Bond Bull, Un-Freezing Housing, and Under-the-Radar AI Names 10/7/26

0:29Weren't agents supposed to take things off your plate? An original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash marketupdatepodcast. Or find Schwab Market Update wherever you get your podcasts. You're listening to The Exchange. age. Here's today's show.

1:04All right. Congrats to Scott and the entire halftime committee, all the team, all the producers, everybody. Congrats. All right. Welcome to the exchange, everybody. I am Brian in for Kelly today. Stocks pulling back from record highs as yields make new ones. The 10-year yield climbing to its highest coupon since 2022, 39 billion of 10-year notes. They're up for auction right now. We're going to bring you those results as the pressure in the The bond market, not just here, but around the world, keeps building. Banks getting hit on the news and big tech taking a bit of a breather. After a six-day run, semis and software, they are both lower.

1:37We're also keeping an eye on oil amid reports that Iran accelerating or re-accelerating. Tanker strikes around the Strait of Hormuz and intensifying Houthi attacks in parts of the Red Sea. Also making headlines. Oh, and by the way, Russia and Ukraine, they keep heating up as well. Hi, everybody. There is a lot to do today. But let us begin with the bond and rate story. Interest rates higher once again. And let's try to understand what this ultimately might mean for stocks. Look at this. This is a chart that we made of the year 2022. The blue line are 10-year yields. The orange line is the S &P 500.

2:16And you can see that when we had the rate hike spike of 2022, stocks fell as bond yields crept higher. Remember, in 2022, just four years ago, the S &P 500 went into a technical bear market. In other words, it lost over 20 % from its highs. You can see it's not a straight line. It went down and up and down and up and down and up. But ultimately, we lost 20 % in 2022 as rates rose. Let's ask your first guest today on the show if this time might be a little bit different. Charlie Babrinskoy is vice chairman of Aerial Investments. And he joins us in today's opening exchange. You know, Charlie, I could also have done that chart from 1994.

2:58Rates rose and stocks rose in 1995. 2022 was the opposite. So I could make the case for rates and equity book markets both ways. How do you see it? So the important distinction is real rates increasing or nominal rates increasing. If nominal rates go up, but inflation is going up by about the same amount, then real rates haven't changed. And the historical data shows that the stock market can handle that pretty well. The danger is when you get real rates going up. And that's what's happening now. We've been spooked by unexpected inflation. we have been taught that the bond market does not react well to that inflation.

3:46And so for the last seven years, the Bloomberg Ag, which is the S &P 500 of the bond market, is basically down for seven years. And bond investors are finally learning that there's inflationary bias in the system. And so they're demanding higher real rates, not just nominal rates. The stock market does not tend to react well to real rates going up because there's an alternative to equities and bonds. There's less risk. So you sell stocks and buy bonds. For the first time, Brian, and then I'll just make my last point, I have been on your show a lot of times over the last seven years. And the whole time, I pretty much said avoid bonds.

4:22Bonds are not good to have in this inflationary environment. For the first time, I would say bond investors are now finally getting compensated for inflation and can earn a real rate of return. With that 5.3 % yield roughly on the Treasury, you think that is competition for capital. Absolutely. And, you know, the markets have shown that there's a real preference for low volatility. Bonds do give you more predictability than equities. So people that are risk-averse are going to naturally try to move into bonds. But again, they've been burned. We had a 10-year treasury at 0.63 % in 2020. People have gotten killed who bought those bonds.

5:00And so they're finally demanding the rate of return that they're do. Okay, sit tight, Charlie, because we do have the results. It was a massive 10-year bond auction that just happened. Pippa Stevens watching that auction, and she has the results for us right now. Hey, Brian, so a solid auction here at$39 billion in reopen 10, seeing a yield of 5.300. That is lower than the WEN issued yield just before at 5.317. Now, the bid to cover coming in at$2.77. That means$2.77 for chasing every dollar's worth of securities available. That was well above the average of$2.52 for the last 10 auctions. Now, the dealer's take coming in at 2.5%, well below the average of 9.4%.

5:45That is seen as a positive, since it means the dealers weren't getting stuck holding that paper. Direct bid coming in at 17.1%, and indirect bids coming in at 80.3%. That was against the recent average of 72.4. Now, indirect bid is sometimes looked at as a proxy for foreign interest. It's hard to quantify exactly, but that is typically looked at as foreign interest. Now, of course, Brian, we will get another look at how investors are thinking about duration here tomorrow when we get that$22 billion 30-year bond auction. You see the 10 right now just solidly at 529. Brian? All right, Pippa Stevens on that.

6:21Let's go back now to Charlie Bobrinskoy. Charlie got the breaking news there. The market seemed to absorb it okay. Maybe not the quote-unquote bazooka that some were looking for from the Treasury and from Scott Bessett. Earlier at the beginning of the interview, you used the D word, danger. What do you see as the potential danger between rates and equities right now? Well, it's just simple math. And that is any business school student or somebody taking an econ class in college has done a spreadsheet where they calculate a discounted cash flow. And the present value of those future cash flows, if you increase the discount rate more than the inflation rate, you get a drop in multiples and a drop in value.

7:06So this is a case where the first derivative, the change in rates, is even more important than the absolute level. We've been at 5.3 % 10 years many times in history, and markets have done fine afterwards. But that was because rates were on their way to falling. My concern is that this is 5.3 on the way to something higher. Trillion dollar deficits, tariffs, wars around the world, no backbone in cutting federal spending. All those things are inflationary, which could tend to push rates higher, which brings multiples lower. Yeah, but this is not just a U.S. issue, Charlie, right? The 10-year yield in France is now higher than the 10-year yield in Italy.

7:46I mean, in some ways, France is seen as a bigger credit risk in a small way, but a bigger one than Italy. German rates are up. Japanese 30-year government rates, I think, are at the highest ever, at least the highest in multiple decades. So what exactly is happening around the world? Well, the rest of the world doesn't have our growth. The rest of the world has our inflationary pressures. The rest of the world has even worse population growth than we do. They don't have the AI leadership that we do. Importantly, they haven't invested in energy the way we have. We're a net exporter of both oil and natural gas.

8:25That wasn't true 20 years ago, and it's not true of Europe, and it's not true of Japan. So we have the problem of inflation and deficits and wars in the Middle East. But at least we have economic growth. We have a better free trade economy than most of Europe. We've got all the same problems, but we have some advantages that they don't have. So where do you think we're going? Is 5.3 the high? Is 6 the high? Yeah, hard to hard to call that from history. The real rate of return on a 10 year used to be about 1 percent. That was a pretty good estimate. You figured out what was the expected rate of inflation.

9:03You add 1 percent to that and you get roughly where nominal rates would be. Right now, we got real rates that are higher than that. We've got an expected inflation rate's a little below three, and we've got over 5.3 % for the 10 years. So I'm going to say for the first time, I don't think you've ever heard these words out of my mouth, now is a decent time to buy bonds. You're getting paid to buy bonds today for the risks you're taking, and I think that's okay. So to be clear, we've got a great guest on right after you as well. Charlie, are you saying we should sell stocks to raise money to buy bonds or buy bonds, because it's the first time you've said it ever on this show, buy bonds with excess cash that we may already have?

9:46Certain stocks, certain stocks, growth stocks. There are a lot of tech stocks that are overpriced. There are certain parts of this market that are in bubble land, mostly AI related. I would not sell my small and mid cap value stocks, which are reasonably priced, have not gone up in the same way. Ray Dalio has suggested the market is in a type of a bubble that may soon burst. I'm super paraphrasing Ray Dalio. I don't want to speak for him. But it sounds like you would agree at least with part of that thesis. Yeah, you should not have a portfolio of AI stocks. Just that. You need to have a diversified portfolio, large cap, small cap, value stocks.

10:25There are parts of this market that look scary to me. And they look a little bit like, if you want to go all the way back into the 1870s when we built railroads and railroad stocks got crazy. They did change the world, but a lot of people lost a lot of money. Same thing for the Internet in 2000. I would be cautious on AI stocks. First time you have said that at least in almost a decade, maybe ever on this show about bonds. The message is taken. Charlie Bobrinskoy, Aerial Investments. Thank you very much. All right, folks, been a rough few weeks for banks as well and financial firms. That includes Stiefel Financial, shares down about 10 % in three weeks, the entire group getting sold as rates rise.

11:07But is this drop a chance to buy low in an undervalued group? Joining us now, Ron Krzyzewski. He is the chair and CEO of Stiefel Financial. Ron, we'll get to your company on its own in a second. I know you heard what Charlie just had to say. Would you agree that parts of the AI complex are in a bubble right now? You know, I wouldn't say that because right now they're growing so fast. I mean, what we have is almost a tale of two economies. And look at it, Brian. You have the MAG-7 that are growing. They can afford these interest rates. It's like a homeowner that's got an asset and he's taking out a home equity line, and they're growing faster than interest rates.

11:53And that's why these stocks are going up. The other 493 companies in the S &P right now are kind of paying for it because it's difficult to absorb these kind of rates. I do agree with the prior comment about real rates. I mean, back in 2020, I think it was, the real rate on the 10-year was like a negative one, almost 120 negative. And today it's 3 percent. So you're starting to maybe getting paid for owning some bonds. But I'm not going to jump into that the AI stocks are overvalued in the short run. The question will be, in the long run, do they have pricing power? I do agree with the railroad thing.

12:33And anyone who laid fiber optic or laid railroad tracks and put all that money into it, those were not good investments. They were good for the other companies that took advantage of it. Yeah, I mean, I'm old, Ron, but I ain't that old. I wasn't around in the 1870 railroad panic. But the point is well taken. We've seen this a lot over the years. You saw with cars, right? There's all these car companies. And then it whittled down to a couple of all these radio companies. And that whittled down to a couple. Everybody's kind of throwing money at everything right now. So, Ron, so how does this ultimately shake out?

13:06I mean, who wins? Well, look, the first thing you should ask yourself is any general utility, which a railroad was, you can argue that AI is that benefits society as a whole, but does not have monopoly pricing power, is you've got to be careful with how much investment you're putting at it. A lot of, I think that long term, if you look out long term, there's a lot of companies that are trading pretty cheap now that are going to be the beneficiaries of what all this AI spend is. And all we're focusing on now are the Mag 7. And I think we should be looking at companies that will benefit from AI, not just those building AI.

13:44And that's where the market opportunity is in buying stocks today. Well, listen, you're watching rates because it directly impacts your customers, your clients, your investors, your employees. So how high does Ron Kaszewski think the 10-year yield here is going? Are we going to 5.5? Are we going to 6 %? Well, let's just work backwards. I mean, let's decompose the 10-year. The 10-year, theoretically, is the rate of inflation plus the premium or growth. And so if you're sitting here at 2.5 inflation, you're getting real interest rates of about 3. The issue for me is that the long-term economy, it's a big economy.

14:29The U.S. economy is hard to grow more than 3 percent real. That's very difficult. So if you start pushing rates where the real rate is above 3 percent, that becomes an anchor on the economy. And can we do, will rates go higher? That's a policy question. We cannot run 6 percent deficits, keep going, because you know what fixes that problem? Inflation. That's the only thing that fixes it. Because it eats the value of the money? Well, yeah, I mean, if you really go to 1946, you want to go back in history, we had the largest deficits out of World War II. We used Bretton Woods, a strong dollar, and inflation to get our way out of that problem.

15:17And the easy way out of this problem, the deficit problem, is to inflate and debase the currency. But that is the most painful way also. And that's why you're seeing all these affordability issues. It's two economies. Investors with assets are doing well because while the cost of groceries are going up, your portfolios are going up faster. While those without assets are the ones that there will be a lot of voters that are going to be sitting here saying, hey, this economy is very painful because the cost of living has gone up very much for those that do not own assets. By the way, Ron, it's also we're not going to get into it now, but that's a societal problem, too.

15:58It's probably why we're seeing certain candidates and certain political theories and whatever on the rise, because people that don't have assets are pissed off that they don't have enough money to pay for the rent or buy a house or buy groceries. While those that have assets are getting richer and the divide widens. That's for a different show. Do you think that we're in a bubble?

16:19I don't think so. I'm not I'm not I'm not going to go there. I'll end with this. I want you to think about this. Everyone's talking about AI and how AI is going to change everything. I want you to sit down and think about all the inputs that you need to understand to predict where this market's going to go. And you need to make estimates. You need to think about political ramifications. Will Congress change? Will the laws change? What will happen in interest rate? What happens in inflation? Is there geopolitical risk? Every one of those is a guess. And by the way, AI's guess is no better than yours or mine.

16:49And I'd leave you with that thought, which means that humans still have something to do. This show matters and what people think and how all that stitches together is going to be what the outcomes are. Not because I put it into Claude or open AI, which, by the way, today give me the same answer. So I'm questioning that. And I would agree with you, Ron, especially for Stiefel and what you guys do so well. Human beings matter more now than ever. Human relationships matter more now than ever. You can use AI. You can use Slack. You can use texting, whatever, WhatsApp, to expand a relationship. But you're not going to make a relationship over a computer.

17:28And so humans appreciate. I appreciate all the humans out there. Well, you know what? And I hope for my grandkids that humans still matter. But there is something I think it's called Jevon's Paradox or something that says, hey, you know what technology does? It creates more jobs. And that's what I believe. That's what we've seen at Stiefel this year. I thought AI was going to cut our job. We'd be able to cut jobs. Au contraire, we're adding people. It's kind of exciting, actually. Love to hear it, particularly in my dear mother's hometown of St. Louis, Missouri. Ron, real pleasure to have you on The Exchange and CBC.

18:01As always, take care. All right, on deck. How this winter may be costly if it's colder for millions of Americans. Plus, speaking of why winter may be coming early for the housing market as mortgage rates, along with bond yields, just keep going up. Don't shoot the messenger. We're back right after this. This is The Exchange on CNBC.

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19:57Let's Chumba! No purchase necessary. VGW Group. Voidware prohibited by law. CT &C's 21 Plus. Sponsored by Chumba Casino. Welcome back to The Exchange. If you are heating your house with oil, maybe you live in Maine or Vermont or Connecticut, the EIA has some bad news for you. You're going to be spending 21 % more this winter compared to last winter because of the rise of the price of oil. But maybe it's not all bad news because you could get an assist from some milder weather thanks to El Nino. Anyway, let's talk about that crude oil, Iran, Russia and more with Lippo Oil Associates. Andy Lippo, I feel like, Andy, the heating oil story, because listen, not a lot of Americans use heating oil for their home, but it's still wildly popular in New England and up in the northern mid-Atlantic region.

20:45It's a big story that nobody's talking about. These are going to be big bills. Well, thanks very much for having me, Brian. You're absolutely right. When we think about diesel fuel, diesel is the same whether you're using a tractor, in construction equipment, in a truck, or home heating oil. So the underlying diesel price is contributing to these higher home heating oil prices. When that home heating oil delivery truck pulls up to your house to deliver about 150 gallons of fuel, you're going to be paying about six and a half dollars a gallon. That is going to translate to nearly a thousand dollars for every time you fill up that oil burner in your house.

21:28And that, of course, is going to impact on your discretionary spending for other things over the winter. And I know that we've been really focused, rightfully so, on Iran and Hormuz for about the last seven, seven and a half months. And we're going to have more on this in Power Lunch about Russia and Ukraine. But how much, Andy, does what's happening inside of Russia, Ukraine just keeps, thankfully, just pounding Russia, but that's also reducing their diesel fuel exports. How much is that impacting what's happening here in the United States, if at all? Well, it certainly is impacting what's happening here in the U.S.

22:05And if we think about it, you know, around the world, because we're all connected on the energy market, the world is consuming about 28 million barrels a day of diesel fuel, of which 2 million barrels a day is offline between the Middle East and Russia. And if we think about what the G7 just did, they made an announcement of releasing 100 million barrels of both crude oil and diesel fuel over the next four months. If all of that oil was diesel fuel, that's 800 ,000 barrels a day. That just simply offsets the loss of Russian diesel exports. And I expect Russia is going to continue to ban those exports for many months into the future as Ukraine has been hugely successful in taking out Russian refining capacity.

22:54Yeah. And by the way, I don't know what maybe you do, what percentage of Russian capacity is out. I've seen numbers 15 to 25 percent. I know it varies by day, too, because they can come back online and they get hit again. But what happens if it keeps going up? What happens if Ukraine strikes, which, again, we support because you want to remove the money bag? from Vladimir Putin, which is funding their war. What happens if half of Russian refining capacity gets blown up? Then what? Well, the Ukrainians just announced that they've taken out 50 percent of Russian refining capacity. But not all at the same time.

23:29Right. But it is hard to, you know, project how much it is. I think it's somewhere between 25 and 40 percent because they keep hitting those crude oil units. The question is, as it continues on, the world has relied on a drawdown of commercial inventories. Here in the U.S., distillate inventory for this time of year is the lowest level it's been since the EIA reported in 1982. And meanwhile, you have similar drawdowns in the rest of the world, and we're just relying on these commercial inventories, which we simply can't go on forever doing. Can't go on forever. How long how long is forever, Andy?

24:10I mean, like we talk about with rates, like is there a breaking point where, you know, the 10 year hit six and then that kind of sends everything into a slow mazel. How long is forever here with inventories and current capacities? Well, let me put it this way. Right. We always talk about how high does crude oil price have to get to encourage demand destruction? And you've heard numbers,$120 a barrel,$150 a barrel. If we look at the price of diesel fuel here in the U.S., it's$250 a barrel. And if you're sitting there in Los Angeles, it's$350 a barrel. So we're already starting to see a start of demand destruction here in the U.S., whereas in overseas, the way you handle demand destruction is through rationing, because many countries simply don't have the dollars to import the refined products.

24:59Yeah, and we're going to leave it there, Andy. But, you know, you look, there's really six massive refineries in Russia. A couple have been hit. If all six were to go down at one time, I'd be curious to see what happens with diesel prices. Andy Lippow, really always appreciate your insight, Andy. Have a great day. Thank you. Thank you. All right. Coming up, Eamon Javers with a scoop on how one popular trading platform may be tied to Beijing, China's government, and could pose a national security threat. The exclusive reporting you'll only see here on CNBC. Next.

26:00Your actual workflow. Make work less work. Try Google Workspace with Gemini at go.gle slash workspace with Gemini. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash market update podcast or find Schwab Market Update wherever you get your podcasts.

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27:15All right, welcome back. This is an important story. Webull shares having their worst day in more than a year. Stocks down almost 20%. saw an exclusive CNBC report that lawmakers are linking the trading platform to the Chinese government, labeling it a national security risk. Eamon Javers broke the story, and he is in Washington now with more. Eamon, it's a big deal. Yeah, Brian, that's right. Webull is now responding to our exclusive CNBC report this morning about a Capitol Hill committee report raising questions about the company's ties to the Communist Party of China. Webull shares were down, as you say, nearly 30 percent in the wake of our initial report this morning.

27:54And in a statement, the company said in part, it is deeply disappointing that the select committee published a report containing significant inaccuracies and unsupported conclusions without ever seeking clarification from Webull. Webull has made every effort to cooperate with the committee, but did not hear from them for more than 20 months before this report was released. Weeble's U.S. business is conducted from its global headquarters in St. Petersburg, Florida, and its office in New York City, while U.S. customer data is stored in the U.S. and access to sensitive customer data is controlled by the U.S.

28:27Now, Brian, the new report alleges that the company, which has 28 million global users, is quietly tied in structural ways to the government of the People's Republic of China, representing a national security threat to American finance. CNBC obtained the new 25-page report exclusively from the bipartisan Select Committee overseeing U.S.-China relations, which finds a profound gap between the firm's public marketing as an American company and the actual control of the firm. Now, Webull, which trades on the Nasdaq Stock Exchange, says it operates a global network of licensed brokerages offering investment services in 18 markets.

29:04But the Congressional Committee says the online brokerage represents a national security risk because critical back-end systems, personnel, and data flows may remain exposed to the Chinese Communist Party's mandatory intelligence laws and coercive demands. Brian. There's a lot here, and I urge everybody to go do some more work and listen to what you're writing and saying, Eamon. Do we know what these inaccuracies that you referenced are? Like, did Webull go into more about what those inaccuracies might specifically be? Yeah, not to us, Brian. We have the statement from their spokesperson saying that there are inaccuracies in the committee's report, but they're not detailing any of the inaccuracies.

29:44So we don't know what it is that they're taking issue with. Now, this report, I don't believe, has actually been released to the broader public just yet. We got a copy of it yesterday and reported on it this morning. The company, I know, was notified earlier this week that this report was coming. And I know that over a two year period of time, this committee and this company have had a back and forth. Now, it might have gone dormant for a long period of time, but there were letters exchanged back and forth between the committee and the company over a long period of time leading up to this. Yeah.

30:14And by the way, your report, which is up on CBC.com as well, is getting pickup in Reuters and others. So great work on that. Do we know who in Congress might be putting out this report? Like who is who is poking around Webull? Do we know? Yeah, we know exactly. This is the House Select Committee on China. It is the committee that's focused on Chinese Communist Party influence in the United States. And they do a lot of research looking into issues like this, the ways in which the Chinese government is seeking to claim stakes in the U.S., push agendas in the U.S., propaganda, all of that kind of thing.

30:52And one of their concerns here is that they see this as a potential toehold in American finance for the government in Beijing. The idea being that if they wanted to at some future time, they would use all these little toeholds and things to cause some kind of disruption in U.S. financial markets. And they also get enormous amounts of access to data about Americans and how they're trading and what they hold, all the personal information that goes along with that. So that's a concern as well. Yeah. And the market is reacting, Aiman, to your reporting. The stock is down almost 20 percent, 19.3 percent right now.

31:26Stories up online as well. Eamon, we appreciate it. Thank you very much. You bet. All right. Now let's get a CNBC News update with Seema Modi. Brian, here's what we're watching at this hour. Students at Cornell expected to begin a seven-hour sit-in at the Ivy League institution this hour in solidarity with the woman who alleges she was sexually assaulted by members of the Chi-Fi fraternity back in 2024. Known only as Jane Jo, she filed a civil lawsuit against the school and seven fraternity members last month. Three of the accused men have denied the allegations through their lawyers. Reuters reporting that Saudi Arabia has launched an accident probe into last week's Fly Dubai flight that was diverted there after a cockpit stabbing.

32:04The United Arab Emirates has already opened a separate criminal investigation. Most of the passengers were Israeli and its government has offered to take part in the Saudi probe, but says the kingdom has yet to ask. Israel and Saudi Arabia do not have diplomatic relations. And the WNBA just set an attendance record. According to Sports Business Journal, the league drew a record 3.8 million fans to games this year, a 20 % year-over-year increase. The bump attributed in part to 25 games that were relocated from their home arenas to larger venues to meet high-ticket demand. That seemed to work. Brian, back to you.

32:38Yeah, I went to an Indiana Fever game a couple years. It was awesome. Like, people were just packed. The place was rocking. It was a lot of fun. Seema Modi, thank you very much. All right. Coming up, your next guest says that even if household incomes keep growing, it could take a decade to get the housing market back to where it was pre-pandemic. We'll find out why next.

33:06Welcome back. Let's talk housing, mortgage rates. Stop us. Have you heard this before? They're moving to new highs, and it's continuing to hit the housing market and more. Diana Holick has been digging into some new data and joins us now with, I think, it's not hyperbole to say, are some pretty startling numbers. Yeah, no lie. Look, Brian, after taking a breather to start this week, mortgage rates moved even higher again today. The average rate on the 30-year fixed rose seven basis points to 7.63 percent, according to Mortgage News Daily. That's the highest in this recent run up, and they're now up 74 basis points or about three quarters of a percent since the start of September.

33:45And I'm showing you that chart for a reason, because pending home sales in September dropped a steep 8 percent year over year. That's according to a new report from Zillow. Now, pendings are signed contracts. So that's people out shopping in September as these rates really took off. And that's a big number, but it should actually come as no surprise because look at the mortgage numbers. Mortgage demand has been tanking steadily over the past month. Last week, applications to refi were down 56 % year over year, and applications for loans to buy a home were down 15%. The adjustable rate, or arm share of applications, is sitting very high at just over 10 % of all applications.

34:23These riskier loans offer lower interest rates, and consumers are just clearly looking for any relief they can get on that monthly payment. Now, this all coming as home prices continue to rise. We got the latest read in August home prices from Cotality, which showed them up 1.8 percent from August of last year. That doesn't sound like a lot, but the annual gain is actually growing again. And that's August. So we'll see if this September surge in rates starts to call prices again. But, Brian, with the supply and demand still being a problem, I don't know that it will. Just nobody's listing their home for sale.

34:57The ones that come up, they get 20 people jump on it. There's nothing else. Diane Olick, thank you very much. That's right. So your next guest says that while fixing the housing market is going to take a long time, there is a way to speed up the recovery. Joining us now is Mark Zandy, chief economist at Moody's Analytics. And I guess if I'm going to take the contrarian view and all my realtor friends out there, they need to mute the TV right now because they're going to hate me for saying this. Do we need to fix the housing market? A lot of people, tens of millions of people, Mark, are really happy that they're sitting on a three percent mortgage.

35:31Yeah, totally. I mean, fix it in the sense that we'd like to see homeownership, the percent of the population that owns their own home to rise. I mean, I think people value homeownership and that's viewed as a positive thing as part of the so-called American dream. So, you know, I think that's a good barometer of what we want. So in that sense, fixing it means let's get let's get single family housing down so it's more affordable and we can get homeownership back to something that we can all feel better about. So how do we do that? Is there a way absent some, you know, great gazoo moment where mortgage rate?

36:08Thank you for getting that reference, by the way. Flintstones, that was a little deep. That was pretty good. That was a deep cut, but I'm also going insane. So that's what happens. Is there a way to bring down mortgages or speed up housing's recovery without some miracle drop in mortgage rates? I'll give you one really pretty straightforward idea. let's kind of end the Iran war, get inflation back in, let interest rates come back down. I mean, Diana did a pretty good job kind of highlighting why, you know, we've got a real big problem right now, and that's a 7.63 % fixed mortgage rate. And just for context, the average coupon on an existing mortgage, so you go look at all the mortgages outstanding out there and look at the existing rate, it's about 4%.

36:49So that can kind of give you a sense of things. So we got to get that rate down. That's number one, job number one. And the way to get that down, Well, you know, get inflation back down, get the Fed off its path to raising interest rates. And that'll help bring long-term interest rates in and help mortgage rates in. So if you want one thing that we can do and make a difference tomorrow, we'd be to end that war. Well, could I offer up another solution? Because everyone's kind of looking at the Fed like, oh, Fed, you control interest rates. Actually, they do and they don't. I mean, the bond market's going to do it at once.

37:20Banks, though, Mark, banks have an incentive to sell homes. Banks are the ones that really make money off mortgages. They want things to move. We've talked a lot, you and I, by the way, for 20 years, talking about subprime before anybody else was. You and I were going back and forth about this. Could they create a transferable mortgage where basically I'm sitting on three and a half. I can move, keep my three and a half rate on the new house. I know it's tied to the property. There's legal stuff in there. But would there be a way to do that? Yeah, because I think the banks are probably going to find a way to unlock this because they want to make the money.

37:56Well, you're talking about an assumable mortgage, right? Yeah, something like that. And then the new buyer can also get the same rate. I don't know. I'm making stuff up, but why not? Well, you know, there's no free lunches, they say. I mean, investors who buy the mortgages, I mean, the banks originate the mortgages generally and then sell them to investors. Investors, if they see it's an assumable mortgage, you know, they're going to assess the risks and say, hey. And if it's different, they're going to say, no, thanks. We're not going to do it. Right. Because then you're buying a new buyer and maybe the new buyer stinks.

38:25Right. And the other problem is an assumable mortgage is the person who's buying the mortgage has to, you know, if there's equity in that home, they've got to come up with the cash to cover that equity without getting, you know, you can get a second mortgage, but that's generally very costly. So it's it's not a panacea. You know, I don't think that's the solution. I mean, I think it's worthy of thought and can think more deeply about it. Maybe, you know, FHA, VA offers a similar mortgage. Let's take a closer look at what they're doing and how we can improve that. But I don't think that's going to be the solution here.

38:55No, and I don't think it is either. I'm kind of this is the spaghetti wall moment, right? I'm just trying to throw something because. Well, I'll give you one. Because there's so much, Mark, I want to hear. There's so much money tied to people moving. It's like$60 ,000 for every home sold. There's a realtor commissions, people buying couches, painting homes. It's great for the economy when the housing market moves. So I'm just kind of throwing it against the wall and seeing if anything sticks. And by the way, housing is kind of the flip of AI. AI is taking off here and driving all the growth. Housing is the caboose of really holding things back.

39:26So if we get housing into some kind of gear here, that would make a big difference. But here, I'll give you one suggestion. Raise the cap on capital gains taxation that was set back in 1997. And of course, house prices have risen considerably since then. And so you've got a lot of older Americans sitting in these big homes that they can't, they're empty nesters, they don't need the home, but they don't want to sell the home because they've got this massive capital gains, the tax that they're going to have to pay. So just re-index the cap that was put in place back in 97 to current house prices and do some twists here so it's not just to the rich, make it for people that are over the age of 65.

40:05And that, I think, would unlock a lot of those homes and start to help support more transactions. That is a great we got to go. That's a great pull. And by the way, three friends of mine, because we're all of a certain age, their kids are gone. And they've said, I would sell my home, but I'm going to get a giant capital gains bill. So they're sitting on a five bedder home with two people living in it. Mark Zandi, I love this idea. Let's get you back on soon to dig in a little bit more. Thank you. Anytime. We got a news alert right now on Microsoft. Kate Rooney, what's going on? Hey, Sully, well, Microsoft is hosting an event in San Francisco.

40:39We've got a couple headlines here for you. First is about basically turning Windows into a wider platform for AI agents. So that has been the theme today. CEO Satya Nadella was on stage at this event describing, you know, you don't need the best model necessarily. He's talking about making an entire ecosystem, and that is clearly Microsoft's lane here and their play. It's really what they're talking about at this event. He talks about a potentially major shift coming in computing as well, argues, quote, the next era isn't about the model itself, but the system around it. Also talks about trust in AI agents.

41:13That, of course, has been such a big theme as the form factor starts to change in AI. Big news here, Microsoft opening up its windows to rival AI agents, Meta's Muse in particular. So it's trying to position Windows as this operating system where agents can kind of jump around to multiple systems. So sort of inviting in the competition. They also talk about something called containers, but this is a way to basically keep these AI agents that we've talked about that have hacked into different startups in different scenarios. It's a way to keep them from accessing files that they're not supposed to access and that they don't have authorized use to do.

41:48So it's a way to kind of rein these in as people worry about safety. There's also some talk about costs here. They have a new coding model and then a new Surface laptop as well. Brian, back over to you. All right, Kate, thank you very much. Take a short break. Be back with more on the exchange.

42:06All right, we've got some new news on Apple. Let's get that with Mackenzie Sigalo, Southwest. Mac. So, Brian, Apple is expected to unveil an entirely new display-driven smart home hub, and it's a hardware event next Tuesday. And as part of that push, Bloomberg is reporting the company is also working with LG on a complementary lineup of accessories, including a doorbell, cameras, a smart lock, and thermostat. Now, those products will reportedly carry the LG name with LG Handling Manufacturing, and customer support will Apple help shape the design and features. Filings with the FCC that you're looking at right now show actual schematics for these new devices.

42:42Part of the appeal here, the more that your phone, watch, and potentially your front door and thermostat all work together, the harder it is to leave the ecosystem. And for John Ternus, it's an early test of whether a new hardware category can open another path into services around the home. Meanwhile, the home tech space is getting more crowded. Amazon's Ring just today unveiled its first smart lock. And Meta last week introduced Muse HomeLink, though that's a much more limited offering, essentially a small device that lets its AI agent talk to other products already within your home network.

43:14Right? Mackenzie Sigalos on the Apple News. Mac's smart heart smart home hub is not easy to say. Mac, thank you very much. No, right? No, I just tried and I'm screwed. Thank you. All right, coming up, your mystery chart is the number one name in the S &P 500 over the past year. We'll talk about that and practice smart home hub next.

43:41Stocks are down right now, but remember, we're coming off a six-day winning streak, and your next guest expects a little more volatility, but also says there's life left in this bull market if you know where to look. Kevin Monest, chief investment officer at Henion & Walsh Asset Management, and brings us the answer to today's mystery chart, which I did not know. I've heard of this company. It's made investors a lot of money. It certainly has. Why do you think Comfort Systems, ticker fix, will keep making us money? It's in the industrial sector, and it's a big old boring HVAC company. They've been in business for years, supplying heating and cooling solutions to commercial real estate, warehouses, distribution centers, and guess what now, Brian, data centers.

44:24They become part of the AI revolution. So it's a necessity. It's a picks and shovels play. Companies like Comfort Systems, Vertiv, Modine Manufacturing, all these cooling providers are seeing a lot of money being thrown their way. Because this is a part that we don't. It's the unsexy part of AI. Correct. Correct. Got to keep the buildings cool. Somebody has to do it. They help do it. Exactly right. Infrastructure play. Infrastructure spending is not slowing down anytime soon. This is a good way to play. Well, to make that power, you need a utility. You do. And you bring another name, which is a utility as well, AEP.

45:01Now, are you picking AEP, which is sort of the central part of the United States? Are you picking that because it's specific to a name you like? Or is it just one of many utilities that we could own now? It's a great point. It's one of many utilities. Obviously, Constellation Energy is in the news this week because of the 20-year contract they signed with Google to supply nuclear power for their own AI ambitions. the same Constellation Energy that partnered with Microsoft Island. I'm sorry, Microsoft to reopen Three Mile Island to help supply nuclear power for them. But American Electric Power supplies energy to 5 million customers in 11 different states, including the state of Virginia.

45:37Why do I mention Virginia? They've become the data center capital of the world. They pay a good dividend. They're trading at an attractive valuation. And utilities hold up very well in the face of volatility. So we like the way utilities are positioned in this market environment. OK, very outside of AI, very different outside of AI is Raytheon. Yes. RTX is the new name of the company, a maker of the Tomahawk missile, I believe. And all we hear about is how we're depleting our store. I've got to assume that goes into your thesis where we're just going to have to buy more bombs. Yeah, yeah. I don't know how to phrase it in any way other than that.

46:10It's a great way to phrase it. And it's another example of following the money. NATO countries have committed to spend up to 5 % of their GDP on defense by the end of 2035. We saw that the U.S. Navy just signed a 20 plus billion dollar contract with Raytheon, which is part of RTX, to replenish their stockpile of Tomahawk missiles. Money is going to continue to be spent on defense. That's a great area for investors to find growth opportunities outside of the revolution. OK, so we got three names there, comfort systems, American electric power and RTX on a macro market perspective. What's the next most important thing you're watching?

46:46We've got Iran, we've got Russia, but we've also got bond yields around the world going up. AI, the spin continues. What sort of peak on your mind right now? Earnings. Earnings. We're forecasted to have the third consecutive quarter of 20 % plus year-over-year earnings growth. But most of that earnings growth is coming from two large-cap technology names, Micron and NVIDIA. In fact, they're forecasted to account for a third of the overall earnings growth of the S &P 500 this quarter. In fact, they're going to out-earn the bottom 490 companies in the S &P 500 combined on an earnings basis. That's incredible.

47:23Is that not incredible? For this rally to be sustainable, we need earnings dispersion, and we also need dispersion in stock market returns. It just can't be concentrated in these large-cap technology names. Those numbers are truly incredible. And I know everyone's watching sort of when might that end, but right now there's no sign it's going to end. No time soon. Kevin Maughan, really appreciate having you on. Thank you very much. Comfort Systems RTX AEP. Thank you very much. All right, folks, that does it for us here on The Exchange. We appreciate you watching. I will see you for power lunch after this short break.

47:56Market's down a touch. Bond yields up. We've got a lot to do, and we're back right after this.

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