Goldman Sachs CEO, The Debt Dilemma, and Open A-Spy? 10/14/26

0:00The CorPay MasterCard isn't just a card. It's a smarter way to manage business spending. From driver expenses and travel costs to accounts payable, CorPay brings more of what you spend into one connected program. That means fewer disconnected systems, less manual work, and greater visibility across your business. Instead of chasing down transactions or sorting through spreadsheets, your team can focus on bigger priorities. One card and one program. Visit CorPay.com to learn how CorPay can simplify the way your business spends. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab.

0:36Schwab 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. You're listening to The Exchange. Here's today's show.

1:07Thank you very much, Frank. Yes, rate sensitive tech stocks are falling after this morning's hot CPI data. I'm Kelly Evans and welcome to The Exchange. Corweave and Nebius are leading the Nasdaq to the downside today. The Nasdaq down one and a half percent. The Russell's worse, by the way, often is when rates are going up. But the highly leveraged AI infrastructure names are under pressure after hot CPI data pushed up treasury yields and investors questioned the strength of their balance sheets. Financials, as you can see, they're also under some pressure, though off earlier lows. Bank of America down five percent right now.

1:38It was eight percent earlier. State Street down six percent. They're warning about rising expenses, by the way, could have a technology aspect to that. We're going to hear directly from Goldman CEO David Solomon momentarily. Plus, oil prices are inching higher again amid reports that oil shipments from the Strait of Hormuz are slowing and diesel prices remain stuck around 630 a gallon. As energy expert Tom Kloza warns that heating oil could be hitting new highs next. And at the worst possible time, he'll join us later this hour. But let's begin with one of the standout bank names so far this earnings season, increasingly so as we see the raft of results today.

2:13Goldman Sachs, yes, it's down 2 % in sympathy with other financials, but they reported their second highest quarterly revenue ever yesterday. Earnings per share were$2 higher than the highest Wall Street estimates. Equities trading, investment banking, wealth management, all posting big year-on-year gains. Joining us now to weigh in on that, on what's happening with AI financing, perhaps, inflation, and so much else. Goldman Sachs CEO David Solomon and amid Kate, some speculation about his potential replacement, by the way. He's out at Goldman's Innovators Conference in San Francisco with that lady right there, Kate Rooney.

2:45Kate, over to you. Kelly, thank you so much. We are here with David Solomon. It's great to see you in person. Thanks for having us. We're at the Builders and Innovators Summit. You were just saying 15 years now. Is this the 15th year? Well, first of all, Kate, thanks for being here. And this is a pretty great spot. It's a nice place for you and I to have a day to be here and do this. But a little more than 15 years ago, we created this conference. The idea was to bring together really interesting entrepreneurs that were really doing fascinating things, building interesting companies. I go back 15 years and I think about Travis Kalanick from Uber.

3:19I think about Dropbox. I think about Matthew Prince from Cloudflare, Drew Houston from Dropbox. I mean, these were some of the early entrepreneurs. They built great big companies. And here's another class of 150 that are coming today. And some of these will be companies 10 years, 15 years from now we'll talk about. So it's been a fascinating place to see innovation and kind of the real engine of the U.S. economy and U.S. innovation. We want to get your take on the pipeline. It's a great setup. But Kelly mentioned earnings. You guys are coming off of one of your strongest earnings reports in the firm's history.

3:52I wonder about durability, though. You talked on the analyst call about volatility helping you guys, this tech super cycle, as you described it. What is the earnings engine going forward for Goldman if things start to change or rates really start to take a bite I think one of the things that's missed in the narrative of day-to-day kind of reporting and trading, we've been working for eight years to really grow our franchise and increase the durability of our revenues and the diversity of our business. When we started eight years ago, we had a little less than$5 billion in management fees in our asset and wealth management business.

4:26We had$3.6 billion this quarter. We're on a run rate of$15 billion in management fees. We have built now a firm where 45 percent of the revenues are considered durable, recurring revenues. Now, of course, when you look at IPOs, you look at M &A activity, there's a little bit more cyclicality around those activities. But go look at M &A revenues for the last 15 years. Every year there's M &A revenue, some years more than others. So we have a big, durable, diverse business in global banking and markets and asset and wealth management. And what we've done strategically as a firm is we've significantly lifted the floor of our business, both in terms of the revenue base and also the returns.

5:08And I think investors are seeing that and rewarding that. And we feel very good about it. I can't tell you what's going to happen in the next three months, six months. I actually look out. I see some very big equity deals coming. I see some potentially very big IPOs coming. I look at our M &A backlog. We said on the call yesterday our backlog is still at very, very robust levels. And so I feel very good about revenue accruals we have coming in M &A. And I also see the strategic activity and dialogues that are going on. And I feel pretty good about it. Counter to that, you know, we saw a slightly hot inflation print today.

5:38There obviously are four interest rate hikes baked in, you know, when you look forward. The 10-year Treasury has moved kind of 75 basis points in the last quarter. And people are concerned about that. But we can operate in this environment, you know, pretty well. And we are operating well. And, you know, we'll just have to keep, you know, quarter after quarter after quarter showing people that our, you know, our firm is a big, diverse, durable firm. Well, one of the things, David, you said on the call was that 5 percent on the 10 year didn't scare you. What is the number that would make you nervous?

6:08It's all got to be put in context. But my point was, if you step back, the anomaly is the last 15 years after the financial crisis. Meaning the record low. Yeah, that's the anomaly. I mean, I've been around for 64 years. The anomaly is zero interest rates, not 5 percent 10 year treasury. And so obviously significant moves when they happen quickly upset markets and can have an impact. Right. But you're seeing the world's absorbed, you know, this move in the 10 year treasury reasonably well. Now, if you continue to have pressure because of deficits, the fact that there is big demand from capital, I think one of the things that's going on is there's a lot of demand for capital for this A.I.

6:46cycle. And that's also competing with the fact that governments have borrowed very aggressively and there's a lot of demand for capital for government. So there is there is some pressure around that that affects rates. But I'm not I'm not scared, you know, about all this. This is this is the environment we live in and we operate in. One of the things that is different. I mean, you look back 20 years and sure, rates were the same. But the amount of A.I. CapEx that is now reliant on debt, that is very different than what we've seen in the past. And other CEOs, we had Broadcom CEO recently in the last couple of days saying that he thinks that capital could be the biggest constraint and really a potential choke point for this entire build-out.

7:24What do you make of that? You know, I saw his comments. You know, I have a different point of view. What is your point of view? My point of view is there's a lot of capital in the world. I mean, one of the things that always has to be put in perspective, think of the size of the market cap of public equities in the world. Think about all the savings that exist in the world. Think about the wealth that exists in the world. There's a lot of wealth in the world. That doesn't mean that everybody that has an idea, everybody that has a data center, everybody that has a chip can have unlimited capital at a very, very low cost, you know, to pursue their aspirations.

7:54At the end of the day, capital is disciplined. It looks for returns. It goes to the best opportunities. And, you know, I would just say there's a lot of capital out there. The financing markets, particularly in this country, the capital markets are extraordinary in developing new ways to access capital and package capital. I think some of the things we're talking about doing right now in our partnership with NVIDIA around compute are super interesting. But, you know, is there a crowding out effect that at the margin affects the cost of capital a little bit? Absolutely. But that doesn't mean the capital is not available.

8:27And for good projects and good returns and good opportunity, there's plenty of capital in the world. For IPOs, that's another point of capital. I mean, we're talking about Anthropic and OpenAI going public at multi-trillion dollar levels. Anthropic, from what we're hearing, is actually hosting an investor day today. What do you make of the systemic nature of these massive AI companies that are still private, but the market seems to react to every piece of revenue news we get out of Anthropica and OpenAI? If we get any disappointment on quarterly numbers before they even go public, what is your sense of kind of what that means for IPOs and the expectation that's set before these guys are even public?

9:06The IPO market is wide open. It's just a question of price, one of the things that happened over the last quarter, we were really in an extraordinarily robust environment in May and June. When people are going public in September, the investors, the venture capitalists, the companies, they're making that decision three months ago. It's not an instantaneous thing. And so they set their expectation. And then one of the things that happens is markets move around a little bit. And if the result is 10 or 15 percent lower than what their expectation was three months ago, they say, nope, not good enough.

9:44That didn't meet our expectation. Let's wait. Now, that might be a good decision. They might be right. They might not. But that doesn't mean the IPO market's not open. There's lots of capital available for good companies that have good business plans. You can debate what the price is or what the discount is to get a company into market. But one of the things I've always advised companies, if you decide strategically that it's time to go to the public markets, that's a strategic decision. Right. You're then selling 10, 15. I mean, maybe 20 percent of the company. What matters is not the price of that 10, 15 percent of the company.

10:18What matters is how the other 85 percent and the initial 10 or 15 percent performs over the next three to five years. The fundamental strategic decision is, do we belong in the public markets? If you do, the initial price isn't the gating parameter. And so there's a lot of capital. There can be debates about valuation. organization. But, you know, the IPO market is ready for companies. You just have to get the buyers and the sellers to agree on the price. And if that's off by 10 percent, you know, things slow a little bit. But that doesn't mean the IPO market's not open, functioning, capital available.

10:50But do you think that public market investors are willing to pay this private market premium that we've seen, especially for ag companies? Sometimes yes, sometimes no. I mean, we don't have a lot of we've got show me the large language model large company that's come to market for an IPO. I guess we're going to learn a bunch over some period of time in the future, assuming that Anthropic and OpenAI GoPublic will learn a bunch about exactly how public market investors will look at that and value that. You know, it's not exactly the same, but you have a data point. You know, you have an aspirational data point with respect to the way SpaceX went public and the way SpaceX is trading.

11:25But there's certainly a lot of capital. There certainly is an excitement about these companies and the potential for these companies. But there's a lot of uncertainty around how this is all going to play out and how it's going to work. And, you know, public investors will weigh that appropriately. But that has nothing to do with whether the market is open or closed. It has to do with the debate is to out of value. Are founders staying private too long? I mean, we're here at a startup event. Companies in general have just been able to stay private so much longer. I think of Stripe as an example.

11:53Are you telling founders that they just need to get out quicker? I actually I take the other view. I've taken it for a decade or more than a decade. And look, we like taking companies public. But when companies are operating well and they have availability of capital to grow their businesses and expand their platforms, they should continue to operate well and grow their business and expand their platform. There are a handful of reasons why companies really come to the public market. They reach a point where their need for capital and the availability of capital, they need to diversify their capital sources.

12:24But if you don't have that capital need, okay, or you don't need a public currency. If you're operating well as a private company, you have to understand that when you do go public, it will change the way you operate. You have to respond to different pressures. And so I've always advised founders, if you have the capital availability to execute your plan and grow your business, wait as long as you possibly can before coming to the public markets. Now, that's for a founder-led entrepreneurial company. You have the whole private equity ecosystem, which is a different thing. Because private equity has to monetize these investments.

12:56So That's a different thing. But but it's much easier to operate a young entrepreneurial company in the private setting than it is with quarter to quarter earnings pressure. What do you make of this AI safety debate? As we talk about OpenAI and Anthropic, a little bit of a pivot here, you know, talking about startups, but it's gotten so much attention. There has been a lot of negativity and some would say rightly around the risk of AI. You are using AI. You're an enterprise client of things like OpenAI and ChatGPT. Do these headlines make you nervous in terms of the potential breaches, safety issues that we've seen?

13:33And how do you weigh that as you're using this tech at Goldman? Well, I don't I don't know if you saw my comments yesterday on the earnings call, but I talked about this issue. It's not a binary decision that we either let innovation go unleashed or we stop it and constrain it with overly burdensome regulation. We have to innovate and we have to be responsible. And for starters, when I think about Goldman Sachs, as we implement AI in the enterprise, there has to be real human accountability for every model we deploy and everything we do. We've been using AI-based trading systems, I think, for almost 20 years.

14:07We could never say, oh, my God, the trading system went rogue and we lost a bunch of money and not have someone accountable for that. Who is accountable for that? There's somebody in there's somebody there are people in our firm that are accountable. But is it Goldman or is it OpenAI? It's Goldman that's accountable for that. If we deploy the AI into our ecosystem to serve our clients, we have accountability. Now, by the way, I think potentially these model companies have liability and accountability also when things go wrong. OK, but the lens we look at it or any enterprise has to look at it is that we're responsible for what we do in our ecosystem.

14:44And we have to have audible processes. We have to have risk and controls. We have to have a process. So, you know, are there enormous opportunities with AI? Absolutely. I am so excited about the opportunities that I see. But are there risks? Do there need to be governance processes? Do there need to be, you know, strong risk and controls and companies that use this technology and put it out there in the world? You and I were just talking a few minutes ago about agents. Yeah. You know, for individuals as agents have authority to do things. interesting discussion on consumer banking and what agents have access to.

15:15These are all real issues that I think are solvable over a period of time. But there needs to be real responsibility, real control, real accountability, real risk processes. Those are things you have to build over time. They're not instantaneous. And these things matter. One of the other pieces when we talk about AI is this data center backlash. I was thinking back to sort of the 2008 moment where it felt like Goldman Sachs at the time was sort of the face of this animosity against Wall Street. AI may be in a similar moment right now where Sam Altman, Dario Amadei have sort of become the face of a lot of negativity around AI.

15:52Have you talked to them about that? Is there anything looking back on how the banks and Wall Street handled that at the time was sort of a reputational issue? What would you tell the founders and leaders of these companies? Well, I think there's a lot that the world can learn from the experience that significant financial institutions had coming out of the financial crisis. And I think our industry has learned a lot. I think our industry has meaningfully improved practices, risks, and controls. I mean, a lot of things you and I were just talking about are significant infrastructure that's been built in the financial industry over the course of the last 15 years that matters and makes the financial industry more resilient.

16:30I think as we build an AI industry in this country and around the world, we're going to have to create processes, controls, guardrails that make sure that it's safe, it's secure, and it delivers for society. And we're just, we're at the beginning of this. And by the way, the people developing the technology have a real responsibility of that. And the people that choose to take the technology and put it in their enterprises or use it have a real responsibility for that, too. Have you talked to Jay Clayton, the new AIs are? I talk to Jay Clayton regularly. I've known Jay for a long time. I think it's great that Jay's in that seat.

16:59And, you know, I think it's important. One of the things I've joined, there are a group of CEOs that have come together around this alliance for critical infrastructure to try cross industry to have a group of CEOs talking seriously with the government about when things go wrong, how do we respond? What other guardrails and controls can we put in process to minimize the risk of, you know, infrastructure going awry? So these are real issues. They require real attention. Are things going to go wrong? Yes. But are we going to figure out how to get them right, make them better? Do we all share in that responsibility?

17:29A hundred percent. David, we've got to wrap in a second. But there have been reports about your succession plans. You addressed this on the earnings call. Will we see you a year from now at Builders and Innovators? I've been at Builders and Innovators. I think there have been 16 or 17. I've been every year. I will certainly, you saw my comments yesterday, I will certainly be at Builders and Innovators. No plans to hand over the reins. There is no succession process going on at Goldman Sachs. The board and I are singularly focused on continuing to grow the firm, deliver great returns for shareholders, and also serve our clients with real distinction.

18:00And we're incredibly focused on those things. David, well, we really appreciate your time and having us here. And great to see you in person. Thank you. Great to see you, Kate. Thanks for being here. Thank you. All right, Kelly, back over to you in the studio. Thank you to David. Kate, I was going to joke maybe he's going to be back next year as a builder and innovator, but I think he made it very clear, no, he's going to be back. He might be here as a guest. He could just be enjoying the backdrop here. So he didn't say if he'd be CEO. No, I think he said we have a very clear plan. Yeah, I think that was a great interview.

18:28Exactly. Kate, thank you very much. Kate Rooney, we appreciate it. Our thanks to David Solomon as well. Let's turn now and kind of building on one of the things that Solomon just said, which was when Kate asked him about parts of the weakest part of the market today. Take a look at shares of Corweave and Nebius, by the way. This is where the AI trade is falling apart. Even GE Vernova and Vertib, they're all down big. Kate Rooney said to David Solomon, you know, what do you think about all this AI capex that's reliant on debt, which goes more to the business models of the core weaves and nebbiases.

18:56And he said, look, everybody with a chip or a data center can't have unlimited capital to pursue those aspirations. Let's talk to our next guest about this, because he says what's happening right now is the market shifting from enthusiasm about AI's potential to demanding evidence of its commercial returns. Travis Prentice is the chief investment officer at the Informed Momentum Company. Travis, first of all, it's great to have you back. Welcome. Yeah, thanks, Kelly. Good to be back. And, you know, I don't know how much that interview you caught, but I think Solomon is saying what you and others in the market is screaming right now.

19:26So what happens to the likes of CoreWeave? Yeah, I mean, today is a pretty weak day and people reacting, investors reacting to what's happening in some of the debt markets and the CDS spreads. But, you know, it's just one day. It's definitely something to monitor, something to consider. But from where we see the broader momentum in terms of both fundamental trend and price trend, we're seeing it shift a bit from kind of the CapEx beneficiaries to now what has been the rise in agent AI traffic with, I think, Meta's Muse moment that we just had. I want to get to who's winning, but first dwell on the problems here, because CoreWeave is not just down today.

20:08It's down 54 percent from its 52-week high. It is negative year to date. And its business model is looking increasingly questionable. You know, they got, I think, long-term debt liabilities, maybe short-term leases, something to that effect. So if the NeoCloud, and the NeoCloud ETF, by the way, is also down big today, can we rotate? And who are we rotating to? The layer, the application layer on top of AI? If that's happening, you know, people say, but wait a minute, we still need all the stuff that goes in. well, of course, but these stocks ran up a ton. So what layer are we moving to? And why are we suddenly wondering whether all of this AI buildout is actually going to happen and be successful and meet these obligations with, what, a$70 billion in debt and liabilities that CoreWeave has?

20:58Yeah, and that's something the market has to square with. And I think as the evidence and as the fundamentals come in, which we'll have earnings season kicking off very shortly here, that may give some evidence of the fundamental trends that investors will key in on. But I think, you know, today is one day. There are some building concerns that we need to be aware of and we need to contemplate. I mean, I think that's why, as systematic investors, we just measure signal and trend in terms of and ask the questions why and observe. And so our process is much smarter than we are as individuals. So, you know, we're going to look and take in the evidence and observe and make and adapt.

21:39And I think that's one thing that investors over the long term have to square with is that these things and leadership changes kind of constantly. And you've got to take in new evidence and you've got to react to what we're seeing in terms of true signal. Now, one day doesn't give you that true signal, but how do these things implicate, you know, more medium term trends is what we're focused on. And right now, I think there is some evidence that there are some dislocations like CoreWeave, but CoreWeave hasn't had very strong momentum in quite some time now. So it's not a huge surprise that it's lagging in terms of momentum.

22:16But I think beneath the surface, there are some stocks that are actually holding in better. I mean, today everything's down, but there are some stocks where some of the trends in price are holding in a bit better. And when you look at why, observing the evidence and asking why it really has to do with eugenic AI and what's happening there. So as we move from the build out to more use cases with AI, I think you're seeing that transition in stocks as well. All right. Let's rattle this off. You know, Mr. Solomon took a lot of your time. No, a lot of our time. What I'm trying to say is let's be quick and get to the point so that the audience can get the most out of your brain possible.

22:54So where are you seeing the momentum? Tim, can you get specific around it looks like still some cyber plays, this agentic AI era? I don't want to overlook either. You have some thoughts about the old economy. If you could kind of go with that as well, you know, over to you. Yeah, certainly. I think with the rise of AI, specifically agentic AI commerce, I think, you know, it puts more pressure on CPUs over GPUs and memory and storage and using data. So, you know, there's several stocks that benefit from that, like a NetApp, an Atlassian, an EverPure. I think those are areas that you can look at.

23:28And yeah, let's not forget there is a there is an economy outside of AI. And I think when you look at things like that, you see some really good opportunities in energy as a whole, but specifically with refiners. So like a Marathon, a Valero, a Phillips 66, where the trends are unbelievably strong. Momentum is strong in both fundamentals and price. And then I would say look at within health care, you know, in terms of what Merck and Moderna had in terms of their cancer vaccine and the bigger picture of personalized cancer treatments, I think is an area that is showing very strong potential and very strong current trends.

24:05And then within health care, I think this is AI adjacent, but there is so many new therapies that are being potential therapies that are being discovered that have to be validated in the real world. So I would even look at like tool companies like Revity or Thermo. So outside of AI, there are some good things happening. Yeah, and it's, like you said, NetApp, ever pure at last. And you say these are where, you know, we're kind of managing data, building storage infrastructure, and integrating agents into everyday workflows. The refiners, that one makes me too. I get like a roller coaster right there.

24:3952-week highs. But as you say, still maybe some room to go. Travis, thanks. We'll bring you back soon. Really appreciate it. Thank you. Travis Prentice with the Informed Momentum Company. Coming up, a hidden recording device wrapped in toilet paper planted in an executive conference room at OpenAI. The stunning story behind the FBI's arrest of a Saudi national working at one of the country's biggest AI names. We'll talk about that next. Plus, the markets had written off this month's SPED meeting, but our economist says today's CPI number puts it back in play. Yields are off their highs, but did spike on the data.

25:13We'll have more when the exchange returns. This is The Exchange on CNBC.

25:44skills to help every team stay in their flow. Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required. Building a portfolio with Fidelity Basket Portfolios is kind of like making a sandwich. It's as simple as picking your stocks and ETFs, sort of like your meats and other topics, and managing it as one big juicy investment. Now that's pretty good. Learn more at fidelity.com slash baskets. Investing involves risks, including risk of loss. Fidelity Brokers Services, LLC. Member NYSC SIPC. At Jared Jewelers, we know it's about more than fine jewelry. It's the moment they open the box.

26:30That smile they can't hide. Knowing you chose exactly right. because the right gift can bring a lifetime of meaning, a promise, a milestone, a memory in the making. Make every moment unforgettable. Find great gifts starting at$250. Jared, make the holiday last forever. Shop Jared Jewelers.

26:54Welcome back. Security is a growing headache for OpenAI. The company fired three safety researchers last week for what it called a, quote, significant breach of trust. Now, federal authorities have arrested a 35-year-old OpenAI engineer and Saudi national, charging him with planting a hidden audio recording device in an executive conference room. Eamon Javers is in Washington with the latest. Eamon, this is just my sort of speculation. But when I hear these, I think we have so many researchers leaving these companies and going on media tours, right? You get so much attention for saying, here's what's happening inside, and I'm going to, this is my tell-all.

27:31I don't know if we know anything about the motive here, but my first thought is we're probably going to continue to see more people tempted or interested in doing so, given the interest there is in what's happening here. So anyway, let's start with what do we actually know? Yeah, we don't know anything about motive, but we are getting the first comment now from the lawyer for the man who was arrested in this case, 35-year-old Abdul Rahman Alphozan, his last name. His attorney says they're just getting up to speed on this case, but he says like countless Americans, Mr. Alphazan came to this country years ago as a young person with a dream.

28:07He spent years studying, working and contributing to an American technological sector that leads the world, a sector built in large part by immigrants like him. These allegations appear wholly out of character for him, and we will relentlessly investigate all evidence produced by the government in this case to understand what actually happened, who was responsible, and any possible reasons why. In the meantime, we respectfully ask everyone to withhold judgment until full facts become known. Now, Kelly, the Department of Justice says that Alfazan was arrested on October 9th and has been charged with use of a device to intercept oral communications.

28:43DOJ says Alphazan had been employed as an engineer by OpenAI since July of 25. And on or about September 30th, OpenAI personnel discovered a surreptitious audio recording device inserted into a USB port on the back of a television in an executive conference room inside one of their buildings in San Francisco. Now, this is an image of the device that they say they found. It was concealed in toilet paper, as you can see on that left-hand side image there, and the contents of the device were encrypted. The DOJ also says that closed-circuit TV footage inside OpenAI's office showed that Al-Fazan appeared near the executive conference room on multiple dates before the device was discovered, even though he had no authority to access or participate in the meetings that were going on there.

29:31Now, the complaint says this particular conference room was used to discuss highly sensitive matters, and they say they have evidence that Alphazan may have used the chatbot associated with his spouse to make queries about audio recording and remotely accessing a device. And then take a look at this photo. The complaint alleges that Alphazan entered the executive conference room on October 5th and appeared to look behind the television into which the device had been placed. And this, they say, is an image showing that moment. The Department of Justice, though, is silent on who Alphazan may or may not have been working with or four in this effort, so it's difficult to say whether this is an example of alleged corporate espionage or a state-sponsored effort or something else entirely.

30:13In a statement, OpenAI said that it referred the incident to the FBI and said in part, at this time, we have no indications of this individual inappropriately accessing or exfiltrating model weights, source code, or customer data. The employee was terminated. Kelly, back over to you. I believe he went to MIT, did he not? He did attend MIT, according to his LinkedIn. Yeah. He worked previously at Meta as well. Right. And so what's his involvement with the Saudis currently? It was with some sort of investment firm or something? So simultaneously, according to the website of a Saudi VC firm, simultaneously, while he's working as an engineer at OpenAI, he also was a partner at a Saudi VC firm.

30:51One of the other partners at that Saudi VC firm was a prince, a member of the Saudi royal family. Now, there are a lot of princes in Saudi Arabia, but still, this is a person who was pretty well connected in Saudi Arabia. we've reached out to that Saudi VC firm for their comment, haven't heard back yet. All right. Eamon, for now, thank you very much, Eamon Javers. Coming up, we're two weeks away from the next Fed meeting, and today's CPI number just made that more interesting. Could we be in for an October surprise that would be bad news for global bond markets and long-term yields? That we will delve into next.

31:29Weren't agents supposed to take things off your plate? Building another to handle the others is a bit much. Don't make more work out of work. Gemini is the one agent that knows all parts of your business and actually gets stuff done. You give it a project, close your laptop, and when you come back, the job's finished. No matter your industry or role, your agent has the skills to help every team stay in their flow. Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required. Introducing Fidelity Trader Plus. With customizable tools and charts you can access across all your devices.

32:02Try our most powerful trading platform yet at fidelity.com slash trader plus. Investing involves risk, including risk of loss. Fidelity Brokerage Services, LLC. Member NYSE SIPC. At Jared Jewelers, we know it's about more than fine jewelry. It's the moment they open the box. That smile they can't hide. Knowing you chose exactly right. Because the right gift can bring a lifetime of meaning. A promise, a milestone, a memory in the making. Make every moment unforgettable. Find great gifts starting at$250. Jared, make the holiday last forever. Shop Jared Jewelers.

32:55Welcome back to The Exchange. I'm Brendan Gomez with your CNBC News update. Social Security benefit recipients are getting the largest annual cost of living increase since 2023. The Social Security Administration announced today recipients will get a 3.6 percent cost of living increase, which was driven largely by higher inflation. That translates to a$75 monthly hike for the average beneficiary. Meantime, the Trump administration said today it's cutting off Affordable Care Act subsidies for nearly 190 ,000 people. According to Health Secretary Robert F. Kennedy Jr., the people were identified as having duplicate government coverage or of being dead.

33:32Officials say it will save taxpayers more than$700 million this year. And the Brooklyn District Attorney's Office announced Wednesday that it disrupted a multinational crypto scam network centered in Eastern Europe. The DA called it one of the biggest cyber disruptions ever undertaken by a local prosecutor. According to the DA's office, scammers targeted Russian-speaking residents in Brooklyn and across the country and found a large number of victims responded to a Facebook ad about investment opportunities. That's your news this hour. The Exchange, back after this.

34:06Welcome back. Let's dig into these huge moves in rates today. After the hot CPI data this morning, the two-year yield hit 495. Now it's around 480. So it's gone. The 10-year was 423. No, I'm sorry, 520. Let's get to our next guest. Who worries that this could increase the pressure on yields and the Fed to go higher? Robin Brooks is the senior fellow in economic studies at the Brookings Institution. Robin, I sense that inflation is not it's receding as the issue, I think. And today's market action confirms that, you know, a month ago, two months ago, I think we would have been off to the races.

34:40I think today they kind of know they can't even hold it. They look we've come we've round tripped it. The 12 basis point move up. We're almost round tripping it back down. So, first of all, great to be with you, Kelly. You know, I think Kevin Warsh at Jackson Hole did his hawkish pivot because he said inflation isn't coming down fast enough. And so this number really wasn't at all consistent with that narrative. It was not coming down fast enough. There was a lot of Fed speak before this inflation number pushing back on the idea that the Fed would hike in October. So I think that's behind some of the price action, Kelly, that you were mentioning.

35:24But I think we may be gearing up for a repeat of the July meeting. Remember, we went into that meeting with markets pricing 10 basis points and tightening. That's what we're pricing right now. And that's a dangerous situation. That's a dangerous place for the Fed to be if it doesn't end up hiking, because it could spark another bond market sell-off the way that happened back then. You focused a lot on that July meeting and the significance of it. So, yes, reiterate that once again, where there was the decision and then there was the press conference and then the markets got pretty upset. Yeah.

35:56So I write a daily sub stack. I summarize market moves. And you'll remember, Kelly, back then we got a CPI print before that July meeting, which was on July 29th, which was super benign. Core CPI inflation was flat. Yet markets priced 10 basis points into that meeting. They really wanted Warsh to hike to demonstrate independence from the White House. And Warsh didn't. And he had a couple of talking points in the press conference that on the facts were totally fine. So he said, for example, oil prices didn't spill over into broader inflation. But the bond market didn't want to hear that message.

36:37It wanted a hike. And so what followed was a big sell-off in the long end of the Treasury yield curve. And that then transmogrified into the surprise buyback announcement from the U.S. Treasury to bring long yields back down. So it had all kinds of big ramifications. And I think we could be heading for something similar now. I hope not. I love transmogrified, by the way. Any chance to use that word. So there's two other things I want to talk to you about today. Maybe you can layer them in here. One is oil prices and kind of the situation in the Middle East. And the other is French bond yields.

37:13And as you say, both of those are going to kind of be the tell for you of how markets do into year end. What does, you know, again, I look at the trend down. Let me give you an example. Shares of progressive insurance, let's show them on the screen, are down. They were down 9 % earlier today. They peaked in Feb of 2025. And I almost take this as the tell on real inflation. Because the real COVID inflation ended up driving auto insurance prices up through the end of 2025, if I'm not mistaken, Robin. And we finally are getting some relief from that. I don't think it's anywhere near worked its way through the system yet.

37:48I think Progressive is telling you that there is more disinflation coming and that what's going on with oil prices right now is not changing that narrative or those shares would be doing better. That's what I think. What do you think? I think there's two things going on. So first of all, I think, you know, we have all kinds of things like AI, which is going to change the way everybody works. That is a disinflationary shock. We broadly are in an environment where we're changing. We're in an energy transition away from fossil fuels. That is a deflationary shock. There's all kinds of reasons why in the medium term, I think inflation might be quite well behaved.

38:27But we then have a separate thing going on with the Fed's credibility under its current leadership. And I think that's the dangerous part of the whole situation that we're currently in. And if you look at the big picture, Kelly, we have all this uncertainty in the Strait of Hormuz. Iran is clearly trying to rattle the cage and drive oil prices up into the midterms. We have all kinds of instability in Europe, around France. So this kind of setting where you have mixed messages from the inflation data, it's really not great. Give me your takeaway for investors then. What should they do? What should they definitely not do quickly?

39:07So my best guess is that the Fed doesn't hike at this October meeting. So I think that will cause ructions in bond markets. it'll put the long end back under pressure. So I think you want to be setting up to be short the dollar. I think you want to be long gold. And generally speaking, you want to position for a continuation of the big picture story, Kelly, which we've been talking about a couple times now, which is that debt is a major issue for markets and it's going to be a medium term issue. All right. Robin Brooks, thank you. As I'm writing this down, long gold, short dollar. and it could be a fiery one in a couple of weeks.

39:48Thank you for the time. Great to be with you. Robin Brooks of Brookings. Coming up, the price of heating oil or ultra-low sulfur diesel has already more than doubled this year. And Tom Kloza says a new record is within striking distance just as we head into winter. He'll join us after this quick break here on The Exchange.

40:19Welcome back. Gasoline prices were a big driver of inflation last month, as you see there, jumping 34 percent from a year earlier. And the news out of the Middle East lately not making things any better. By some accounts, we are seeing the most intense period of strikes on ships in the Strait of Hormuz since the U.S. war on Iran began. This comes as fewer than three million barrels of oil were carried through the strait earlier this week, according to Kepler. With that situation still difficult, President Trump also facing intense criticism for lifting the diesel export ban we imposed on Russia this summer in an effort to bring down diesel prices, which actually rose overnight to$6.30 a gallon, according to AAA.

40:57Tom Kloza is the chief energy advisor at Gulf Oil. Tom, it's good to see you. And how do we get more real relief? I don't think we do get more relief, certainly not in this month, maybe in November. You know, October demand for diesel tends to be higher than November, and November is a month where we might be able to catch up a little bit. But if you think about the next two weeks and you think about the expiration of these diesel futures contracts in about two weeks and then the midterms, we may be in one of those situations where things could go absolutely parabolic again. In what sense? Well, there's just not enough inventory.

41:37We're probably going to lose another 8 to 10 million barrels of inventory in the U.S. on disclet, which is diesel and heating oil. And that would put us at about 94 million barrels. That's a panic number. You will see a lot of people panic. And there's particularly not a lot in the Middle Atlantic, which is where the futures market rests. So it's going to be a very, very dangerous situation. Tomorrow, when the inventories get released, we could see a major move. Now, maybe we'll be lucky. Maybe we'll build a little bit in stocks, but it doesn't look like it. So if you're a farmer, you're a school, you're an ambulance or you're a vessel, you know, you're going to probably pay more for diesel in the next three weeks or so.

42:21How much more? Because the recent high, if I'm not mistaken, was around 650 a gallon and we're at about 630 right now. Yeah, you know, I thought I was going out on a limb earlier in this week when I thought that, you know, we're going to have a$6 handle when the elections take place. I think it's possible we could go back up to that$6.50,$6.53. But again, I think we get a respite after that. And the respite comes with November, particularly if it's warmer weather. You got to remember, there's 4 million people who still depend on heating oil, which is diesel, to heat their homes. So if we get a cold winter, that's when I really worry about things.

42:58Is propane affected? Propane's a great fuel and propane's in great supply. We're exporting just incredible amounts of it all over the world and particularly to India. So propane is, you know, I mean, if you had the ability to shift to propane, it might be a pretty good bet. You get a lot less BTUs, a lot less power, but it's a much cheaper fuel. So you think we might get some relief on diesel prices in November, emphasis on some relief. How much relief would this diesel export ban being lifted? Should that already be in the price now or could that still make its way through? Would you think that amounts to five or 10 cents, maybe more?

43:38How do we gauge the impact? Kelly, a lot of the things that you've seen in the last week were levers that really don't amount to much. It's just like frantically pushing buttons to try to relieve the market. Europe doesn't have strategic stocks like we do. So they're moving it out of one pocket to another. The whole red-dye thing was nonsensical, didn't really make much difference. And, you know, this notion that we're going to be importing Russian molecules, it's not passing the muster in the market at the moment. So no impact. In that sense, Tom, it's possible we've put in the highs and things will get a little better from here?

44:18It's possible, but I doubt it. I think November is a month that could be a transition month. We could see higher numbers between now and then. And then again, it's all about cold weather and heating degree days. We're going to get some degree days this weekend, by the way, based on the forecast. So that's going to be a lot of heating oil, which is diesel, moving to the markets. All right. And we'll keep this all in mind when that happens. Tom, thank you very much. Good to have you on today. Thanks, Kelly. Tom Closa, Gulf Oil. Coming up, Fannie Mae revising its 2027 mortgage rate forecast. And as you might guess, they're moving it sharply higher as the 30-year today climbs back around 7.5%.

44:56We'll have those details next.

45:01Welcome back. Just want to point out the market action, which is not great right now, which is weird because we just showed bond yields, which have kind of round tripped. And the 10-year, I think, is now down on the session. But anyway, I think these concerns about the AI infrastructure names we talked about CoreWeave earlier are predominating. The Nasdaq is down 2 percent now. The S &P is down 1.3 percent. The Dow is now negative by 257 points. And the 10-year is now lower to 521. That said, we did see a jump earlier on, and mortgage rates are jumping 10 basis points today, sitting near three-year highs.

45:33Let's bring in Diana Olick with the very latest. Diana, what can you tell us? Well, what you said, Kelly, rates had been settling back a little bit, but no longer. The average rate on the 30-year fixed moved 10 points higher today to 7.56 percent, that according to Mortgage News Daily. That matches where we were just a week ago. Rates did get a bit of relief last week, but that appears to be short-lived. They are now well over a percentage point, in fact, 125 basis points higher than they were a year ago. Meanwhile, economists at Fannie Mae are now predicting much higher mortgage rates through the end of this year and into 2027.

46:13The October forecast out this morning now puts the average rate on the 30-year fixed at 7.4 % for the fourth quarter of this year and 7.5 % through all of next year. It previously forecast 6.8 % for the fourth quarter and 6.7 % for all of next year. Now, I reached out to Fannie Mae for comment on this, but they did not respond. Stocks of the big builders, of course, have been hammered in the last month as rates rose sharply. This is just a forecast, of course, but it is one that the analysts do tend to watch. These rates are already taking a pretty big toll on the housing market. A research note from Wells Fargo earlier this week said that their monthly real estate agent survey went, quote, from bad to really bad.

47:00They said they were struck by the sheer pessimism with things likely to get worse via rates and midterm jitters. Not a great report, though, Kelly. And we have Horton, Pulte, Linaural at 52-week lows, if not more. Diana, thanks very much, Diana Olick. That's it for us. Thank you for watching The Exchange. I'll join Steve Leisman for PowerLens right after this break.

47:26This 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 And subscribe at schwab.com slash market update podcast or find Schwab Market Update wherever you get your podcasts.