9AM HOUR: 5% Yields Watch; Tech Titans at Trump-Xi Dinner; Oracle's Data Center "Force" 9/25/26

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0:54Make amazing happen. Learn more at cdw.com slash Lenovo. Market insight and analysis. You're listening to the opening bell of CNBC's Squawk on the Street.

1:12Good Friday morning. Welcome to Squawk on the Street. I'm Carl Quintanillo with Leslie Picker. Mike Santoli here at Post 9 of the New York Stock Exchange. Kramer and Faber have the morning off. S &P looking to lock in some gains for the week as Iran offers the U.S. a potential diplomatic off ramp. Oil backs off, Brent below 105. Yields softened two after the long bond hit five and a half last night and the 10 got to 522. Tons of Fed speak today. We just got durables, you mission an hour. Our roadmap begins with the easing of that global bond sell off, providing some relief ahead of the open. But the Dow does remain on track for four straight losing weeks.

1:47Plus, President Trump wrapping up a summit with China's President Xi Jinping. But Did the nations achieve much substance from the historic state visit? And from a laggard to a leader, we're watching Meta today as its muse-fueled rally send shares near all-time highs. Let's begin with the markets wrapping up what's been quite a week when it comes to yields. We mentioned some of the levels we got to late yesterday. Mike, I think the 30-year fixed got to 745. Yes. But a lot of the discussions about the speed of the move, not even over a year, kind of over five years on the 10. Yeah, over five years, I mean, obviously, we had this range that was in place.

2:25We blasted above it. And so there's been an acceleration. You could see it in the move index, the VIX for treasuries, which really has curled upward in a vertical way. That's what everybody always says. Oh, it's not the level. It's the speed. It's the acceleration. It's the volatility of bonds. So I do think it's a little bit of a gut check on the average stock in the market. And that's what's been going on. The 10-year yield did have a sniff above 5.2 yesterday afternoon. We've retreated from there. You know, you could look at it as the bomb market searching for that level that represents the pain threshold that maybe upends some of the fundamental story.

3:00It hasn't really happened yet. And I think everyone is leaning on the various explanations of what's driving this. But fundamental is resilient growth, massive CapEx demand, and a Fed that has said they're not going to look through the headline inflation effects here. So the neutral rate is going to be higher. They think financial conditions need to tighten. And arguably, that's what lower stock valuations are doing. Yeah, there was a piece in the journal this morning talking about just the correlation we have seen, the tight correlation we've seen with regard to oil prices and 10-year yields.

3:31And they say it doesn't really make sense, given that the moves on inflation eventually will find some sort of level in which oil will settle out. It'll stop having as much of a direct effect into the price changes, the inflation, at some point in time. And then it kind of also asks the question as to whether the economy is moving at such a pace that these that it will require more from the Fed to actually slow it down and prevent inflation. And so all of these different factors kind of playing a role in yields. But that correlation between oil and the 10 year in particular focus. Yeah, I mean, that piece, look, it's true that it's become a trading rule, right?

4:10It's just not programmed when when when oil's down, yields have a chance to fall and vice versa. And so on some level, yes, there's a mechanical kind of self-reinforcing feedback loop that's in there. But it does make sense in one respect, which is we have seen that the world economy did not buckle at$100 oil. So therefore, rising oil prices has not yet been the thing that created a growth scare that would bring yields lower. So to create a change in that relationship. And, you know, once again, Warsh said that we're not going to explain away the oil effect on inflation. It means that it has Fed implications.

4:49Now, I do think the bond market has become pretty hawked up. If you look at the way projected Fed policy is shaping up right now, it's more than three further hikes by next by a year from now. So, I mean, that would be one percentage point of hikes in total. That would more than take back last year's 75 basis points of cuts. Who knows if we get there? Six months ago, we thought they were going to be cutting. So it doesn't mean you can kind of set that as your expectation that it's going to happen. But again, I think that the bond market is so far is forcing people to come up with their preferred set of rationales for why it's happening.

5:28And that decides whether it's a good or a bad thing. Right. Yeah. We're watching the fiscal picture. Obviously, durables were solid. The labor market's kind of strengthened up a bit on ADP. We'll see what you, Mish, says in an hour. Interesting. The journal goes with a story saying, oh, the economy is surviving high oil prices and surviving high rates. But we've been talking before the show about industrials getting a look here now, down 10. You brought up consumer discretionary. And the week has been rife with commentary on inflation from McDonald's, General Mills, Ryanair. J.B. Hunt was just the other day.

6:01Yeah, the aggregates in terms of economic growth have absolutely held up. And we all know that CapEx is a big part of the story. And as the rest of the economy feels the pinch, CapEx becomes a bigger piece of the whole growth story from AI. So I'm just looking at the internals of the stock market and how it's having an impact. So on a month to date basis, the median S &P 500 stocks down 5 percent. The S &P is slightly positive by like a quarter of a percent. But peak to trough, like the average S &P stock, the median stock is 17 % off its high. The S &P is within like a percent or two. So that just shows you the narrowness of the index.

6:39Meta's gain this month is basically good for 1 % of S &P. Yeah. It's the best month for Meta since 2013. Yeah. And that was like the year after it came public when it was this wild early growth story. Besides the first day. First couple days. Yeah, first few months, actually. Leslie is a good memory. It was the first few months. How should we be thinking about Muse? You mentioned the retailers and discretionary. Muse is a potential disinflationary force in the future. If the retailers are facing inflationary pressures on their input costs, but then you have Muse, which is directing consumers to price shop, yield shop, do all sorts of kind of more productive things in terms of the way that they spend money.

7:22I mean, is that a potential disinflationary factor in the economy that obviously it's still early days, but something that we should be watching. I think it absolutely is a disinflationary factor, and I think it really crystallizes the whole debate. People thought, and I thought there was a chance, that his message was going to be, we have a supply-side productivity boom being constructed right now. Let's have our faith in that, and that's going to kind of rescue us from the stickiness of inflation in the real world at this point. He didn't say that. And he's basically said, look, we have to get inflation down toward two and maybe we get the bonus of a productivity boom later.

7:59So it's not going to make its way into the aggregate numbers, I guess, soon enough to change what the bond market thinks is going to be done on the Fed side. But absolutely. And I think look at the stocks that are getting hurt by Mews. And that basically means there are all these kind of frictional taxes that these companies collect from people. And they have pricing power where they might not if you have a tireless comparison shopper working for you while you sleep. Yeah. Morgan Stanley had a good note on affordability yesterday. And they have a nice chart of real income growth, negative now year on year.

8:32Costco is an interesting example today, too. Comps were OK. 7-2 beat 6-9. But total paid membership has gone in the last three quarters from 4.7 to 4.1 to 3.8. Yeah. Right? As we keep our eye on all retailers. Yeah, that's definitely a little bit of a jolt to the longer term Costco story. Because as we know, like kind of by strategy and policy, Costco sort of caps its own margins, right? Anything they were able to make, they share it with their members. And so if they're not making it up on the membership fees as much as they were before, including tariff refunds, they say they're going to basically plow it into pricing for the benefit of customers, it does change the overall story.

9:14And it should impinge on the super premium valuation that Costco's had. I was talking to a banking source this week who was saying they are starting to see some wage growth, though, in the lower income part of the economy. And that is starting to pick up. And we've talked so much about the K-shaped economy, what it means for affordability. those consumers are still being very choiceful, I'm told, with regard to setting aside more in savings to be sure that they can afford the higher gas prices and other kind of fixed costs that they have. But the fact that those wages in that part of the economy is going up does kind of speak to maybe a counter narrative to the whole K-shaped economy debate that we've been having for, what, years now?

9:55Yeah, yeah. And we'll talk about a couple of fresh downgrades today for Nike and for Comcast in a little bit. Let's get a bit on the president's state dinner last night for his Chinese counterpart, Xi Jinping. Several tech titans were in attendance. Let's get to Megan Casella at the White House, who I'm sure can parse. Who was at the head table? What that all means? Pretty fascinating optics last night, Megan. Absolutely, Carl. So much to read into the photos that we were seeing. It was a black tie affair at the White House last night for the Chinese president. More than 130 guests and at least 27 CEOs, according to the guest list provided by the White House.

10:28Now, besides the tech and finance heavyweights that we knew about, other attendees included the leaders of Paramount Skydance, Pfizer, LVMH, AMD, I could go on, and a few notes on the guest list. Amid all the tech CEOs, there was no one from Anthropic invited, despite all the focus on AI. There were also no Chinese CEOs in attendance, something that had initially been expected. And it was Jensen Huang and Elon Musk who got those seats at the head table with the presidents. And both Presidents Trump and Xi delivered remarks at the dinner. President Trump spoke of U.S.-China relations that he said had never been better.

11:00Xi then called the friendship between the U.S. and China a worthy cause that holds great promise. And as for what was accomplished on the policy front through all these meetings, we just heard from President Trump on Truth Social in the last few minutes. He called it, quote, a very productive meeting with President Xi for both the USA and China. Tremendous things will be happening. But there are still open questions, guys, on exactly what those tremendous things will be. Trade was a big topic of conversation that we know, but the tariff truce extension that we'd been expecting was only two months, so a lot smaller or shorter than people had been expecting.

11:34I also just caught up with Ambassador Jameson Greer right after his squawk box hit, and he did talk to me about the 30 by 30 trade deal that we were expecting. That's tariffs that might be paused on$30 billion worth of goods in both directions. But rather than reduce tariffs for now, it just means that those goods will sort of be protected if and when tensions start to escalate once again. Then there's the AI question, the safety dialogue that China has yet to confirm on Iran. We know that China was saying it would like to see the U.S. and Iran return to the negotiating table, but we're not sure yet whether President Trump was pressuring President Xi on Iran.

12:06And then on Taiwan, we know that President Xi brought this up, probably the top of his list of topics he wanted to talk about, and he was asking President Trump to oppose Taiwan's independence. Again, we haven't heard from the White House yet on what their line was, but that just leads us to where we are now. there's a little bit of programming left today but still a lot of open questions about what the deliverables from this summit might be guys. Megan yeah a lot of headlines sort of framing it as big on pomp big on pageantry light on substance I mean there are some student visas in there some maybe some more flights to China and the U.S.

12:39would you agree with that framing? I think that's right don't forget the pandas there are two new Chinese giant pandas going to the Atlanta zoo panda diplomacy is alive and well I will say expectations were low going into this of any real policy deliverables. But I was hearing from experts who said that even with those low expectations, so far, at least, what they've heard hasn't met the low expectations that they had. The pageantry is important for both of these countries, both sort of speaking to domestic audiences here. She, you know, Chinese state media, we know, was blanketed in coverage of the red carpet welcome, both on the tarmac and at the White House, portraying him as an international statesman, respected on par with the U.S.

13:15president on the global stage. The U.S., President Trump also wanted the handshake, wanted to show their stability and closeness in this relationship. Both of them think this is the best way to ultimately achieve their policy issues. And we do know, or their policy priorities, I should say, we do know they have two more meetings scheduled for this year, November and December, the first in China, the second in Miami. So much more to watch there. And we'll see if that's where we get more of these policy outcomes we've been looking for. And finally, just on today's calendar, what, a visit to the National Archives?

13:44That's right. First, it's here. About 10.30, we'll see them arrive for a private tea here at the White House. Then they'll go over with their wives to the National Archives for a tour there. They say it's to commemorate America's 250th birthday. We'll see what they look at specifically once they get there. Megan, appreciate that. Megan Casella watching last night's festivities. Mike, I don't know if you saw the head table. Musk, Jensen, Tim Cook, Lisa Su in there as well. I mean, it's sort of almost a visual representation of at least the market's reliance on AI and tech. For sure. The economies and really where the stakes lie in terms of the economic part of the diplomacy.

14:20I feel like from a market perspective, a no surprises summit is fine. You know, we're kind of essentially status quo in terms of this relationship, this sort of managed disengagement, whatever you want to call it. But nothing really on breaking AI or anything like that, that would probably have you have to reassess the trajectories for some of the demand picture. Yeah, you've got this post from the president saying, like almost everyone else, he seemed to like calling the poorly and inaccurately named artificial intelligence to a far more accurate and important name. Super intelligence, that would be super.

14:57Still open AI. It's not open SI. Not yet, although we have seen some map changes. Yes, that's true. So, you know, stranger things have happened, I guess. Tough ship to turn. We'll see what happens. Take a look at the pre-market here as we get Friday underway. way. We will dive into Oracle. Thank goodness Leslie is here with us to walk us through force majeure, who's on the hook for what. That's after the break. Stay with us.

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17:20Now, this is basically hypothetical. The building isn't constructed yet. They're not officially paying the full rent price yet. But what this does is it allows them to pay essentially a discounted rent for about a maximum of three years in order to kind of wait for that power to be put back on before they start paying the full amount of rent for, say, 18 years. So the landlord, so to speak, is Blue Owl. It's one of the Blue Owl subsidiaries here called Stack Infrastructure. And basically, the Blue Owl shares took a dip on this yesterday, but it isn't necessarily a negative thing for them because it just means that Oracle will be paying rent to them, discounted for three years, but still, say, 18 years.

18:06So it's 21 years instead of 18. So Blue Owl is still getting essentially a higher rent payment as a result of this. But I think one of the interesting components for this, as we think about the data center build-out more broadly, is this idea of here is a data center. they knew from the beginning, I'm told, that there was no power. They had to kind of facilitate the power and the permitting and all of that before building and construction, doing the construction. And that's challenging. That's very much out of their control because it requires permits from the local municipalities. It's everything that we've heard about the moratoriums and the pushback and everything.

18:47And so this, based on conversations I've had, and these lease terms are private, But Blue Owl is essentially covered here. I was told they had a call with the lenders where they communicated, don't worry, you will get your money back as a result of this. But, you know, you've got Oracle, on the other hand, which is on the hook for those rent payments over an extended period of time. They're on the hook if the power ultimately is denied for some reason and isn't able to get fully functioning. And so, you know, you've seen their CDS widen. And you've seen the cost of their own borrowing go up over time.

19:22It doesn't mean it's a systemic risk for Oracle necessarily, but I think it's interesting to think about as we talk about just the various obstacles with regard to data centers, the build out. And these lease agreements, which seem to be pretty favorable for those who are lending to the institutions. Fairly are tight, yeah. I mean, two things on this one. One is there was some discussion yesterday about whether or not they're in jeopardy of losing their investment grade. Right. Morningstar had a piece. And then the other Goldman today, they up their global CapEx to one point two for 27. But they also say they're underweight hyperscaler issuance because there's just a flood of it coming.

20:03Yeah. Yeah. You heard that kind of emanated from Jamie Dimon last week when he spoke or was it this week? Actually, I'm getting my weeks confused. These weeks are busy. Monday of this week, where he spoke to our partner in India and said, J.P. Morgan is expecting a trillion dollars in CapEx this year. And that's dramatically from previous estimates that we've heard. But that is contingent on these projects getting done. You know what I mean? So it's not like, oh, they're going to write the check and it's just going to happen. But to me, it's a big question about where ultimately the economics, the profit layer is going to sit for this entire build out.

20:39And the whole bear case on Oracle and the NeoClouds was they're taking all the financial risk, they're taking the execution risk, and the hyperscalers and the model builders are going to reap the benefits. I'm not saying it's going to happen, but revenue is supposed to double for Oracle from last fiscal year to the one two years from now. That's$60 billion,$70 billion in incremental revenue that's supposed to be coming. And it's only if it happens, only if these projects happen. Yeah, I mean, there was a question. I was just hypothetically talking with sources, and I said, what happens if Oracle can't stomach this?

21:08and they're like, well, someone else will come in. They just feel like there's so much demand that it's not a problem for the people who are lending money or serving as essentially the landlords here. They're like, oh, well, we'll find someone. It's the anti-dark fiber thesis on this particular investment round or chapter. Take a look at the pre-market here. We'll get to a lot more regarding the market at the open just a few minutes away. Stay with us. That dreadful sound. You know exactly what it means. Dead battery. No second car, no stranger to help. That's where the Noco Boost GB40 comes in.

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22:33You've never been one to settle. Stand down or stand still You're a lifelong learner Energized by excellence There's a fire inside you You can't ignore You've got competition to outrun Momentum to build on And your own high standards to meet Stop now? Not a chance At Capella University We help you catch what you're chasing Because you've always had the drive Now, go earn the degree Capella University What can't you do? Visit capella.edu to learn more Watch Akamai today leading the S &P pre-market winner list as they pen the seven-year deal to supply computing services for Anthropic. $11.6 billion with an option for$9 billion more.

23:18Already it's being called a landmark deal. Guggenheim today maintains a buy, but they raise their target from$190 to$225. We'll get more on that. Opening bell a few moments away. And a quick reminder, you can catch us anytime, anywhere. Just listen to and follow the Squawk on the Street, Opening Bell Podcast. If they say the alternative, which is there is no way to contain our experiments, there's just no way. When we test our AI models, it will get out and it will damage the world. Then I think the answer is we have to shut the labs down. Because the cost, the damage is too great. the shareholder, the liabilities.

24:03It could be civil liabilities, could be criminal liabilities. I mean, the liability is incredible. NVIDIA's Jensen Wong on that Ezra Klein podcast this week. While he doesn't believe that AI poses an existential threat to humanity, he does say if the people working at places like Anthropic or OpenAI really are on the verge of destroying the world, they should shut it down. Interesting example of him not exactly talking his book. By the way, there is a business implication here because I've talked to several CEOs behind the scenes who say, look, we're paying all of these tokens to use these products.

24:39It's expensive for us. And if they are basically saying like, oh, we can't control them, you're paying us to use them and we don't know what's going to happen, what's the incentive to continue paying for something that the product is in control? And so I do kind of wonder at what point you start to see more of a pushback from the enterprise side of this, if they feel like they're buying these expensive products that they can't trust and then they have to spend even more money to create cybersecurity around in order to protect their own businesses. Does that become a greater concern? It kind of gets to the anger that Alex Karp was discussing with us on this guest a few days ago.

25:16Let's get the opening bell here at the big board on Wall Street. It's Operation Lifesaver, a rail safety education organization, celebrating the 10th anniversary of C-Track's Think Train Week. At the NASDAQ in Times Square, it's ADARX, pharmaceuticals focused on treatments for various diseases, celebrating their IPO. And at SIBO in Chicago, Abacus Global Management, an alternative asset manager, 7710 here at the Open Mic. Comfortable gain for the week at this point. Yeah, I guess we're up like three quarters of a percent. It was almost all on Monday. We're still in what I like to refer to as the August 4th range in terms of that one day's move.

25:55So we're hanging in there, I think is the way you would put it, and hanging in against, again, this persistent under-tow below the surface of the average stock. Take a look. It's only a month or two ago people were celebrating the broadening trade. Well, take a look at equal weight S &P 500 relative to the headline S &P, and it's basically at its lows. You look at a two-year, you have these little episodes where the majority of stocks can have a little bit of a comeback, and then it has failed. And I think now the question is, does that mean we have properly and rationally discounted the macro pressures in the average stock?

26:30Are we starting to look oversold on an internal basis? Do you start to see, you know, essentially little mini washouts in there so that any little spark, if we get relief on yields or oil, can create a little bit of upside lift to the average stock? You know, who knows? but I think that's where we're kind of rounding into in terms of the debate. That's equal weight S &P compared to the headline over two years. So, you know, essentially you've had your internal correction. And the question is, is that enough? And I think the reason we keep sort of rotating, it's all picking from one pocket into another, is that we came into this period with equity exposures really high.

27:07Everybody, professionals, retail, everybody. So it wasn't like there needed to be another push of new money into the market. It's just kind of rotating around it. And then, of course, you have rates impact on what people are willing to pay. And, you know, they're kind of, you know, are we going to extrapolate the massive earnings gains of the first half into next year and pay up for it? Yeah, I kind of liked how UBS summarized this week. They said in a note this morning, I don't think I've ever met TGIF more sincerely than I do at this exact moment. between nonstop and gentic AI fears, the never-ending pacing, the frontier debate, lingering post-FOMC paralysis and consumer anxiety.

27:46There are currently about four different narratives fighting for custody of the market's mindshare. And they say, we've all deserved, we've all earned this weekend. But I think that speaks to what Mike was talking about with regard to just the, you know, where are we at any given moment when you have these four competing narratives that seem to oscillate on a, I don't know, by a headline. Yeah, people are getting chopped up. I mean, I would say if you are a manager, even a short-term tactical manager, and you have really caught all these micro rotations, one day it's AI infrastructure, one day it's hyperscaler, you know, etc.

28:20It's like you guessed right on 50 straight coin flips. It's not because you had, you know, a process that told you to go that way. So I do think that's, you know, people feel chopped up. On the other hand, I'm reminded of the reported comment of Lloyd Blankfein, you know, during the financial crisis. You're not getting out of a Higgins boat to, you know, land on the beach in Normandy. You know, you're taking a limo to the New York Fed. That's from Andrew's book, Sorkin's book. You know, so, like, go easy there, trading desk guy. You know, I know you earned your weekend, but the market's up 12 % this year or something.

28:53Exactly. I will say there's more notes than usual today about whether or not a continued increase in rates would slow down earnings growth even further. Yeah. Great chart out of Barclays. The risk, of course, would be if growth expectations for next year are unrealistically high. And this is what chart three is illustrating, that they have a look at operating margin expectations, which they call literally unbelievable. Yes. And they actually are more on board with that than not, but they do expect to get questioned going into year end, and that's going to provide some job. I mean, this is just an option.

29:28It's almost just kind of predicting the present in a way, because the second quarter earnings were up 30-something percent, even on an operating basis. This quarter is supposed to be up 30-something percent, and the aggregate index is trading where we were before they started reporting the second quarter earnings, right? So it's happened. You've had the valuation compression. I think over-earning risk is a big one. I've been saying that for a while. Nobody seems to think it's possible because you know why? We remember for decades people saying profit margins mean revert. You can't go higher than record highs.

30:02And they kept going higher because of the mix of companies in the index and technology and everything. So I do think that's a really good tug of war in the narrative is around exactly that. Now, most of the upside for this market happened up until the end of earnings season, and then all of a sudden it was macro, macro, macro, oil rates and everything else. Well, just this morning we started to see a slew of reports on bank earnings, which of course kick off earnings season for us. And despite some of the headwinds we've talked about with regard to potential risks around trading, sales and trading, we heard some guidance last week at the Barclays Conference about that from certain banks, others were a bit more constructive on that front.

30:43The potential impact of higher rates on banks, it seems like the overall consensus so far from the reports we've seen from the analyst community has basically been, they're not expecting just blockbuster earnings necessarily, but pretty stable results. Maybe they beat but don't raise guidance is kind of the theme I've been dissecting here, with a bit more concern around the capital market sensitive areas where there's been maybe a little less underwriting than expected during the quarter. Part of that plays into everything we've talked about with regard to AI, the data centers, all the IPOs that were kind of expected and either delayed or postponed as a result of that.

31:22But not a horrible thing either, even though banks have had a pretty rough week. You can see down, the S &P Financial is down on a one-month basis. We talked about Goldman getting to 920 yesterday, which is the lowest since May. What was the line out of Morgan Stanley? Q2 was amazing. Q3 is no Q2, right? That was the essential pyramid. Exactly. And I think there were tough comps last year. You had kind of a big rebound off the post-Liberation Day Q2 last year, which really helped the trading businesses in Q3. So the comps are difficult, but you're also contending with a yield curve that has been flattening.

31:58That's not great for bank profitability, but at least according to the research, It seems like there's not a big expectation for a change in guidance as a result of that for net interest income quite yet, given everything we've seen. Yeah, I mean, it's really also this more kind of atmospheric conditions of, OK, if the Fed really wants to tighten financial conditions, the channel through which that happens is capital markets activity, risk spreads, things that would matter for banks. Small business lending as well is a big component of that. But, you know, do small businesses pull back? And are they kind of a collateral damage in all of this?

32:33And it remains an if. You know, we don't really know how aggressive the Fed feels it needs to get or, you know, whether, in fact, you're going to get these really disorderly increases in yields. But, yeah, you've got a pretty flat yield curve right now. It's kind of oohing and aahing over the long end. You're basically getting 5 % in the five - and seven-year maturities as well. So it's not as if there's just a lot of juice in there at this point. Although I would say that bank stocks, because they had done so well, they had a little more of a cushion before this pullback. And so they haven't really cracked their overall uptrends.

33:07And it seems like maybe there's a better risk reward there than in some of the other areas that seem like the kind of charts got broken. Yeah, it's an interesting confluence of things because as Carl was talking about just a few moments ago, this idea of what is really propelling the economy forward, what's really propelling inflation forward. If the concern around inflation isn't as much tied to what's going on in oil and what's going on in geopolitical space and more tied to this AI build-out, the CapEx build-out that we've seen, is monetary policy to solve of that? And if it becomes more challenging to solve it, do you need more rate hikes to really, truly slow down the rest of the economy?

33:48I mean, the pushback would be France doesn't have a huge AI build-out. Germany is not going crazy on an AI build-out in their yields. And just as dire straits. Yeah. Yeah. I mean, I just feel like that's very true. The Fed does not have like this fine tuning ability to kind of hit this part and not that part of the economy. I always just think the decision is, look, if you're if you're this far away from the data in terms of where your mandate is and where where policy rates are, just move in that direction and hope you get lucky. I mean, it really is all that's going on. And that's probably the right way.

34:20Yeah, there's also the problem of the global debt picture as well, which is another key factor as to why we're seeing global bond yields move higher, is there is just this massive amount of debt. And those countries are also competing with the AI build out here to fund their own balance sheets at the sovereign level. Everyone's building their own domestic secure industrial infrastructure and energy infrastructure. We're deglobalizing. You're getting all of the benefits of the 90s into the 2000s from globalization and better demographics. It's going the other way. So I think that's where we are.

34:58I mean, that doesn't mean we spike inflation from here. But I always think of Henry McVeigh, KKR's idea from a few years ago, which he stayed with, which is the world economy has a higher resting heart rate than it did in the prior decades. And that's where we are. What would the aura ring say about the resting heart rate? You would know, being a consumer of aura. I know. Mine apparently has been high lately. So maybe it's time for vacation. This is why I refuse to know the information. Yeah, I know. Denial is a strategy. Speaking of which, Meta is a little softer today after this barn burner of a week, or month actually, as we said earlier, best month for Meta since 2013.

35:35They got to that$2 trillion market cap. Today the focus is on Microsoft as they roll out this long-promised, they're not calling it a super app, but it is a new version of Copilot, combines AI chat, coding, long-running agents. You basically can build your own apps and tools by simply describing it to Copilot. So we'll see if we have Nadella's been making the rounds. Yeah, yeah. He's been doing some interviews, you know, discussing this new project. I mean, I think the key question here is just the stickiness for consumers and also the business model. You know, what does, how does Meta get money back from this?

36:13I downloaded the app and I kind of played around with it this week. Muse, you mean? Muse, yeah. And, you know, I didn't pay anything for it, whereas I have subscribed to other LLMs in the past, and so does that change over time? What's the, you know, after I did a couple of things with it, I kind of just dropped it, so we'll see if we pick it back up. But I've seen some chatter about that, that habitual people kind of play around with it and then maybe don't pick it up again for a couple days. So, you know, obviously it's still early days, but how that really changes the workflow remains to be seen.

36:45Deutsche, by the way, today on Meta goes to 820 versus a prior 750. Yeah. I mean, I think that the angle of that move in Meta and the fact that it made up its entire deficit with the S &P 500 over two years in like a week, I think it's more a measure of how doubted and under-owned it was. And now it's back to like a slight premium PE. It's sort of like the mean reversion has happened. And now the question is, how much bullishness do you have incrementally from here based on the numbers that are going to come through? It seems like they have, you know, now the benefit of more doubt than they had before.

37:20I would note, though, the second biggest upside contributor to the S &P is Micron this morning. It's above$1 ,100, the share price. Hasn't really stayed there since the big meltdown after June and July sell off. It's been up a couple of times there this week. Reports next week. Reports next week. And I think that everyone is taking that second step and saying this consumption of AI, the proliferation of all of the agents on a consumer level just means we're going to need more. And so the inference market, whatever you thought was going to happen in June, guess what? It's going to happen. We just price the stocks for great things too early.

37:57Speaking of consumer, a couple of rather discouraging calls. One is on Nike. B of A finally cuts to underperform. They were at 36. They go to 30. They cut numbers by 11 % for fiscal 27, by 12 % for fiscal 28. Negative sales growth for all of fiscal 27 and no spring inflection, which they were prior expecting. That's almost back to 35 now. Yeah, it's brutal. I mean, the stock is back to where it was in 2013 or so. But the valuation is no lower because the earnings estimates have come down so much. I think that's kind of part of the B of A call, too, is it's just not going to hold the 20 multiple.

38:37And that's still where it is, even after this devastation. The other one is Comcast. Key cuts to underweight. Target 18. In this case, broadband churn will worsen. Competitors will take share. Park visits not really doing much in Orlando. Or they argue in Osaka. So that's going to be that's yeah, that's a new that's a new cycle low here on Comcast. Yeah, I do think, you know, it's in the minds of investors with regard to those types of stocks, which is, you know, muse hunting for the best, you know, the best deal on any kind of subscription all the time is is going to basically be a cost to these companies that have a lot of subscribers that are paying what they're what they're paying for the broadband package.

39:26and they don't really look for the better deal. Yeah, it's fascinating, though, because, you know, consumers are still spending, but what they're spending on the product mix is so much more tilted, and we've talked about this ad nauseum, to experiences. And this remains true. It remains to be cruises and vacations and, you know, some park visits, at least to a certain extent here in the U.S., maybe less or so on a global basis. But that continues to be what the consumers spend money on, regardless of where oil prices are. There hasn't necessarily been a kind of, oh, we're going to cut back on our cruise vacation because oil prices are high.

40:03And maybe some of that is supported by what we were talking about earlier with lower income wage growth remaining strong or rebounding a bit more recently. Yeah, I mean, I do think that's a demographic piece of that as well. I mean, you're getting a lot more of the steadiness of the spend and income is among older Americans. There are more of them. That's a priority there. you know, that's the one thing we're not going to give up kind of an idea. So I do think that's part of it. Also, housing market is obviously very weak. And, you know, housing turnover catalyzes a lot of stuff purchases. It's really kind of household formation and things like that.

40:42So you have a lot of things working against it. Yeah, that's a Comcast story right there. As you set up new broadband, you buy furniture from RH, you get silverware from Target, you name it. Yeah, exactly. That's a good point. What did you make of this Barron's piece that argued that mortgage rates could go to nine, Mike? Yeah, I don't know. I mean, obviously, there's kind of a stack of assumptions built into there in terms of, I mean, you know, the government agencies are going to fight, fight, fight to make sure the spreads, mortgage spreads to treasuries don't get particularly high. I don't know.

41:15I feel like something would break along the way if treasury yields got to the point that underwrote 9 % mortgages. that might kind of cause a little bit of a reversal in these trends. But, yeah, I don't know. Is there any concern that, because housing prices have remained so high, and they have remained, those who haven't been able to get into a home, especially those who've been able to get into a home with low mortgage rates, the prices have remained high throughout the post-pandemic period. Is there any concern that even where the 30-year fixed is today at 745, that that starts to reverse things for the home prices.

41:51And then what does that mean for the rest of the economy as people feel less wealthy in their homes? I mean, it almost has to, right? I mean, for many people, you're buying as much house as you can for the monthly payment. That's kind of how it's also the answer to people saying, like, why are you complaining about 7.5 % mortgages? My mortgage was 9%. You hear a lot of that. I pay 18 in 1980 on your$70 ,000 house. Exactly. Thank you. So, I mean, there's a lot of adjustments that we need to have. You can't even find a parking spot for$7 ,000 these days. As we go to break, speaking of all of this, watch the long end.

42:23I mean, not necessarily the most important number, but a little stubborn here this morning at$5 ,49, even with the rest of the curve trading. There's a look at the$10 at$520. We'll get you, Mish, and get a look at some expectations for inflation in about 12 minutes. Back of my surging here, although not off the early opening highs. We will talk to the CEO later this morning about this new deal to supply computing services to Anthropic being widely hailed as a pretty important deal for that company. And Tom Layton will join us for now. Nice opening pop. Downs up to 23. Don't go anywhere. Try to get a kid to do long division right now.

43:00You know, the multiplication table is starting to be forgotten. Doing square roots. My goodness. I mean, it's just basic math is being forgotten. Does it matter? That's my question for you. Yeah, I don't think it does. I don't think it does. But but there must be some set of skills that matter. Oh, yeah, yeah, yeah. But maybe not those. That's Jensen Wong on Ezra Klein's podcast this week, weighing in on how some kids do lack basic basic math skills. He goes on to say that he doesn't even know his own zip code or his phone number. He was trying to pump gas. It didn't just. And why would you need to know that?

43:35Pump gas a few years ago, he said. And, you know, you need input probably for the credit card. I think his point is not worry about the loss of math skills. It's that, you know, there are things that we used to have to know that we don't need to be good at anymore. And, you know, I'm not sure he was totally successful in saying like, yes, but we're going to acquire other skills and which kinds of other skills. And at some point he got to I did listen to it. He got to this idea that, well, people work in technology, software people, creative people. They're going to be better systems thinkers. They're going to understand how things work together, and the AI is going to be really more of a tool than anything else.

44:12So, you know, hopefully, and that is how technology revolutions have gone in the past. You know, when people bought cars years ago, you almost had to be a mechanic 100 years ago if you wanted to operate it successfully. Now you have to be a software engineer. Yeah, exactly. Now you need computer diagnostics and whatever. So I do think there's a case behind it, but it's not clear to me that he landed it. I mean, wasn't that the concern when calculators were first invented that they shouldn't be in schools because kids won't learn how to do math? Now we have calculators in our phones. So, I mean, you never go anywhere without a calculator.

44:42I guess the argument is, are those exercises training you in some fashion to focus or to think about process or to go through the steps and problem solve? That could help in another way, right? Nobody ever thought everyone's going to be walking around needing to do long division every day. I think internally at Goldman, they call it cognitive decay, right? I think about that because I got a part-time MBA 12 years ago. And we did all the valuation math and we did the discounted cash flow model. I don't use it in my daily life, but there is a part of my brain that kind of remembers what I did. And I know that I could find tools to help me do it if I needed to.

45:19Was that a useful time and learning process? Maybe. Would I have been okay without it? Also, maybe. I don't know. At least you didn't do the full-time. That would have been a waste. I don't know. Our time was pretty grueling. It was a really, really good discussion with him and Ezra. Yeah. Kind of a new wrinkle and a new element in the debate about AI beyond whether or not we're all going to die. Dow's up 262. We're back in just a minute. You've been listening to the opening hour of CNBC's Squawk on the Street. 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.

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