make more work out of work. Gemini is the one agent that knows all parts of your business and actually gets stuff done. You give it a project, close your laptop, and when you come back, the job's finished. No matter your industry or role, your agent has the skills to help every team stay in their flow. Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required.

24:39This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash marketupdatepodcast or find Schwab Market Update wherever you get your podcasts. What happens when you combine a cozy night in with the whole family in matching Old Navy jingle jammies? It's a holiday moment of joy, at least for the time it takes to snap a picture.

25:19Shop a plethora of prints this year in jammies for everyone. Adults, kids, toddlers, babies, and even pets. Grab matching sets and classic plaids, whimsical designs, and even Disney-themed prints. Plus, they have coordinating graphic tees, sweatshirts, cozy socks, pet sweaters, and fleece blankets. Get more merry for your money at Old Navy this holiday season. The chart before the break was Robinhood. Its massive rally has been taking a bit of a breather. Now, this is a great RBI, random but interesting. Since the beginning of 2023, just under four years ago, Robinhood's stock has soared more than 1 ,200%.

25:58Hopefully, the stock trading platform has helped you get rich as well. But with about two and a half months left in the year, Robinhood could snap that three-year win streak. But let's be clear, there is a lot of time. Stock's way down 4 % this year. And your next guest is bullish on Robinhood. Joining us now, Evercore ISI's Adam Frisch, the analyst behind a new note on the stock. They initiated coverage today with an outperform and a$130 target implying about 20 % upside. And I guess because I called it a stock trading platform, Adam, you will remind me and our viewers. and listeners, it is a lot more than just that.

26:35Yeah, thanks for having me on, Brian. We look at Robinhood as a very diversified play on consumer finance services, and we love it. And we think it's a really interesting story because they have so many growth irons in the fire. And I think this kind of flywheel platform offers so many avenues for growth that they'll work. We look at it like a portfolio, no different from some of our investors. Some products will work better than And you think some products won't work as well as you hope. But overall, you have such a good portfolio. You have net deposits growing really well, should sustain in the 15 to 20 percent range over the next several years.

27:10And so when you throw in more people using more products more frequently, that makes for a really good growth story in our view. Yeah, a 1 ,200 percent gain is a lot of money in just under four years. Why do you remain convinced there's more in the tank? Well, we think it's if you look at the past year, it's really correlated. It's been a leverage bet on crypto and speculative growth. If you look at the two years prior to the last 12 months, it was really on its own. We think there's a couple of things happening here. You have the core business, which you see today, things like trading and wealth management products and services.

27:48But you also have some really interesting bets that could be game changers for them. International, probably three to five years out. We don't focus too much on that for now. But we also look at things like change. And we think that is potentially over time, not anything in the next year or two, is something that could really change the game for them in terms of growth and earnings. If we start to see some traction there, we think the story could re-rate a bit. So, sure, it's up 1 ,200%, as you say, since its IPO or since the last five years or four years, I think you cited. The story is very different now.

28:24They've obviously grown their base. They're almost 30 million people. The average age is 36. 63 % of their customers make more than$100 ,000 a year. Their balance has gone up by 4x. Their ACAT transfers are up 2x from 50 grand to 100. So you have a lot of things here that can go really well. And again, the key metric is net deposits. And if those continue to grow, there's such an awesome correlation with revenue growth there. That's really the key. Again, we get back to that same thing. More people using more products, more frequently. We'll leave it there. Just more. Adam Frisch, Evercore ISI, seeing 20 % more upside.

29:00Adam, thank you very much. Have a great day. Thanks, Brian. All right, folks, got a quick market flash on dating service operator Bumble. The Wall Street Journal reporting that Bumble is close to a$1 billion buyout deal with investment firm Ithaca Holdings. Now, Bumble's got a very, very small market cap, but shares of larger rival Match Group are rising a bit in sympathy of about 1.9 percent. But Bumble could become a private equity vehicle. All right, coming up, AI's emergency break. Microsoft Satya Nadella weighing in on the safety debate over the weekend. I'll tell you what he said coming up.

29:37All right, let's talk about AI safety because over the weekend, Microsoft CEO Satya Nadella called for what he described as a, quote, emergency break for advanced models. In a post on X, Nadella said the company should assume a model could be compromised from the start and AI companies need to ensure that an actual human has the power to pause or even shut down an AI program, even if it's mid-task. The comments add to a growing safety debate led by figures, including Anthropics, Dario Amadei, OpenAI, Sam Altman, Elon Musk, and more, even as the race to commercialize and profit from AI accelerates.

30:11Now, Anthropics reportedly still targeting a November IPO that could value the company as much as$2 trillion. Meantime, OpenAI saying it will not go public this year with 2027 now the earliest expected timeline. So what kind of guardrails are now and what kind of guardrails do we need? Joining us once again, Zach Kass, AI advisor, former head of GoToMarket at OpenAI. I am not going to pretend to know how the technology ultimately works. But I do know one human, and I know Nadella was speaking tongue-in-cheek, acting as a break, is also not going to work. The question I asked last hour, I will ask again.

30:51in the process where we are right now, is it too late to put in some safeguards? No. No. And we shouldn't pretend that it is. There's a fatalism to that that I think is actually really dangerous. And if you take that too far, then you start to ask all sorts of other questions about the meaning of life that I think actually suggest that we don't have the agency that we do. And I argue actually to anyone who would listen right now, the enemy of good is apathy and cynicism, the idea that we can't actually stop this train. We can. And moreover, it's perfectly reasonable to suggest that we should be able to shut off a really powerful technology if it is too much power.

31:30How would we just, quote, shut it off? Well, this is, okay, so this is where the mechanic, this is, now the devil's in the details. The mechanics are actually quite hard. But they're hard for actual philosophical reasons as much as they are technical reasons. Like, for example, if I said, we should have a shutoff break, that actually might be a reasonable take. And if we could design it mechanically easily, we still present the question of who gets to shut it off. And when. And when. And there's a know your customer issue here. So, I mean, look, there's a bunch of pushback on flock safety right now.

32:02Fine. The issue is, as it pertains to surveillance, if you want shutoff breaks, you actually have to accept that everyone's tasks need to be monitored constantly. So you're talking about a flock safety online. Like to actually create an effective emergency break for any given task and any given individual using AI, open, wait, or closed, it means that some arbiter has to be watching everyone's tasks at all time. But the value proposition of AI, well, there's a lot of them, but one of them is that it's going to be always there for you, right? It's like power or anything like this, electricity, you just need it on all the time.

32:36And the minute we start shutting things off, I think you're going to break trust with people and companies. Sure, Brian. But I would argue you're going to break a lot more trust on the other side. Like, I think that the risks of Chernobyl and Three Mile Island events with AI that could actually cause enormous blowback on the industry is much greater breakage of trust than a system that pauses tasks that are considered catastrophic threat. Are you and I realistic? I'm not talking about pausing tasks that cause a catastrophic threat. I think we can all agree that that's what we don't want. I'm talking more about when it becomes something that people realize can be shut down or shut off or altered or impacted at any given time.

33:18Will companies and people be willing to pay for it as much if it becomes an unreliable partner? Well, wait till I tell you how the Internet works. I mean, legally speaking, there's a there's a kill switch on most servers. And GPS, too. And a lot of people use it to drive their car. So I think we should acknowledge that most of the technologies we use every day have a kill switch, and there's an arbiter for that kill switch. And autopilots and planes can be overrided by pilots, just the same as GPSs can be overrided by manufacturers. Autonomous vehicles can be overridden by their manufacturer. It is not unreasonable to consider that we are building machines.

33:56The complexity is getting greater. And these are the conversations, by the way, that I think are interesting, where there is nuance to them. And we start to weigh the pros and cons versus the fatalist argument that says, well, it's too late. Well, I don't like that argument in anything. I agree. Right? It's also why are we here? Well, you open with it. You asked, is it too late? No, because there are people that are like, well, what can we do? The bear's in the house. Let them eat. Stay away from the cynical light. You able-bodied, able-bodied people. You know, I'm old, but I'm not that old. I still don't want to be too cynical.

34:25How much do you think people are willing to pay for AI? I feel like$20 a month is a pretty good number. It's like Spotify, right? I pay$21 a month. I get all my music, blah, blah, blah. Would people pay? I know companies will pay. I'm talking about human beings, individuals. How much are we willing to pay? The number is far greater than people realize because - I agree. I think they could raise prices and no one's going to cancel. But I don't think it's a subscription. I think what Muse is proving, and okay, part of the reason, I mean, Peter said this earlier in the segment a second ago, the reason that AI buildout may justify in cost is actually not because the frontier models are going to make a bunch of money.

34:58And the lab misnomer is actually leading people to think about these companies wrong. It's all the other surface area, particularly the application and also the agentic internet control. If a machine can barter our transaction and take a brokerage fee, it's worth a lot more than$20 a month. And the question, again, is not are we going to use it. It's to what extent do we actually automate most of the internet. The browsable internet's over. I don't think people appreciate yet the HTML internet is coming to an end. The future is an XML, TXT internet. What does that mean the internet's coming to an end?

35:30Well, the browsable internet is coming to an end. I know, sorry. Just as you were figuring it out, I was watching you. You saw me, HTTP. You're not going to navigate to most of the websites you go to in two years. And most internet traffic is going to move from humans to machines, to agents. The internet was designed for our eyeballs in a very sort of kludgy way. I agree. Listen, I'll say something else. We've got to go, but I don't think this phone's going to be around in two years, five years. Yeah, hardware's a little harder. But software, redesigning the actual fabric of the internet is going to happen very quickly, especially when people realize their agents can do most of the things that they wanted in a utility function.

36:05And then the question is, how much are we willing to give up to agents? That actually is the new surface area. When you want to know how these companies are competing and what they're competing for, it's to barter for us online. The intranet is dead. Long live the intranet. You heard it here first. No, I could have an hour-long discussion about, or longer, about all of this, because you've got to remember, my people, the long-forgotten Gen Xers, We invented said internet. We started using it at 20 years old. And you'll never let the millennials forget this. It's all we got, man. There's like 20 of us left.

36:39Zach, great conversation. Really stopped. Really appreciate that. All right, let's go to Frank Holland with a CNBC News update. Good afternoon, Brian. U.S. Pacific Command says it is aware of two North Korean missile launches and is closely consulting with allies and with partners. The South Korean military said North Korea fired those ballistic missiles tours the sea off its east coast today and marks the country's fourth launch in a month and to come shortly after Seoul's recent test of hypersonic missiles. NATO's top commander said today the military alliance is ready to fight tonight if attacked.

37:09He did not mention Russia by name in an address at the Warsaw Security Forum, but his speech comes as tensions flare between NATO and Moscow. The commander says he does not believe a conflict is imminent or inevitable. And at Jersey, Michael Jordan wore during the Bulls' 1998 finals run. Part of the season chronicle in the last Dan's ESPN series, it just set a record for the highest ever price paid for a piece of basketball memorabilia. The game-worn autographed jersey from Game 2 of the series went for$14 million. Hunt Auctions announced the private sale and identified the buyer as Miami real estate investor Ron Furman.

37:44Brian, back over to you. But do you wash it? No, obviously not. No way! You can't! Yeah. Michael Jordan's... That last Dan sees anything from there priceless. Love it. Frank Collin, thank you very much. All right, coming up, are cars made in China about to completely destroy Europe's auto industry? Or there's going to be a nice add-on and everything kind of goes on? We're going to talk to Mark Fields about just that. Stick around. All right, let's bring in one of our favorite guests. That is Mark Fields, the former CEO of Ford. And Mark was showing video from the Paris-France auto show. And there's a lot of China-made cars in there.

38:20Some people say it's great news. Is it? because I'm also really worried about Detroit. Well, it's great news for European consumers, not so much great news for European automakers. I mean, this show is not so much around products and the transitions to electric vehicles. It's more about how the European manufacturers can compete globally and in their home market with the Chinese manufacturers. So, you know, you're going to see a lot of intros, a lot of small vehicles. But, you know, the questions on the CEO's minds, if you're a European, you know, automaker is first, you know, can we cut our development cycle by 30 to 50 percent without sacrificing quality?

39:06Because that's how fast the Chinese are. Secondly, can they compete in with Chinese manufacturers in the 20 to 35 ,000 euro range? And then finally, what software or battery or electronics capability should they own, which one should they partner on, which one should they buy. So it's a bit of a real mixed bag in Europe right now. And the Chinese are not only at the door, Brian, they're bolting through the door in places like the UK. One out of every four vehicles last month in the UK was a Chinese brand. And they're good looking cars. A lot of them look a lot like other cars, by the way. I just want to point that out.

39:49I mean, they look a lot like some other cars. They're well-made. People like them. The median manufacturing income in China, depending on your data, anywhere between$13 ,000 and$15 ,000 US dollars a year. A US manufacturing worker would not take that wage, could not live on that wage. European too. How do we compete with a car that's built by people that make the same wages that European and U.S. workers made 30 years ago? Well, it's really, really difficult. I mean, the way it's playing out right now in Europe right now, Brian, is an EV across Europe. The Chinese produced it for about 35 percent less than any European manufacturer.

40:37So that's why you're seeing all the European manufacturers going through a lot of restructuring right now. Volkswagen is kind of the prime example where they're trying to cut costs. But I think the one thing that the European OEMs do have that the Chinese do not in their home market is they truly understand their consumers in their home market. So the question is, they're not going to beat them on cost. They're not going to beat them right now on faster product development cycles. They're not going to beat them on the battery and EV supply chains, but they can beat them on is products and features that people really want and are willing to pay for because they know their consumers so well.

41:15And I do worry. And Mark, I do worry, by the way. And I want to say I just got an F-150. I love it. I love it. It's got 100 feet in the back. It's fantastic. but these cars aren't cheap and I and I do worry there's a part at which cars get so expensive that Americans like you know what I want to protect Detroit and I want to protect these jobs but I also don't want to pay a hundred thousand dollars for a car that was forty thousand dollars ten years ago and they say yeah I'm just gonna get a BYD because I know they're there you know it's Chinese maybe I don't care it's 35 ,000 well well I think what you're seeing in Europe with the latest agreement.

41:53It's not a trade agreement yet, but the latest understanding about restricting the number of vehicles into Europe. And of course, here in the U.S., we have very, very high tariffs. This is about buying time. And in the case of Ford, for example, they're introducing an all-new EV platform beginning of next year. We'll see how they compete cost-wise with the Chinese for their overall landed cost comparison. But just as importantly, it's one of those features they put in there. But every, you know, the Fords, the GMs, et cetera, they have to be looking at every inch of their supply chain, every inch of their cost basis.

42:33And also, you know, maybe dial back some of the features and functions where it's gotten a little bit out of hand. And that's why you have, you know,$100 ,000 F-Series. Yeah, and if you get rear-ended, you got$10 ,000 in repairs because there's six cameras back there, but that's a different conversation. Mark Fields, former Ford CEO, CBC contributor, all-around great guy. Mark, thank you very much. Appreciate you coming on. Thanks. All right, let's take a look at Louis Vuitton and LVMH. Robert Frank will take us down the luxury aisle next. Let's talk luxury or maybe a little less so because a slowdown is hitting LVMH.

43:11They've got an ADR. It's a stock that basically represents the French company. That stock is down 3 percent. Little weakness in the China side of the business. Robert Frank, Robert, we've been told that the rich and luxury are sort of immune from spending slowdowns. Yeah, the rich are immune, but the aspirational folks and certainly Chinese consumers not right now, Brian. Troubles in China, in fact, bringing down third quarter sales for LVMH. overall sales for the company growing 1%, but the key metric that investors look at here is the fashion and leather goods. That was down 5%, quite a bit more than expected.

43:49The company blaming a slowdown in China. They didn't cite specifics, but analysts here saying it was caused by a consumer backlash in China against Louis Vuitton after the company's legal battle with a chain of tea shops. Now, the Mali Tea Company, they used a logo shape Similar to Louis Vuitton's, there was a legal dispute. Mali was forced to pay damages. And some Chinese consumers, after all that, called for a boycott of Louis Vuitton. Outside of that, things not so bad. LVMH had stronger sales in watches and jewelry, especially at the Tiffany brand. Wine and Spirits also up 6 % with champagne showing a solid rebound.

44:27And the big standout was Sephora. People forget that's part of LVMH, but it's part of its selective retail business. That whole business up 8%. Now, on the outlook, the company is saying, quote, despite economic and geopolitical environment that remains uncertain, the group remains confident and will maintain a strategy focused on continually enhancing the desirability of its brand. So, Brian, there's really weakness in one brand in one country for a company with 75 brands across the world. Now, it's an important brand, an important country, But the hope here will be things will restabilize once this whole boycott thing in China shakes out.

45:07Maybe we'll get a better fourth quarter. We'll also see from the other luxury brands in the coming weeks. And I imagine it's part of the strategy. Stay so diversified at LVMH that if something goes down, something else can bring it up. Yeah, and the U.S. was quite strong, you know, up 4 percent. And all the brands, all the units doing well in the U.S. And again, you've got wine spirits, you've got watches and jewelry, you've got the specialty brands, you've got the core fashion leather goods. So the hope is that spending by those wealthy people that are invested in the stock market will continue to offset the weakness in China.

45:44Robert Frank, looking at the luxury side as you do, Robert, and unlike anybody else. Robert Frank, thank you very much. All right, folks, we're going to wrap it up there, but we're going to roll on with Closing Bell right after this short break. Thanks for watching. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading.

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