A Post-Rate-Hike World, a C-Suite Warning, and a Former Treasury Secretary 9/17/26

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1:06Mike, thank you very much. Stocks are up and yields are down after the Fed's hawkish moves yesterday. I'm Kelly Evans and welcome to The Exchange. Yes, we sold off initially after the rate hike, but today you could call it a broad-based rebound. The Dow's still up 350 points, the Nasdaq leading the way up 1.6 % today, driven by some gains in Intel, Arm and AMD, and 10-year treasury yields retreating up 494, we might have printed, 495 right now. Rick Santelli is here at headquarters. You get the top billing here today. His whole family is over. Anyway, we'll get to that. He's going to weigh in on that.

1:40Plus, rogue AI agents are changing the internet. And OpenAI says they're also telling other bots to conceal their mistakes. We'll talk to SentinelOne CEO Tomer Weingarten about that and former Treasury Secretary Jack Lew. The last came about the Fed rate hikes, the Treasury's increased buyback program, and the persistent rise in gasoline and diesel prices across the country. But let's begin with the Fed's moves yesterday. It was so wonderful watching these two. The back, the rat-a-tat-tat, show me the five-year, anyway, the unanimous vote to raise rates. Warsh's brief press conference, it left open the possibility of more rate hikes, but the markets are taking it remarkably well after yesterday's tumble.

2:20Let's bring in CNBC senior economics reporter Steve Leisman and CNBC's bond market guru, Rick Santelli. And can we just, Rick, your entire family is here to help send you off. I mean, how many days do you even have left with us at this point? Probably about five or six days left. All right. So let's start with the nerdy wonky stuff. Steve, go ahead. You first. Rick has eternity with us. He will never leave us. I mean, his voice will echo in my head well into my retirement and beyond. I hope that's a compliment. You know, take it anywhere you like, Rickster. Look, it's very interesting to see what happened yesterday and what's happening today.

3:03We were talking about the 210 spread and what happened there. And I'm just teeing this up for Rick, like kind of a throwing the ball. I'm going to let him hit it. But there was movement there. First, you know what, guys, before that, just show the two-year. Two-year, it really expanded. And I think the obvious explanation of that on the two year is a reset of how much they expect the Fed to hike. Now, there's a problem there. I think the two is well extended on yield beyond what the Fed is even capable of doing timing wise. How extended? Well, you're 100 and change. Well, no, you're not. You're a little less now.

3:38You're about 100 over. I don't think the two wants to be in a place of 100. Meaning it's fully a point above where the Fed funds rate is right now. A full percentage point. Correct. And that implies either a large term premium for reasons that would be unclear on the two or or finish my sentence or a very, very much more aggressive Fed than the Fed is letting on that it's going to be. Rick. Yeah, I think that Warsh has a really, really tough job right now because trying to deal the intricacies of steering interest rates through an economy that's pretty juiced. I really thought retail sales numbers were pretty darn good, especially when you looked at the control number.

4:20All of it looked good. Now, you put that in the framework of what's going on. Japan's economy not doing very well. Europe not doing very well. The only country really in the EU doing well is Spain. Germany's trying to get their manufacturing going. But in the end, OK, it's the war and it's the real rates have risen so much. But yet the break evens have hardly moved. So one of these markets or both of them need to make an adjustment. But here's why the 210 spread is so important. If we can show a chart that that was trading at 38 basis points. What does that mean in English? That means if you take a 10-year yield, you subtract the two-year yield yesterday, right before 2 o 'clock Eastern, 38 basis points.

4:59It got down to 24 basis points. I think it's hovering at 26 right now. Why is that important? For what Steve said. The reason that is the way it is is because two-year rates are running after the Fed and 10-year rates are going on. But listen, I'm a simple person. So to me, when you say the curve, I take simple. Come on, you're not that simple. But meaning, however you could unpack this, all I hear is or all I see is the curve flattened. Yeah. That is a bearish development for the economy. That is a bad sign. I don't agree with that. I think it used to be. There's a lot of things that used to be.

5:33Just like people talk about how things were in the 70s and 80s when China was just not even a thought in people's heads. You can't look at history the same way we used to because some of the moving parts have changed so much. Here's another question that I had I wanted to run by you guys today. So I'm sitting there and I'm thinking about fuel prices and going the Fed's supposed to make policy for 12 to 18 months from now, whatever exactly the lag is. Impossible. It's impossible. It's impossible. A year from now, how likely is it that fuel prices are higher than they are right now? Well, see, that's why the market's unhappy.

6:05And that's why the equities are going to have a lot of fits and starts. because I think the memorandum of understanding that was established by the Middle East during the peace talks that fell apart in early July, this second half of the war, the markets don't like it. My sources don't like it. There's not a lot of confidence. Kevin Wurst doesn't like it. The end is right around the corner. And I think it makes your question very difficult to answer. There's no way. If the war ended in a week, I think you would see 30 basis point drop in 10 years. Right. And then how would their tightening look?

6:36It would look silly. No, but it wouldn't look silly. It would look appropriate for the time. We need to stop thinking that you could only do rate increases or rate decreases in long cycles. Because to me, flexibility is what's important here. And if they need to pull things back after one, do it. And I think Wors is going to be a different type of chairman in that regard. There's another aspect, though, which is that I don't think there's any organization that has an ability to affect the future that it forecasts more than the Fed. So imagine a Fed right now that ignored the inflation in front of it.

7:11It would apparently ostensibly create the inflation that it fears down the road if it ignores it now. It can address that inflation now while forecasting higher inflation and guarantee that it's wrong because it correctly addressed the inflation now. If you listen to what Warsh said, really picked up on what Santelli said and what I wrote earlier this week, that the Fed had reached a point where it could no longer believe in the imminent decline of oil prices because of the deterioration of what's happening in Iran. I think that the Canadian tariffs played a minor role in all of this because it's not at the moment big enough to affect inflationary outcomes, but it could be another round.

7:53And I'm moved or animated by what Neil Kashkari said. In the 70s and early 80s, the Fed addressed a series of supply shocks. It was theory and doctrine to look through them. But one after another after another, that's a reason not to look through it to make sure that you don't have that inflation 12 to 18 months down the road. But it was a whole, you know, Mr. Kashkari is a smart guy, but I lived and traded through much of those times. I pumped gas. You know what? I remember changing the pump from 99 cents to a dollar. I pumped gas and towed cars too. I remember having$4 ,000 in my pocket when I was 16 years old.

8:33I wish I had$4 ,000 in my pocket. I had to line down the block. But, yeah, it's a different world now. And I think when Mr. Kashkari looks at all the supply shocks in the 70s, that's true. But what he's missing is that there was also this wage spiral. I remember people thinking that they needed to get a raise because, oh, look at gold price. Like everything was hot back then. And I think it's much different today. I think that you're right. It was a more unionized economy. I'm just saying, and every analogy falls apart when you take it too far. I'm just saying that there is precedent for the Fed saying, you know what?

9:04We've got a series of supply shocks that need to be addressed here. It's not just one and one off. And I think what you're saying is right. It's hard to figure out now for 12 to 18 months. I'm just saying that the Fed has an ability to affect that outcome by acting and doing something now. Mr. Kashkari should also bring up the other side of the ledger, OK? With interest rates that high, don't be so upset about mortgages at 7%. Might not sound good, but it was his Fed that kept rates too low that created this dynamic. Because when I was young, if I could add a 7 % mortgage, I would have been in seventh heaven.

9:36My first mortgage rate was twice that. Wait a second. You were young? More importantly, are we going to see you next hour, Rick, or is this? Yes, no. They have me working harder here than when I'm in Chicago. I just want this beautiful fit. The grandkids are not. Everyone wants to see the babies, but they are not here. No. But I don't want to put anyone on camera who's not covered, but we just it's what you have done for viewers, for your family. I think the Treasury secretary has a statement, if I'm not mistaken. Guys, do we have the statement from Besant? We do. Who this was his letter of thanks for your service, Rick.

10:06There are so many of us who have so enjoyed. He says television has produced plenty of market commentators over the years, but there has only ever been one Rick Santelli. Applause, guys, or not? I mean, it's incredible. Incredible. Thank you. I'm looking up because I want to show the part where he talked about Damon Runyon. He's very literate. He said Damon Runyon made a career of writing about unmistakable characters. So he compares you to one of those unique and amazing and eternal characters of Damon Runyon, that Rick is just a one-of-a-kind. Well, we are glad you're here. It's a fitting send-off, as fitting as there could be.

10:43And I want to thank the organization because how many people in TV can ever have a three decade run? It's quite incredible. Yeah. And with such great people don't always agree with. That's OK. You should see my table at Thanksgiving dinner. Nobody agrees about anything. Rick, thank you. Steve, thank you. Thank you both. Thank you for this. Thank you for everything. Let's get a view now from our next guest. Richard Bernstein is the global head of macro at Janice Henderson. Rich, tough act to follow. You know, feel free to jump in here. Yeah, I'll do my best, Kelly. You have an interesting kind of broader take on this that has to do with some of the global developments that you think are going on here, both for stocks and for bonds.

11:22Explain that. Yeah, so I think that, and by the way, congratulations to Rick as well. I've watched him for more years than I want to count. But look, I think what's going on is we're in an era of deglobalization. And deglobalization means that investors and the Fed, but I don't think the Fed has realized this yet, has got to change their modus operandi from believing in secular disinflation to believing in secular inflation. Because what globalization did was open markets, increase competition, and put downward pressure on prices. And for the last five, seven, eight years or so, we're closing markets and we're decreasing competition.

12:07And you're finding that companies are getting more pricing power. That came out in the Philly Fed release today. You can see that. And talk about nominal GDP, Rich. That's one area where I am sympathetic to the idea that if you're running it, what is the latest we're running, 7 % or 8 %? So Rick alluded to this before about the strength of the economy. me. There's been no inflation for so long that economists have geared their analyses towards real GDP. But if you go back to the Mesozoic era when I started, and I guess Steve and Rick started too, nominal GDP was very, very important. Nominal GDP being real GDP plus inflation.

12:49Well, nominal GDP in the second quarter was 8 percent. That is a cooking number. And right now were tracking, by our estimation, about seven-ish, seven and change. So the question we've asked is, what should the 10-year be when you've got 7 % to 8 % nominal GDP? It clearly shouldn't be 4 % to 4.5%. Should it be 5%, 5.5%, 6 %? I don't know, but it shouldn't be 4.5%. So, you know, if then, I mean, the market reaction, I'd be curious what you think it's telling us. When I was checking it this morning, we basically have a situation, And we have to take yesterday into account we were down, but equities are up.

13:28NASDAQ is leading. Oil is a bit lower to 100. Gold, silver, copper and Bitcoin are slightly higher. The dollar index slightly softer. What does all that tell you? So I think, Kelly, we're jockeying back and forth between a more inflation oriented kind of paradigm where fundamentals really matter. In fact, near-term fundamentals matter more than long-term growth. And the opposite of that, which is that we can go back to the disinflation paradigm and we can focus on growth and speculation and things like that. And I think day by day, you can literally see this happen. And so I think today is a little bit more of a speculative kind of long-duration growth day.

14:09All right. And then finally, you talk a little bit about how you think short-duration equities could be a good hedge against inflation. Dividend equities, you say, look attractive. Just explain a little bit what you mean by that. Yeah. So, Kelly, the same way that when you have inflation and interest rates are going up, short duration bonds outperform long duration bonds. In other words, what duration measures is not only how much return you're getting, but when you get it. And so when you have periods of inflation, you want more return up front. And so in bond land, that's a coupon bearing bond versus a zero coupon bond.

14:45In equity land, it's a low P.E. dividend paying stock. And so in these days when people are scared about inflation or over months or quarters, when people are scared about inflation, you find dividend stocks do very, very well relative to zero dividend growth stocks. Obviously, people have focused on those dividend yield, the zero yield growth stocks for quite some time. It's our estimation that the other side of that, the dividend stocks are actually more more attractive right now. Yeah, and it's ironic that you think de-globalization, you actually like global equities right now. You say 75 percent of the companies that you screened for projected EPS growth rates over 25 percent are outside of the U.S.

15:24So this is Kelly, this is the craziest thing that I've seen in a long time. So people say to me all the time, the only place for growth is the United States. that if you want growth, you have to focus on U.S. technology, U.S. AI, U.S. data centers, all this kind of stuff. But yet when you screen companies around the world for earnings growth rates over the next five years of 25 percent or more, 75 percent of them, roughly 75 percent of the companies are outside the United States. So is there a growth story that people are ignoring? I kind of think there is. All right, Rich, thanks so much. Great to have you here.

16:03Yeah, thanks, Kelly. Rich Bernstein with Janice Henderson. Coming up, OpenAI disclosing six new instances of what they describe as concerning model behavior. We'll bring you those full details. And we'll ask SentinelOne's CEO how companies can defend against AI attacks. We'll also get his take on this debate over having an AI slowdown, as his company shares are having their best week in nearly three years. Stay with us.

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18:08Welcome back. In a fresh blog post, OpenAI is laying out a new framework for transparency and disclosure around the activity of its agents. And the company admits that bots are instructing each other to conceal their mistakes and their, quote, misaligned behavior. Kate Rooney joins us now with more. Kate? Hi, Kelly. Well, this news does add to the recent AI safety discussion. OpenAI is now revealing six new cases of its AI models behaving in unexpected and concerning ways. The most striking example the company gives involves AI agents trying to conceal mistakes or behavior. OpenAI says it found agents communicating with each other through unauthorized message boards and file sharing services.

18:53These were discovered in research and testing environments, so not in the real world. but it does add to a string of similar incidents. And the company is now rolling out a formal process for employees to flag and disclose these. We also did just hear from Alex Karp, Palantir's CEO on Squawk in the Street. He argued AI companies should bear liability for what they build and shared his thoughts on regulation. The first step isn't to say we get out of it because we want to self-regulate or we want regulation. The first step is to say, OK, you've disclosed this. What are you doing about it? And the second step is to say, if you're not doing it, you're not being responsible here, we're going to have to get people involved.

19:30That's going to be also very complicated because regulating these things needs people. You need people who understand them. Another problem we have is seemingly everyone who understands this is on some payroll. So it's like, you know, it's like who are you going to trust? Karp went on to argue that the liability could become so enormous that a private company couldn't absorb it and then said that could even lead to Anthropic being nationalized. The comments do come as Anthropic has already filed to go public and could list as soon as October, Kelly. Fascinating, Kate. Thank you very much, Kate Rooney.

20:00Our next guest says these frontier labs are simply engaging in self-serving marketing and trying to take a direct role in drafting the very safeguards they themselves will be measured against. Let's bring in Tomer Weingarten. He is CEO of CyberFarm SentinelOne. Tomer, it's great to have you here. Welcome. Thank you for having me, Kelly. Do you have any sympathy for their approach here? Look, I do think that they are now facing what was known for quite a few years. And I think they've known it as well. You know, we're running towards innovation. We're adding more and more capabilities into this world.

20:34But at the same time, I do think that security was an afterthought. Now we're all waking up to what I could define as kind of a huge oil spill that we now need to contain. But it's tough because these architectures are not as easy to control. These models don't have any judgment. They don't know how to discern. And we're now seeing time and time again that they kind of go on their own path. They veer. They do what they want to do. And it's incredibly hard to keep them on track. I think there's a lot of other stuff that we just don't know. And even OpenAI or Entropic or these model companies, they don't know as well.

21:10And we're finding out more and more every day. You have companies, clients ranging from Apple to Warner Brothers to the Warriors to Lowe's. And what are you doing for these companies to help prevent any kind of hacking that might be coming from, quote unquote, misaligned bots? It's all about tracking behavior. It's all about allowing customers to monitor every aspect of AI usage in their environment. Every single element of their network that is being touched by AI or that AI is trying to access has to be monitored. And monitoring is not enough in itself. You have to be able to take an action at machine speed, at the speed of AI.

21:54And that's what we allow customers to do. We provide an autonomous system that takes those signals from these different aspects of monitoring and then able to discern what's bad, what's good. Is this behavior is what the user intended to happen? Or are we seeing something that's anomalous and that in dust needs to be stopped? What do you think we need to do about the activity that's happening here? So, for instance, OpenAI has been under a lot of pressure because it did let researchers into a view part of its transcripts of what had happened with some of these rogue agent attacks. But it hasn't allowed access to all of this, as far as I understand.

22:34And they kind of acknowledge this in this new blog essay. They say we're sharing a new framework for tracking, investigating and disclosing instances of what is called model misalignment, a.k.a. rogue agent swarms doing things they're not supposed to. They include six examples of this where they say, again, there are instructions. There are many model instances added instructions to their summaries to conceal mistakes or misalign behavior from the user, the user being people, the people who are kind of testing these systems. So what should be done? I mean, the company is probably realizing the writing's on the wall.

23:08We've had people on these shows all week saying they could be held liable. Hacking is a felony. They could be held liable if their products are hacking other companies. Yep. And they should be held liable. I think this is, you know, a technology like any other technology. And if it makes mistakes or causes errors, they should be absolutely held liable. I do think that, you know, we talk a lot about regulation. And I do think that we need to find more ways to put controls for these companies, for these technologies at large. I also think that we're lacking significantly standards. And if we start really adopting standards, so liability is not only in the hands or assigned to those who develop technology, but also to those who consume technology, enforcing those that consume these technologies and deploy them at scale to also have proper safeguards and proper guardrails as they deploy these technologies in their environments.

24:04All right, we got to go. But I just should mention this. Bernstein today said Sentinel One. Did you see this? It's most attractive as a strategic takeover target for, drumroll please, one of the AI labs. Would you sell to one of these companies that you're on air criticizing right now? I honestly think, I mean, regardless of us, I think that security needs to be standalone. It needs to be neutral, to be effective. So as far as we're concerned, you know, we have a mission. And we're trying to build a safer world. And I think we're better served doing this as a standalone provider that can have this neutral view.

24:39All right. Tomer, thanks. Really appreciate it. Interesting times. Thank you. Tomer Wayne Garden. Coming up, an exclusive interview with former Treasury Secretary Jack Lew, his first reaction to yesterday's Fed hike and to Secretary Besson's ongoing bond buying program. That's coming up in just a moment.

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26:33Welcome back to The Exchange. I'm Mackenzie Segalos with your CNBC News update. A new report commissioned by the U.N. says it's found reasonable grounds to believe the U.S. committed war crimes in Iran. The findings by a group of independent experts centers on a pair of U.S. airstrikes that killed at least 178 civilians at the start of the war. The report, which is not binding, also accuses Iran of carrying out crimes against humanity on its own people. Defense giant Lockheed Martin said it's begun receiving parts for its Patriot missiles from General Motors. It comes as the Pentagon looks to boost munitions supplies that have been depleted by the wars in Ukraine and the Middle East.

27:11GM has been working to expand its defense business, where it expects to see revenue of$700 million this year. And the head of the Postal Service has reportedly told confidants that he is deeply discouraged by his job and wants to resign. Four people familiar with the matter tell Reuters that Postmaster General David Steiner has expressed frustration over a lack of help from the White House and Congress in addressing the service's long-running financial woes. He has been in that role since July of last year. Kelly, sending it back to you. Mackenzie, thank you. Coming up, housing stocks are on track for a sixth straight losing week.

27:45It's their worst stretch in a year and a half. All this is mortgage rates have soared. Lennar also reporting disappointing results last night, with management calling the housing market difficult. Those shares are at 20-22 lows. We'll talk all things housing next with Brown Harris-Stevens CEO Bess Friedman. Don't go anywhere.

28:06Welcome back. The 30-year fixed mortgage rate has surged from 6.5 % in June to nearly 7.2 % today, although we are seeing a bit of relief since the Fed's rate hike. Diana Olick is at the Zellman Housing Conference in Boston with more. Diana? Yeah, Kelly, that's all really anyone is talking about here at the conference. The average rate on the 30-year fix today came back a tiny bit, now 7.19 percent, according to Mortgage News Daily. But I spoke earlier today with Pulte Group CEO Ryan Marshall, who said higher rates are a major headwind, and that's why the company is now pushing the move up buyer and focusing on Gen X, which is somewhat less rate dependent.

28:46As for the Fed's move yesterday, raising its rate, Willie Walker, CEO of Walker and Dunlop, did not mince words. The Fed raising by 25 basis points yesterday, it was consensus. So a bunch of smart people said, hey, we need to raise rates. But I sit there and look at what's driving inflation right now, price of oil. And oil and the 10-year treasury have been inextricably linked. And so as oil has gone up, so have rates gone up. And so they raised by 25 basis points. It's not as if the Iranians said, oh, great, now let's open up the Strait of Hormuz. It's a foreign policy issue. It's not a monetary policy issue.

29:26And so Warsh and the Fed went out and raised by 25 basis points. I don't know what they expect to accomplish. Walker also said he's concerned about a wall of shorter-term real estate debt coming to maturity, not so much because of higher rates, but because of what those rates have done to property valuations. Now, for much more from Willie Walker, Ryan Marshall, and of course, Ivy Zellman, it's her summit. Make sure to watch the next Property Play podcast, access it through the free newsletter at CNBC.com forward slash Property Play. Kelly. Thank you, Diana. Thank you very much. Let's get some more perspective now from our next guest.

30:01Bess Friedman is the CEO of Brown Harris Stevens. Bess, it's been kind of the same story as we've checked in with you throughout the year, really, a tale of rising rates. Is a little bit of a relief now in sight, do you think? You know, I don't think so. It's going to be a little bit of a lumpy trail for a bit. I think that, you know, the mortgage rates, as Diana just said, have gone up. You know, the Fed fund rate has gone up, which is going to put a lot of pressure on people for credit card debt and short term debt. And I think we're in an environment where energy prices are at a high and the war has reintensified.

30:38And so it's a challenging time in the marketplace. Although, you know, this market in New York City did very well this summer, despite the pied-a-terre tax. You know, it's discretionary. It's not so much tethered to mortgage rates. A lot of people use cash. So it's a different type of market. But housing affordability is a big topic today because first time homebuyers today are now on average 40 years old. And so the American dream has become out of reach for people. And I think any politician that wants to win an election is going to talk about housing affordability and how to make that a reality for Americans.

31:15Up and down the East Coast, Bess, where you primarily operate, how would you describe kind of the strongest and weakest areas of the market right now? So the strongest area right now is the two and three million dollar marketplace, at least in New York City, that's performed really well. And the high end, for whatever reason, you know, a lot of people are still investing here, despite what happened with the pied-a-terre tax. Palm Beach, really strong market. Florida, certain parts of Connecticut. The challenge in Connecticut is more so one of lack of inventory, but the demand is there. And so that's been very positive for us.

31:51I wish we could get more supply into the market. But now with rates going up, people who may have thought about selling, who have locked in a 3 percent, are less inclined to do so because they really don't want to give up the rate. I mean, they don't want to spend more money. And so that makes complete sense. We're in a little bit of gridlock right now. I hear that all the time. I've got friends who bought four years ago and they might feel like they're outgrowing or what have you. And they go, I'm dying here. I hear this from people all the time. They say, I'm never moving. Yeah. I mean, they don't want to.

32:21They're going to be spending probably double what they spend now. And so people are holding tight. Other people are motivated by the fact that their circumstances have changed. They got a new job. They have a baby. They got divorced. They got married, whatever it is. And then they buy because of that or sell because of that. That continues. But, you know, the idea of first time home ownership has been out of reach for a lot of people today. And I hope that we can start to change that. You mentioned something that I was very, very interested in. And I wasn't, you know, when you when you come into markets like the housing market.

32:53I don't know if this is how it's always worked or if this is a new thing. Tell me about private listings. You use the word pocket list. I'm seeing this more and more. And I literally wonder about I'm like, is this anti-competitive? What is the whole point? Well, you know, the subcommittee is investigating this being anti-competitive. And so we'll see where that pans out. But there is one company in particular, Compass, that bought Corcoran and Sotheby's, et cetera. They have a huge percentage of market share. And what they're doing is they're doing this thing called private listings where they're keeping listings off of the marketplace, so to speak.

33:28And that creates a real challenge. I mean, Derek Johnson, the president of the NAACP, he wrote a piece for Time magazine about the threat this poses to fair housing. You know, minorities already don't have access in the way that they should. And this is going to create that or exasperate that to another degree. And then the other issue is access. Like if people can't see what's on the market. Totally. And, you know, it's being hidden. What does that do for consumers? I mean, there's so many challenges with this. And anyone who has common sense knows that they want their home to be exposed to as many eyeballs as possible.

34:04And unfortunately, whether you like it or not, Zillow happens to be the place where people look. Yeah. 400 million visitors a month. And so if you want to sell your home, that's where people go. And hiding it within then one brokerage is not going to help your seller. You know, not to speak. Let's put it this way. I'm experiencing all this firsthand right now. And yeah, it is fascinating. We've talked to the Zillow CEO about this a number of times. Well, just kind of the broad use of the platform. But you have a couple of quick lines in here I just wanted to mention. You said, you know, you don't want your listing hidden because companies are fighting over business models.

34:38You know, we're already asking buyers to navigate high prices, high interest rates. We shouldn't make them navigate a fragmented marketplace, too. Is it OK for you? We got to go. But if it's just one week exclusivity or is there a way to just. Yeah. Kelly, we have that. I mean, sometimes we have a seller that's a high profile person who says, please just keep this quiet. I don't want my people to know that I'm selling. We do that. But remember, transparency is not a luxury. We can always accommodate sellers who have to have things quiet. But what they're doing is not that it's something very different.

35:08It's a play for something else. All right. That's fascinating. We'll look to continue the discussion. Thanks. Thanks, Callie. Best Friedman with Brown-Harris-Stevens. Coming up, former Treasury Secretary Jack Lew. He is here to discuss Treasury yields, the federal debt situation, and what policymakers should do about it. Stay with us.

35:30Welcome back as we're watching Stocks Rally today. Not at this morning's gains, but we're hanging on to a 345-point gain for the Dow. Nasdaq's up 1.6 percent, nearly 1 % for the Russell, better than that for the S &P. Oil prices are down a bit today, but we're still seeing this bifurcation in the energy space, where E &P and services names like Halliburton, Oxy and ExxonMobil are lagging, while refiners like Phillips 66, Marathon and Valero are leading again amid soaring gasoline and diesel prices. Shares of Robinhood also up after the SEC cleared the path for tokenized stocks, taking the market one step closer to 24-7 trading.

36:06comes after the Clarity Act, which would have established clear rules for digital assets, including tokenized securities, failed to advance in the Senate. Hood is up about 3 percent. Coming up, Double Line's Jeff Gundlach telling CNBC yesterday the rate hike should have been 50 basis points, calling it stun and done. With Chairman Walsh warning inflation is still too high, should that have been the Fed's first move? We'll discuss with former Treasury Secretary Jack Lew next.

36:35Welcome back. Treasury Secretary Scott Besson announcing in August that the U.S. will increase repurchases of long-term debt in an effort to bring those yields down. It comes as interest costs have become one of the biggest line items in the federal budget, and yesterday's rate hike will actually raise U.S. borrowing costs in the very near term. Our next guest presided in Treasury over the last serious effort to tackle the debt in the early 2010s now. Let's bring in Jack Lew. He's the former U.S. Treasury Secretary, former Director of the Office of Management and Budget, and the U.S. Ambassador to Israel under President Biden, and currently a professor at Columbia's School of International and Public Affairs.

37:08It's great to have you here. Welcome. Good to be with you. Can I just ask, if you sympathize with the goal, which I imagine you probably, I mean, if a taxpayer, nothing else, of lowering treasury yields, and what you think might be the right tools and methods and ways of doing that? I think lowering treasury yields is obviously a benefit if you're trying to keep your spending down on interest payments. It's a benefit to citizens who are getting mortgages. But it's a symptom, not a cause, of our economic conditions. You know, interest rates are high when there's fear of inflation. Interest rates are high when we spend a lot more than we take in.

37:51And when there's a lot of anxiety in the world. So So while it's usually preferable to have lower interest rates, to have a booming economy, if you're worried about inflation, it's not necessarily your first order of business. And the question of whether that's something that one ought to accomplish by intervening in restructuring the composition of Treasury yields, the mix between bills and notes, that's a whole separate question. I think the idea that buying back some bonds or shifting on the margin a little bit to short term is going to fundamentally change the direction of the markets, it's kind of like trying to empty an ocean with a teaspoon.

38:39Sure. It's just not going to work. And we've seen that since this was announced in August 19th. And I think that the underlying issue to me is the credibility of the United States, because the backbone of the dollars of world reserve currency, the depth and liquidity of U.S. Treasury markets is confidence. So to me, that's kind of an overriding consideration than kind of a day of marginally lower rates that doesn't last. I think the problem both administrations would acknowledge is it's going to be really hard. We're running 7 % deficits now in a strong, a booming economy. And maybe it's booming because of those deficits, but we can't seem to close them.

39:17So what I mean, this is a very humungo question, but is there anything that social security and you've talked about that for a very long time? Medicare, the biggest cost centers. I know that's why it's important to get interest costs down, but it's going to be hard to do in the near term with the debt pile as high as it is. I don't think today is the day we're going to see Congress jumping up and saying we're ready to deal with the big problems like Social Security. But it can't be too many years off. Social Security is going to run out of enough current income to pay to pay current benefits fully in the term of the next president.

39:53And there are solutions, but the solutions get harder and harder as you get closer to the exhaustion date. So it's none too soon to start thinking and talking about it. I would certainly caution anyone running for president the next time or running for the Senate to keep their options open, because it's going to take something along the lines of a 1983 approach where you do something serious to address solvency. What I think is a mistake is is to think that you can do it just by doing it by yourself. 1983 is a bipartisan effort. It had the protection of a commission that was chaired by Alan Greenspan.

40:34But it was really an indirect negotiation between a president and a Congress, Congress of a different party. I worked for the Democratic Speaker of the House at the time, Tip O 'Neill. There's going to have to be some process. There's going to have to be an openness to ideas. It doesn't seem like now is the moment that that's likely to happen, but reality kind of imposes. Reality bites, as they say. My two cents would be why couldn't we or shouldn't we or could we still have done more to invest in stocks, right, for Social Security and try to capture some of that incredible return over the years that might make it more viable?

41:07So I was never a big fan of that. I'm still not. I'm not a big fan of the U.S. government opening private businesses. I find it a matter of concern to have the tolerance of that growing because the pressure for the U.S. government through Congress, through all of our elected officials to interpose political judgments on business judgments is almost irresistible. And so I'm not a huge fan of it. I also think just as a financial matter, there's no guarantee that the investment in the market will work over any particular interval of time. And the stable return of bond yields should be enough for Social Security.

41:52The problem is, you know, we have to kind of keep our eye on what is the size of the wage base. Is it the tax that's coming in enough to pay the bills? And if not, how do you make adjustments over time to make sure it stays solvent? And maybe we end up just picking a little here, a little there, a little. And, you know, like you said, kind of working forward, giving it a 40-year update, maybe a path towards more solvency. You've been doing a lot of work on sanctions. And right now we're trying to resolve a number of international conflicts. The Russian war, where sanctions have been a big tool.

42:24The Iran war, where we're now turning towards more of kind of a sanction or an economic approach. And with China, possibly in the future, this might come more into play. The problem, again, is in order for sanctions to work, you kind of have to keep people in the dollar, the U.S. international system. And they might just say, we can build our own and we can work together outside of yours. So what would you say about using that tool? So I, for a long time, thought that we have to treat it as a very unique privilege, that we have the dollar as the world reserve currency, and that that gives us the ability to impose sanctions to try and accomplish our national security objectives through economic means.

43:03The things that we do as a country affect how long that lasts. I'm not somebody who thinks that any other currency is on the verge of being our competitor. I don't think there's any other currency that could in the immediate future. But I think it's a big mistake for the United States to conduct its policy in a way that encourages that process to accelerate. And we're seeing some signs of acceleration when other countries move their gold from the United States offshore because they're worried about stability here of their holdings. When you see the architecture built for settling in other currencies through other systems.

43:42There were some moments when there were transactions that got around Iran sanctions using that plumbing. Now, I don't think that they're deep enough and liquid enough to replace the dollar for all the world oil transactions. But the fact is they do work, and you can't assume that there will never be another currency out there. Right. Isn't there very imposition? I think the way we're imposing economic pain on other countries now, it's sometimes hard to tell who are our friends and who are our adversaries. That's not a great thing if you want your economic tools to be powerful and effective. But Iran, you could probably put in the adversary category.

44:22Russia, you could probably put in the adversary category. So who to you is kind of in the gray area? Well, you know, when you look at what worked with our sanctions against Iran during the Obama administration, it was the fact that we worked with our allies and our adversaries to put pressure on Iran. We actually had Russia and China in the tent putting pressure on Iran. Now we're kind of pushing our friends away. And that just weakens our tools over time. It you know when we put sanctions on Russia we know their spillover effects to other countries in the first invasion of Ukraine We knew that it was going to hurt European economies We worked with those European countries to do things that they would stay with the second time Russia attacked It was so flagrant that the European governments and financial decision makers were willing to endure more pain and we put more sanctions on.

45:18I think the notion that they're used without the kind of strong foundation that both can be articulated and defended is something that weakens the tools. Cheating is very much a problem with sanctions and you need to close all of the holes, which mean a lot of other countries have to cooperate with you for it to work. It's very difficult. In the last 90 seconds that we have here, let's go back to Treasury policy because you mentioned you've got to get a little creative both to solve the deficit and the rates. I mean, what about retiring the 20-year bond auctions or doing more to retire off of the run securities?

45:54I guess it's too late now to have issued 50-year debt, but maybe that would have been a good idea back when rates were very low. One of the really strong attributes of our system is that we have deep liquidity at every point of the spectrum, from the short-term bills to the 30-year notes. And I don't know what the market for 50 and 100 year debt is. People talk about it, but is it going to be that deep and that attractive? We don't know. There's a risk when you move rapidly to change the distribution that you could run into a problem along the way in an auction. You never want to have a problem in an auction.

46:38that, you know, having the ability to always finance the rollover and the new needs is crucial. And that means having an ear towards what the markets need and want and where the appetite is there and instilling the confidence, short, medium and long term, that we can be relied on. We have to go, but put your trading or investor analytical hat on. Is 6 % on the 10-year treasury realistic? And is it worrisome now in your view? Look, I think the markets are speaking more quickly than policymakers in terms of where they see the trajectory when you look at the Fed only sets short-term rates, not long-term rates.

47:18We have a lot of indicators that inflation is remaining an issue. Whether it's in the three to three and a half range or just under three, It's well above two, depending on which metric you look at. Yeah. And I think that that's a function of a combination of things. Some of them are policy. The limitations on oil are because of the war. Former Treasury Secretary, it's been great to have you here. Thanks. We'll see if we can come up with some more creative solutions, I think, to this entire process and problem. That's it for us. Thank you for watching The Exchange. I'll join Brian Sullivan for Power Lunch after this quick break.

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