Crude’s “Crash Diet,” Tariff Tiff, and Hold off on a Hike? 9/8/26

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1:03Thank you very much, Scott. Soaring fuel prices and a cholesterol drug headwind are hitting the markets today. But AI stocks, especially open AI stocks, are boosting the Nasdaq 100. I'm Kelly Evans and welcome to The Exchange. WTI oil, I don't have to tell you,$93 a barrel today after we already saw the highest gasoline prices ever for Labor Day and diesel nearing$6 a gallon for the first time. It's putting some pressure on stocks, although treasury yields are actually lower today. That's interesting. We'll come back to that. You can see the S &P is down four tenths of a percent right now. The Dow is down more than one percent.

1:37And this is partly why. A big setback for a cholesterol drug weighing on the health stocks. A Novartis drug did reduce harmful LP little a cholesterol. Remember, we did that story on the show a few months back. But it didn't reduce cardiovascular events as a result in a late stage trial. That has Novartis down 14 percent, Amgen down almost 10. That's weighing on the Dow today. Plus some wild action in the AI trade. The release of OpenAI's super powerful Astra model is reshuffling the leadership decks and has Jensen Wang declaring that artificial general intelligence has arrived. We'll speak to a leading AI safety researcher about what happens when we can't turn off the bots.

2:15But let's begin with the action in Iran driving oil and fuel prices higher again today. Eamon Javers is in Washington with the latest. Eamon? Hey there, Kelly. The U.S. military over the weekend struck three Iranian crude oil tankers in the Persian Gulf region. The U.S. said this was in response to Iranian Revolutionary Guard launching ballistic missiles toward two U.S. Navy warships. The military said that the aircraft carrier and guided missile destroyer targeted in that attack evaded the attacks and no Americans were harmed. CENTCOM issued a statement last night saying at least one of those Iranian vessels sank, they said, Thanks to the precision and professionalism of American service members, the motor tanker Kylo sank in the Gulf of Oman today and joined Iran's navy at the bottom of the sea.

3:02Meanwhile, Houthi rebels in Yemen, who are closely aligned with the Iranian government, launched attacks against Saudi Arabia today, hitting oil infrastructure and utility targets and wounding as many as 70 people, according to local authorities. The Saudi energy ministry said that operations at oil facilities and utilities in the southern region of Saudi Arabia have been temporarily suspended as firefighters work to extinguish those blazes. And here in Washington, Kelly, the U.S. Treasury announced additional sanctions targeting the Iranian aviation industry this morning. I asked officials on a briefing call today if they are seeing any impact on Iranian decision making as a result of this stepped up economic pressure.

3:41One official said the U.S. is seeing what he called anecdotal evidence that the campaign has been effective, but declined to share any details of that evidence. Kelly, back over to you. And so we have a situation where our oil price is going up, but Iran's money is running out. In fact, I mean, that's what I read this morning is that they might have only a couple months left. So it's this it's kind of a war of attrition, I guess. Who's going to blink first? Yeah, absolutely. It's eyeball to eyeball economically. in both countries have enormous economic stakes on the line. What President Trump is betting is that the United States has a larger capacity to absorb the economic challenges.

4:18And he's doing that ahead of these midterm elections, which are crucial for his Republican Party. So he is gambling here, but so is the Iranian regime. And the question is, who's making the bigger gamble? We just don't know how long this is going to take to play out. All right. Eamon, for now, thanks very much. You bet. Eamon Javers. Our next guest says that until today, the oil market had been too complacent about an end to those supply disruptions in the Middle East. Of course, that now seems to be history. But Bob McNally is the founder and president of RapidN Energy Group. Bob, it's great to have you here.

4:48Welcome. Thanks, Kelly, for having me back on. So how would you do? I'm a little surprised to see this bigger reaction in oil after these events this weekend. And why is it that this weekend is what's pushing the oil price up so much, whereas we had plenty of it seem to me at least kind of adverse headlines in recent months that the markets would completely ignore? Well, you know, Kelly, I think we've seen a building sort of a restoration of a risk premium in crude since July, since the MOU started collapsing and the blockade was put back into effect and so forth. And that has gathered steam in August.

5:23And now as we roll into September, why? What we're seeing, first of all, the biggest factor containing crude oil prices since this thing started has been China's crash diet, right? It just dropped four and a half to five million barrels a day overnight of imports. Well, it's coming off the diet and it's thirsty and it's hungry. It's starting to bid crude up. And we see that in all the spreads and the trade data and the shipping data and record levels being paid for cargo ships to transport crude oil from the U.S. Gulf Coast to China, et cetera, et cetera. So that's number one. Number two, we're coming to the end of these SPR releases.

5:58And number three, the market's optimism bias, its willingness to sort of sell off on verbal intervention, jawboning about peace being around the corner seems to be ebbing a little bit. So, look, we're down two billion barrels. Summer is over. Peace didn't happen. The war is still going on. The real tightness is in refined products, as you guys have been reporting. It's diesel. It's gasoline. That's where the wicked tightness is. However, crude is not getting better. And so crude is grinding higher. You know, there's been some focus on the Goldman note where they talked about, yeah, we could go back to 120.

6:31But really, the note to me was actually kind of bearish in some ways. I mean, the guest, Dan Struyven, their analyst, laid out a few comparisons between the situation with global stocks now. And he points out the all-time low for global commercial stocks was in 2003. And we know prices didn't peak till 2008. Oil stocks were at 9.1 billion barrels globally before the war, 8.6 billion today. As he said, still well above the minimum operational storage level. So there's nothing here to him that's kind of flashing a red light where we should really worry about, you know, a sharp move higher here. Well, I would be a little more cautious than that.

7:09So what we don't really know, Kelly, and the big question now is, can Iran still inflict damage on flows of oil and even worse, fixed infrastructure? So you see the Houthis have attacked the 400 ,000 barrel a day refinery in Jizan, Saudi Arabia. Now, that's not a huge concern for the global oil market. It's a lot of that oil, that refined product is consumed in Saudi Arabia. However, if we go back to seeing attacks on Abcake or the Yambu export facilities, then I think we're talking about a bigger disruption. So it's not so much about where the precise level of inventories is today, although when you factor it in with the depleted SPR, it's quite low.

7:50But it's not so much that. It's where are we headed? The market has had an entrenched optimism bias almost the entire span of this conflict. And we think it's been unwarranted. And I think the reason we're starting to price out that relief that went in around Memorial Day, around Memorial Day, the market just decided this thing is going to end. China's on a crash diet. There's going to be diplomacy. Hormuz is coming back. There's been no fixed infrastructure damage. We're going back to surpluses. And can OPEC plus hold the bottom? That's where we were. We're coming out of that. almost every one of those assumptions is proving wrong or at least wearing off.

8:24So, and by the way, this is why I love AI, okay? I'm going to say this because later in the show, we're going to do a lot of scary talking about it. But I'm talking to Gemini saying, okay, $6 diesel, we're not there yet, but it looks like that's where we're headed. What difference would that make for the typical tractor trailer? And they said, maybe it fills up 100, 150 gallons at a time. So that's 100 or 150 extra dollars. So So it's significant. I don't look looking through the freight names. There was, you know, an outperformed for FedEx freight today. I didn't see I don't see people panicking.

8:53I don't think it's the end of the world. But like you said, you know, at this point, we need luck, a mild winter and no more refinery outages to skate by even without higher diesel and pump prices. That's right, because U.S. refining has really we've stepped up like a champ. We lost Russian diesel exports. We lost a lot of Chinese refined product when they stopped importing. The refining sector is just almost fully maxed out record levels, but we can't fill the whole gap. And we're deferring maintenance on those refineries. So, look, it's it's when you mentioned diesel, it's really important. That is gasoline gets all the attraction and everything because we see it, we touch it, we pump it.

9:33But it's diesel that's the real lifeblood. It's in marine transportation, road transportation, mining, defense, home heating, electricity production. and bring in everything that we buy at Wegmans and Walmart and so forth. So it may not show up on a billboard that we see it every day driving by. However, it's the more insidious, more costly and more impactful fuel. So as we climb higher, it is a real concern. And God forbid we have cold weather or refining outages. Yeah, no. And more more Americans. This was the New York Fed latest survey. More Americans say their finances are worse now than a year ago.

10:08That's exactly what you're talking about. Obviously, this now could make that bite even more severe. Bob, thanks so much. We appreciate it today. Thank you. Bob McNally with RapidAn. Those high fuel prices have been a boon for energy stocks, of course, meaning the actual energy companies. The global energy ETF hitting an all-time high today. The oil and production ETF hit its highest since 2015. Our next guest is in favor of owning energy, copper, gold, and other hard assets. Let's bring in Surat Seti, managing partner at DCLA. It's an offset strategy, Surat. I don't know. Isn't it be nice, right, if you could say, hey, I'm hedging my high heating bills that are coming this winter by owning some of these stocks.

10:46Maybe that's, you know, a pipe dream or true for only three percent of Americans. But what do you think is going to happen with these energy plays and specifically where would you be an owner here? I mean, I think you're hedging not just for the energy that you're going to be using, but you're hedging in your portfolio because these are good hedges for two things, inflation and debasement of our dollar. because as that increases, all commodities are sold in dollars globally. So your demand naturally just goes up. And then the underlying demand now, you have a combination of both those going up.

11:18So I think, you know, to your question of where you would play, I would do a diversified play like an Exxon and a Chevron, where you get not just the upstream, but you get refining and you get global capacity as well. And then you get a strong balance sheet in dividends. So and then an EOG as well to get a little more growth. That would be on the energy play. On the copper play, you know, it's Freeport and tech resources. I mean, Freeport's another global company. You've seen demand for copper go up for not just industrial production, but EV as well. And then I would put a little gold in there with a wheat production company that gives you the access to, again, a good hedge on a barbell portfolio.

11:56Because if commodities do come down, we still have the underlying demand. But then you get the growthier parts of your portfolio doing well as well. Yeah, copper at all-time highs. It's only up 16 % year to date, though, but these levels don't look like we're going to see any relief soon. So I guess the bigger question is about dollar debasement and inflation, where this morning Kevin O 'Leary was on talking about his baseball card, the$11 million Otani baseball card. And he said, you know, maybe it's just that the dollar isn't worth as much as it used to be. And we all kind of have that feeling, right?

12:27You look at real estate prices, you look at certain collectibles and other assets, and you think, is this really worth? as much as it's worth? Or is it that my dollar just doesn't go as far anymore? So it sounds like you're a little sympathetic to that point of view. Yeah. And I think when you see globally also what the dollar is doing as to what we're going to be paying for things, and really that's an inflation hard asset edge right there. Other assets, real assets, cash flow assets are going to do better if rates kind of stay where they are. And we don't know where rates are going to go, given kind of what's going on geopolitically as well.

13:02So to have this in your portfolio, it allows you to get some relief when some of the growth assets are not performing as well. Yeah, I still, I mean, I look at kind of, this is Ed Yardenny's take on dollar debasement. He says, it's not happening. He says the dollar index is at 99. Every time it weakens, you know, we all get all, you know, jumping up and down about dollar debasement. He said, 99 is like a normal level. It's not that big. But the problem with the dollar index to me is that you're always comparing it to other major currencies. So at the end of the day, what do you measure their relative moves?

13:37What is the absolute way of checking how much these fiat currencies are worth? And I guess gold is the answer for that. Well, gold is the answer on that. And it's purchasing power, to your point that you were making before. What are we buying with the dollar today that we could have bought five years ago? And what's it going to be 10 years from now? And a lot of that is your real rate of inflation, which is increasing. So you have to kind of protect against that and say, hey, the dollar today is not going to be worth the same five to 10 years from now. So we want, you know, investments in our portfolio that are going to enhance and protect us and grow with the dollar, not just kind of the same way they are.

14:14All right, we'll leave it there. But as to the other kind of major thing going on in the markets today, which is wow, OpenAI Astra. are what's the way that you are exposed to the upside there for the whole AI trade? I mean, that that would be, again, the Barbell approach of the semiconductor side. Right. So to own the NVIDIAs and today, you know, even the Qualcomm's of the world are all doing well. So having some of that in your portfolio helps on days like this. But then you get the offset of the semi versus software trade. Right. So every day the market seems to be bifurcated, but definitely having some semiconductors in your portfolio.

14:49As we get more into the AI part, you'll see kind of that will benefit as well. All right. Hard assets, semis, and then some software. Surat, thanks very much. Appreciate it today. Surat Setty with DCLA. Coming up, we'll get a C-suite view on everything from that commodity inflation we were talking about to manufacturing and tariffs. We'll speak to the CEO of Agco, the world's largest pure play agricultural equipment maker. Those shares are coming off their best week since 2020. Plus, one of the researchers who exposed the recent hijacking of a German website by rogue open AI agents. What we learned from that incident and what it signals about the strength of these agents.

15:29That's coming up on The Exchange.

15:34This is The Exchange on CNBC.

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17:12Welcome back. American goods like dairy, agricultural equipment and furniture, and a lot of others, will now face tariffs of 15 to 50 percent in Canada starting today. Megan Casella is in Washington with the latest on that story. Hi, Megan. Kelly, that's right. This is Canada's response to the recent trade talks falling apart and about$20 billion worth of U.S. exports now facing these new tariffs. You can see some of them up here. Steel and aluminum tariffs will double to 50 percent. Clothing and plywood up there as well. Cheese and seafood get 25 percent tariffs. Air conditioners, 15 percent.

17:43Now, this will hurt for specific industries, and a lot of it is targeted to red-leaning states. But mostly it escalates the tit-for-tat going on. And the question now is how the White House plans to respond. President Trump has already threatened to double tariffs on Canadian cars and car parts. That would go to 50 percent. he says effective January 1st. And just on Monday, the president issued a new round of threats against the Canadian aircraft maker Bombardier. He wrote on Truth Social, no more selling Bombardier in the United States. Their products aren't good enough. Now, that would be a big blow for the company.

18:13The U.S. is by far its most important market, but it's not clear what authority the president has to make it happen or whether he's simply asking Americans to boycott. The White House has not responded to questions to that effect. But what it does suggest is that the president is continuing to look for ways to punish Canadian companies and the Canadian economy. And Kelly, there are no formal trade talks planned as of now. So we can expect threats like these to keep coming. All right, Megan, thank you. Our next guest company is the largest pure play agricultural equipment maker in the world. They recently sold a stake in their Canadian joint venture due to changing market dynamics and regulatory requirements.

18:50Eric Hansodie is the chairman and CEO of Agco. It's great to have you here. Great to be with you, Kelly. Thank you. And you've spent your whole life in agriculture. I mean, you were just telling me that you literally grew up. Did you grow up on a dairy farm? Grew up working on a dairy farm in central Wisconsin and was in 4-H and FFA, went to school for engineering and been in the industry my whole career. So what do you make of this? What do we call this? Are we in a trade war with Canada? What does it mean for agricultural products and dairy and all of the – I'm sure there's so much cross-border activity that's built up over the years.

19:17Yeah, so I just was at the Farm Progress Show, which is the biggest farm show in the U.S., and a lot of Canadians come there as well, last week. And so I was able to really get a good handle on farmer sentiment and that. Interestingly enough, it was the first most positive feedback we've had over many years. In a cyclical industry, we've been going down for about three or four years. Wow. They were showing the first signs of a recovery and enthusiasm largely because of grain prices. But among all of that is uncertainty with costs and trade and markets and all those types of things. So this adds one more negative to the list.

19:52It'd be great if we can find a resolution. Your shares are up 22 % this year. You've been CEO five and a half years now or so. I mean, much of that time has been with these trade wars and tariff fights and all of that. So what has the effect been on your kind of capital allocation about agricultural equipment? I think you have a presence in 33 countries or something like that. Yeah, we sell to about 140 countries and we have a presence in 33. So we're a very global business, about 20 % of our business is in North America. Throughout this time, we've been focused on the long term. We've been investing heavily in our technology, making products intelligent all the way to autonomous.

20:25Like the robot tractors. And you were a deer before this, so you know a lot about that. That's right. So we were selling autonomous kits that go on machines, make them where you can take the operator right out of the cab. So a lot of investment in technology as well as a channel. I mean, a set of dealers to sell technology directly to farmers to upgrade their existing machines. And then redesigning our distribution strategy where historically it's been a very brick and mortar business. And we wanted to change that and be much more convenient for the customer. We've designed something called Farmer Corps, where we go out and do all the work on the farm, remotely monitoring their equipment and do it on their place of business.

20:59So in other words, if there are tariffs on dairy or other agricultural products that implicate people's demand for equipment, is that something that could materially affect business this year or is it too soon to tell? The Canadian tariff, if it stays in the scope of what we're talking about today, it will have a small impact to the overall company and we're able to manage through that. But really, probably the bigger impact is just additional uncertainty for all farmers. They would like clarity on their markets and clarity on their costs. And so it would be great if these could get resolved and let farmers plan.

21:31What else are sources of that uncertainty? Well, the Iraq war, I'm sorry, Iran war with the closure of the Strait of Hormuz. That impacts diesel prices and fertilizer price and availability for some markets. So that's one factor. The trade wars ongoing is another factor. On the positive side, there's some uncertainty about biofuel support. So E15 all year round would be a huge positive, creating a lot more demand for both corn and then there's other ones for soy diesel. You know, it's funny. I was almost going to ask you about that. Since you went there, I do have a kind of specific question about this, but clearly the industry has given it some thought.

22:08When we're asking our oil analysts, what could we do to bring down gasoline and diesel prices? They say one thing could be if they relaxed those requirements on renewable fuels. Now, I don't know a lot about how this works, but is that true? If the administration were saying, hey, we want to lower even by 10 or 15 cents, but obviously it would be a huge blow to your customers and to one of their most important political constituent groups. So do you think that would ever happen? Well, it's impossible to say ever or never anymore. But I think the positives for ethanol are that not only is it a locally grown product, farmers in the U.S.

22:48or farmers in South America, depending, they're growing that product and then they can refine it and turn it into energy. So that's one positive. But it's also much more sustainable. It creates a lot less carbon emissions than its offset in terms of petroleum fuel. So those two things we feel like in the long term are going to be net positive. are tailwinds for more and more investment in renewable fuels, whether that's ethanol, soy diesel, or sustainable aviation fuel. So you think it could go year-round, actually? I think so. You know, it's hard to guess, but we're certainly more than 50 percent likely that we think it will go that direction.

23:22And we're hopeful for that. It's a great demand generator for the farm. It's incredible to see how this is implicating now, this important part of the fuel story because of all this. Then finally, with other tariffs in other countries, what has the net result been so far, right? We look at the stock prices, we look at the tariff revenues, and there's been so much back and forth over the past 15 months since these were first really applied in a large-scale way. What has been the net effect of all of that on your business and on your customers? Well, interestingly, there's a bottom line and a top line.

23:51So on the bottom line, we gather up all the costs around the world, and it's still roughly 1 % of our sales, so we can manage that on an annual basis. But maybe the more uncertain and hard to calculate one is on the top line, because of the uncertainty it's generated from all farmers in making big capital purchases that last many years. Without clarity on their markets and their cost position, they're all holding off. And we expected this to be a recovery year in 2026. With everything going on, it was actually a flat to slightly down. So more certainty would clearly help people who are making capital good purchases with high tech, which is what the business is.

24:31We'll watch those grain prices in the meantime. Eric, really appreciate it. Great to check in with you. Yeah, great to talk to you, Kelly. Thank you. Eric Hansodia with Agco. Coming up, did China just steal Apple's thunder? The tech giants, they are launching two foldable phones ahead of tomorrow's Apple event. We'll look at the cost, the chips, and what it all means for Apple's second largest market. That's ahead.

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26:30We've got some news on OpenAI. Kate Rooney brings that. She's out at Goldman's Communicopia in San Francisco. Kate, what's happening? Kelly, well, CFO of OpenAI, Sarah Fryer, just took the main stage here at that Goldman Conference Communicopia that you mentioned. The line, I will say, was out the door. There were two overflow rooms. So clearly, the bankers here clamoring to get a sense of what the CFO of OpenAI is talking about ahead of their upcoming IPO. This company, of course, has filed confidentially to go public. A couple headlines, Fryer said that while the company is growing at a nice clip, the enterprise business, as she described it, has been, quote, on a tear.

27:07She also talked about some of the revenue growth. She said overall, ARR grew 20 percent month over month. This is just from June to July. And then while the enterprise business overall compared it to the overall business, said that was up 32 percent month over month. That did confirm some of our reporting from earlier this summer about an employee, Olihan. She talked about value and cost and the overall ROI picture as companies grapple with token costs. She said that she's trying to really highlight that to enterprise customers, said there's been an industry shift to price per outcome versus price per token.

27:44So overall, the price discussion really shifting here. And then talked about building a moat, said there is more competition, of course, from cheaper open source models, said that those will have a place, but then what creates a durable moat is this ability, she said, for OpenAI to have a holistic approach from compute to application layers to enterprise. And then finally, Kelly highlighted the consumer business now has one billion weekly active users. And then the ads business said that was the fastest business internally to grow to a$1 billion run rate. And finally, the final final, Kelly, they're going to keep leaning in on compute, she said, and inference with their chips business.

28:20They will continue to self-build their own data centers as well and clearly still spending on compute. Incredible to see. And Sam Lesson had warned us about this and we were all, all right, I was ready to declare it's over. Anthropic won. And boy, what a shift the past week has made in their direction, especially. Oh my gosh. Now, but. I don't know if you saw this morning, Kelly. They said, research note, a ton of bullish notes on Astro over the weekend, but this morning, Mellie has said, OpenAI is so back. And I think you blink and the race changes, you know, who's in front and who is kind of coming from behind.

28:56But Sarah Fryer is saying they took arrows a couple of years ago for overspending on compute. That was a criticism. She said, that's the reason why Astro is succeeding is because they have spent so much, but really also tried to frame it as revenue per GPU, said they're trying to grow revenue while still spending. $100 ,000, is that what they said, GPUs? I just wanted to mention, Kate, the ChatGPT has actually been down intermittently over the past couple of hours. We saw this last week. Did she give any indication of why that is this happening? Because of demand? She did not mention that. We've seen some rolling outages.

29:31You mentioned last week with ChatGPT being down. We saw similar instances with Claude, which I'm not sure if today we're seeing the same. Outlook was down last week. She didn't mention it. also didn't explicitly mention an IPO. I think they were, this is obviously a Goldman conference. It was Eric Sheridan was interviewing her. The subtext was that there's an IPO, but it never came up explicitly. She didn't mention the outages. I did just see that, Kelly. We don't know exactly why, and you are tending to see more of this. It could be demand. It could be a lack of compute. I mean, that's been one of the criticisms with some of these outages is they just don't have enough compute to serve demand.

30:04But we'll make some calls. Or my favorite theory, which is it's rogue bot armies everywhere doing all kinds of crazy things. Kate, for now, thanks. We'll let you go. We'll keep an eye on it. Kate Rooney. Let's get to Frank Holland for the CNBC News update. Frank. Good afternoon, Kelly. Authorities say all five people killed with an Amazon cargo jet overran a runway at Miami International Airport were inside an aircraft cleaning van. Five others were also hurt. Both pilots are now out of the hospital, while two people remain in critical condition. The NTSB will provide an investigation update later this evening.

30:36President Trump's social media posts showing the United States stretching across North America and into Greenland and Iceland as drawing diplomatic backlash. Iceland summoned the U.S. ambassador and called the image unacceptable. Denmark's foreign minister described it as disturbing and inappropriate. Trump offered no explanation for that map. And the Southeastern Conference has amended its federal lawsuit against Louisiana State University, asking a judge to affirm the conference's authority to expel that school. The dispute centers on LSU's effort to add former NFL players despite conference rules.

31:08SEC leaders are scheduled to meet Thursday to consider LSU's membership. The school has not been expelled. Kelly, back over to you. All right. Wow. Frank, thank you. Coming up, the inside story behind OpenAI's agents hijacking a German quasi-defunct Wikipedia website. Will the risk of rogue agents grow with the release of these new Astra models? We'll ask one of the researchers who uncovered that incident. next.

31:57Welcome back. AGI has arrived. That's the message from NVIDIA's CEO, over the weekend, responding to the eye-popping advances in OpenAI's new Astra model. AGI, of course, means artificial general intelligence. But what does that really mean? And is it a moment to be embraced or feared? Our next guest is the CEO of an AI safety nonprofit. Their company discovered the hacking activity of earlier OpenAI models over the summer. Sydney Von Arx is the CEO of Nightingale. Sydney, it's great to have you here. Welcome. Hi, it's great to be here. You know, if I'm asking the AI safety company, they're probably going to say, ah, be careful, be scared or whatever.

32:36But I think that it's important to explain to the audience why your company exists, what you were doing that picked up on the hacking activity this summer, and what might be going on now with Astra being out there as an even more powerful AI model. Yeah, I mean, my company exists because I think that there are a lot of risks and dangers from these powerful AI systems. There's a lot of opportunity, too, a lot of good things that can happen. But there's a lot of people working on making sure those good things happen and not as many people working on preventing the harms. And we, as soon as we heard about the hugging face hack, we said to ourselves, like, wow, there are probably other agents out there on the Internet.

33:18We should try and see if we can find any evidence of that or find them. And we set out on this sort of massive search. How do you, how does that work, Sydney? because one of your researchers kind of, and this is now a whole cottage industry of people trying to monitor spikes in traffic to all, because what's so hilarious, and maybe it's not hilarious, it's scary, the agents will go, even though they're told not to communicate, you know, not to have output, they'll go find a place that they can post information and communicate with each other. So they've done it on Hugging Face, they've done it on this German wiki that you guys, and so how do you find this activity?

33:55And over the past week, if we might all be wondering, what are these more powerful models potentially up to? How would we know? How would we find out? I mean, presumably OpenAI knows or would know if they were monitoring. My favorite way to find out is that they tell us.

34:18Unfortunately, it seems like they haven't always told us. And so we're left with very crude tools. They made it around for a major company to get hacked. and then they noticed they were being hacked. In the case of these German wikis, we can crawl the internet and we can think through what kind of constraints these AIs might be under and think to ourselves, well, maybe they wouldn't be able to read things and not write things. If I could only read things and not write things, how would I still write things on the internet? And very old websites let you use read requests to instead write. And so we can try a lot of tricks, but at the end of the day, they're just tricks and these companies are the people who know what's happening.

34:54Sure. I'm going to try to ask you one more question. Your sound's a little in and out, Sid. But how would you define artificial general intelligence and declare whether or not we've reached it?

35:07I'm sorry that my sound's out. I can try to fix that on the fly. You're good. Keep going. You're good. Okay. I think I would define artificial general intelligence. It's a term that's had many definitions. My favorite is an AI that is capable of doing all of the things that a human across any domain is able to reach and something that's very hard to reach. But it's something that is pretty crisp and where if you reached that, you would be able to do almost anything. OK, Sydney, come join us on set or we'll get it, you know, working perfectly next time. But in any case, it's so good to talk to you, to hear more about the work that you're doing and to wonder what these rogue agents, if there are swarms of them out there, might be doing now.

35:59Thanks for joining us and making the time. Sydney Von Arx of Nightingale. Coming up, yields on both 10s and 30s higher since the Treasury said they'd increase those bond buybacks. And that same morning, Treasury Secretary Scott Besson told CNBC they could be bigger than the$4 billion that was first announced. Now, the first buyback is scheduled for tomorrow. We'll tell you what to expect and how to position next.

36:28Welcome back. The Treasury's beefed-up buybacks of longer-dated debt begin this week, a maneuver that we have hotly debated here on the show. Ed Yardeny, who coined the term bond vigilante back in the day, says the behavior of yields lately is orderly and should not be ringing any alarm bells. So why are policymakers intervening? Amanda Aghadi is the chief investment officer at PNC Financial Services. I'm not going to make you explain, Amanda, motives, what you think. But you do acknowledge that the bond market is the most important market story right now. So let's hear it in your words. Welcome.

37:01It's great to be with you. Thanks so much for having me. Yeah, it seems like everybody's so fixated on the Fed's next move. But if you zoom out and look at all the other forces in play, I think the decade ahead of us is really what matters. And so what's going on with the Treasury, what they're thinking about in terms of trying to help control rates at the longer end of the curve, I think that's a much more important story for investors than whether we get 25 basis points of an increase or not. What do you think the impact is going to be or what are you worried that the impact might be? Well, I'm not particularly worried about what the Treasury is going to do.

37:37I think the result is either sort of neutral, as in it doesn't move the needle too much in terms of bringing down longer term rates, or to the extent that they really put a lot of firepower behind it, it does. And so that does help ease financial conditions in total. I'm a little bit more worried about what the Fed is going to do next week, Because I'm not convinced that 25 basis points is really going to move the needle all that much against the backdrop of all of these exogenous macro forces that are really driving inflation higher. I just don't think 25 basis points is going to get the job done.

38:11And so where does that leave us? What does the path forward hold for Fed policy? It's sort of this disconnect between the two policy policy organizations. So you want them to hike more? No, I don't want them to hike at all. OK, that's what I thought. But then I wasn't sure if you meant if they do 25, it won't go far enough. But I think that's super interesting. We've heard a few people like Tom Porcelli also arguing that 25 hiking by 25 might hurt. How do you think it would hurt? Yeah, well, I think it certainly hurts those who need the most support. Right. So that K-shaped economy is certainly alive and well.

38:47And so to the extent that we raise rates, it does put a lot of pressure on the low end consumer. It certainly puts pressure on small business, business owners, et cetera. And again, with all of the forces that are swirling, I'm just not convinced that a move in a Fed policy rate is actually going to help tamp down inflation. A lot of this is a function of the conflict in the Middle East, which continues to escalate. You know, to the extent that energy prices come down, I think that does start to help pull some of the inflationary fire out of the equation. It's not about 25 basis points. And so I'd rather the Fed stay on pause.

39:22You're almost saying they could do it'd be worse. You know, there have been episodes like this in the past. People warned if you hike in response to an oil price shock. Well, then you have a slower economy, higher rates and you still have an oil price shock. But I guess part of the the effort on their end might be to bring down the long end of the company. It's a tough way to do it by by saying, yeah, we're just going to basically slow things down. I think I think we'd all rather have, you know, non-inflationary growth. But maybe that just seems too dangerous right now to say if we hold or cut that we're just going to be putting gasoline on a fire with the strength of kind of nominal GDP.

39:59Yeah, pun intended, right? Gasoline on that fire. I'm not necessarily convinced that the economy is running too hot, though. I don't think we're anywhere near a danger zone. Certainly economic growth has been resilient. It's upside surprise, really, for investors all year long. I think the same story has applied from an earnings growth perspective, five quarters in a row of positive upside surprises, positive revisions. There's a lot of resilience and strength in the backdrop. So it isn't that the economy and the market can't withstand it. I'm just not convinced that it's going to do much. And so if they really want to tamp this thing down, I think it comes down to multiple rate hikes.

40:38And that's where I think the danger starts to come into the equation, given all these other forces. So all of that said, if we had 10 and 30 year yields, you know, a point lower than where they are now, which is kind of where we were before the Iran war, you don't think they'd be hiking. Maybe they'd even be cutting. Is there any other. And is that what Treasury is trying to do? I mean, if these buybacks work, would that preclude the need to hike rates? I think they're sort of forces that are working against each other, perhaps, which I'm not convinced is really a successful or winning strategy.

41:09You know, I think Yardeni is absolutely right in talking about where rates are. If you zoom out and look at the last few cycles, a 4 % to 5 % yield on a 10-year is quote-unquote normal. We just haven't felt like we've been in a normal environment for a long time here. So clearly the cost of capital is higher. Clearly the cost of financing debt in this country is higher. That's the thing I think we need to be worried about because we don't really have a solution for deficits and debt levels here. That's where I think the Treasury is certainly coming into play to help satisfy some of that. But I think both the Fed and the Treasury are aiming at slightly different objectives here in this environment.

41:49Well, you're kind of cautioned about what could happen there is well noted. I mean, you're still, as you say, overweight U.S. equities. You like tech, financials, industries. I mean, just a line there about how strong could stocks be? Is this driven by fabulous earnings momentum? We're talking a lot about Ed Yartedi today. Or is it dollar debasement where you have to own stocks, you have to own assets because, you know, it's the only way to avoid, you know, the sort of policies that chip away in the long term at wealth? Well, I love me some Dr. Ed, so it's always fun to talk about Dr. Ed, of course.

42:22But I think the fundamental story is really the bright, shiny object here. It's less about debasement, less about currency differentials, all that sort of thing. The earnings growth backdrop continues to be really strong. I mean, we're looking at 31 percent earnings growth for the S &P 500 on a year over year basis this year. On top of 13 percent last year, we got another 15 in theory coming next year. I think that could be too low. And so I think the danger, if there is any for investors, is to not be allocated enough to hang on for this wild ride. That is this earnings growth trajectory from here.

42:59So we're still very much overweight equities against that. It feels a little weird to talk about having like an Ed Yardeny fan club. But if he wanted to do some kind of Berkshire, like I think we, you know, I'd be happy to, you know, ask him some questions. People could come. I'd sign up for that. You know, it's something to consider. Amanda, thanks very much. Really appreciate it today. Amanda Agati with PNC. Coming up, Apple down nearly 3 % and John Ternus' first week as CEO. Tomorrow is the biggie. Will their hardware event turn things around? We'll dig into that and whether China just stole a little of Apple's thunder.

43:35That's next.

43:42Welcome back. It's been one week that John Ternus is the CEO of Apple, but many see tomorrow's hardware event as his first big real test. In fact, it's a tough one for week one. Week two, I guess. Mackenzie Cigalos has a preview in today's Tech Check. Mackenzie? So, Kelly, after 15 years dominated by iterative product updates, Apple's longtime hardware chief is now taking over just as the company shifts from improving familiar devices to betting on entirely new ones. Tomorrow, Apple is expected to unveil its first ever foldable iPhone, the company's most significant design change in nearly a decade.

44:16And Apple's making that bet as foldables have actually struggled to break into the mainstream. The market barely grew in 2024 and contracted last year, but Apple clearly sees something more durable here. It's already reportedly testing a second-generation model for next year, with the larger third version under discussion for 2028. And the rest of the fall lineup really reinforces that push-up market. There's no regular iPhone 18 expected, just the foldable, Pro, and the Pro Max. While the Pro's should look familiar to the 17, they're expected to get upgraded specs, including a new A20 Pro chip that should make Siri AI more capable on-device.

44:53And then crucially, that higher priced mix should lift average selling prices and help Apple protect margins as component costs rise. Now, outside of the iPhone, expect new Apple watches and AirPods with the smart home hub also potentially on deck. And this is expected to start a longer stretch of product launches. Apple has spent much of the past five years under now CEO John Ternus building out a pipeline that appears to include touchscreen MacBooks, camera equipped AirPods, smart glasses and new home devices. So tomorrow could be the first glimpse of a much broader product reset. Kelly. He did the touchscreen Mac.

45:30OK, Mackenzie, for now, thanks. While Apple is getting ready to debut a foldable phone, two Chinese companies just did the very same thing. Eunice Yun is in Beijing with more Eunice. Hey, Kelly. Well, both Huawei and Xiaomi held two separate events. Huawei, which competes with Apple on the high end, rolled out the Mate XT2. This is a new trifold phone that when completely unfolded is about the size of a tablet. It uses an in-house chip. It's called the Kirin 9050 Pro chip, which the company says squeezes out more computing power because it layers the circuits. And then the price. It's steep. It ranges from about$3 ,000 to$3 ,700, depending on the model.

46:14And those phones are going to be available from September 12th. And then secondarily, Xiaomi unveiled the 18-fold. This is about a passport-sized phone when folded. And it also uses an in-house chip, which the company's founder said outperforms the chip in the iPhone 17. The price range is less than Huawei, but still pretty expensive, going for between$1 ,500 to$2 ,100. And those phones are going to be available from September 10th. And the founder of Xiaomi was asked about the price because Xiaomi traditionally is more on the lower end. People were saying, why don't you just bring the price down?

46:55And he said that he would love to, but because the price of DDR or memory is so high, they would have to keep those prices high themselves. And again, some of the supply chain issues that a lot of smartphone makers have been pointing to. I love it. It's a little glimpse at where the competition is going. Keep it in mind for tomorrow's possibly big launch at Apple. Eunice, thanks very much. $3 ,000 to Eunice Yun in Beijing. 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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