Power Lunch 10/9/26

0:00Tu Sausage McMuffin with Egg no cambió. Tu recibo, sí. El Sausage McMuffin with Egg Extra Value Meal. Trae un hash brown y un café pequeño por cinco dólares. Solo en McDonald's por tiempo limitado. Precios y participación pueden variar. El precio de la promoción puede ser más bajo que el precio del meal. 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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0:50Stocks working to wrap up the week on a high note. Welcome to Power Lunch, everybody. I am Brian. Kelly is off today. The markets right now, they are higher across the board. The Dow up about 400 points. Investors looking past, at least for today, a week of rising rates, new volatility around energy and renewed attacks by Iran. Oil marginally lower today, but Brent crude still above 100 bucks a barrel. We'll talk about that and refiners. Plus, we are going to get a read on high-end housing with corporate and real estate broker Noble Black, elevated mortgage rates, limited inventory, redefining luxury.

1:26And I think we're just going to show you some awesome homes that we all wish that we could afford. By the way, the power demand story, only getting more powerful. And Generac CEO Aaron Jockfeld is here on energy storage, grid resilience, and the infrastructure required to support data centers, industrial growth, and a more electrified economy. And with energy earnings expected to grow more than 100 % in the third quarter, Paul Sankey of Sankey Research joins us on where the profit leverage and opportunity right now for you may lie. All right. Hi, everybody. We've got a big hour ahead. But let us begin with eight letters that generate a lot of passion on all sides.

2:09E-L-O-N-M-U-S-K Elon Musk Some people love him Others, not so much But there's no question About Musk's impact on business And money And the markets From Tesla to SpaceX and Starlink His market is everywhere For example Look at the value of these automakers Now Tesla has a market cap Of$1.5 trillion That, my friends, is worth more than all the other major automakers combined. It's also 10 times more than GM and Ford combined. So that's just on land. Musk also powering the skies. SpaceX, win public and raise$75 billion. By far the biggest IPO on this or maybe any other world. That company is now valued at$2.2 trillion.

3:00And Musk doesn't think it is stopping anytime soon. In fact, he wrote on his own X, which he also owns last night, this will sound super crazy, but I see a path to SpaceX being worth orders of magnitude more than the current Earth economy. And now SpaceX and its Starlink unit, they are coming for connectivity. Look at what is happening right now. AT &T, Verizon, T-Mobile having their worst days in more than a year or longer on news that Starlink is buying bandwidth that will likely put it in direct competition with the cell phone companies. Let's talk about more on this story with Craig Moffitt of Moffitt Nathanson.

3:39Craig, I hope I set it up because I want to give an example of how much Musk and his teams disrupt everything they get into, cars, rockets. And now is he going to do the same with cell phones and connectivity? You set it up brilliantly, Brian. In a word, count me as a no. Look, I'm a huge admirer of what Elon Musk has done and the quality of the engineering at SpaceX. It's really an extraordinary company. But the challenge here is not an engineering challenge. It's a physics challenge. And we see it as really, really difficult to think that in any reasonable timeframe, Elon Musk is going to be able to build a telecom network that is sufficiently, it is of sufficient quality that customers are going to switch from the big three and be happy having made the switch.

4:38Yeah. I mean, the news today is knocking about, I don't know, 500 plus million dollars off each of these companies. So more than a billion in damage being done to what you say, Craig, is a physics problem. Why physics? well so there's a whole series of steps to this um i think kelly last time you had me on called it that i i did a little too much math but the challenge is um the physics uh remember physics class of of signals degrade with the square of the distance um it doesn't matter how good the engineering is they still degrade with the square of the distance so if you're talking about think about a satellite as sort of a tower up in space a 220 mile away tower instead of a one mile away tower like in a typical rural area generates one about 148 thousandth as much power as um as a local uh antenna does so so you can try to solve that on the downlink by with a really powerful downlink beam, and they've got solar arrays for the power level in the satellite.

5:48But you run into real challenges when you try to do uplink from a cell phone that can only do a couple hundred milliwatts out of your hands. Those challenges are real physics challenges, and it's going to be very tough for them other than simply trying to replicate Verizon or AT &T's networks, which would take decades. So, okay. So going back to that, they have spent decades building these out. So in your view, Craig, is the market overreacting with these sales? Yes. And in fact, we're a little surprised about the reaction in part because we thought everyone knew this deal was coming. We wrote that we expected SpaceX to buy grain spectrum in July.

6:36We wrote it again in August. And I don't think we had some magical crystal ball. It seemed highly likely that SpaceX was going to buy this. Most of our institutional clients expected them to buy this spectrum. And so the announcement last night that they were buying the spectrum didn't come as all that much of a surprise. And therefore, we didn't expect all that much of a reaction in the stocks. I'm frankly shocked that the size of the reaction in the stocks is that the market was really caught off guard by something that we thought was sort of obvious in some ways. Because what's interesting is we're looking at, you know, 7 % to 12 % declines in the telcos.

7:19We're looking at SpaceX on our screens right now. Craig, it's up a little bit, 7 tenths of 1%. I know it's a much bigger company, so that move is kind of dollar value equivalent to the others. But my point is the market is not ascribing that much value add on the SpaceX side. Well, Brian, it's not a great business, right? I mean, you know, Verizon, AT &T and T-Mobile is a little different. But Verizon, AT &T trade roughly where they were 30 years ago. So it's not like the telecom business is a business that generates outsized returns above the cost of capital. So if you're thinking about for SpaceX, so I want to get into this business exactly why.

7:59It's not like it's been a particularly profitable business. So why does SpaceX want to get into it now? Well, what's the value add for them then? Well, look, you can imagine that there are alternative uses for mobility. And Elon Musk has spoken eloquently about how he thinks that this will be important for every robot is going to be connected to wireless networks. and every Tesla vehicle, an autonomous vehicle is going to be connected to wireless networks and satellite will play a role in all of that. And so there are things beyond trying to provide service for your cell phone that he's clearly thinking about.

8:37The challenge is right now, the money in the industry comes from providing service to your cell phone. And in any kind of network-based business, leveraging the physical asset and making sure that it's being healthily utilized is really the key to your economics, right? So you serve the market that you have to serve first and make sure that there's sufficient revenue on it. But if you or I got a service from SpaceX, and I would submit not just in the next two years, but in the next seven, eight, nine years, It's simply not going to be competitive with the networks that have been augmented now for 30 years by Verizon, AT &T, and T-Mobile.

9:22Remember, years ago when we got our first cell phones, we were growing up in a world at the same time as the carriers were. And so if you didn't have access in a remote location, well, that was okay because it was pretty cool to have a cell phone at all. And remember when we first got Wi-Fi on flights, it was pretty cool to have Wi-Fi at all. It didn't matter that it didn't work all that well. Expectations are a lot higher now. And if you have a service, think about when you get a, if you're not a telecom analyst, you probably don't. But as a telecom analyst, I've been getting emails for 30 Super Bowls from all three carriers about at this year's Super Bowl in Las Vegas or wherever it is.

10:06here's all the things we did to augment the network to support the fact that there's going to be more people in Las Vegas for the game and blah, blah, blah, blah, blah. 30 years of that has an accumulated weight in network performance that is incredibly hard to think you're just going to step in and replicate. All the convention centers and hotels and shopping malls and train stations and airports and the filling in the little details that make a network meet the expectations that a customer has today, even with incredibly deep pockets, it's just, it takes an exceedingly long time to be able to try to replicate that in a way that's going to satisfy customers.

10:45And well, maybe there is a buying opportunity with these names because T-Mobile's down 12.5%. Craig Moffitt, always appreciate your insight. I'm not going to lie, I didn't fully understand all the physics and engineering, but we have you on because you're smarter than we are. So Craig, we appreciate it. Thank you very much. It's great to talk to you, Brian. By the way, I tried to explain to my kids that you used to have to pay to make a phone call. And it was expensive. Anyway, now let's pivot to another place. Starlink is shaking things up. The airplanes. People like me are actively looking at flights that may actually have Starlink.

11:15In fact, there's now actually a website or maybe websites devoted to just that. So is it so important that people choose to fly particular flights based on the type of connectivity they could provide? I can tell you right now, I have made that decision in the last few months. Tom Fitzgerald joining us now. He's an airlines analyst at TD Cowan. Some of those airlines he covers use Starlink, but of course not all, including the one that may have or may not have just reported earnings today. Tom, we'll get to all that stuff, but on the Starlink side, are you seeing this in the numbers or is this just a couple of high-frequency travelers like myself who want Starlink on the planes?

11:55Next year is going to be the proof point for that, Brian. And right now, a lot of the airlines are still installing Starlink. But by about May of 2027, United will have Starlink on over a thousand mainline aircraft. They already have it on all the regional fleet. Southwest is going to have it on a significant amount of its fleet by the end of this year. Americans announced that they're going to be doing it on all of their Boeing aircraft, in addition to the previously announced all Airbus fleet. So I think as we go through next year, especially autumn 2027, for the road warriors, the corporate travelers in the jump ball markets like in New York, Chicago, Los Angeles, I think that will be a test case.

12:36Yeah, and I know me and probably you, some of my colleagues, we have it on flights. You can look it up or try to look it up, and then you're like, yeah, I want to get on that flight if I can. Even if there's a way to easily find this out, Tom, is it going to show up in airline earnings? Is it going to matter ever enough? You just heard Craig Moffitt talk about how the cell phone business isn't particularly a great business. Will it actually matter to the airlines from a revenue or earnings perspective? There's a few things to keep in mind. I mean, the big everyone else. I think if you're in a market where all the carriers have Starlink, then it becomes a commodity product again.

13:10I think in an area, one of the debates is and we've just kind of seen this in some of the tit for tat with with Elon and Delta over the last couple of weeks. But the airline is not going with Starlink. if they don't have any issues going with Amazon, if there's no delays with the Blue Origin as they build out that network of satellites, and also don't sleep on the viacide improvements next year, it's not low-Earth orbiting Wi-Fi by any means, but there's going to be a pretty meaningful step up in the quality on Delta's domestic Wi-Fi next year. So I think as long as there's no bumps in the road and we don't have the Amazon Leo getting pushed out to the right, I think it's more noise than anything concerning, especially if you're someone in a market like in Atlanta, like like Minneapolis, Detroit, where Delta is really the fortress hub carrier there versus, you know, more competitive places like in New York or Chicago.

13:58Yeah, Delta CEO Ed Bastian, I'm sure you've heard of the guy, he came out and basically made a comment that airfares will sort of be what the market bears. In other words, people are going to pay what they're going to pay, and if they keep paying what they're paying, that airfares are probably going to stay flat or maybe even go up. I mean, I'm seeing coach tickets, Tom, from Newark to Chicago. You know, a widely traveled route on United for six and seven hundred dollars. This is coach. This is like back of the bus, bare bones stuff. Is there any sign that consumers are finally breaking at some of these fairs or are they just going to keep paying them?

14:37If there's any impact from cost pressure on the consumer, it's not happening in air travel. It's still top of wallet for them. I think the experience economy, that secular theme is still very much intact. Are you surprised by just how strong it's been, Tom? Pleasantly surprised. And I think it's been a good proof point for the industry that maybe they underpriced the product for a long time, especially now with the premium boom and giving more people, giving people more of a reason to spend more on the plane. Tom Fitzgerald, look at a Delta, look at a Starlink, look at United and more. Tom, we really appreciate your views.

15:08Have a great weekend. Thank you very much. Thanks for having me. Oh, you're very welcome. All right, still ahead, a wealth expert on how to make higher rates work for you. And speaking of rates, power broker Noble Black on what these borrowing costs mean for luxury real estate. And right after the break, our exclusive interview with Generac CEO Aaron Jagfeld on becoming an under the radar AI and data center power player. That is next.

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16:17Seriously, 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. 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 market update podcast or find Schwab Market Update wherever you get your podcasts.

16:58All right. From a weather perspective, all eyes are on Hurricane Isaias as it approaches the U.S. Gulf Coast. At AccuWeather's Anna Azalean, they're tracking the storm. It's got the very latest on the path and more. Anna. Well, I want to start off looking at the impacts to oil rigs because I know you focus a lot on business economy. Well, it's good news here because some of these rigs have had to be evacuated and will likely see impacts from East IS. But you can see a lot of the rigs are further west of the track that this hurricane is taking. However, it is a major hurricane. We are going to see major impacts, not just along the coast, but pretty well inland as well.

17:34Current look at satellite and the latest stats a couple things to point out here really what it means is this storm has sped up since yesterday going from 10 miles per hour to now moving at 16 so not out of the question to see landfall a little earlier than previous forecasts we're talking the window between 8 p.m and 1 a.m also not out of the question for this to make landfall as a category three major hurricane now all along we've been forecasting a strong category two so we don't think there's really a big change in the impacts, but just know category wise, it could be a two, could be a three.

18:09Storm surge is going to be the most dangerous impact by far and the most life-threatening, not just around landfall, which we think happens around Pensacola, Pensacola Beach, but pretty far east as well. Then there's the wind. Hurricane force winds stretch even up towards Birmingham here. So we're looking at widespread power outages and significant rainfall that, as you can see, goes pretty far inland as well. Anna Azalea, and we're watching that storm. The first latest last storm that we've had at this time of year in 112 years. Anna, thank you very much. All right, folks, we've got some breaking news out of Washington, D.C.

18:43For that, let's go right now to Eamon Jammers. Yeah, Brian, that's right. We might have some movement on the White House press secretary front. You remember that Caroline Levitt left the White House over the summer. The New York Times is now reporting that the White House has picked Katie Zakaria as the new White House press secretary. She is, according to her LinkedIn, a senior communications advisor for Trump media and technology group. She's somebody who's appeared on Fox, Newsmax, OAN, the conservative networks, and a former Department of Homeland Security spokesperson. I've been texting with a White House official who goes so far as to say that Katie Zakaria has been offered the job as White House press secretary, not confirming that she's accepted or that it is a done deal yet.

19:30But clearly there's some movement behind the scenes on this. The New York Times, as I say, is reporting that she has been picked. I don't think we can confirm all the way there yet, but it does seem as if she's been offered the job at this point. Brian, back over to you. What have they been doing without one? Just not holding the briefings, or has it been kind of a rotating cast? Yeah, they have simply not been holding the briefings. They've been letting the president speak for himself. You know, the president talks to reporters all the time in the Oval Office and at departures and such. And so he's kind of been his own spokesperson for this period of months.

20:04We have seen, you know, other officials inside the press staff. There's, of course, a whole staff in what we call upper press and in lower press, which handle reporter inquiries, that kind of thing. So that's all been kind of ticking along behind the scenes. But there hasn't been that visible figure behind or on the White House podium who kind of is the face of the administration. And so if Katie Zakaria is ends up selected and accepts this job, she would be that person. And she's a relatively little-known figure in Washington. So this would be a big step up for her and, of course, a big pivot for the White House.

20:41Certainly will be some breaking news there out of D.C. by Eamon Javers. Eamon, we appreciate it. Thank you. All right, so let's get back now sort of to the weather and power and more. And we'll call this part of our Power Insider franchise. Hurricane Isaias posing another risk. Of course, power outages. Energy demand has been growing, not just at your house, but also for data centers. The power always has to be on. Helping companies do that is Generac. And the CEO, Aaron Jagfeld, the CEO of Generac, joining us now for a lot. Listen, for the House, Aaron, welcome, by the way. It's great to have it right where we are in New Jersey.

21:16Now, it's almost a must have to have because we've had so many massive storms in the last 15 years. But super critical for data centers, for refineries. The powers can't go out. How are you how are you guys helping? Yeah, thanks for having me on, Brian. You're spot on. I mean, it's not just New Jersey, by the way. There are vast swaths of the U.S. where power quality is an issue. And it's not only an issue for homeowners, which has been our core business for a long time, but it's a growing issue for businesses, right? And for, you know, government agencies, I mean, everything from wastewater treatment, critical infrastructure, you know, telecommunications, all the way through to manufacturing plants.

21:52And as you indicated now, data centers obviously are a huge, you know, both for us a direct play, right, in terms of being able to supply backup product for these types of campuses, but then also the indirect implications of the amount of power that data centers use. And actually that potentially contributing to power quality issues that may influence other parts of our business. Yeah. And, you know, I don't know if in the previous hour you're busy kind of running a company, Aaron. And so we had an analyst on Dimple Gassayev, Piper Sandler, who loves your company, loves the stock, by the way, talked about the total addressable market.

22:26I know you got earnings soon, so we're not going to get into specific earnings stuff. But some people, she thought, might be underestimating the size and length of your addressable market. Longer term, how big is the market for Generac? Yeah, it's a great question. And, you know, Dimple just picked up coverage, I think, this week. So welcome her to our cadre of analysts to cover the company. But, you know, I think you're right. I think a lot of people have undersized the market, including us. I mean, we did our Capital Markets Day, our Investor Day in New York in March. And, you know, we kind of sized the global market for data centers for backup power at $14 to$17 billion.

23:03I think, you know, in retrospect, as we look at it and just the speed and the breadth of the scale up here of the build out, you know, we probably undershot it by a factor of two, maybe even three times. The U.S. market alone is probably closer to$15 to$20 billion. the way we're looking at it more recently. And even for us, we indicated at that Capital Markets Day that by 2028, we thought we would do a billion dollars of sales for data centers in 2028. Right now, we're looking at maybe 2 billion next year, in 2027. So this is moving a lot faster than we certainly thought. And I think it's gonna be a lot bigger.

23:38And I think maybe to just cover that off, it's gonna last a lot longer. Everybody we've talked to here in this industry, the hyperscalers, the co-locators who are building out, they say, look, this buildout is massive. And in terms of just the length of time it's going to take, the physical amount of time it's going to take to do construction to build out this data center need is going to take, it could be five to 10 years. Yeah, and the idea, and Dipl and I were talking about this off camera, that the spend on power and where companies might spend with you is actually kind of a small percentage of the data center.

24:15So it's not a barrier to entry. And the answer is this, Aaron. Is it a must-have? Like, if I'm building a data center tomorrow, do I have to have your power systems on the building? Or is it just like, I want to, but I don't have to? Yeah. I'm going to sit here and tell you, yes, they have to have our systems. Because that's, you know, I just want to understand. I realize when I ask it what a dumb question it was. Because I'm like, of course you're going to say, yes. But I mean, like, engineering-wise. engineering wise, 100 % of data center installations need to have a backup strategy. Now, there are different technologies to cover that, but the most prevalent technology is the backup power kind of generators that we manufacture, right?

24:54It's got a diesel engine. This is turning a set of copper windings. We're not making power really much differently than when power was first being made 120 years ago. But at the end of the day, if you're running a data center, if you own and operate a data center. The problem is if you have even a minute of downtime in that data center, you're on the hook. Oftentimes, you have service level agreements that you've got with your customers that guarantee uptime. And there are actual penalties, financial penalties, to not providing that uptime. And so the lost economics of not having power is one thing, but the penalties are another.

25:28You put all that together, and Dipple's right. I mean, And the actual spend on these products is relatively small in the grand scheme of what it costs to set up a data center. But it's enormous to us, right? It's a huge thing for our business. Yeah, and you know what I appreciate, Aaron, about you was that you didn't make me feel dumb for asking what was probably a dumb question, but you asked. So I appreciate it. Not at all. There are no dumb questions. Do people need your product, Mr. CEO? Yes, they do. Do me a favor. Go to COPS right there in Brookfield. Get a frozen custard tonight for us all in Wisconsin.

26:00and best of luck to everybody in your territories. Aaron Jackfield, thank you very much. Appreciate that. Appreciate it. All right, coming up, bond yields, borrowing costs. They're climbing after a volatile week for bonds. A money manager is here on set to tell you how to make these higher rates work for you.

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27:43Any investor freak out over the end of the AI trade after that open AI revenue report yesterday? Yesterday, looks like it might have been short-lived. The NASDAQ is up more than half a percent today. The hyperscaler, some other AI-sensitive names, they're all getting a bounce. Yesterday, everybody was, yeah, I guess freaked out about that$20 billion revenue change on open AI that Kate Rooney talked about. Well, today, it's one day later. And guess what? Those names are back up. You've also got a lot of AI, semiconductor names ahead. But guess what also is up lately? Borrowing costs, interest rates.

28:14Joining us now is Nomura Asset Management International, head of U.S. wealth, Melissa Hutchison. Melissa, welcome. Good to have you on the set. Great to be here. Thank you. Fantastic. So how do we make rates, bonds work for us now? Well, it's a huge, almost generational opportunity in income right now. So when you think about kind of what's happened in the market, we are at multi-decade yield highs right now. And we actually see this. It can cause volatility. And we've seen a lot of that in the headlines recently about where the 10-year is, where it's going, where it can go from here. We both know it can go up.

28:50It can also go down. But what we do know is that we are at really good opportunities to think about how can you actually put some of your money to work. And we see real opportunity both in the high yield corporate market, but also high yield muni bonds where you have to think about the taxable equivalent yield and what that can mean for you. When I hear generational opportunity, you've got my large years are automatically perked up. Why is this a generational opportunity? Well, think about the last time the 10-year we're at these levels, right? So you're at a point post the GFC where many people who have been investing in the market since then have not really seen this opportunity to lock in income.

29:33You haven't really seen the diversified portfolio always play out in the way that it should. You've seen equities take a huge part of the upside, which is great, and people have made a lot of money. But as you think about where does the market go from here, and there can still be opportunity on the upside on the equity front, but also how do you take some risk off the table? How do you diversify? And having that opportunity in bonds can be really important. So take high yield munis, for example, taxable equivalent yields. You live in New York, you live in New Jersey, you're paying taxes wherever you live.

30:08When you get to - Some more than others. Some definitely. You're originally from New Jersey. That is true. Nowhere to hide. There is nowhere to hide. There's nowhere to hide. Maybe in Munis, though. Maybe we can hide in Munis. You can hide in Munis if you're trying to look for yields that will get you to around 9.5 % right now. So, reminder, that's, you know, the yield that a taxable bond would have to pay to get that same after-tax income. And having that level at 9.5 % or around there can be really attractive to investors. You know, and I was saying, oh, is there a point where people are going to start buying bonds because they're worried about, you know, stocks and the yields?

30:46But actually, they're selling bonds. I mean, yields go up because bonds get sold. So they got to keep offering more coupon yield until you get to a point where people are willing to buy it. So who is selling bonds? Like, who are the sellers here? And then who should be buying some of this debt to take advantage of that opportunity you just talked about? There's a lot of supply and demand dynamics happening in the market right now, which is causing some of the volatility that you're seeing on the bond side. So you have obviously the war in Iran, which no one had predicted and does have some uncertainty around what's going on in the market from, in particular, an energy perspective.

31:25You have hyperscalers putting more volume out into the market. We obviously have the debt here in the U.S. There's a lot of different supply and demand factors that are happening, not just here, but across the globe. You've seen some of what's happening in Europe recently from a debt perspective. So people start to get nervous. And you've also seen people actually continue to invest in the equity market. And so money is still going into some of that AI trade, where, again, if you're investing with intent around innovation on the equity side, that can be good. Should we buy banks? I'm looking, there's a giant wall, Melissa, behind you, over your shoulder here.

32:02I don't see the wall. Yeah, look at all, a giant wall of all the earnings that are coming out next week. Well, there's a lot of earnings. A lot of earnings, a lot of financial earnings, but these companies have largely been sold off into higher rates. Is that an opportunity? Well, higher rates can be very good for the financial sector in terms of... Investors haven't acted like that, though. They've been selling stuff. Well, investors are, I think, acting off of uncertainty in general, And so you're seeing some of that traditional going back to the AI trade is what keeps coming back into the market, even though you see volatility in particular this week.

32:36And that as we go into this earnings season, we do think that there is still opportunity in the broadening of the market and being just conscious of how diversified you are and taking potential advantage of opportunities in other sectors, in areas like financials, also health care, which can be beneficiaries on the other side of the AI trade. But again, the income piece is also really important. So remember, don't kind of time the market. You can't fight the trend in particular on some of the equity upside. But just be thoughtful about, you know, for high-yield corporates, for example, if you're maybe a little bit nervous about the equity market, can you take a little bit of that exposure, take it to high-yield corporates, which tend to have an equity-like return with a little bit lower volatility?

33:25I love it. Melissa Hutchison telling us how to take advantage of the higher rates. It's been a big theme and a big story. Thank you. It's a pleasure to meet you, by the way. All right. Time now for today's bond report. Isn't that amazing that we just talk about bonds and now there's a bond report? There you go. Treasury yields, they're not moving a whole lot today. We're back sort of 5.25%. And obviously, we've talked a lot about it. At what point is the yield on treasuries maybe just too good to pass up? People selling bonds, yields go up. But for some investors, we might be there. Bank of America's Michael Hartnett is out with a chart showing that weekly treasury inflows at their highest levels since April of 2025.

33:59So really a year and a half. And listen to this. According to the CIO of PIMCO, and he did an interview with the Financial Times, the jump in borrowing costs may not be over. A 6 % 10-year yield very much still on the table, according to Dan Iverson, who runs PIMCO. He said a sharp jump in a 10-year yield is, quote, feasible. All right, still ahead. We'll get a gut check on housing with a 30-year fixed mortgage rate sitting at about 7.5%. Power real estate broker Noble Black is here. We'll talk about opportunities in real estate next.

34:38All right, the markets are up across the board. The bull market of this stock market is entering year four. Next week is the four-year, quote, birthday of the bull market. But rates have also gone up a lot lately. And that, of course, impacts mortgage rates and thus real estate. So let's have a little bit of fun, though, and dream. Why can't we dream, right? Noble Black of Corcoran is here, brought some listings in New York City. These are places I will, I mean, I guess if I win the Powerball, maybe I'll buy some of these. These are spectacular places. I'm going to say something, Noble, you heard me say when you sat down.

35:11I think New York City is the hottest real estate market in the United States. Maybe it's the hottest real estate market in the world. How hot is New York right now in a good way? In a great way. I mean, it's definitely hot. We're holding up incredibly well. There is so much wealth out there, and people still want to have a place in Manhattan. We've been on before talking about the pied-a-terre tax, talking about a lot of the stuff that a lot of us disagree with some of the stuff that certain politicians are doing. People still want to be here. There's still nothing that competes with New York, and people want to have a place here, whether it's for shopping, whether it's for culture, their businesses, and there's not nearly enough supply right now.

35:48So you've got a lot of demand chasing the few properties that are well-priced where people want them to be. And the pied-a-terre tax, which, by the way, if you're not following this, you don't live in New York City, is a tax proposal. It's all I'm going to call it right now, where basically over a certain value you get an additional tax because there's not enough money. They have to just keep collecting. It's a war on wealth. We all know what's going on. But that aside, politics aside, it's tied up in courts. Is there a chance it doesn't happen? I think there's a big chance, yeah. And I think that's a lot of what so far there's not been a big effect in terms of the buyers.

36:17And I think a lot of them are betting that there's not going to be any real implementation of this. It's being challenged both in the way that they gave notice, which was all about the headlines, as you alluded to. This is more about kind of capturing some headlines and kind of a class warfare argument, I think. But it's also being challenged on constitutional grounds. It's never been done. It was not researched well. It was certainly implemented horribly. So a lot of people are thinking, hey, if they ever do this, it's actually not going to come into effect. By the way, putting out a publicly available Excel spreadsheet with people's names and sortable is not, you don't just put out like a hit list.

36:50But here's the rich people go after them when a lot of people on that were not rich. Anyway, how much are your clients talking about this? Or are they just annoyed by it, but they're going to buy a place no matter what? Most are annoyed by it, and they're going to buy a place still. I don't want to say no matter what. I do think that there's a marginal level at which they just will choose not to. Right now, the levels are not high enough to make most of them not want to buy. We were with a big buyer this morning. You know, that's a big price point, going to be a total pied-a-terre. And, you know, he's annoyed by it, but he's going to go forward with it.

37:21I have had buyers that have paused their search. I've had sellers that have listed because they're annoyed by what's going on, and they feel like it's unwelcoming. For the most part, people are annoyed but still proceeding. And we talk a lot about higher rates than mortgage rates. And, again, folks, I want to be clear. We're talking about the high end of the market here. So these are people that have wealth already. And while 7.5%, a lot of your buyers, I'm sure, are all cash, but I'm thinking to myself, okay, you know what? If I've got a bunch of money in the market, the market's returned to like 20 % on average every year for the last five years or whatever the number is.

37:52That's more than 7.5%. And maybe I'm willing to borrow the 7.5 % to keep the cash so I can keep that cash in the market. Yeah, I mean, all I can say is it's not stopping them yet, right? And real estate is something that they live in, they enjoy. We're seeing, particularly with our wealthy clients, they're buying more and more larger homes. So it used to be the case that our wealthiest clients may have two, three, or four properties. Now that's five, six, seven, eight, right? If they're spending time somewhere, they want something. It may be a branded residence. It may be something here, here, here.

38:22The higher interest rates, they're still proceeding. You may not want to answer this question. How long have you been doing this? 22 years. Okay. No, that's good. So you've seen market cycles. And you've seen stock market. because you're kind of a stock market guy. Because I got to imagine there is a, tell me if there's not, say it, that there's a correlation between the stock market and high-end real estate. There is. Obviously, when people are making money, they want to spend money. At the same time, if the stock market is not doing so well, a lot of them feel like, okay, I can take money out of that and put it into real estate.

38:51So more than anything, particularly when we're talking about the wealthy, they will buy regardless of the market as long as the sentiment in general is good. They have the money, right? They just want to make sure that everything kind of feels good. Is it all about the West Village right now? I mean, is it all? West Village is hot. I was actually down there this morning looking at a building that's made a lot of headlines, and it is crazy hot. There's so little inventory, and there are so many people that want to be there. But it's not just that. Upper East Side is doing incredibly well in pockets.

39:16The city in general, depending on where you are and the product that people want, it's great. But I just got to say this, and you'll know this a couple people. Le Bon Bonniere is still cash only. Okay. It's the last diner. Well, I'm sure you don't have to wait in line. Not a Le Bon Bonniere. That's where you get the scrambled eggs. That's good. Soak up the wine food the next day. Anyway, we won't talk about that. Noble Black for the Corcoran Group. Noble, it's a pleasure to have you on, as always. Thank you very much. All right, let's get over to Frank Holland with a CNBC News update. Good afternoon, Brian.

39:46Vice President J.D. Vance said today he's not sure the execution of a former Army psychiatrist that killed 13 people in a shooting at Fort Hood will actually be live streamed. Defense Secretary Pete Hegseth suggested yesterday that his death by firing squad would be public. Vann said if that does happen, he will not be watching. A federal judge in Manhattan ordered ICE to not remove a Dominican man who was shot yesterday while in a vehicle with his five-year-old from the U.S. The judge ordered immigration officials to keep him in New York or New Jersey. Another judge will hear an emergency petition from his attorney within the hour seeking his release from ICE custody.

40:20And the U.S. Geological Survey says a major 7.6 magnitude earthquake struck off Panama today. There were no immediate reports of damage, but the U.S. tsunami warning system says tsunami waves are possible along that country's coast and could also affect its neighbors, including Colombia, Mexico and Hawaii, within the next few hours. More Power Lunch coming up right after the break. Refiner stocks, they've been running hot all year, all month, all this week and again today. In fact, today, four refining company stocks hitting more new records. Marathon Petroleum, Phillips 66, Valero and HF Sinclair all at new records.

40:55and all up between 120 and 170 percent this year. And with refining margins booming as demand for things like diesel and jet fuel soar, is Paul Sankey. See more upside ahead? Let's ask him. He's here. Paul is the president of Sankey Research. More upside ahead, Paul? I think into the results, yeah. But of course, you know, results coming up right now. So we're definitely riding Valero into the print. From there, it's tricky because, as you know, this is a structural issue. So it's not something that's going to go away quickly in terms of global diesel tightness, in terms of the advantage these companies have in terms of cheap natural gas.

41:33And I think generally people are waking up, Brian, to the oil sector as something that generates a lot of free cash flow and high cash return to shareholders. In contrast, we could say to some other sectors. So I think we do. Yeah, we do. I mean, having said that, you know, my price style on Valero was$150 when it was$80. And now we're at$450. So it's unprecedented levels of valuation at this time. Is it really kind of almost the perfect storm, through no fault of their own, for the Valeros and the Phillips 66s and the HF Sinclairs? I think it's the government's fault. I mean, you can see that in California, what they've done to the refining system has created their own problems.

42:12And the fact is, you know, in COVID, nobody helped these guys. Nobody helped them at all. And now you turn around and say, why don't you have more refineries? Why don't you spend more money? And it's, you know, it's a natural cycle. It's like, well, you know, you know, you didn't invest when you needed to. And now you've got a problem. So I think, yeah, it's going to it's going to last, unfortunately. And of course, it's now driving interest rates, not the crude price, but the price of diesel. And that's what we face is the biggest challenge in the market today. It's amazing. I was actually six years old at Paul and I'm old.

42:41And I was six years old when the last major refinery was built in the United States. 1977. It's truly shocking. But governments don't like to be told that they made a mistake. What they do like to do is go after companies that make too much profit. Is there kind of a headline risk sitting here, Paul, where, you know, you get you get somebody, even the White House. Right. Talking about diesel bans that people go after this group. Well, I mean, this is all into the midterms. Right. So it's in the next three weeks that we've got to sort this out if you really want to try and sort it out. And so the diesel export man is too late.

43:13And I think they've decided it is a terrible idea because it's a terrible idea. You know, the whole way we got the US oil and gas industry has done an incredible job for this country. We were importing 10 million barrels a day when we had the global financial crisis in 08. Today, we're exporting that level. And if you think about what that's done for the US and for the dollar, you wouldn't be interfering with these companies at all. So I think the good news is that they're doing some silly stuff like mucking around with taxes and red diesel. But the big one, which would be to do what China's done and do what Russia has done, which to me is un-American, and ban the export of a product into the free market, seems like we've avoided it.

43:51And that was the biggest external political threat, in my view. Well, Paul, sit tight for one second, because speaking of politics, we're actually going to go back to Eamon Javers in Washington, D.C. with some more breaking news. Eamon. Brian, we've got a significant announcement here from President Trump, who says he's just been on the phone with President Vladimir Putin of Russia. and he's agreed to a diesel deal with the Russian president. Here's what President Trump says. I have just concluded a highly successful discussion with President Vladimir Putin of Russia, wherein it was agreed that Russia will immediately supply over 300 ,000 tons of diesel fuel to the American and global marketplace, another 500 ,000 tons during the month of November, and 1 million tons immediately thereafter.

44:36Additionally, based on the condition of their diesel refineries, Russia will then deliver within a short period of time 3 million tons of diesel fuel, the president goes on to say. Between our total control of the Strait of Hormuz and this great announcement on Russian energy, diesel prices for Americans and indeed the world will be coming down in record numbers and fast. Lower prices for Americans, especially our great farmers, ranchers and truckers, is my greatest priority. So the president here suggesting that he has cut a deal with Vladimir Putin of Russia to increase Russian diesel exports into the global marketplace, including, Brian, to the United States.

45:15He says specifically here that the 300 ,000 tons of diesel fuel will be exported to the American and global marketplace. Now, of course, the United States has put sanctions on Russian energy as punishment for Russia's invasion of Ukraine. and as recently as last month passed the Lindsey Graham sanctions bill imposing additional sanctions on Russia. So what I'd like to understand, and we just haven't had time since the president has posted this, is exactly what the president's contemplating here with regard to U.S. sanctions. Is he lifting U.S. sanctions on Russia for this sector of energy, or is this some other arrangement that the president has come to?

45:59We're going to have to get a lot more detail on how this is going to work, Brian. But clearly, you know, Russian energy has been sanctioned since the beginning of the Ukrainian war. That's been a key part of geopolitical tension and geopolitical strain since the Ukraine invasion. And now the president's saying he's cut a deal with Vladimir Putin for the export of Russian diesel ahead of the U.S. midterm elections. I did not have this on my Friday bingo card. And this is a hell of a breaking news story. And I'm glad we just happened to. Why don't you sit tight, Amy, if you can? Paul Sankey is still with us.

46:31Nobody better to have on right now as the news is crossing. We don't normally talk about fuel in terms of tons. So I'm trying to do the math. 300 ,000 tons. I think that's about 2 million barrels of diesel or roughly. How do we do the math on the tons? You're going to use 7.45 barrels per ton. So a million barrels would be 7.45 million barrels. so that U.S. consumes four million barrels a day. So arguably it's two days. I think what we really, you don't want my reaction. It's not a lot then. This would be, but you got to admit, Paul, even if the numbers aren't massive, this is a hell of a headline.

47:12I mean, it's all a bit of a mess, quite frankly, but the main question is what does Mr. Zelensky say about this? You know, because the Russian, it hasn't really been about Russian sanctions. It's been about destroyed Russian refineries. And as you know, in the past, when President Trump has called on President Zelensky not to continue bombing Russian refineries, he's ignored it. He has, however, not affected the Kazakhstan crude exports. He's backed off that at the request we heard of J.D. Vance. So, you know, the question really is more about the security situation in Russia than the sanctions.

47:42And by the way, there's a huge thing coming here anyway, which is sanctions by Europe on Russian LNG, which is 15 million tons of lost supply for Europe by January the 1st. So yeah, no, this will bring down prices immediately just simply because it's marginal barrels at the margin. But the actual structural impact here is de minimis.

48:06Eamon? Yeah, Brian, we just have a note from Treasury. So the president is suspending U.S. sanctions on Russian energy, at least for this purpose. The Treasury Department saying today, At President Trump's discretion, the Office of Foreign Assets Control, OFAC, is immediately issuing a temporary general license to allow the supply of Russian diesel to the global market. So that is a confirmation of the issue that we were just talking about, Brian. Is the president suspending sanctions on Russia? The answer to that is yes. Yes, he's doing that ahead of the midterm elections in order to try to bring down gas prices ahead of those elections, as he says, for American farmers, truckers, etc.

48:48So he wants American voters to feel that he has taken action on an issue that they clearly have top of mind heading into the voting booth. And he's done it by cutting a deal with Vladimir Putin to end U.S. sanctions, at least in a temporary way here. This is described as a temporary general license. So we don't have a time frame on exactly how long this will be in place. But reversing American sanctions on Russian energy and cutting this deal with Vladimir Putin. And this is all your discussion of, you know, Ukraine obviously is relevant, right? Because the Ukrainians have been targeting Russian energy production as part of their campaign to drive Russia out of Ukraine and to force Russia to its knees economically to inflict economic pain.

49:33Now here's the president who is, I guess, sort of nominally allied with Vladimir Zelensky in the war between Ukraine and Russia, now cutting a deal with Vladimir Putin to export the same energy that Zelensky has been targeting with his drone strikes and other military activities. So it's an incredible geopolitical reversal or or, you know, kind of turning the sock inside out. I'm not sure the analogy that you'd want to look at. But clearly, the president felt the need to take drastic action ahead of the midterm elections here and has done so by cutting this deal. And it is remarkable. I'm sorry to jump in, guys.

50:11We have about 50 seconds of the show. Paul, is this going to matter to the earnings that the refining stocks have all turned down a little bit? Now everyone's just kind of reacting, figuring it out. Will it matter to earnings? No, the earnings are in the book. But for the future, I just don't see any of this, including the Hormuz security situation, as being long term sustainable beyond the midterms. It's just, you know, we need we need much more peace. And this is not about peace. This is just about allowing extra exports. Yeah. And about and aiming quickly about 50 percent of Russian energy assets have been targeted.

50:40I'm not even sure Russia has the fuel. Yeah. I mean, it's a good question of what kind of production capacity they have after those Ukrainian attacks. But clearly, Vladimir Putin said something that Donald Trump today, that President Trump liked and agreed to. So that's what we know as of right now. Well, hell of a headline for 3 o 'clock Eastern time on a Friday. But Paul Sankey and Eamon Javros, glad that you're here. Eamon Javros bringing us the news. That's it for us on Power Lunch. Closing, but we'll have more next.

51:17We'll be right back.