11AM Hour: Schwab CEO, Counselor to the Treasury Secretary David Zervos & Expectations for Micron Earnings 9/30/26

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0:49Make every moment unforgettable. Find great gifts starting at$250. Jared. Make the holiday last forever. Shop Jared Jewelers. Good Wednesday morning. Welcome to Spock on the Street. I'm Sarah Eisen with Carl Quintanilla, live from Post 9 of the New York Stock Exchange. Today, we'll get the latest Trump administration read on the economy with veteran Wall Street strategist and new top advisor to Treasury Secretary Scott Besant, David Zervos. We'll talk everything from the bond market volatility to consumer headwinds, from rising gas prices and mortgage rates. Schwab shares down more than 9 % since the launch of Meta's Muse.

1:24The firm today announcing its own AI-powered assistant. And Rick Worcester will join us exclusively to discuss the firm's response to what some think are growing AI disruptions. And how Chinese spies used love and betrayal in an aggressive plot to infiltrate the Federal Reserve. Details from a CNBC investigation coming up. As for the markets trying to hang on to some gains here, nice half a percent gain on the S &P above 7 ,700. We did get some relief on yields after core PCE came in a little cool. But since we've rebounded a bit back to 527, of course, there were some methodology changes. Maybe the street's looking through some of those.

2:03Let's begin with the morning's data coming in lighter than expected. Our Steve Leisman has more. Hi, Steve. Carl, yeah, the inflation and growth data giving markets and the Fed something to think about. Specifically, maybe there's no immediate need to hike if inflation is not rising. But growth coming in stronger than forecast. PCE price is 0.3. That's up from 0.1 the prior month. Year over year, though, unchanged at 3.4 percent. Same with core, which was zero two versus the prior zero one. But the year over year, three percent. Now, the year over year rate was helped by a change in methodology, shaving about 36 basis points off the annual rate.

2:37That brings the number down. But inflation remains above that two percent target. Fed fund futures, though, reading it as dovish. The probability for an October hike falling to 35 percent from 47 percent before the data. The probability had already fallen yesterday after New York Fed President John Williams raised doubts about the Fed hiking in October. Still, markets have an 88 % probability on a rate hike in December. Upward revisions to second quarter GDP and strong consumer spending. They're going to keep the Fed on edge for an economy that seems to be running hot. We're talking about 4 % for the third quarter.

3:09And that's along with a better than expected ADP jobs number for September. Stronger growth, along with inflation that remains above target, and a realization that revisions flatter the number. That could be why that 10-year yield ultimately unimpressed with the data. An initial rally turned into a sell-off with yields marching higher again at around, what is it, 527 right now. 532 is the 2007 high watermark. The Fed not likely react to a single set of numbers, but takeaway has to be inflation is better than expected after revisions and is making progress. But it's still high. And unless three is the new two, the Fed's going to think it still has work to do, guys.

3:45Yeah, I mean, to me, that's what the takeaway is from some of the data, especially with the better second quarter GDP numbers and the better spending numbers and ADP looked OK. Steve, I guess, you know, the thinking would be the economy is still at risk more of overheating than the other way. I think you have a good framework there, Sarah, because it's the framework I think the Fed takes, which is where's the risk? Right. So you look at the jobs side of the mandate and it looks pretty good. Four point one percent unemployment. Ninety thousand may be above the run rate needed to keep the unemployment rate unchanged.

4:21Could actually put downward pressure on it if that ADP number trues out on Friday. So the Fed doesn't have to worry about that. It looks at the economy running what it believes to be above potential. And the takeaway, I think, is going to be that there's still upside risk to inflation, not that there is inflation. Now, one of the things I'm going to preempt David, I'm very interested in what he has to say in a few minutes, but he's going to look at that three-month year-over-year number, three-month annualized number, and it is down to 2.05 percent. So you take that number and you say, OK, we're heading in the right direction, at least from that number.

4:54True. Yeah, and core comes in less than expected. By the way, the bond market did turn. Yields are now a little bit higher on the day. Right. Steve, thank you. Steve Leesman. We'll stick with PCE and the outlook for the broader economy with our next guest, David Zervos, newly appointed counselor to the Treasury Secretary, joins us in his first interview since taking the role, also a former CNBC contributor. It was all that CNBC contributing, David, that got you ready for the Treasury Department. Congratulations on the role. Thank you, Sarah. It's an exciting time to be here. Why did you decide to take this on right now?

5:26So, Sarah, I've served. This will be my third stint at serving in the in the government. I started my career in this town in 1991 as an economist at the Federal Reserve Board, came back in the crisis as a visiting advisor to that same board. And 17 years later, after that, I'm back again at the Treasury Department. I just I believe in service and I believe that this is also a critical time. It's a it's an exciting time. There's everything we could talk about from AI to the debate around the Fed and the Treasury and strong growth with relatively benign inflation, as we found out today. I think it's an important time to do it.

6:05And I'm a big supporter of our secretary. I think he's done an incredible job. And I'm just fortunate enough to be able to help support his efforts with all that he's doing for the president, the administration and the country. And it's just a great honor. Well, we're happy to have you still talking to us throughout this. And, you know, I followed your commentary, and our viewers have followed your commentary in recent months. And you do appear to be a real believer in what this administration is trying to do and what the secretary particularly is trying to do here around the bond market. Do you think the bond market has it wrong on inflation and the tightening cycle and the debt problem?

6:43And we continue to see these persistently higher yields. We do. And today, again, you know, we got great news on the PCE. The market kind of liked it, but oil prices are back up. I think oil prices are up a buck or two. Not sure where they are right now, but they were definitely up. And I think that's been a driver. We've pointed out to folks in discussions over and over again here on CNBC that the oil prices have been a big driver. We, you know, prior to the conflict in Iran, we were we were pushing 100 basis points lower than this. And since oil's basically gone from 60 to 100, we've gone the other way.

7:18So I think it's much more about that shorter-term risk around energy and some of the risks that that brings to Federal Reserve policy. And that's what the market's pricing. I don't see it as a big change in inflation expectations. It's much more about real rates. And you could argue, Sarah, that, and we've had these discussions before, again, I don't want to say that too often, but that there is a sort of demand for capital out there globally. We're seeing it in all these long-term interest rates. And that's a sign that people want to borrow to invest because there's a lot of growth prospects globally.

7:49So what would you say to those inside the Fed and on Wall Street that are worried about the inflation risk, that the inflation risk certainly is bigger than the risk in the job market right now of a weakening job market? You still have inflation above target, you know, these persistently higher numbers. And it's not softening. Meantime, growth is good, which also could add inflationary pressure. You have a lot of fiscal spending out there and a lot of AI spending out there. Well, Sarah, I think the supply side story is the one I've attached myself to over this cycle and over many cycles in the past.

8:25And I just think those traditional overheating demand side discussions are overblown. And we have a number of folks on the committee that have used those as justification for getting out in front of raising rates, much like many on the committee in the 90s were pushing Alan Greenspan to raise rates. And he did once in 1997 and then had to turn that around in 98 when there was a crisis. But I think the upshot for me is this is just much more driven by supply side considerations. And that is ultimately going to be a disinflationary growth story, not an inflationary growth story. I think Chairman Warsh was very much in that camp.

9:03He seems to have backed away from that story a little bit. I'm not exactly sure why, but I think that narrative for me still stands. And it's very much at the heart of my belief that getting overexcited about a tightening cycle to preempt demand-driven overheating-led growth is going to be fraught with some disaster. That said, the supply side is so strong, we can withstand it. So we could be doing better if we didn't fight it. And that's really the real story. David, a couple things on jobs ahead of Jobs Friday. One is an item on the tape today that BMW plans to shed about a fifth of managers with an AI push.

9:42And then there was Barr yesterday suggesting that we're really not prepared for short-term disruptions to the labor market from AI. Are we going to start building threads like that? Well, that'd be a new turn of events for someone like Michael Barr, who seems to be more concerned about inflation than hiking rates. Let's see if he can go that way. That'd be great. But I don't think the nervousness is that warranted. We still have seen some really steadying out in the unemployment rate. It had spiked through as much as 4.4 a year ago. It's back down to 4.1. Some of the worries that led to the rate cuts starting in September of 2024 were related to that relatively large rise in the unemployment rate, almost a full percentage point.

10:22And that seems to have calmed down. So I think a lot of these labor market concerns have ease. Could we have a stronger labor market? Probably. If the Fed got out of the way, we could have an even stronger one without inflation, in my opinion. But that's a debate for a different time. I don't think, you know, that we're going to see some sort of major catastrophe. And, in fact, much of the news on the employment side of the equation has just been good, particularly in the places that the administration has seeked it, which is construction and manufacturing in places that are really rejuvenating after decades of weakness.

10:52Well, we'll see. We get a big jobs report at the end of this week. So, David, as counselor to the Treasury secretary, would you counsel him to go for a bigger bazooka in the bond market with the 30-year fresh highs above 5, 6? What I would say, Sarah, is ultimately that's a decision that's up to the secretary and all those making decisions on domestic policy. But I think the market should be should be taking into account that managing the sort of maturity structure of debt, which has largely been a Fed focus through QE and through balance sheet policy management and was really territory that was almost taken away from the Treasury back in a way to nine when I was last here.

11:34That's decisions that are now being taken back by the Treasury, that the debt management structure is really where it belongs, I think, with this fiscal policy, not monetary policy. So I think you want to watch very closely how that gets managed and understand that there's a lot of economic research. There's a lot of street level history to understanding that supply matters and how that supply affects the yield structures is going to feed through. And it doesn't always happen immediately. It didn't happen when QE first started. Yields did a lot of different wacky things. In fact, they went up for a while and then ultimately came back down.

12:12So I wouldn't get too bogged down with these initial responses. I think the idea of buying back securities with$50 and$60 prices that we issued at par, providing liquidity into a less liquid market, and sort of guiding the market somewhat a little bit in this process of finding an equilibrium for long-term rates, which is more about what it's about, is a valiant quest and a valiant thing to do. And I'm excited that the secretary has done that, and I'm excited to be part of it. All right. Well, we're excited to talk to you from the Treasury Department. David Zervos, thank you. Thank you. When we come back, CEO of Schwab is going to join us.

12:51We'll talk about their new AI product announced this morning and how Meta's Muse might have disrupted some business. Plus, President Trump signing a new AI agreement with all those tech leaders at the White House yesterday. We'll discuss the implications when we come back. Legacy credit scores only look at a brief snapshot in time, and that limited view often leaves millions of qualified credit seekers out of the picture. Vantage Score is changing that by modernizing credit scoring. Vantage Score uses 400 % more credit and alternative data to create a fuller picture of financial behavior, including trended credit data, rental payments, and timely utility payments.

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14:06No matter your industry or role, your agent has the skills to help every team stay in their flow. Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required. At Jared Jewelers, we know it's about more than fine jewelry. It's the moment they open the box. That smile they can't hide. knowing you chose exactly right. Because the right gift can bring a lifetime of meaning, a promise, a milestone, a memory in the making. Make every moment unforgettable. Find great gifts starting at$250. Jared, make the holiday last forever. Shop Jared Jewelers. Welcome back. Charles Schwab announcing a new AI-powered assistant this morning, set to roll out next month, nicknamed Charlie.

14:54The company says it can do everything from finding information on transfers and payments to answering questions on balances and portfolio positions. And joining us here to talk about it at Post 9 and a CNBC exclusive is Charles Schwab, CEO Rick Worcester. Rick, welcome back. It's good to have you. How long has this been in the works? It's been in the works for a while, and we couldn't be more pleased to bring it to clients beginning in October. It'll allow clients to find information, do basic tasks, and will be the foundation of a capability that I expect to be the front door for how many people, for how people interact with us over time.

15:26So some might wonder if this is a response to Muse, for instance, where that came out. It was explosive. Everyone's using it. And wondering if they can do this kind of stuff for people with their own Schwab accounts. Well, we want people to be able to use AI in their Schwab accounts because we think it will help them invest, give them the confidence to make the right decisions. But we want to do it in a safe and secure way. And so we'll provide two ways for clients to use AI at Schwab. One will be via Charlie, which will be our preferred path. It goes out to a constellation of LLMs, finds the right LLM to answer that client question or conduct that activity.

16:01We also will allow clients to bring their own LLM to Schwab, but we'll do it through an MCP server that will control that activity and keep it safe and secure. Is this a big, is this a heavy lift from the tech standpoint, from the engineering standpoint? Absolutely. I mean, we've created an optimizer that goes out, finds the best LLM for that client question, brings it to the client in a safe and secure way. And given the trust and the amount of wealth that we have on the platform, the number one thing we care about is doing this in a very safe and secure way. And so a lot of thought has gone into this.

16:31What about the perceived risk of elevated churn or the ability to just move your money into various vendors with more ease on the consumer's part? Well, I think what we have stood for is the breadth of our capabilities. There's a bull market for convenience in our country. People come to Schwab because they can do their investing, they can do their active trading, they can have access to wealth management, lending, banking, all of those capabilities. And Charlie is going to make their life only easier. And I think Schwab is the place to live your financial life, have it be easy and get the answers and take the actions that you need to take.

17:05So it's a retention tool in a sense. Well, it's a new business opportunity. We've seen our growth accelerate since LLMs were launched. We've seen clients be more engaged. Our trading activity is up. We've seen them engage in a broader spectrum of activities at Schwab because we're not just bringing AI to the everyday interaction. We're bringing AI to tax planning. We're bringing AI to financial planning. We have AI and trust in the states now that can analyze a plan, have a conversation with a family through one of our professionals. So AI is powering the breadth of our business and allowing us to put more money in our clients' pockets and make them feel more secure about their financial life.

17:37Beyond the planning disruption, I think, which caused a little nervousness last week, there were also these worries that these new AI chop bats would help people find higher-yielding alternatives for cash and that they would take the cash out of the deposits, basically, low-yielding deposits out of banks like yours. AI is good for economics. First, there's more investors being created in our country. Second, they're more engaged. They feel more confident taking decisions. So we've seen our daily average trading go up. We've also seen more people come into wealth management because of all the information out there.

18:12They want someone to help them sort through it all, and they want someone to sit by their side. And they value a personal interaction as well. So that's helping drive our economics. And then finally on cash, the idea that we have all this lazy cash sitting around at Schwab. Idle cash, I think they call it. cash is incredibly misplaced. We have three and a half trillion dollars of cash moving a month. Paychecks coming in, dividends being placed in accounts, interest being earned, stocks being purchased and the like. We have 400 billion of client cash out of three and a half trillion of cash that's moving in a particular month.

18:43So that's two to three days of activity that clients have sitting in their cash account. And what we've seen since clients have begun to use AI on our platform in a meaningful way, which has been taking place for a while now, We've actually seen the people that most intensively use AI hold more cash than those that don't use AI. So the threat of the deposit base is unfounded. We always want clients to put their cash in the area that makes the most sense for them. We make it incredibly easy to move cash today. One of the very first things when you log into your Schwab account is how much cash you're holding.

19:16Right next to that is a trade ticket, and you can go ahead and buy any treasury bond you want. You can put it in a money fund. And we've always wanted clients to be where they want to be and have the best set of investments to meet their goals. So what are you seeing from, you said more people using AI, then you're seeing more cash deposits. What other sort of trends are you seeing right now from your key retail customers? A bull market for wealth management. We see significant growth in wealth management. High engagement among our clients. The trading activity that we see, it's 70 % higher than when LLM started a couple of years ago.

19:50So there's no question AI is driving engagement. We're seeing bullishness. So clients are still very long the market and looking to take risk. And then finally, a newer one, and not surprisingly, given where yields are, a lot more interest in fixed income than there was a couple of years ago. So it's nice to see interest on both equities and bonds. Yeah. To that point, I mean, to the degree that we're monitoring stresses on the household from rates or from energy costs, is that manifesting itself in any way in the coming quarter or you think next year? The big thing that I think clients are experiencing at Schwab is an all-time record in their net worth.

20:27So those clients have more assets with us than they've ever had. It's been a bull market now for several years. Clearly, the cost of living has gone up. And that's part of why being an investor is so powerful and why we want more and more Americans to invest, because investing can help you generate the wealth to navigate periods where there is inflation. You've also been getting younger. I mean, you've talked to us about getting younger clients, right, teen accounts and that sort of thing. How do you hang on to them and what do they do differently? Well, we love the younger investor. It's the future of our country and we want to see them get invested, learn the power of compounding.

20:59And so we have launched teen accounts, which allow someone as young as 13 to be an investor and to be able to control their account on their own with parent supervision. And so everything we do is about we want people to be investors in our country. The power of compounding helps set you up well in your life, helps you be engaged and committed. and everything. We have a lot of research for them, a lot of education. We're big on social media. We're the most followed financial services firm on YouTube. We've done all kinds of creative. What are you doing on YouTube? Well, we do all kinds of interesting things like these get ready with me videos where we have influencers do their hair and makeup and talk about compounding.

21:35Now, if two things don't go together, like hair, makeup and compounding, I don't know what does. That's so good. I mean, I've watched my share of hair and makeup videos. Didn't know that you could get financial advice too. So, Rich, I mean, you've done part of this strategy. You've launched crypto products. You've done alternatives. I was talking earlier about trying to give more access to private companies. Where do you see the most growth in some of these new streams? Well, I think we see growth across the board. The big thing we want to do is put the weight of our company, the size and scale, the breadth and depth of our firm behind our clients' interests.

22:05Our sole goal is for clients to live their best financial life, whether they're working directly with us or working through a financial advisor. And we talk a lot about AI and its power, but I'll share one fact with you, which is our clients that have a relationship, they bring new assets to us at twice the rate that clients that don't have a financial, that don't have a personal relationship and they're 11 percentage points more satisfied. So all this talk about AI is great and we couldn't be more excited to bring it out to clients and to empower them to do what they want. But at the end of the day, the vast majority of our clients love the power of people and technology.

22:40And that's what we stand for. We'll have 45 branch grand openings this year, 45 local communities around the country where we're opening a new branch and creating relationships and helping steward people in their financial life. I was going to ask about brick and mortar retail. There's a huge one by me here in the city. Is that, I mean, you're adding 45, but square footage, has that accelerated that growth or leveled off? I think with the amount of information out there, we're finding that personal relationships matter even more. And investing is an emotional activity. And so people do like to have that relationship, to know someone's sitting by their side.

23:14And at the same time, in time, our Charlie will be able to be that digital version of that person to provide help, to counsel someone that might be time to check in and talk about a particular subject. So really the power of technology and people is, I think, the winning solution and how clients ultimately flourish. So you're not going to hire fewer wealth advisors because of Charlie? The opposite. We're hiring wealth advisors at record levels because we're seeing record growth in our wealth business. Same with financial consultants. We've really ramped up hiring. And it's the power of the two together that is helping our clients live their best financial life.

23:53Well, Rick, thank you for coming on and combating some of the, I think, disruption narratives that are out there around your space. Rick Worcester, the CEO of Charles Schwab. Good to see you. Thanks for having me on. Still ahead, the president signing that AI agreement with tech leaders of the White House yesterday. We'll talk about what it means for the future of technology in a bit. We'll talk to the CEO of Janice Henderson, where he sees opportunity in today's market. When Squawk on the Street continues. Weren't agents supposed to take things off your plate? Building another to handle the others is a bit much.

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25:43VGW Group or we're prohibited by Log 21+. Welcome back. Tech leaders signed that AI agreement with the president yesterday at the White House. Our Kate Rooney has more details on it. Morning, Kate. Hey, Carl. Good morning. So some of the biggest AI companies yesterday agreed to this new voluntary safety framework. Leaders from Anthropic, Meta, Google, NVIDIA, You had Elon Musk and XAI, OpenAI as well, signing an accord. So it's laying out oversight for the most advanced versions of this technology. It does include internal safety and independent outside audits. President Trump also rebranding artificial intelligence, which is widely known, of course, as AI to SI, super intelligence.

26:25Trump called the agreement that I just mentioned morally binding and said the industry would largely going to be policing itself. And for now, there will not be new government regulation. But the AI companies like OpenAI and Anthropic have increasingly started disclosing and talking about some of these issues. And they do see pressure right now from customers. Here's what Sam Allman, the CEO of OpenAI, told me about that yesterday. AI has to be built for people. It has to be, like, good for people. Part of that is it has to be safe. It has to be always under human control. It has to do what people want.

26:57And you want to be able to, like, use it and be confident that nothing bad is going to happen. As the models have gotten more capable, the safety cases that we now use have to be held to a higher and higher standard. Meantime, Carl, the lack of regulation doesn't necessarily mean that there's not going to be any legal enforcement. The FTC is now opening a broader probe into AI companies, including OpenAI and Anthropic, and looking at whether these companies can be held responsible when autonomous AI agents cause consumers harm. Altman told us yesterday he does also expect new liability frameworks around this technology in terms of who's responsible when something does go wrong, Carl.

27:35Yeah, that kind of points to this new interview again as recline, Kate, this time with Bill Gates, where Gates makes the argument, hey, we don't let people just sell drugs of their own making without by just saying, well, if you just do something wrong, you're personally liable, you can be sued or you could go bankrupt. We've built society a different way. No, it's interesting. It's a great point. And I think liability has been the threat that people say will be strong enough to incentivize these companies to do the right thing. But there's a lot of trust embedded in that. And as you mentioned, I mean, there are other examples of this that have not turned out as well.

28:10But you are putting a lot of trust in the hands of companies that are also looking to grow revenue. They're looking to compete with each other. They want to have the best technology. And they're also, in large part, under file with the SEC looking to go public. So they're going to have some fiduciary duty and shareholder duty when they're public companies. So there is this competing dynamic where they need to make sure from a liability standpoint, from a reputational standpoint, that they don't have more of these issues, especially things like the high profile issue about hugging face with open AI.

28:38So there's dueling incentives. And you just at this point, because there's going to be no regulation, it is in the hands of the companies. And that is going to be the path forward here. So we're putting a lot of trust in the idea that they're going to do the right thing here. It's going to be a fascinating case study in business ethics classes for decades. Finally, I wonder, did you sense a reversal in Amadei's stance while he stood next to the president? You know, Carl, I thought it was interesting. I mean, from an optics perspective, that was a reversal to see Dario Amadei and the president next to each other, when honestly that has been Sam Altman's position early on.

29:12You know, he had Altman, he had Masa's son from SoftBank in his good graces and sort of doing these press conferences together. I did think it was it was symbolic that Daria Amadei, who has had a lot of issues with this administration and the company has had a lot of issues, including still technically being labeled a supply chain risk to get up there and say it's on us. You know, we have the responsibility as companies. That is I mean, it's a softer version. He in no way was overly pessimistic, which I think has been the biggest criticism, although he knew the cameras were on him. And Trump has made clear that he wants this to be a positive technology, wants people to think of it positively, and has talked about sort of the over-exaggeration in his words in terms of what the rhetoric has looked like.

29:57So I would say in that sense, a bit of a shift. Yeah, definitely. The memes are everywhere, that's for sure. Incredible body language yesterday outside the White House. Thanks, Kay Rooney. Let's get a news update this morning with Dom Shubh. Hey, Dom. Hey, good morning, Carl. Israeli Prime Minister Benjamin Netanyahu says passengers intervened and prevented a disaster this morning after one pilot stabbed another during a flight from Dubai to Tel Aviv. In a video statement, Netanyahu said he spoke with one of the passengers who described breaking into the cockpit with a crew member and subduing the attacking pilot.

30:29Netanyahu says he was apparently trying to crash the plane with passengers on board, nearly all of them Israeli. TSA officers manning airport checkpoints and no longer sit while on duty. The Transportation Security Administration says it's removing chairs from checkpoints nationwide, saying the move is designed to help officers stay more alert. The union representing agents criticized the policy as a, quote, disregard for workers' rights and safety. And the U.S. military formally withdrew from Iraq today, ending a two-decade military presence there. The Pentagon says the anti-ISIS campaign known as Operation Inherent Resolve, which began back in 2014, is now officially over.

31:11According to the Defense Department, the last of the 2 ,500 U.S. forces stationed in Iraq have now left the country. Carl, I'll send things back over to you. All right, Tom, thanks so much. Still ahead, the CEO of Janice Henderson will join us. We'll talk about where he's seeing opportunity in the market right now. Plus a new CNBC documentary exploring how Chinese spies used love and betrayal to target the Federal Reserve. And we're back in a minute. Take a look at the Nasdaq. Tech is definitely holding up this morning, even though the Dow is a little bit indecisive. And the yield backdrop continues to be stubborn.

31:445.27, even though we got a brief dip in the heels of that rather cool core PCE this morning. Long bond also at some fresh cycle highs. Joining us this morning at Post 9, Janice Henderson, CEO Ali Debaj. We can talk a lot about the markets and rates. It's good to have you. Welcome to Post 9 again. Nice call. Just for your own model, your own business model, it feels like you're liberated by going private and you're starting to take some risks. Can you talk about that? Yeah, absolutely. We did go private. It feels a little uncivilized or uncouth to say that on the floor. In this church. Hopefully we'll be back.

32:19Yes. But, you know, we've done pretty well as a public company. We doubled the company. We served our clients pretty well. We were the fastest-growing asset manager. among the public peers, et cetera, et cetera. But we were at this turning point where we realized we had to spend more back into the business, spend more back on our talent, on technology, on, to your point, taking swings. And so far this year, we've done three acquisitions or partnerships. We've brought on board a fantastic model business, RBA, with Rich Bernstein, who's been on the show quite a bit. Yes, we love Rich, yes. We do, too.

32:47He's fantastic. We brought him on board. We brought on board a private credit business in Western Europe called Rantum. We think there's a lot of opportunity in private credit in Europe, as opposed to perhaps right now in the U.S. And we have a partnership in Australia as well with a large superannuation fund. So we're really taking it. Diving to the European private credit thing, why? Well, so it's very much the way the market was here maybe 15 years ago, where the banking systems are sitting there and they're seeing entrepreneurs, you're seeing new businesses flourish, but can't really lend to them given the capital constraints that they have.

33:17Enter folks like us, enter folks like Rantam, they see an opportunity on the fixed income side. but again from a private capital perspective. So we see lots of entrepreneurialism, lots of new businesses, lots of new CapEx being put in the ground, and we want to be supportive of that in Europe, kind of like it was here 15 years ago before all the money came into the private credit world here. Now, we still think private credit is interesting in the U.S. and globally too, but more on the asset-back side. We brought on board a team called Victory Park Capital. We think they're the best in the business, actually.

33:44They originate and are the envy of a lot of the large companies out there, and so they borrowed their origination. We think asset-backed is a really exciting opportunity in fixing it. Interesting. We spent, obviously, we spend every day talking about AI. Are there interesting ways you can sort of frame or verbalize how it's working for you, how the world will change next year? Yeah, yeah. Look, one of the things that we did in going private is we brought on board a great partner. We already had one with Tryon, Nelson Peltz's, Diesel Peltz's group. We brought on board General Catalyst, which is a great AI driver, as well as large sovereign wealth funds like QIA, MassMutual, others were on board.

34:18But one of the mandates for us was very much to go down the AI path. And for us, we were starting two or three years ago experimenting. Now it's actually happening. We've shifted over from kind of build stage to adopt stage. And that's happening right now. We think about it a little bit differently, though, Carl, than what we hear other people talk about. We hear a lot of people talk about AI as cost-cutting and efficiency and productivity. That'll come. That's not our focus. Our focus as an asset manager at Janice Henderson has always been for the client. So what we want to do is bring AI and focus in on what the clients care about.

34:51I never sat in front of a client who says, you know, what's your margin? They don't care. Yes. But they care about, can we improve their investment performance? That's where AI is focused. And we've developed a product partnering with Anthropik called Libros. That's in stages of rollout right now to help investment performance gets better. It's early days. We don't know yet. It's starting to see if you squint that there's some improvement there. The other one is called Prism. Again, partnering with Anthropik and a part of General Catalyst called Percepta. That's to try to help our salespeople deliver better quality information, more timely information to that end client.

35:25So we're focused on what the client cares about with AI. And we're actually seeing on a day-to-day basis. I'll give you just a quick stat. Our sales folks get to spend 18.7 % more of their time meeting with clients than it was before because AI has given them the tools to target the right people. Right. When you think about it as a, A, cost cutter, or B, new market, new business generator, is it more one than the other? For us, it's definitely B. It is B. For us, it's definitely B. We think we can grow faster using AI. I think for most people, it's easy to talk about A. It's something you can say, well, I'll replace the SaaS provider.

35:59And by the way, we've done that. But that's not a focus for us. We're focused on a client outcome. Finally, tokenization, I think, is a priority for you, yes? It is. Why? Well, so tokenization is a priority. We've invested significantly in it. We're top three or four in the world in terms of companies that deliver tokenized funds. People don't know that about Janice Anderson. We're actually being quite innovative. Look, the way we talk about it, and I'll steal from Alex Farood, who's our head of fixed income. He says, listen, if we get tokenization right, we can give our clients a 13th month of interest.

36:28That's the type of cost savings we're talking about. That's the type of better outcomes for our clients we're thinking about, is to deliver an opportunity to get better returns by simplifying the underlying process. Now, the great thing is we're looking to partner with folks like New York Stock Exchange, like others in the world to focus very much on tokenization from an infrastructure perspective. but we're delivering better results for the clients. And the policy backdrop is constructive, you would argue. So far it is, yes. I wish it was faster, but, you know, that's all it's way to do. That's how those frameworks go.

36:58Really fascinating, and we hope you'll come back as you put some of these things to work. Thanks, Paul. It's good to see you again. When we come back this morning, a new CNBC documentary exploring how Chinese spies used love and betrayal to target the Fed in just a minute. Welcome back. A new CNBC documentary details an aggressive plot by China to infiltrate the Federal Reserve. Our Eamon Javers joins us this morning. Morning, Eamon. Yeah, good morning to you, Carl. The case of the alleged Chinese spy at the Federal Reserve shows us just how important the Fed is as a target for Chinese intelligence.

37:31Beijing is so eager even for basic information about the Fed that one Chinese intelligence official was allegedly willing to spend more than a decade worming his way deep into the personal life of a senior Fed economist named John Rogers. Now, we've obtained exclusive photos, text messages and audio recordings detailing the whole case. But I want to play you just one snippet of the audio. This is the man accused of spying for China inside the Fed. His name is John Rogers, and he's talking to investigators from the Federal Reserve's inspector general's office. He's talking about his relationship with this alleged spy.

38:07And just listen to how close he was personally with this man. I love the guy. Don't don't get me wrong. I do. I owe everything to him. The relationship, my wife wouldn't have happened, despite the fact that we met online. It just would not have happened without him. And I love him like a brother. I actually asked him to be the best man. And he said, dude, your brother is here. You know, awkward.

38:32But I thought it was weird at first. And then, listen, as federal investigators press Rogers, the Fed economist, on his interactions with this alleged Chinese spy. And what's incredible here, Carl, is that Rogers acknowledges that the Chinese are eager to learn about the Fed, that they do conduct espionage to do that. But then he dismisses the idea that he himself could be the target of spying. And that's exactly what the U.S. government said was really going on here. Do you think his generosity and kindness was genuine? Totally genuine. Look, there's something in it for them, too. But, you know, and I did have to be careful about my role in the Fed.

39:14And boy, the Chinese are watching everything that the U.S. does. I don't mean that in an espionage way. I'm sure they are doing espionage, but I don't confront that. They just want to know. What's the Fed thinking? Now, the whole thing fell apart because at the same time that Rogers was allegedly being targeted by Chinese intelligence, he was also caught up in a separate sextortion case with hackers in Africa threatening to send nude selfies that he took on his Fed cell phone in the Fed's gym to the vice chairman of the Federal Reserve. But Rogers' defense attorney argued at trial that he never knew anything that was all that secret about the Fed anyway and that he never did anything wrong in his interactions with the Chinese.

39:57In fact, a jury agreed with that argument and acquitted Rogers on a charge of espionage. They did convict him in the end, though, of lying to federal investigators. It is a wild story, and there's a lot more to it, which we lay out in the full version of this saga, which is on CNBC.com right now, and you can see the QR code there to get directly to the story, Carl. Wow. Eamon, you said yesterday that what you were going to unveil this morning would be dramatic, And that does not disappoint. Any conjecture, I guess it would be, on what the Chinese expected to find out? You know, we talked to a veteran CIA station chief about this case.

40:34And what he said is that Chinese just have so much volume of intelligence apparatus directed at the United States that they're willing to spend, in this case, over a decade, getting deeply involved in the personal life of this economist. even if it's a small target and even if that guy might not have all of the information that they want. What was fascinating here was this Chinese spy was right in the middle of John Rogers' relationship with his own second wife, who was in Shanghai. He met her on an Asian dating website and then married her, even though she didn't speak English and he didn't speak Chinese.

41:09And so the Chinese spy ends up being the go-between between Rogers and his own wife. And what the CIA officer we talked to about this said was, look, they have so much money and so many resources at this that even a relatively low level guy like Rogers is going to get a lot of attention because he's a potential inside man at the Fed. Wow. That really does imply the scale of, I guess, their dragnet and their attempts to get information. Amen. Fascinating. Look forward to watching a lot more online. And I like that Javis files tag. That's a nice little trademark you've got. Thanks, Carl. I like it, too.

41:45Yes. We'll get more Squawk on the street after this. Welcome back. Micron tonight after the bell. Our Seema Modi joins us with what to expect. Important print here, Seema. It is, Carl. I mean, it's clear that memory plays a central role in the AI agentic build-out, but supply remains constrained. So top of mind tonight is just how executives see the DRAM market expanding, if at all, in the coming years. And in the meantime, how much more Micron can increase the price of its high bandwidth memory It sells to its semiconductor and hyperscaler customers that are building their own customized chips.

42:15Morgan Stanley using data from Trend4, seeing pricing going up by 15 to 20 percent in the fourth quarter. Analysts will also be looking for any mentions of Meta's Muse and how its popularity translates into higher demand for memory. And if Micron is, in fact, a supplier, CEO Sanjay Mahotra was among the CEOs at the White House yesterday's AI meeting. Micron has pledged over$250 billion in U.S. manufacturing with the goal to produce about 40 % of its DRAM stateside in 10 years. Guys, following NVIDIA's monster buyback, the other quick question is, will Micron do the same? Melia is writing that Micron can buy back well over 10 % of its market cap this year.

42:55Interesting, though, when you look at the stock, yes, up 274 % this year, But it has declined in the third quarter on concerns around its ability to keep momentum going, guys. So that's going to be crucial for tonight. Yeah, I mean, what have they said lately about how long the demand lasts and how long it will take to catch up when it comes to the supply shortage? I guess for investors, they just can't help the nagging question about what's on the other end of that. It's a great point, Sarah. I mean, memory typically is a cyclical sector. But given that we're in this moment in time where there is incredible demand from the hyperscalers that are increasing their capex and many of them now building their own custom chips, there is a lot of demand for memory to train those chips and to train their AI models.

43:42So I think that's going to be very topical tonight about Sanjay Mahathra's longer term vision for demand. And when that capacity that they're building here in the U.S. starts to pick up and alleviate some of the constraint issues that the market is seeing right now. Yeah, still within the, I think, top five S &P years for the year, along with Dell and SanDisk and Moderna and Bloom Energy. We'll see what we get. And of course, tomorrow, do not miss the CEO of Micron, Sanjay Marotra, will join us in the 9 a.m. hour following those results. Important conversation. Our thanks to Seema, who will watch it, of course, tonight.

44:16Meanwhile, pretty moderate range here, although 10-year, 528 is getting some eyeballs. Yeah, I mean, it's an interesting turnaround, right? because the instinct was a little less than expected on the headline number for inflation, although for some people it was in line. That should take some of the pressure off the Fed. But then we got better GDP numbers for the second quarter. We got really good spending numbers for August on personal spending. ADP. ADP, which is private sector jobs, was pretty decent. And Chicago PMI. All good. Second best print in four years. It paints a nice story of the economy, which then you wonder, OK, is the Fed right to worry about overheating concerns?

44:53is inflation really the right battle? Also, oil prices are up. And we have to note that. David Zervos, now counselor to the Treasury Secretary, says this is a supply story, not a big inflation story, but we do have the growth, too. And so the market's sort of grappling with some of those narratives. Yeah, that kind of was a wrinkle in the story today. We did get diesel up about 4 % midday as we got some storage data that was a little bit hawkish. And refinery rates are actually coming in. It is maintenance season. They have to do some of this once a year. And so the reutilization rate came down to 92, which means, you know, getting that oil distilled into diesel remains a challenge.

45:30Yeah. And then this question of whether we'll have a diesel export ban or not. We know that there are there are meetings happening in Washington around that. But there you see the lift across the board that with the AI trade, Micron will be a key test. All things to watch. Also, I don't know if you saw a big announcement today from Ken Griffin, a three billion dollar investment in Carnegie Mellon. And$1 billion goes to the Pittsburgh campus,$2 billion to launch a Miamian university. So you're going to hear from them a little bit later. We just interviewed them, and we'll play it out in the 1 o 'clock.

45:58Is it the single biggest gift in the history of higher education? Correct. The second was Bloomberg, you know, a little less than$2 billion. So this is really in a completely different category. And he calls it investment, not a gift, because he's joining the board, first of all. And also, they've kind of reimagined a little bit of higher education. And you'll hear them talk about that for this modern world of AI and all these societal challenges. Not to mention the doubling down on the Miami story and just a huge commitment to that city. World-class city, absolutely. Unbelievable. So we'll keep an eye on rates.

46:30We'll watch from Micron tonight. Obviously, we're working our way to Jobs Friday. All opinions expressed by Squawk on the Street participants are solely their opinions and do not reflect the opinions of CNBC or its parent company or affiliates and may have been previously disseminated by them on television, radio, Internet, or another medium. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. Such opinions are based upon information Squawk on the Street participants consider reliable, but neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such.

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