Private Credit Woes & Psychedelic Wins 4/20/26

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0:47Download the latest episode and subscribe at schwab.com slash marketupdatepodcast or find Schwab Market Update wherever you get your podcasts. Bring in show music, please.

1:25I want to take advantage of the mistakes that other people make. And weighing in on prediction markets. Well, it's entertainment. Like any casino, it's not a fundamental bet. Then innovation in health care. Former FDA Commissioner Dr. Scott Gottlieb on psychedelics regulation and Eli Lilly's deal to expand its cancer treatment pipeline. The technology around cancer vaccines, what people call broadly cancer vaccines, ways to try to train the immune system to recognize cancer. We've been working on these for probably three decades now. Plus. I'm thinking about AI like washing machines. AI at work even at the NSA.

2:06Anthropics in the government. Even though the government has named it a risk. It's such a joke. We just say it's such a joke. These are like talks with Iran. It's Monday, April 20th. A supersized squawk pod begins right now. Stand Becky by in three. Two, one. Cue it, please. Good morning, everybody. Welcome to Squawk Box right here on CNBC. We are live from the Nasdaq market site in Times Square. I'm Becky Quick, along with Joe Kernan and Andrew Ross Sorkin. Hello, everybody. Good to see everybody back together. Good to see you. But yeah, you go away for a week and wow, what a move in the markets.

2:43I think over the last week, the Dow was up by 3.2 percent and it was the laggard among all the rest. The S &P 500, the Nasdaq, the Dow Transports, all closing Friday at new highs. In fact, the S &P was up by 4.5 % for the week, and the Nasdaq, if you can believe it, was up by 6.8%. So some pretty massive moves that we've seen in equities. What was the building we called our brand-new CNBC headquarters in England? What was it, Dow 20 ,000? No, no. Dow 10? What was it? I can't remember. Dow 5 ,000, was it really? No, Nasdaq. I mean, Nasdaq. I'm sorry, Nasdaq 5 ,000, right? I just remember the hats.

3:19That's all I remember. The averages fell at. We built a beautiful facility out there right at the top of the NASDAQ market. And then when it fell, we always refer to it as the NASDAQ 5 ,000. Was it the NASDAQ 5 ,000? Yeah. You know what the NASDAQ is today? Do tell. Well, almost. More than. 25. 25 ,000. So that just shows you we're old and we're getting older. But that was what we were witnessing back in the early 2000s. What that tells you is invest over time because markets work. Invest in technology. If you are patient, yes. Of course, the question in the morning right now is about the state of the peace talks between the U.S.

3:58and Iran. It's been the question of the morning for some time. Markets seem to have been shrugging this off for the most part, nonetheless, following the U.S. military seizure of an Iranian ship. Let's get over to Eamon Javers in Washington, D.C. this morning. He's got the latest. Eamon. Yeah, good morning, guys. President Trump said on Sunday afternoon that a 900-foot-long Iranian-flagged cargo ship attempted to run the U.S. Navy's blockade of the Strait of Hormuz, but was intercepted by the U.S. Navy guided missile destroyer USS Spruance, which gave the Iranians a warning. The Iranian crew refused to listen, Trump wrote on social media, so our Navy ship stopped them right in their tracks by blowing a hole in the engine room.

4:40Right now, U.S. Marines have custody of the vessel. Now, CENTCOM released this video, it says, shows U.S. forces telling sailors to vacate the engine room and then firing on the ship. The U.S. said the Spruance fired rounds from its 5-inch MK-45 gun and Marines from the 31st Marine Expeditionary Unit boarded the noncompliant vessel. Now, the president also said the vessel had been under U.S. Treasury sanctions due to a prior history of illegal activity. That followed an earlier post in which the president said that Iran had fired on vessels from France and the United Kingdom. Iranian state media said late Sunday, under these conditions, the outlook for constructive talks remains bleak.

5:27And they said the reports circulating about a second round of negotiations in Islamabad are false. So it's not clear now what the status of talks is at this point. The Iranians say they're not happening. The president told MSNOW yesterday that they are happening, but that Vice President J.D. Vance would not go due to security issues. And then a U.S. official followed up to say that, yes, in fact, Vance is going, but the president hasn't directly confirmed that, guys. So that's where we are this morning. Let me ask you another question, which is there was a report in The Wall Street Journal that the UAE may be asking for assistance from the U.S.

6:05government to help potentially either bail it out or some kind of currency swap. Yeah, well, I mean, what you're seeing now is economies under stress throughout the region. Right. And I think one of the big questions in all of this has been, does this escalate to a broader Gulf calamity? And, you know, the longer this goes on, the more likely you are to get to a point where you're going to see a number of countries in significant distress because you can't put oil production and oil exports down to something just barely north of zero and not have sort of extended problems throughout all of these economies.

6:43So the question is, how does the U.S. handle the economic fallout as the Iranian side says they're waging economic war? I mean, we saw Iranian officials over the weekend like taunting the U.S. Treasury market, U.S. oil markets in social media posts. They are very much focused on the economic consequences. But can you see as their leverage here? The idea, though, that politically we would ultimately be bailing out our allies in the Middle East. How well or not do you think that would go over here? Yeah, I mean, I think, you know, domestically, not great, especially among MAGA voters. The idea of the United States bailing out these wealthy oil nations, you know, is a political, you'd have to say, close to nonstarter.

7:27That said, it is a new world, Andrew. And if you're looking at the, you know, an economic wipeout of some of these economies, you know, the game has changed. But are we talking about an economic wipeout and this idea that these these wealthy oil nations are going to need a bailout is is remarkable, if true. Yeah, well, sure. But temporarily, you'd have to imagine. Right. I mean, at some point, the war will be over. Yeah, at some point, the war will be over, and they'll have assets they can sell and transactions they can make. The question is, how long do we go between here and there? And so maybe think of it more like a sovereign bridge loan than anything else.

8:10Eamon Javers, thank you. Construction supplies distributor QXO is buying insulation installer and distributor top build. The deal values top build shares at$505 a piece. QXO says that the deal will create the second largest publicly traded buildings products distributor in North America. It also said that the deal is expected to be immediately accretive to earnings. CEO Brad Jacobs flagging data centers as one area of focus for the combined firm. And it looks like this is going to be partially in cash, partially in stock, something like 45 % in cash, 55 % in shares. They can elect to receive that in cash or 20.2 shares of QXO common shares for each top-billed share that's held.

8:59We didn't put a value on it, but if you look at the market cap of top-billed. $11.5 million. $11.5 million, plus it's up$80 a day. It's a 30 % premium, so maybe$16 billion. Yeah, pretty big. The journal led with a deal in pharmaceutical biotech with Eli Lilly. It's only$2 billion. But it's kind of interesting. I thought we had multiple myeloma pretty much under control. But the way that we do it now, you get chemo, and then you take some immune cells out and change them and put them back in. It's pretty harsh. This would do it with CAR T cells. With CAR T therapy, yeah. And you wouldn't need the chemo to start, and you wouldn't need to take the...

9:35Which would be a much better way of going through it. So, I mean, this is a very small company, but it's got a platform for multiple myeloma, which maybe, that's what I think, that maybe it's more than just for multiple myeloma. The National Security Agency is reportedly using Anthropoc's powerful new AI model, Mythos. An Axios report says that it's not clear how the agency is deploying the model, but others with access are using it to probe their own systems for security gaps. The NSA falls under the Defense Department, which last month labeled Anthropic a supply chain risk. This news follows a White House meeting on Friday between Anthropic CEO Dario Amodi and the White House Chief of Staff Susie Wiles, also Treasury Secretary Scott Besant.

10:25In a statement, Anthropic said that the meeting focused on cybersecurity and America's lead in the AI race and called the discussions productive. Axios reported that Wiles made clear the government needs a relationship with Anthropics. This is such a joke. Can we just say it's such a joke? I think it's interesting. These are like talks with Iran. But it's such a joke that, and by the way, this is going to be used in the case against the government ultimately. For the supply chain. For this ridiculous supply chain risk theory that they've tried to place against this company and now they're using it again.

11:02And when they go to court, they're going to say, hello, there's such a supply chain risk that we're using it. And you had everybody come out. You know, you had Emil come on here and tell everybody not to use it. You had Scott Besson come on here and tell everybody not to use it. And here it is. It's the best model in the country. They have to use it because it's so good. You'd want them to use it. And they were playing. But here's the most important part. They were playing politics. That's what this was always about. Knock me down with a feather. You live in this world. It should be sinking in by now that this is the way things work.

11:38But we shouldn't be happy about it. I don't know. I can't say I'm going to. I didn't think. All weekend I was grinding in, Jesus, this anthropic stuff. We don't want to lose our AI lead. I think that's pretty important. I think that's the message that comes out of it. Right. Cheese will be next. Still to come on Squawk Pod, gearing up for the confirmation hearing for President Trump's pick for next Federal Reserve Chair Kevin Warsh, and drawing workforce parallels between the age of AI and the age of automation. Nothing was more significant in terms of bringing women into the workforce like washing machines.

12:18Did we have jobs for them before? Did we invent or create jobs for their existence? Then, later, Oak Tree's Howard Marks. Emotion, what we call human nature, tends to get us excited when things go well. And as things go well, prices rise, rise, rise, and people want to buy more, more, more. You don't want to miss his take on the markets. I like to buy when things are on sale, not be coerced into selling when things are on sale.

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13:36soccer. Bank of America N.A. member FDSE. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Lansford for this information-packed daily market preview delivered in 10 minutes or less, including projected stock updates, 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.

14:11Welcome back to Squawk Pod from CNBC. Here's Becky Quick. Kevin Warsh, President Trump's nominee for Fed chair, is set to be grilled tomorrow at his confirmation hearing before the Senate Banking Committee. Our senior economics reporter Steve Leisman joins us right now with a look at Warsh's connections to technology and the tech bros, so they said. Becky, good morning. Kevin Worsh may not be a tech bro himself, but he's gone to school and invested alongside them and been steeped in tech investing for a decade and a half, making it a key part of understanding how Worsh would run the Fed and monetary policy.

14:49Worsh befriended leading tech investors Peter Thiel, Marc Andreessen, and Jerry Yang, founder of Yahoo, at Stanford in the early 90s after resigning as a Fed governor in 2011. He would later be a co-investor with many of them in a series of private and public tech companies, including Alex Karp from Palantir and David Sachs. Worsh joined the family office of Stan Druckenmiller after leaving the Fed, his longtime friendship with his techie schoolmates, along with the investment savvy and cash of Druckenmiller, opened doors in Silicon Valley. Worsh's 69-page financial disclosure document showed vast wealth, reaching at least nearly $200 million, potentially far more.

15:25There are marquee investments into Palantir, along with riskier startups ranging from crypto to artificial intelligence to this one, a company that makes a robotic barista that will automatically serve a latte, a lemonade or a premium jasmine milk tea from a booth. There's one at least at San Francisco's airport. All of this helps shape more strong optimism about the promise of tech and productivity for the U.S. economy. He said we're probably on the front end of use cases of AI before it was clear that there would be agents out there. That was in May 2025. Everything technology touches gets cheaper, he said in a separate interview, where he said central bankers need to make a bet on technology before it shows up in the data.

16:03Otherwise, they're going to be too late. Warsh looks far more likely to front run potential productivity and negative labor market impacts from AI and tech than the current share. And even many of his fellow would-be committee members. That sets up a really interesting debate between conventional and tech pro monetary policy under Warsh. Warsh. I know what you're going to ask. I got to ask him about that. Shulman at Verizon predicting unemployment of 20 to 30 percent within two to five years. Because of AI. Look, if anybody knows this is potentially coming, I think Warsh is going to be that person.

16:40The question is, how do you react to it? One of the pushbacks against this front running productivity is this notion that on the front end, And AI is essentially raises prices. It's an infrastructure investment. It's a capex investment. The productivity is down the road. And I don't know if you've noticed, but every time I've had a Fed chair on, a Fed official on, I've asked them the same question about this idea of front running. Hammock didn't like it. Goolsbee didn't like it. A lot of people are very wary about getting in front of it. And then we're like, well, let's wait until it happens. Warsh's idea is that's too late.

17:15You're already behind the curve if you wait to see it in the data. What would that mean? It would mean, I think, lower interest rates. No, 20 to 30 percent unemployment. That would be a. I can tell you what that means. I wrote a whole book about it. Twenty five percent unemployment, 1932. That was it. That was for a bad reason. This theoretically is for a good reason. But Elon Musk is on board with this universal basic income at this point, said that they should be very high income. Joe, when you lose your job, is there ever a good reason I lost my job? Oh, I'm fine because everybody else will be more productive.

17:50I don't know if that's... I'm just saying it would be seismic. It would be the worst thing. Because if you believe, like Arthur Brooks, that the value of life is in the dignity of work. Work. And 20 to 30 percent of people are unemployed. Not because of a break in the stock market, but because of structural changes in how everything works. And is that a forever thing or do we figure out how to re-employment? Can I give you my weird take on this for a second here? I don't know. Go for it. I'm thinking about AI like washing machines. If you think about washing machines and household appliances, nothing was more significant in terms of bringing women into the workforce like washing machines.

18:36All of a sudden, this vast cadre of people were available to work. But it was also processed food, the ability to get a meal on the table quickly. That was all part of it. But when you think about all of these things that all of a sudden made all of these women available to work, did we have jobs for them before? Did we invent or create jobs for their existence in the workforce or their availability to labor? The other side of people losing their job is availability of labor. and I don't know that we know what they're going to do, but if it happens quickly, it's a calamity. The only reason I'm going to push back on this...

19:18You should push back. It's a theory. It's just working on it. I think both in the services area, there's a lot of things that this can do almost autonomously on its own without much human in-the-loop relationship. And similarly, once you hit robotics, then you really change the dynamics. And then the last piece is, despite Elon Musk and maybe some others talking about UBI, universal basic income and other things, you tell me whether you really believe politically that that is going to be the path and whether there's not going to be a massive fight about whether the spoils in a capitalistic society are supposed to go ultimately to the model makers and chip manufacturers and all of those people relative to everybody else.

20:06And I think no matter how much fighting there is to try to get either UBI or some kind of redistribution going, there is going to be a very vocal group on the other side of that argument that is going to at least win some part of it, if not all of it. We need equal opportunity, not equal outcome. And egalitarian societies that are based on transfer payments are anathema to capitalism. You're right. My point is that I imagine when we get to a UBI debate that you and I. A lot of people aren't going to want it. Correct. Exactly. Because it wasn't earned. That's what they're going to say. Right. And so then you tell me how this whole society is supposed to operate.

20:45Yeah. And the idea of like what you were saying from the book when you went back to 1929 and talked about the unemployment. Are you then talking about permanent unemployment of 20 to 30 percent? I mean, that's the real question. Right. I mean, how long do you live in this? people forget there were tented camps literally across this country you go to central park by the way hooverville's i mean people were living in tents we have those all over yes but not like this at all i mean i mean think about what unemployment's like right now it's like alice in wonderland compared to what that period was ubr taxes on corporations that are going to be reaping all of this money no from firing all these people not on corporations they should keep keep making money corporations not on corporations no because you're talking share well you're also not going to shareholder it's not corporations aren't aren't people like but but if you have all the tech pros that we brought up here and they're making all their money from well then not from income but it's not income they they can it's not you can tax them but i just wouldn't tell wait how would you tax them would you tax them on their assets i do it that would do it with if they borrow money you gotta if they live off their their wealth that's a big deal here that's No, it's not.

21:57That's the Ackman-Sorkin model. I've been talking about that for years. Oh, I know, but there's a lot of... Joe's coming along, you're saying. No, I've always said that. If you want to do that, fine. You can raise, like, 1 % of what we need. I think this is a whole show someday. I mean, I think that... Look, there's a thing called Say's Law. You run out of billionaires, Steve. No, there's an economist called Say who said the demand for labor equals the supply for labor. We are so out of time, but I have one last question. This conversation, this is not a Fed thing, but a Treasury thing. This conversation apparently happening with Scott Besson and the UAE about a bailout.

22:33I need to report that story because what you're talking about, the swap line, that's a Fed thing. The Fed creates the swap line, as far as I know, unless there's some other means where Besson would use the exchange stabilization fund. I don't know to provide some assistance to UAE. I'm sorry, guys. It's not me. Well, it is me. I messed up. I'm talking to the guys in the back. I know. We're going long. But this is a big issue this morning. I need to call the Fed to see if there's some discussion. And the fact that the UAE is even having a conversation about this suggests that they might be really, I don't know, the question is how worried are they?

23:07And where are we in that? Look, it was Waller who on Friday said the market is undervaluing the impact of the straits being closed. Right now, the data has been good. The question is whether or not there's more to come in terms of the impact. He used it to argue for cuts, right? What's that? He used it to argue for cuts? No, he used it to argue for the Fed staying the same because remaining in place, not because of the potential inflationary impact.

23:34Our next guest recently addressed the issues playing out in the private credit space and so much more in a memo to clients detailing the developments. He says brought the credit sector to where it is today. Join us right now in an exclusive interview. It was Howard Marks, co-chairman of Oaktree Capital, which specializes in alternative investments, has$223 billion in assets under management. And you always, I think, are a calming force in the investing world. But help us understand. Let's go straight to the private credit issue. And then I want to get into so many other things. But given where we are and so many of the questions about what's happening in private credit, some of the gating issues that we're seeing, are you worried?

24:12Should we be worried? What should we actually be thinking about this? No investment medium is good or bad per se. It can be done well or poorly. It can be overdone or ignored. There's nothing wrong with lending money to companies. The question is, do you do it wisely? And my guess is that because so much money was available to people who would manage money in the space, some of them hoovered up too much, invested it too fast, and made some bad decisions. We'll find out. But the bedrock issue of lending money to companies, nothing wrong with that. I appreciate that. I think the question, therefore, is you have so many people who seem to be rushing for the exits and a number of these funds putting up gates.

24:56And that's what's supposed to happen, technically. But there's this question mark about whether, A, it should be happening and what it says about the larger product. Well, as you know from the period you explored in your book, often the wrong product gets sold to the wrong people. And so some people probably invested in private credit funds not understanding the limitations on liquidity. And then when they decided and they turned negative, they couldn't easily get out like they can in the stock market or a mutual fund. And they're shocked, like the guy in Casablanca who was shocked to find gambling in the bar.

25:36shocked to find out that their money wasn't available on daily on request. And this will always happen because things are sold to the wrong people. But that doesn't mean that the underlying product is wrong. And it's just that it has to be sorted out. What does it say about the valuations of, for example, a lot of the firms that live inside private equity portfolios? Because those have not been hit yet. Typically, by the way, for a credit fund to have a demonstrable problem, the equity needs to get wiped out first. Right. Well, when you hear the word private, the main distinction is that there is no market where these things are traded.

26:15So there's no market price to use as a reference point. And these things have to be valued by third parties, daily, weekly, monthly, whatever it is. And that's an imprecise product. And by the way, the job of the value is not clear. If you have a fund and I'm supposed to value the portfolio, am I supposed to value these things at what they're worth, what I could sell them for, what I could sell half for, what I could buy them at? Am I supposed to reflect the ups and downs of psychology or just the fundamentals? So the price is by definition wrong. And if people can get out of that price, other people in that fund may be benefited or hurt.