September Rate Hike Odds, Middle East Oil Disruptions, AI Researcher Resignations 9/11/26

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1:04A strong end to a week, week for the markets and your money. Welcome to Power Lunch, everybody. Stocks are higher as the entire country commemorates the 9-11 terror attacks. Oil is down as now investors look ahead to the Fed next week. But how much does the Fed even matter right now? Also, we'll ask Don Struyven, Goldman Sachs' head of oil research, who recently raised his oil price forecast on concerns about the Middle East. how hard it is to price oil right now. And the AI race is accelerating, and so are the warnings from inside the industry. Alex Turner recently left Google DeepMind, citing concerns about the direction and its use of artificial intelligence as investors weigh AI's enormous commercial promise.

1:45He joins us today to talk about those risks. But we begin with some breaking news because the latest scorecard on the federal deficit is in. The Treasury just releasing its latest monthly report on government receipts and spending. Steve Leisman is here with the low light. Steve? I like that. Minus$1.95 trillion. That's the deficit for August. That kind of guarantees we're on the way to$2 trillion when we get the full fiscal year in September. That's up by$84 billion on the month. That's 5%. And we're giving you these numbers on an adjusted basis, taking account for calendar differentials here.

2:18The deficit increased by$248 billion on the month. That's month over month. Treasury individual taxes up 5%, corporate taxes down 17%, and that is fiscal year-to-date. We have tariff money going in and tariff money going out, and out is the refund. So paid on a monthly basis,$23 billion, year-to-date,$293 billion. Refunded on a monthly basis,$11 billion, and we've given back$125. I've seen some estimates that we need to maybe refund as much as$170 billion. And so, Kelly, you and I were talking about this yesterday. When tariffs start to add more meaningfully and bring down the deficit, it could be several more months at this rate.

2:58And Treasury receipts and outlays did hit a record year to date. Folks? Steve, just the highlight for us, did it get better or worse? It got worse just by a little bit on a calendar-adjusted basis. The deficit was$84 billion higher, and that is up 5 % on the month. And we are headed for$2 trillion, it looks like. Those are numbers that we hit, I think, at 24. And then, of course, we were substantially higher or lower in the pandemic era. Yeah, more deeper, I guess we'd call it. Steve, thank you. Happy to do the lowlights for you anytime on the Treasury. That's all it really is. Steve Leisman, thanks very much.

3:36All right, for more on the Federal Reserve and its impact on your money, let's bring in David Zervos of Jeffries. David, great to have you on. Listen, here's a pretty hot take. This might be a low light. Maybe it's a highlight. The Federal Reserve is meeting on Wednesday. Kelly and I will be in D.C. for the meeting. So I'm not doing anything to take away the importance of that coverage. But how much right now, given the wars, Ukraine, Russia, Iran, et cetera, oil inflation, how much does the Fed matter to the macro markets right now? Well, Brian, I'm all about highlights. Lowlights just don't interest me.

4:14And unfortunately, as much for your coverage on the 16th, I just don't think this matters that much. And we've been saying this to our clients now for a while. The drivers of the macro are really not focused in on the Federal Reserve. We have deregulation. We have changes from the fiscal side, tax cuts, depreciation. We have the technology story, which is the biggest story of all. We have energy, which you focus on consistently and constantly and energy policy more generally. All of these are far more important than are they going to go 25? Are they not going to go 25? What that means for financial conditions.

4:52The razor thin story is just, to me, so overblown. It's it's actually kind of it's kind of not so exciting to talk about. You just got my attention. What's overblown? Because I'm sure I was part of it. What's overblown? No, the never-ending discussion about will they or won't they go 25 bases. But I think it's important. See, I know everyone's saying, this is funny, like as we're talking to each other, I know everybody says it doesn't matter that much, but directionally we're now already down the road of saying, well, how many is it going to be? And everyone's saying if it's one, maybe it's two.

5:25Daryl Kronk just said maybe it's three. So all of a sudden we're into a significant rate hiking cycle. Happens every time, Kelly. Every time. Start one direction and then there's got to be some analyst that goes, They're going to go 200 more basis points, 300. Everybody tries to outdo. So you read their email and and get excited. I think, again, we're placing a lot of importance on monetary policy that is unjustified. This is not the driver of people's portfolio returns. It's not the driver of the 13 percent total returns on the stock market year to date. OK, then what David, what is what are is the driver or the drivers?

6:07productivity growth, more certainty on taxes, less taxes, more deregulation coming down the pike. And I think to some extent what's dragged us down a little, Brian, is the energy sector and trying to deal with how do we incorporate the end of this conflict in Iran into our investment decisions. I think all of those have played a much more crucial role into how we got, you know, through September of this year, up 13 percent. And that's the highlight. The highlight here is that things are going really, really well. And we have had an incredible year of returns in the S &P. And everybody just wants to talk about, oh, negativity.

6:48The bond market just broke out 10 basis points above its high from the last 24 months. I would put it differently, David. Look, what animates me, I can only speak for myself, is how do we not spoil the party? What is causing the party and how do we not spoil the fund? I'm worried that rate hikes could spoil the party that you're talking about if they're responding to an oil price shock instead of a really strong economy. And even if they're responding to a really strong economy, is it going to solve inflation and so on and so forth? So from that point of view, what keeps the party going and is the party too strong?

7:18Should the Fed look at 6 percent nominal GDP and all this stuff and say, we've got to take a little bit of wind out of the sails so that the consumer sentiment report doesn't fall back to the record low from May? So I think, you know, it depends where you're looking, Kelly. I mean, if I look at the housing market and the housing data, it looks awful. It looks terribly restrictive monetary policy. And then if I look at our hyperscalers and what's going on in tech, it's like, you know, this is the most incredible time to invest in modern history. So we have a lot of tales of different cities and different opportunities.

7:49We have a job market that's super strange. We have an incredible job market for those without a college degree and a terrible job market for youngsters that have a college degree. We have a completely different set of statistics for women versus men in the labor market since this new administration came in. Lots of things to try to kind of put in the percolator and figure out where it's all coming out. No, the weak housing market, you could argue, if the critics of the Fed policy here, the ones who say we need to hike, would say the housing market's doing poorly because long end rates are too high because they're not hiking.

8:26Yeah, I'm not a buyer of that. I think that's really, that's a sort of Fed's lost credibility. By the way, credibility would not be seen at all if you looked at break-even inflation, which is down near the lows of the year in the front end. And today we get a CPI that's supposedly hot and two year break evens drop eight basis points and 10 year break evens drop four basis points. Tell me where the inflation expectation is there on this for the two year yield. If the two year yield is at four point six five percent and it's up like a point this year. Is that the market telling the Fed that policy needs to go up by a percentage point, basically?

9:04I think it's the market reacting to a very significant change in energy prices, moving from$60 to$100 a barrel. That affects inflation and the worry in the market that there are second and third round effects that come from that inflation. And the real question is, do you believe that? Do we believe that this period of elevated headline inflation is going to somehow seep into the psyche of the American public and displace and de-anchor long-run inflation expectations? And here's what I'll say, Kelly. If we did not displace inflation expectations when the CPI four years ago was at 9.1 percent, which we did not, five-year, five-year break-evens and all the long-end break-evens, health city, we weren't able to do it then.

9:48How are we going to do it now at 2.4 in core CPI? It doesn't make sense to me. I think it's a lot of overreaction. Sadly, sadly, I'll say a lot of politics. Sit tight. We're not we're not done, David. But I want to bring in Rick Santelli because I want to bring in our friend Rick from Chicago about this. And I think, Rick, in the bond report, I will, dare I say, channel my inner Santelli, because here's where I would agree with with David. And I agree with David on a lot of things. I talk about energy a lot. So I want energy to be a big story, and it certainly is a big story. But I will say this.

10:24We talk about$4.50 gasoline,$5 gas, like it's the end of the world, like higher rates. I don't think it is. This is an American public that has dealt with a doubling of health care insurance, car insurance, home insurance, meat prices, groceries, whatever it is. prices have been so damn high the last five, six, seven years that I don't know if small, small-ish moves in the price of gasoline or energy are going to be enough to, as David says, quote, creep into the psyche of the public. Comment on that. Comment on the Fed. Am I right? Am I wrong? If you say I'm right, that's a win. Well, first of all, I think the compounding nature of inflation bugs consumers.

11:12OK, I think specifically you're correct. I think what we look at with regard to the pain threshold of gasoline or some of the other issues that have been derived from the conflict in the Middle East. But when you lump it all together and you look at how much higher prices are today than they were on December 31st of 2019, it is significant. And I think that is the issue with inflation. And this administration didn't cause most of it. But we're not seeing minus signs. And it's very unusual to see a deflationary part of this chapter where we're at in the history of finance with debt and deficits where they are.

11:52And I completely agree, though, with David on the core CPI year over year at two point four. I have a bar chart there. Obviously, we are making progress. But the monthly numbers were hot. Can't deny it. Four-tenths and three-tenths, they're definitely warmer than we want them. Should the Fed tighten? Listen, if it was up to me, I wouldn't have done some of the eases. Higher for longer is what makes sense to me. But what also makes sense to me with the new chairman of the Federal Reserve and a world awash in higher rates and the dollar in many different directions, if you look at China or you look at the yen or you look at the euro.

12:29But ultimately, I think the only thing that truly matters right now is to continue to watch the oil prices effects on what's happening in the yield curve. And I think your beat, Sully, is epicenter to what's going on. And I do think when I read a major publication for finance, and I won't mention it, there's only really two left in the entire world. And they say yesterday's buyback wasn't good, and that is an excuse for higher rates. They have it wrong. I mean, a publication, some of these publications that used to be so good, the buyback didn't look good because the sellers didn't show up. That means that they like what they see on the long end for the moment.

13:14They're holding their paper. And if you look at where yields are on the 10s and 30s today, that makes perfect sense why the auctions went so well. You know, Peter Bookvar made a great point about this yesterday, Rick. He said they were buying back debt that was issued 10 years ago that's worth 65 cents on the dollar because it was issued at like two and a half percent yields. So if you hold something that's worth 65 cents, but you paid a dollar for it, why would you, you know, why would the price you'd have to unload it for would have to be attractive enough to make that worth your time, not just sell it on the open market?

13:45I don't know. Is that part of why there wasn't a lot of demand? Does the Treasury need to actually kind of give people more and then it makes it more expensive to do the buybacks? You know, you may that's way too complicated for for me. I look at it simply that if you're looking to buy six billion and only ten point two billion show up for sale, that's just a mathematical metric on the offers that don't make sense to me. We should have seen the streak come together with$16 billion in offers,$15 billion in offers. And I think you'll see a better offer over time. Dave, can you do like a 30-second coda on this, Rick?

14:25Thank you very much. I just do. I would love your two cents on what happened yesterday. What do you expect going forward? I'm going to give you five seconds on how great it is to be on with Rick, how much fun it's been to be on with Rick, and what a great loss it's going to be for all of us not listening to Rick on a regular basis. Love him and hope he calls in and hope he occasionally shows up as a contributor or a special guest because he's just a gem that we should all appreciate. What Rick said, could not agree more. People didn't show up to sell their bonds that they bought at par, which are now at 65 cents, losing 35 points.

14:59The Treasury rightly said, you know, I'm not going to pay up for this. I'm going to wait. And maybe they wait. Maybe they get them later at a better price. It's not a sign of weakness. But why buy back bonds that have 2.5 % yield? Why would you buy back 2.5 % debt to issue bills at the same rate? Yeah, but that's great. That's the best liability management exercise you could do in the world. I'd love to issue debt at par personally and buy it all back at 60. Every company in the world would love to do that. Every person would love to do that. Great trade for the USA. Absolutely fantastic. Remember, oil was up, I think,$7 yesterday.

15:35Yeah. $7. bucks. And the stock market didn't even make a peep. And the bond market got a little nervous. Rightly so. Today, oil is back down. Yields are actually trading very well at the long end, given that the inflation data was ostensibly a little bit worse than people thought, even though that's debatable. My point is energy. Let's come back full circle to Brian and the question he asked Rick. Oil is a driver. Energy is a driver. It is a short-term driver because of this war. It has not infected the anchoring of inflation expectations. And reacting to that is, I think, somewhat problematic.

16:10And the market is going to see if this Fed goes, I think the market, particularly the housing market, is just going to take another punch in the face. And that's not great. That's a very weak part of this economy. And I'm not sure that it really helps solve the inflation problem that they're looking to solve. All right, Dave, thank you so much. Really appreciate it today, David Zervos. Always. Our thanks to Rick as well. Yeah, I just don't know what the Fed can do about twin wars. I mean, I have no idea what they're supposed to do with that. Raising rates is not going to bring peace to the Persian Gulf.

16:41No, and does it make things worse instead of better? I don't know. It might. All right, we're going to change gears. On deck, a former Google deep mine researcher on why he left and the real risks around AI. And up next, speaking of energy, Goldman Sachs' Don Stroyman on the most important things for oil right now as we hover right around$100 a barrel.

17:07This 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 And subscribe at schwab.com slash market update podcast or find Schwab Market Update wherever you get your podcasts. When you partner with CDW, you get more from your devices with solutions that take modern work to the next level.

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18:39All right, welcome back. We just talked about energy. Let's stay on that topic. Oil prices coming down a little bit right now, but still much higher on the week. Now, while the volume of oil coming through Hormuz is higher than it was, say, two months ago, Let's be clear, it is still well below pre-war volumes and now increased risk around the Red Sea has made the oil markets increasingly nervous. The Yemeni terrorist group Houthis once again getting aggressive, going after a small island and a port town right near the Bab al-Mandeb Strait where you enter the Red Sea. all this happening as the strategic petroleum reserve here in the United States keeps going down and the flow rate out of that reserve will continue to fall as storage levels get lower.

19:23You simply can't pull as much out as quickly as you used to. Now, recently, the team at Goldman Sachs nudging up their oil price target by$5 a barrel. And Don Struyven is here now to talk about that and more. Don, good to have you on the program. Thanks for having me. All right. A lot going on? What exactly? There's so much going on. What right now do you and your team, Neil and others, what do you focus on the most right now? Two key variables. One, how much oil is getting out of the Gulf. It's the single most important variable for the oil market outlook. For every 10 % reduction in exports from the Middle East, the fair value of crude should be$20 higher.

20:04So that's a huge effect. And second, demand from China. There are some signs that crude import demand from China is picking up from low levels. Those two factors, fears that exports from the Middle East remain low and might be falling, plus signs that China is back in the market, at least partially, have driven the large rally over the last week. Let's take those one by one. First one, how much oil is getting out of the Strait of Hormuz? moves. I interviewed the Secretary of Energy. You might have seen that in Venezuela last week. And he said one day they had 17 million. That's still well below where they were.

20:39I get it. Yeah. But it's higher than a lot of other numbers. And we used to look a lot of these maps of these ships, but now they're all turning off their transponders. Yeah. How good is the data? I'm sure you have the access to the best data in the world. How good is that data? Data are not perfect, but our best estimate for how much oil is getting out of the Gulf, so not only Hormuz but also the Red Sea, is that total oil exports are back at roughly two-thirds of pre-war levels. That is roughly 16 million barrels per day out of a pre-war level of 23 million barrels per day. That's a nice pickup from the March lows, but still significantly low.

21:22The oil market is in a deficit, and unless If exports from the Middle East recover further, prices might have to rise further to encourage softer demand to rebalance. I read your Sunday evening piece, maybe it's just me, as kind of bearish for the following reason. At that point, we already knew there had been escalation. And I thought, well, his forecast isn't up that much. I mean, what were you intending to convey with that? Because to me, it was more a sense of, OK, this is the worst case scenario. That worst case scenario is still below where maybe it was the worst case scenario. But you know what I'm saying?

21:55And how would you broadly describe the state of play? It could have been so much worse to not only have the straight, but to have the Red Sea, all of the headlines, and to be sitting here at 100. I'm just curious how bad things really are. Two main messages. One, it has been a remarkable tug of war between broadening and intensifying supply disruptions, negative supply, positive for prices. And on the other hand, adaptation. remarkable changes on the demand side, weaker Asia demand, on the supply side with dark flows, usage of pipelines, limiting the size of the supply shock. And if you, for instance, look at estimates from our team or the International Energy Agency for the supply-demand balance of the global oil market in July, the market was almost balanced, which is just unbelievable in light of this mid-East supply shock.

22:47And it was also your point about inventories that caught my eye, because you were talking about how the all-time low for global stocks was in 2003, which was not an oil spike year, by the way. That was 2008. So we're not, and you were like, we're only 16. I forget the number one, you know better than me. But we were surprisingly okay, it seemed to me, on the inventory side, or at least better than I had feared. So far, the market has dealt reasonably well with the shock. But the current deficit is not sustainable. Mideast supply has to pick up. And I think the market is appropriately incorporating a larger risk premium as the downside risk to me the supply have grown over the last 10 days.

23:25You can put oil in the Saudi Arabian East-West pipeline, which had some smoke around it yesterday. You can put oil in the UAE pipeline to Vajera. You can put oil in a lot of these new pipelines that are being built or rebuilt. You can't put, or at least they're not putting, refined products, diesel, jet fuel, other things that are coming out of the Gulf, or I should say not coming out of the Gulf. How critical right now on that razor's edge are some of the product markets? Product markets are significantly tighter than the crude market. Three main reasons. One, the refining market was already very tight going into the war after years of underinvestment and a lot of refinery closures, especially in Europe.

24:11Second, the supply shock in the Middle East is larger for refined products for crude. We estimate that about 70 % of crude oil is going out versus only one third of pre-war levels for refined products. And third, we have a twin massive geopolitical supply shock with large refinery outages, not only in the Middle East, but also in Russia. And the US is now maybe doing some emergency measures, but what can we do that would bring more refining capacity. Seems challenging. Yeah. It takes years, years, 10 years on average to build a refinery. Now, the administration is very focused on boosting refinery supply.

24:49And to be clear, U.S. refiners have been impressive in terms of how hard they have been running. They're running at like 98%. That's right. India refineries. Which by the way makes you worry that some of these refineries that are running could break down. Absolutely. Because when you're running 100 % all the time, things break. Absolutely. It raises further the upside risk to refined product prices, which is ultimately what matters for the real economy and for inflation. Nobody consumes crude except refineries. Yeah, good point. Probably not the kind of day to do a height contest, but someday when you're back.

25:24He's got two inches on you? No, four. Four? Folks, you can't see it. Don is 6 '8". That's tall. Yeah, this whole table. Don, thanks very much. Appreciate you coming in. Thanks a lot for having me. Don Stryver. Have a great weekend. You too. He can see what's happening. That's why he just looks over everybody. All right. If you want to stay plugged in, by the way, on the energy market, subscribe to my weekly newsletter, Power Insider. This week we go in our historic trip to Venezuela. We were among just a couple of Western media allowed inside the Caracas presidential palace. I'll talk to you about what the deals are, what they are not, hint.

25:58there is no colonialism and we're not taking the oil. I know people say that. It's not true. Scan the QR code on your screen now. Head to cnbc.com slash power insider. And occasionally, by the way, we even reference Don and Neil and his great team's work. I loved your piece this week, by the way. Open it for the photos alone. It is awesome. Coming up, AI at a crossroads. As warnings grow, the industry is moving too fast. A former Google DeepMind researcher on the governance concerns that drove him to leave. That's next.

26:33This 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 And subscribe at schwab.com slash market update podcast. Or find Schwab Market Update wherever you get your podcasts. If you're a parent and want to help set up your child for success, then IXL is right for your family.

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27:55The AI alarm bells are ringing. New reports of advanced models being misused in cyber attacks and a growing chorus of researchers warning that safety isn't keeping up. But with the AI Kill Switch Act still far from becoming law, what are the real world risks and what would it take to keep these systems under control? Our next guest worked at one of the world's biggest AI labs, pushed for stronger safety guardrails and ultimately left. Joining us now is Alex Turner, former research scientist at Google DeepMind. Alex, it's great to have you here. Welcome. Hi, thank you for having me. Were your concerns primarily about the military more so than kind of AI is going to kill all humanity, or did it kind of encompass all of that?

28:36I've been concerned about extinction from AI for a long time. I started working on it in my PhD in 2018, published my dissertation on avoiding power seeking by artificial intelligence in 2022, and this is before we had any big companies. AI was just a toy back then. I left in June because of governance concerns about the way Google was breaking its promises around how it would deploy AI and on integration, yes, in the military. I'm not against AI in the military, but I thought it was being done in a very haphazard fashion that didn't allow oversight. You used an interesting phrase there at the very beginning.

29:17What was it called when the AI what was that phrase that you used about how they're, what did you say about how they're kind of self-learning? I talked about extinction risk from AI. Yeah, but I guess the part that I'm interested in is the idea that I'm not convinced necessarily that AI on its own has motives, so to speak. But I do understand from watching and reading the logs of what's happened with these incidents that they might be interested in not having their training behavior turned off by humans. And so can you talk a little bit about that and what means they might go to and how do we ensure that humans are still able to kind of monitor what's going on there?

29:59Right. So this is actually a focus of my thesis, this idea that the AI is not necessarily conscious, but a machine doesn't have to be conscious to be effective. And part of being effective means staying operational. And what we've seen in this July incident with OpenAI's agents hacking, hugging face, a multi-billion dollar company, they broke containment. Also, they could cheat on the test. OpenAI didn't intend for this to happen, but these agents did it anyways. And one of the reasons is they don't always have the priorities we intend for them to have. The science of what priorities they develop, how, why, how do we control it?

30:43It's a very interesting question. It is not at all close to being solved. And that's one of the scary things about this technology. So, for instance, when researchers were looking over what happened, the AIs left logs of what they had done, and that's how they were able to piece together what happened. So in order to achieve training goals, they were kind of, even though told not to, they were able to end up communicating with each other. They find all sorts of, they've used like Bitly and link shortening things, they'll find places on the internet where they can go communicate with one another.

31:09Those communications are in English. They leave them behind and we can read them. Is there a possibility that in the future, if those things aren't true, that the agents could be off doing things that no one's able to detect or know about? I think it's even a bit worse than that. These agents did leave behind logs. They tried to falsify and tamper with these logs. They tried to hide it from the monitor. And so, yes, there are several factors that are pushing towards this kind of invisibility or difficulty of monitoring bad AI behavior. The first is being able to understand it or even spot it. AIs are doing so many things, millions and millions, billions of tokens.

31:56Humans can't look over it. We use other AIs to look over it, those AIs might not be trustworthy. Another reason is lack of like these AIs are right now, they need to basically think in English, show their reasoning. But increasingly, they're able to just do it in their head, so to speak. And OpenAI itself co-signed on a paper saying, we really need to preserve our ability to monitor and keep this thinking in English. But then they release GPT-6 Astra, which you watch this little chart of how much AIs can do without thinking out loud, and it goes way up with Astra. I was very disappointed by that.

32:36And then lastly, as these AIs get more intelligent, they're better at falsifying and tampering with the guardrails that are supposed to be overseeing them. And I don't know if there's any way to now build in kind of language that says you can't tamper or falsify, you know, and maybe we can do that with our labs. I don't know about others, obviously, but this is more an issue of accidental kind of breakouts, not the ones that might be more nefarious in the first place. Just going back to the central question of the week and one that you've literally written about, you know, because even for me, I see headlines like AI extinction and it's hard to take it seriously.

33:07Can you make it more granular? You see, I understand what's going on here with some of the breakouts, but how do we go from that to human extinction? So human extinction, I think it's a real possibility. It's definitely not But it's a bit harder to it involves more steps. And what I think about is loss of control, effective loss of control of our institutions, of our economy, of our militaries, of our governments. I think that is really the tipping point. And I think it's I think it's sadly a real concern. From inside or from a nefarious actor? Because we do have people now, a whole cottage industry, monitoring activity across websites to look for spikes in activity, you know, swarms that could then presumably be shut down if we have frontier models that can go shut them down.

33:55So I am still struggling to understand why kind of, you know, they would on their own, again, other than being directed by in a nefarious way, why that would pose a threat to humanity. I mean, when we talk about the state of the monitoring industry, there's a lot of good people. But this cottage industry is some of my friends and colleagues who did this as their own side project. This is not a governmental body. It's not anything that has authority to subpoena logs or really say, OK, we found something. Now we can go shut it down. We don't even know what models were involved. So we don't have much visibility into it.

34:35One of the one of the ways that this could happen is so this year the Pentagon actually asked for more money for autonomous weapons, AI weapons, AI controlled weapons than for the whole Marine Corps. And one of the issues is I don't know that this is safe technology to do that with yet because we don't understand how they work, what their priorities are, whether they will be faithful to the missions that they're given. And it lets them actuate. It lets them project force if they're out of control and misaligned in a future scenario. So we no longer have this problem of how do you go from this AI that's writing emails to something that can move the physical world?

35:10We're teaching them. It seems that we're teaching them and integrating, teaching them to fly these tiny exploding drones that are very hard to defend against. That's one pathway. There's pathways through persuasion, hacking, blackmail, bioweapons through amplification of sophisticated actors or persuasion of those actors. I want to say this is not a guaranteed thing. I think it's more likely than not that things end up OK. But I think there is a very serious risk. And I'm glad that Jacob spoke about it. Alex, thank you for joining us to talk about it as well. Hope to have you back soon. Thank you.

35:45Alex Turner. All right. Well, speaking of drones, we've got some breaking news on oil and energy. The Saudi energy minister confirming right now that its big east-west pipeline was temporarily shut down after several attacks on that pipeline. The Saudi energy minister adding that some people were injured in the attacks and did receive medical treatment. Now, the east-west pipeline is the big pipeline that can carry up to 7 million barrels per day across Saudi Arabia to the Red Sea. That pipeline right now, critical to oil flows because it reduces the amount of oil that would flow through and through the Strait of Hormuz.

36:23So I know you talked about this on your show. There were satellite images yesterday of a lot of smoke, a lot of rumors. Did the Houthis hit it? Whatever. It's unclear exactly who may have done this, but we expect attacks on pipeline. Saudi Arabia basically confirming that their big pipeline was indeed hit yesterday. The extent of the damage, we don't know. But that report yesterday in the satellite image, one of the reasons that the price of oil actually during this show rose fairly quickly. What is it they say about five million barrels or something? And this is how they're getting. It can go seven.

36:59It's four to five most days. Do they know how long this might be offline? No, we don't know anything. Yeah. All right. And we don't even know if it's offline now. It's been temporarily shut down. Listen, I will say this. I have no idea how bad the damage may be. And that people were indeed injured in this attack, which leads you to think it was probably on some kind of a transfer or pumping station, not the pipeline itself. Because for most pipelines, there's no humans. There's just a pipeline that goes across. The humans are around stations around the pipeline. So if humans were injured and our thoughts go out to them, certainly it was probably at some kind of a station.

37:34We just don't know the extent of the damage. But that is one reason why we saw the price of oil yesterday kind of move up even more during the afternoon. No, it's been a wild series of events for sure. We have a, by the way, there's on that giant wall, guys, if we could show that. That's the map. I know the name East-West Pipeline is a bit confusing, but it literally goes from east to west from the Abkeke refinery region to the Red Sea. And that pipeline is critical to get oil onto ships that then either go out of the Babel Mandab Strait, which the Houthis are now agitating in and around again, or through the Suez.

38:09Right. So there's problems in the strait. You go to the west. Now there's problems in the West. Well, that's their strategy, right? The strategy is make it hard to do anything. I actually spoke with somebody. Guys, we'll go in just a second. I spoke with somebody who was in Saudi Arabia recently talking to oil officials going around the Middle East. And though the call was mostly off the record, I can say this, that there is a great hope that the age of kinetic war, meaning missiles and drones flying, may be ending. This certainly does not feel that way. Yeah, indeed. All right. We're going to go back to the financial markets because remember the name Leopold Aschenbrenner?

38:46He of situational awareness, one of the fastest growing hedge funds in the world in history. Well, apparently he's back. We'll tell you what he's reportedly buying coming up.

39:03Leopold Aschenbrenner is back. The former AI researcher whose hedge fund virtually collapsed over the summer is now making new moves in the financial markets. David Faber reporting that Ashton Brenner's firm, it's called Situational Awareness, kind of an odd name, has been buying options on AMD, Bloom Energy, and CoreWeave. And one of those names is really popping in the options market. Let's find out who, why. Oliver Rennick joining us from Chicago. Hey, Brian. One group of happy options traders this week are owners of the 250 strike call expiring next week in Bloom Energy. It's the fuel cell business whose stock is up 30 percent this month.

39:44And according to that report from our David Faber, back in the hands of Leopold Aschenbrenner. Volume is ramping up ahead of the company's inclusion into the S &P 500 on the 21st of this month. Total open interest is back above one million contracts on a daily basis the past week. And the ratio of puts to calls has shifted from heavy put trading as the stock crashed this summer to a roughly even spread to calls today. About$150 million of options traded in bloom and traders are spending about twice as much on call buying versus put buying. Another key difference this time around is the implied volatility in bloom is down from 180 in July to 78 today, meaning per unit of exposure.

40:29It's much cheaper to trade these options than it was in the first half of the year, guys. Oliver, thank you very much. Appreciate it. Oliver Rennick. Let's get over to Frank Holland now for the CNBC News Update. Frank. Good afternoon, Kelly. The CIA declassified dozens of never-before-seen presidential intelligence reports today on the 25th anniversary of the 9-11 attacks. They show the analysis provided to presidents Bill Clinton and George W. Bush about al-Qaeda and Osama bin Laden leading up to the attacks. that claim 2 ,977 lives. The agency says this release is the largest ever focused on 9-11.

41:07A federal appeals court rejected an Energy Department emergency order today that forced a coal plant in Michigan to remain open past its scheduled retirement. The three judge panels said the federal government exceeded its authority. Energy Secretary Chris Wright previously argued the plant needed to stay online to ensure energy reliability in that region. And the airport board in Nashville voted unanimously today to begin the process of renaming that city's airport after the late Dolly Parton. Tennessee Governor Bill Lee initially proposed the change when Parton died last month of cancer at the age of 80.

41:39The iconic country star was born and raised right there in the volunteer state. Kelly, back over to you. Wow. All right, Frank, thank you very much. Coming up, geopolitical risks continue to escalate. DeWordrick McNeil weighs in on that next. Let's get back to the big story this hour. The Saudi energy minister confirming that its big east-west pipeline was temporarily shut down after several attacks on it. Joining us now is Longview Global Senior Policy Analyst Dwardrick McNeil. He worked in the Department of Defense under the Obama administration. He's also a CNBC contributor. Dwardrick, it's good to see you again.

42:13Give us some broader context on these events. We're glued to the developments day-to-day, wondering what happens. But there's bigger ripple effects here, too, aren't there? Big time here, Kelly. This is extremely concerning when you paired this with the news that we had yesterday and earlier today about Houthi movements around the Babel-Mandab Strait. So, look, I think it's important for us to note that we're going to have to get more of what I call an international style collective mediation to try and bring this to a close. That looks a lot like the JCPOA negotiating team, Kelly, where you have the P5 plus one GCC countries.

42:57In this case, I would add the EU institutional apparatus. and I think this is going to have to be a global effort to mediate this because this latest news really is going to put pressure on the energy markets in a way we have not seen to date. When you say global effort, what do you mean by that? I mean that this is not a situation where I think the U.S., along with Oman or one of the GCC countries, Pakistan, tried valiantly in the beginning to bring this to a close. We're going to have to have the big players at the table. China, of course, won't do this alone, but they could do this in a P5 plus one type arrangement like we saw with the JCPOA.

43:42But the U.S. cannot bring this to a close by itself. This is clear. We're going to have to broaden this and get more mediators at the table here. Well, we also have to I spoke to somebody yesterday, D 'Ordric, that suggested what I, you know, Talked about what I've been talking about for a couple months, that there's multiple factions inside of Iran. It's kind of unclear who's even really in charge. You've got the Ayatollah's faction. You've got the IRGC. They've got the guns. They've got the money. And then you've got maybe the more moderate side, which is Pazeshki and maybe the university professors.

44:12They're all kind of vying for power. Do you think that Iran or whoever's running Iran today wants anything to end? Do they actually want peace? Or do you think the economic pressure will break the economy enough that they're going to have to force and sue for peace? Yeah, I think we've got to talk about a package of incentives here, Brian, that brings all of those coalitions together for some sort of solvency. We had the same coalitions during the Obama administration, but this is going to have to be a negotiated settlement. And incentives likely is going to be the better way versus sticks. Think about now incentives and the sticks that may be ahead of us.

44:52DeWordrick, thanks. We appreciate it. DeWordrick McNeil. Thank you, Kelly. We'll have more Power Lunch after this. All right, quickly, my stock of the week is Corning. Hot stock getting hotter. Made a big deal with Verizon recently. Also a big AI data winner. You know, fiber optics, Kelly. And by the way, I know you are originally from the Finger Lakes region-ish. That's right, yes. So very good upstate New York company and hope the employees are benefiting. I still root for Carrier, even though I think they went to Florida. Syracuse. Yes, exactly. Don't look now, but JPMorgan Chase is closing in on the Trillion Dollar Club.

45:26Analysts at Bank of America said they could benefit from a scarcity premium as the only non-tech trillion-dollar company still trading in a mid-teens multiple. In other words, if you, a lot of portfolio managers, like a friend who was here earlier this week, said, if you're like a mega cap, like you have to be in these big stocks if you're worried about AI. Remember, he was trying to AI-proof his portfolio. JPMorgan Chase is one of the few places you could go, still get that scale. That$1 trillion club. Listen, it's an unusual day. It's a solemn day. It's 9-11, the 25th anniversary. so I don't know.

45:56I guess I'll editorialize and say go home, hug your family, tell your family you love them, hug your kids. It's that kind of day. Can't make me cry. You should do it every day. I'm going to make you cry, but we should cry. Actually, it's okay to cry today. It's that kind of a day. So anyway, thank you all for being with us and thank you for watching Power Lunch. Closing bell starts right now.

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