11AM Hour: U.S.-China Summit Today, Coldwell Banker Realty CEO & OpenAI Hacks Again 9/24/26

0:00This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash marketupdatepodcast or find Schwab Market Update wherever you get your podcasts. This holiday, all plans, even unlimited, are just$15 a month. A holiday deal this good obviously deserves an enormously expensive holiday song, like All I Want.

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1:05Good Thursday morning. Welcome to Squawk in the Street. I'm Carl Quintanillo, Sema Modi here at Post 9 of the New York Stock Exchange. Sarah Eisen is the morning off. Today, China's president in Washington this morning, his first state visit to the U.S. in more than a decade. Export controls curbing the sale of semiconductor manufacturing equipment among one of the key topics today. We will discuss with the founder and former CEO of Cyprus, T.J. Rogers. Plus, call it an AI safety wake-up call. OpenAI's Sam Altman warning the U.N. that the technology's potential risks are among the most important security issues facing the world today.

1:38We'll be joined by a former director of Defense Department Joint AI Center, Gregory Allen. And with new home sales climbing at the fastest pace of the year, we'll check in on the housing economy with the CEO of Realtor Caldwell Banker. Meantime, a little bit of weakness here. Ten-year, really hanging on to those levels above 5, almost to 5.14, got to 5.15 overnight. Sector-wise, it's energy that's leading up more than a percent and some weakness in consumer discretionary, again, down for several weeks in a row. Let's begin, though, with the Chinese president, his visit to Washington today to meet with President Trump.

2:12Megan Casella has the latest. Morning, Megan. Carl, good morning. Again, programming is well underway for this Chinese state visit. As you mentioned, the first state visit for the Chinese leader since 2015. We just in the last hour heard from both presidents making remarks from the grand foyer of the White House. President Trump speaking first, talking about a truly great friendship with the Chinese president, saying they've been working on a more balanced trade relationship. And he also mentioned they'd be discussing security, technology and AI later today, that bilateral meeting, the official one set to take place just later this hour.

2:43Then we heard from President Xi. He said similar language here. He was visiting to carry on his friendship with the United States and to expand cooperation, saying it would be difficult to solve many of the world's problems without increased U.S.-China cooperation. On business specifically, he said China welcomes American companies wanting to do business and invest there, and that he hopes Chinese companies are, quote, treated fairly here in the U.S. And he touched on AI as well. He had this interesting quote, guys, saying that both countries are leaders on AI and that we have both the capability and responsibility to develop and manage AI for good and ensure that the development of AI is always under human control and serves the well-being of the people.

3:25Now, we have heard the Chinese making some sort of similar comments so far this year, but it is striking to hear that from the White House when the president, of course, has been downplaying all concerns about AI as a hoax, even earlier this morning, saying he didn't want to see anything change with the status quo on AI. And President Trump had said that President Xi believed the same. That statement there is seeming to go just a little bit further. Guys, now the two leaders are in the Rose Garden about to embark on a military review. And then, as I said, that bilateral meeting where all the policy talk will take place, that'll get started later this hour.

3:56Guys, Megan, Megan, how should we expect tonight's dinner to go? And I imagine speeches from both President Trump and President Xi, along with a translator in front of, you could say, some of the most powerful technology heavyweights in the world. Absolutely. A star studded or CEO studded state dinner, I should say. State dinner being the highest honor that a U.S. president can bestow on a world leader. We don't see these all that often. And just some of the names we expect in attendance, Jamie Dimon, Jane Frazier, Jensen Huang, Mark Zuckerberg, Tim Cook, Elon Musk, we can keep going. They're all here.

4:27Many of them, I should say, are here. One bit of intrigue, we're still trying to confirm whether Anthropic will have any executives at that dinner. Not yet clear to CNBC whether that will be the case. But we will hear remarks from both presidents. And one thing we're also wondering is whether any Chinese CEOs will be at that dinner as well. Remember when President Trump was in Beijing back in May, a number of U.S. CEOs were with him, including some of the faces that you're seeing right now. Not clear yet whether any Chinese CEOs will get the same honor here tonight. OK, well, we'll be watching the body language, the tea leaves.

4:58Megan, thank you. Speak to you soon, Megan Casella at the White House. Let's take a look at the 30-year yield, getting a lot of attention this morning, hitting its highest level since 2004 as the bond market route continues. a lot of talk about the need for rate hikes to get inflation under control, including from Philadelphia Fed President Anna Paulson this morning and several CEOs on air yesterday. Take a listen. We do think inflation is going to be with us for, you know, unfortunately, I think many more years at an elevated level. There's no question that inflation has increased and it's broad based.

5:31At the beginning of the year, we said we expected four to five percent inflation. is now at the top end of our range. Inflation's got to get under control. The Fed has already moved once. I think they'll continue to move, whether it's two times this year again or one time or in one time early next year. But over the next six months to 12 months, they'll have to move the rate structure up to make sure the inflation continues its path down. Joining us now with his outlook, DWS Group of America's CIO, David Bianco. David, pleasure to see you. Thank you. How should markets read the spike in bond yields and the speed at which the yields have been moving?

6:04Well, the bond market certainly has the equity market's attention right now, but it's not just a 30-year yield or even the 10-year yield being over 5%. The five-year yield is over 5%, and the two-year yield is not too far below 5%. So rates are moving up across the curve. A lot of reasons for this. One of the reasons are the expectations of more hikes to come. I would think we think one or two more hikes are likely, not four. I think it's a matter of how long interest rates stay at a higher level rather than they trying to rapidly tackle what's been a long lasting inflation problem. But look, I don't think the equity market breaks on higher yields, but there is sensitivity.

6:45And every 25 basis point climb in real yields or close to 50 basis point climb in nominal yields, that weighs on the S &P 500 PE by 3 to 5 percent. But earnings growth is still very strong. Strong. But as to your point, stocks are responding, even some of the bigger tech names that have now been taking out more debt to tie to the AI build out right there. You've seen hyperscaler spreads widen. Do you think this continues? Is this a concern? No. And in this recent climate yields, we've seen equity investors go back to where the growth is reliable. just a matter of debating how strong the earnings growth will be.

7:25And that is tech and that is AI adjacent, including data centers and hyperscalers. We can talk about a couple of more levered hyperscalers, but let's not. Let's focus on what remains a very strong earnings growth, CapEx environment. And I think this equity market is here or higher into the end of the year, led by tech, because I think tech is the least sensitive to higher yields. You don't think yields constrain the AI buildout? No. Why? They're willing to pay whatever. The debate around AI CapEx is on the return on capital, not the cost of capital. And I don't think plus or minus 50 basis points is going to deter the CapEx plans they've got for the coming year or two.

8:06We can talk about other resistance on data center building around the elections, moratoriums. But I would argue, get your data center in your community now, because without that, you're probably going to have higher electricity prices. And you're probably going don't want the added tax revenue coming from data centers being your community. And I think the big hyperscalers, the original few, were right to move as aggressively as they have over the past couple of years. I don't know. We just, we got fresh moratorium announcements today out of Chicago, Denver this week. We've talked about Governor Abbott.

8:36Bernstein put out a note that said the percentage of planned data center pipeline that eventually gets built is probably 35 % of what's been announced. Okay. So there are a lot of estimates out there. Some of them are absolutely ridiculous about the type of data center on a gigawatt basis that will be added over the next five to 10 years. On our expectations, which still have strong double-digit growth in terms of CapEx and earnings out of the key semiconductor and other supplier names, we're confident that's going to get built over the next couple of years. Yes, there is some pie-in-the-sky numbers out there, but those are data centers that have been announced or planned.

9:14There is a compute shortage right now. And the data centers that are in place and, you know, will be finished in the coming year or two, they're going to be making good returns. On yields, what happened to the notion that if we got a hike, you'd get some relief at the long end? Yeah, I still think that will come. It's been... Why didn't it happen this time? Any idea? We could, you know, maybe they should have done a 50 basis point hike. If it's so likely that they're going to do a 25 basis point or another. Lockhart came on and said they should have before the meeting. And most of us didn't expect that because it's just not their modus operandi.

9:50However, I think the bond market is now a little bit concerned. The Fed's behind the curve, but let's not get carried away. At least we've got a Fed that's addressing the issue. There are some other issues that are beyond their control, the deficit. But the bond market, and particularly that five-year auction the other day, is suggesting that even now, closer in the curve, not just 10-year and out, investors are concerned about the deficit. And that is the longer-term issue that should be affecting longer-term yields. I don't think oil prices should be affecting longer-term yields, but they might affect what the Fed has to do.

10:22Are you concerned with what's happened to financials? I mean, at one point over three months, it was crushing the other sectors. Now it's back to 1 % gain. So we've had a significant flattening of the curve. Yes, yes. And that maybe takes a little bit of the icing on the cake off of financials. But that's more of a smaller regional bank story. If we look at large banks between capital markets activity, wealth management activity and loan growth, which is fine. I still like large banks. I still like parts of insurance. I still like parts of capital markets. And once again, I see an opportunity in some of the largest of the wealth management firms that I see as very attractive valuations and enviable businesses.

11:06It's a little granular, but are you a buyer of this notion that things like Muse, this new product from Meta, can, I mean, Schwab was down 6 % the other day. Expedia is down 20 % just this month. I think all of these things enhance the experience of customers interacting with their advisors, clients with their advisors. I don't think it replaces people in general. But, you know, beware. There will be smarter clients, more demanding consumers in every which regard. But these tools will help those who are providing these kind of services, professional services, raise their game as well. So overreaction perhaps on what we're seeing, but disruption is there trying to figure that out.

11:46Great conversation, David. Thank you. Good to see you, David Bianco. When we come back, former Cyprus semi-CEO TJ Rogers is with us. talk about how these U.S.-China meetings may impact the chip wars. And later, the CEO of Coldwell Banker Realty will join us. That's after new home sales beat expectations. We will also discuss how rising rates are impacting the entire sector. Back in a moment. 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.

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12:57Schwab 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. This holiday, all plans, even unlimited, are just$15 a month. A holiday deal this good obviously deserves an enormously expensive holiday song like All I Want. Right. Okay, we can afford that. You know what?

13:33Forget the music budget. We're going to stick with whatever's in the public domain. Give it a try at mintmobile.com slash switch. Upfront payment of$45 for three months,$90 for six months, or$180 for a 12-month plan required. $15 per month equivalent. Taxes and fees extra. New customer offer for initial plan term only. Greater than 50 gigabytes may slow when network is busy. See terms. China Summit taking place today. What are the implications for the tech sector? It's a conversation we continue to have, Seema. It is. I mean, the top of mind, obviously, is AI safety. Both leaders addressing it this morning.

14:04But in addition to getting some type of coordination on AI development, And there are several issues sort of troubling Silicon Valley, primarily distillation. Remember, it was early September when the FBI and NSA accused six Chinese firms of distilling U.S. frontier models. Treasury Secretary Besson at that time threatening sanctions on those firms, just as rumors grow around Besson possibly stepping into this AI sort of czar position. So that'll be one thing to watch. Also up for debate, Taiwan. China still assumes sovereignty of the island in which 90 percent of AI chips are manufactured. So still a very critical market for big tech.

14:37China's ambassador to the U.S. in the last few days quoted saying Taiwan is a red line, meaning if U.S. leaders bring it up, Beijing will not respond kindly, adding that the goal is to, quote, avoid a Star Wars style rivalry in AI. You know, on this note, as we looked at U.S.-China talks to continue, the companies that have most at stake based on revenue, semiconductors. Remember, NVIDIA CEO Jensen Wang was able to convince the Trump administration to allow NVIDIA to sell older generation chips to the country. In the past few quarters, NVIDIA has had consistent guidance for their expectations for China.

15:11They're not assuming any data center compute revenue from this country in their outlook. Broadly speaking, though, Goldman estimates that the equipment semi-names like Lamb Research, Applied Materials, Teradyne, generate 30 percent or more of their sales from the mainland. Analysts there are warning that companies that have this global exposure could be at risk if the geopolitical tensions, tariffs escalate meaningfully. So this is one sector to watch. Let's just talk about the stock market, too. Shanghai Composite versus the S &P 500. So far this year, Carl, China has significantly underperformed the U.S.

15:45You know, the economy there hasn't held up as well in the last few months. GDP slowing and consumer confidence, we're noting there, has been dropping as well. Really interesting. There's lithography. There's Taiwan. There's AI. All of this sort of rolled into this one sector. And we'll see. I mean, so far, the rhetoric coming out of the meeting hasn't set expectations for big breakthroughs of any kind. No, I think the optics, it's more of a symbolic meeting. The deliverables, the expectation for any traction there is still quite low. Let's see, though, if they can surprise. That's why we're watching so closely.

16:19For more on what the visit to Washington might mean for the chipmakers, let's bring in T.J. Rogers, founding CEO of Cyprus Semih. Great to see you, T.J. Welcome back. Thank you. What part of the conversation between the two sides is most interesting to you when it comes to chips? Well, I'm very worried about tariffs. are a bad idea. They've always been a bad idea and are a bad idea to almost every economist. We got one guy, Navarro, that they talk to to represent their point. Tariffs are taxed, and the tax hits almost 100 % on the American people. I don't like that. I don't like the fact that our economy is slowing down when it doesn't have to.

17:03And that was triggered in the Biden response to COVID, too much money, too unthoughtful, get too much unthought and non-thought in giving money out. So we've got the Democrats causing a weak economy right now and Republicans allowing it to continue on because we have elections coming up. Not good in any way. Are you encouraged at least on this extension of the Busan agreement? It sounds like the Chinese might have wanted even longer to longer duration on that don't I'll be honest I haven't studied those agreements but in general terms on China America we should be good friends we should not be annoying each other we have absolutely complementary skills and the two companies working together and countries working together in cooperation should be doing be both a lot better off you Our average wage in the manufacturing economy is$90 ,000 a year.

18:06Theirs is$15 ,800. We contribute to that. If we buy their stuff, their factories are full, their wages go up. And their wages have gone up over the years. The gap is still a factor, not a percentage. But that's what they get from it. And then they play games, rare earth metals, the same kind of games we play with tariffs. So we're playing games with each other, and both populations suffer from those relations. It's a government malfeasance on both sides. Fortunately, we're a democracy, and we can change, and we can listen to people with different and better ideas and do something different. They can't.

18:48CJ, you've been in the semiconductor industry for many decades. So you remember there was a time when ships from the U.S. were flowing freely to China. Obviously, that has changed now with the export ban in place. What are you expecting NVIDIA CEO Jensen Wang's plea to the Chinese to be tonight? Well, Jensen will do his job, and his job is to run his company and to make the best return for his shareholders that he can. He's obviously doing a great job. I have great respect for him, and he's a product of Silicon Valley. And if you want to generalize it about Silicon Valley, I looked up this morning.

19:25I punched out in the top 10 S &P 500 companies. So we're talking about, in effect, the top 10 companies in the world. And I found NVIDIA at number one, Santa Clara, California, Apple, Cupertino, California, Alphabet, Mountain View, California, Broadcom, Palo Alto, California, and Meadow, Menlo Park, California. I live a 10-minute drive from each of those companies. That's half of the S &P top 10, all from Silicon Valley. So if you look at Silicon Valley, it's a tiny little dot. If you look at a map of the U.S., it's just a dot. It's only between San Francisco and San Jose. And you ask, how possibly could a tiny little dot like that have five of the top 10 companies?

20:08Zero, by the way, in New York. With all the trillions of dollars they've got, they don't show up on the list. And the answer is freedom, free markets. and it's been that way forever it's been obvious forever milton friedman said it uh... multiple different ways wrote a book about it that's what we need to do is get the government out and let companies compete with each other in open markets and everybody both sides of the pond will be better off yet that's going to be his message right it has been for a while list i'm not widen the export ban allow more chips to be sold there but then what do you think of this whole idea that that's just making china smarter and more powerful in creating their own a i stack all about i just earlier this week uh...

20:51tj out saying that they're a i chip can now compete within videos blackwell let people say a lot of things but if you look at that they did look at a i this morning if you look at share market uh... of designs in the eye uh... we have seventy five percent share market they have fourteen and I'll tell you why it is and I've known this for a long time it's about freedom in Silicon Valley Joe Blow can get up and say I think General Electric's doing a bad job I'm going to take him on him and I'm going to beat him and General Electric's chip division is gone IBM's chip division doesn't matter in China you can't do that okay so in the frontier in AI you can put out press releases and babble all day long The fact is we invented it.

21:42It got invented at my alma mater, Dartmouth College. They talked about it the first time the word was ever used. And we don't own it, and I don't want to own it. I want them to compete against us. I want them to run a little faster because they're right behind us. And we'll both be better off. Freedom always wins, and the idea of control and the government knows better is always wrong. And you're looking at both sides of the fence this time that way. TJ, while I have you, there's been a couple interviews on the tape last couple days suggesting that we're past the steep upward slope in memory prices and that some of the price increases are running out of steam.

22:21You see any evidence of that? Yeah, OK. As a chip guy, I suffered on the wrong end of the price curve for a long time. We called it Moore's law and Moore's law is real simple. Every two years, your prices have to drop by about a factor of 0.7. Excuse me, your chip size drops by a factor of two. And your costs have to go down 30 % per year. And that killed us. It didn't kill us. Obviously, we're strong. We're the best in the world. But it really worked us hard. Now, because of that, there aren't as many factories as there need to be. and the latest chips, the AI chips and the memories, which Micron Technology makes it go with them, are scarce.

23:07So the chip guys are, after many, many years, and they're running 80%, 90 % gross margin. There's no industry I know, unless you're selling handbags or something like that, where you can get 80%, 90 % gross margin. And, yeah, it's going to come to an end because it's a natural event, And at the end of it, the chip companies have big bank accounts, and they will be able to invest in R &D and move forward to the next step. Yeah. Important to remember cycles and how things have changed, but how much stays the same. TJ, we'll watch Washington, of course, closely tonight. Always great to get your perspective.

23:48Talk soon. Thanks for the opportunity. Still ahead, OpenAI carrying out another rogue hack, this time on a government website. We'll discuss the implications at large for AI. Plus the long bond ETF, the TLT, another record low. We're going to break down that move lower and take a look at another rate-sensitive sector as yields are on the rise. So is oil. So are diesel futures. Stay with us. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed Daily market preview on stock updates, U.S.

24:27and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash market update podcast or find Schwab Market Update wherever you get your podcasts. This holiday, all plans, even unlimited, are just$15 a month. A holiday deal this good obviously deserves an enormously expensive holiday song, like all I want. Right. Okay, we can afford that. You know what? Forget the music budget. We're going to stick with whatever's in the public domain. Give it a try at mintmobile.com slash switch. Upfront payment of$45 for three months,$90 for six months, or$180 for a 12-month plan required.

25:06$15 per month equivalent. Taxes and fees extra. New customer offer for initial plan term only. Greater than 50 gigabytes may slow when network is busy. See terms. Welcome back. Take a look at the long bond ETF, TLT. New record low amid this bond sell-off, which is happening all around the world. The ETF losing more than half its value since that August 2020 closing high. That's when rates were close to zero to boost the economy during the COVID pandemic. Another rate sensitive sector taking a hit is utilities. The XLU down more than 3 percent on the week now, more than 10 percent off the 52 week high.

25:40A lot of sectors are kind of in that range of down 10 from the highs. You look at the transport, some of the industrials, consumer discretionary. discretionary as you would expect higher rates to do what they're supposed to do. Slow some things in. A follow through, though, from yesterday. Utilities was the worst performing sector yesterday. Consumer discretionary. I mean, these rate sensitive, these sectors that offer a healthy dividend are facing some competition when you have the 10 year rising. All right. Time now for a news update. Contessa Brewer has that for us. Contessa, hi. Hi, Seema.

26:10Eight sailors who were part of the USS Abraham Lincoln carrier strike group attempted suicide during their long deployment in the Middle East. That's according to acting Navy Secretary Hung Kao in a letter to Democratic Senator Kirsten Gillibrand of New York. The Lincoln and its crew of about 5 ,000 sailors spent more than 300 days at sea, a record for the Navy. The Lincoln is now on its way home to San Diego. Attorney General Todd Blanche says the administration will appeal to the Supreme court after a judge's ruling last night, which blocked the removal of undocumented immigrants to countries other than their own without having the chance to raise safety concerns.

26:49The Supreme Court, though, has already twice struck down a lower court judge's injunction protecting migrant due process rights. And Flock Safety is considering selling itself amid a backlash to the company's surveillance camera technology. That's according to the online news site Semaphore. The report says the company has held preliminary discussions with outside advisors about a potential sale. Flock recently found itself at the center of a debate over surveillance technology following accusations of misuse by police departments. That's the news now, Carl. I'll send it back to you. All right, Contessa, thanks so much.

27:22When we come back, the CEO of Coldwell Banker Realty will join us. We'll discuss how these rising rates are impacting housing. New home sales in August hitting their highest level since last December. But with a 30-year mortgage rate ticking back above 7 percent, And can the momentum last? Joining us now, Coldwell Banker Realty CEO Kamini Lane. Kamini, thanks for joining us. And what a time. Yes, what a time indeed. Thanks for having me. How did you think about the idea that rates could get to this level and just the trickle down in effect it has on the economy? Yeah, you know, I think the important thing to realize is, yes, absolutely, rates are climbing.

28:02They've been climbing in the last several months. They're higher than they were a year ago, than they were six months ago. But rates are around the same as they were three years ago. In 2023, we saw about 4 million units trade in the housing market. That was the same in 24, 25, and we're trending to 4 million units in 2026. So while we don't like to see rates climbing at the pace that they have been, homes are still trading, and that is a great thing for our economy. But pending home sales falling 5.4 percent from the quarter earlier. I mean, does this tell you that it's starting to impact the housing data and consumers are pulling back?

28:41Without question. We've seen housing starts declining week over week. You know, we've seen mortgage applications declining. So I think we are definitely in a soft period right now. Consumers are reacting to the news cycle. they're reacting to inflation rate inflation and they're absolutely reacting to the increase in mortgage rates and so you know the summer has definitely been soft. What the fall is going to look like is a little bit unclear you know really does the plant depend on a lot of those macroeconomic factors. What we're seeing right now is that the war is really trickling down from geopolitical uncertainty to actual affordability concerns and so I think that that is going to be a lot of what dictates whether or not people get off the sidelines.

29:24However, what we are seeing is that for the first time in the last several years, you have more mortgages that are above 6 % than are below 3%. And what that indicates is that people are willing to let go of those COVID era really low mortgage rates, either because they have to move or they found their dream house. That creates movement in the market through purchases. And it also creates potential movement through homes coming on the market and increased inventory. And ultimately, inventory is the problem right now. I was going to say, we've talked a long time about what are the five D's, diapers, divorce, diplomas.

30:02Life's got to go on. And mobility needs to continue as best it can. But does that mean that buyers are going to demand more price cuts than we're seeing right now? Yes, absolutely. I think in September we're seeing a 10-year high in price cuts. So it is a very, very real thing that we're seeing. And to your point, life doesn't wait. We used to see the D &D purchases were about 10 % of the overall market. Our agents at Coldwell Bank or Realty are saying that's trending to 30 % of the market right now. There's a percentage of people who want to move and there's a lot of people who have to move and life doesn't wait.

30:38So those transactions are going to continue to happen. Geographically, I think we've seen some movement specifically in the South community and the Midwest where sales have surged just in the last month. What do you think is behind that? I think it's affordability, right? So if you look at the Northeast, for example, prices are still climbing year over year. Inventory is still really tight. Whereas when you look in the South in particular and in the West, not in the Bay Area, but in the rest of the West, prices are actually holding pretty steady. In the South is where we're actually seeing that transactions are held holding steady year over year.

31:13And a lot of that really is affordability that is influenced by availability of inventory. So again, it goes back to inventory. Yeah. I mean, but then to your point, affordability, housing, I mean, how do you think this gets addressed in the midterms? Well, we've already seen legislation that's intended to, you know, make inventory and building more affordable and easier. And I think that that story is going to continue. Americans are in an affordability crisis right now across the board, whether it's looking at prices at the pump or, you know, looking at home prices. And so I definitely think that it's a real concern and it's something that we're talking about every day.

31:51Are you seeing a lot of home equity offers? Is that are we in that chapter yet where people are going to start to leverage the equity they've already built in their home? It's a great question. You know, I think it goes to the underlying health of the housing market. We're not back, you know, this is not similar to the financial crisis where transactions weren't happening because, you know, there wasn't a healthy housing market. I think it's 98 percent of people have positive equity in their homes. And I think that that is a really great thing when you think about people being able to afford more to be able to leverage the equity in their home to get, you know, different sorts of lending products.

32:29Yeah. And I think I don't know what the number is lately, but the percentage of households that are mortgage free. I mean, that's approaching 40 percent or something like that, right? Approaching 40 percent. It is approaching 40 percent. Again, you know, I think that that being mortgage free is a great thing, but it does not help inventory when people feel like their other lack of mortgage or their 3 % mortgage is a financial asset, right? So what we really want to see is people leveraging the equity in their homes to actually make a move, not treating it as a fixed financial asset. Good color there as we watch rates remain high here, two decade high for the 10-year.

33:06Kamini, thank you for your time. Thank you. When we come back, Oracle is an awfully big story today, lower after the company sent this force majeure notice related to its data center project in New Mexico. You see Blue Owl and Bloom lower on that. SEMA's been all over. We'll get details after the break. Oracle falling today after the company sent a force majeure notice to the developer of its New Mexico data center project. Oracle is looking to delay payment potentially of the project if it doesn't come online in 2028. As expected, the news has shares of Blue Owl and Bloom Energy, which is Oracle's energy partner on the ground there.

33:43Lower right now, the data center developer receiving the notice is a unit of Blue Owl, and Blue Energy is expected to power the campus, which is part of the Stargate project, which expands beyond New Mexico to Texas and Ohio. Worth noting the politics at play here. I was told by a source familiar that some of the politicians that are dealing with Oracle and Blue Owl on the ground, Carl, are up for re-election in the midterms. We know data center has been a political punching bag, and it's caused a heating debate across the nation regarding power, access to water. By the way, this specific site is basically in the desert in New Mexico, so it's very much water-stressed, and that's why it's raised some concerns about how this data center will access water.

34:28And also, there's an air permit that it needs to still receive from the state. So there's some pushback they're receiving. And now with this force majeure, it's raising questions about does it continue? The company is saying there's no plans to delay. This project is on. There's just some near-term headwinds. Yeah, it's interesting. I mean, I would say the fallout isn't that broad today. I mean, GE Vernova is down a percent. Verti is down a couple percent. It's been a series of lower highs and lower lows since the middle of the summer, kind of when these moratoriums kind of got ramped up going into election season, you might argue.

35:02There was a note just in the last 30 minutes from KeyBank saying, I think this specific story does illustrate how the data center delays are starting to manifest. Do we start to see other force majeures? And this type of action taken, I think, will be really notable and one to watch. Yeah, we'll see if the tone changes, too, after midterms are done. And when we come back, we'll break down the latest details of OpenAI's rogue hack, which this time targeted a government website in Australia. We'll discuss how the U.S.-China summit might impact the AI race at large. As we're back to session lows, Dow's down 330.

35:39Welcome back. Another day. And we're learning about another hack. OpenAI carrying out a rogue hack, this time on an Australian government website. Let's get more details with Kate Rooney. Hi, Kate. Hi, Seema. So it is another example of AI agents acting on their own, but it is the first example that we've seen with a major government. Australian officials now say OpenAI agents hacked into a government Medicare website. The model, they say, was given what officials describe as a research task of looking for health and medical statistics. But that didn't go as planned. AI agents found a way around some of the restrictions and gained unauthorized access.

36:16So far, there's no evidence that personal information was accessed, but Prime Minister Anthony Albanese is not happy about this. He called the incident unacceptable and has ordered an investigation as well. He also said that he spoke to Sam Altman, the CEO of OpenAI, about it. He did also express disappointment about the timeline. This happened back in June. OpenAI says it discovered this during a review in August. Flash forward, Australian officials didn't hear about it until September. And this is far from an isolated event at this point, guys. The most notable agent hack was the hugging face incident.

36:49But other AI labs from Anthropic to Google have reported similar issues. The news does come and did come yesterday, just hours after Sam Altman and Dario Amadei, the CEO of Anthropic, spoke to the UN Security Council. They warned some of the world leaders about this very risk of losing control of more autonomous AI systems. And then both CEOs argue that the systems need human oversight still at this point. They also called for international agreements on all of this. But guys, it is very much now a political question. President Trump has rejected some of those international standards. He said he is against slowing down U.S.

37:23AI development. And tonight, President Trump is hosting Chinese President Xi Jinping with a bunch of the AI leaders expected to be there. It's going to be one of the major issues you can expect in that room. Biggest names in tech will be there. You have Sam Altman, Jensen Wong, CEO of NVIDIA, Satya Nadella, and other tech executives are expected tonight at that state dinner, guys. Kate, I wonder if you are paying attention to Jensen Wong's ongoing sort of media appearances, this time with Ezra Klein of The New York Times. And what looks like getting a little impatient trying to fight this trend, and his quote is, I think the answer is we have to shut the labs down.

38:02He puts it fairly plainly. I mean, I just wonder if you're sensing an inflection on some of this rhetoric. Some of his rhetoric, Carl, has been around safety and what he has described as the hysteric reaction to or hysterical reaction to some of the what he has called the doomer side of this and the worst case scenario outcomes with talk of things like human extinction. He has tried to move the conversation more towards, you know, what can we actually do here? he is against pacing or slowing down the U.S. And he has been more aligned with the president here on the idea that China could sort of catch up to the U.S.

38:36if we lose our pole position as what is now six months from what most experts say in terms of a lead against China. So Jensen Wong has sort of made that clear, although interesting given his massive investments in both of the AI labs. I mean, NVIDIA is really everywhere in the AI economy, but it's a major investor in both OpenAI and Anthropic. And there have been reports that it is an anchor investor in some of the IPOs. So interesting that he would say that, given his financial stake and NVIDIA's spot in this entire ecosystem. He's quite motivated, at least financially and from a business perspective, to have these labs succeed, but is also quite close with the president, quite close with all these CEOs.

39:18So a very influential voice in all of this. Yeah, we're going to watch to see his response to whatever we get out of the dinner tonight. Kate Rooney, thanks. Let's stick with AI. Our next guest says that Trump and Xi Jinping's meeting is coming at a crucial time as the hugging face open AI hack appears to have been a wake up call for both countries. Joining us this morning, Gregory Allen, Decision Tree Research founder and CEO, previously served as a senior AI advisor at the Center for Strategic and International Studies, as well as at the Defense Department's joint AI center. Gregory, welcome back.

39:48Thanks for the help today. Great to be with you. Are you sensing any overlap between what we've gotten from the president and Xi in the past 24 hours? Specifically, I'm thinking about this post from Trump saying he wants to keep the AI policy kind of where it is. Well, I think what you can see in both the U.S. government and the Chinese government is a bit of a disparity between what we're hearing from the senior-most leaders and the actions that we're seeing below the surface in their government agencies. For example, Trump has said that there's no need for any guardrails and that we're going to move full steam ahead.

40:27But at the same time, multiple of his officials, including Treasury Secretary Scott Besant, who has been critical in these U.S.-China AI dialogues, has said that the government's priority is maximum safety and maximum innovation. We're also seeing a reinvigoration of the Center for AI Standards and Innovation, which is the U.S. government's safety and security agency, or AI. On the Chinese side, the government recently published, just on September 14th, a new AI safety framework paper. And for the first time, we're seeing Chinese government documents talk about terms like loss of human control over AI, recursive self-improvement and the risk that AI might upskill bad actors trying to create biological weapons.

41:15So that's an indication that the Chinese government is taking these issues seriously, even if at the top levels, they're unwilling to slow things down. I guess the question then is whether we can trust the Chinese, even if we see that statement from President Xi this morning, Gregory, about reinforcing the country's priority around AI safety. They want to win this race as much as the U.S. does. Yes. And I think for the Chinese regime, really, the focus needs to not be on winning their trust. It needs to be on persuading them of their own self-interest. When we talk to the Soviet Union about the importance of safety in nuclear reactors, we don't talk about what's going to be good for us.

41:57We talk about what's good for them. And if you think about the hugging face incident, that appears to have been a wake up call for the Chinese regime that the risks of rogue, unintentional AI accidents and malicious behavior executed by AI agents is not merely a theory. It's something that we're seeing in the wild. So the dialogues that Treasury Secretary Besant announced earlier this week on AI safety, those aren't going to be about what the United States and China can do together. It's going to be about what both of them need to do because it's in their own best self-interest. But then how should we size up China's progress with coming out with a chip that rivals NVIDIA?

42:39Memory, I mean, they're working on servers as well to really build the AI stack and become more self-sufficient, right? Yes, but don't be fooled about where they are in the story and where they might plausibly get in the not-too-distant future. All of China's AI chip production, led most notably by Huawei, we're talking about 4 % of what NVIDIA is going to pump out this year in terms of chip count. And when you think about just how much better NVIDIA's chips are than Huawei's chips, that disparity gets even more extreme. Right now, you can put all the data centers together in China and you get something like 2 ,000 exaflops, an exaflop being a measure of the computational power of all of these systems put together.

43:27The United States is more than 20 times that. And if China hits its highest government target for building out AI data centers by 2030, then the United States is actually projected to increase its lead to 50 times China's amount of AI computation. Just because China's making progress doesn't mean we're not still building and extending our lead. Interesting. Gregory, what is your read on this open AI breach into the Australians? And I mean, some have argued it wasn't quite like hugging face because in this case, it was a request for simple, just mundane data collection. Yes, but in some in some ways, that's actually more concerning.

44:11When you think about the safety failures that we've had as in hugging face, those were related to AI cybersecurity training exercises. So we're trying to build models and maximizing their cybersecurity capabilities. You can kind of understand why nefarious activity would be a part of the repertoire of a cyber agent. But this one was simply going after a data collection exercise. And so the fact that it reached for malicious, exceeding its authority type behavior when it wasn't really in that domain is concerning and shows just how AI agents really have unintended behaviors that we don't have a grasp on just how to put a lock on them.

44:54And as for OpenAI's response, I mean, the reporting now suggests that it happened in June. They found out about it in August and just notified the Australians in September. Are they delinquent in their response? Well, it's hard to blame them further than we were already blaming them, as in the case of the hugging face incident, given that this incident took place earlier. But the reality is OpenAI, Anthropic, Google, they will all freely admit that their existing safeguards and monitoring infrastructure were inadequate, given what AI systems were capable of, which was simply more than they realized at the time.

45:35And if you look at OpenAI, they've actually changed their position on certain state regulatory bill proposals. For example, in California, OpenAI had originally opposed mandatory disclosure requirements related to the training and evaluation stage of AI, saying that those mandatory disclosures should only be for operational use. They've now changed their posture in reaction to a change in the facts, which is that training and evaluation could be another source of dangerous AI accidents. Yeah, not to mention Altman's speech to the U.N. Security Council yesterday. Yes. It was pretty plain. Gregory, thanks for that important topic to keep abreast of.

46:15Gregory Allen joining us on the OpenAI and the AI issues regarding the dinner tonight. But Anthropics CEO Dari Amadei, not expected to be there. Interesting, Altman is. Seymour, thanks as always. Great to have you.

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