Rate Hike Regret, Iran Negotiations, and Mortgage Mayhem 9/25/26

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1:29housing, one of Sirhan's top brokers. Hi, everybody. We've got much to do on this Friday, but let us start with a check on tech. Microsoft up 3 % right now. They've got to stand out because they've got a big redesign coming for their co-pilot AI app. And of course, how do we not talk about Meta? It's down about 3 % right now, but it is your stock of the month. It is your stock of the year so far. And Meta has rocketed up 22 % since launching its own AI app called Muse. And how is this for a nice Friday? RBI. AI-related stocks now make up more than half of the S &P 500 at random but interesting data point coming courtesy of the team at JPMorgan Chase.

2:12And let us start there and welcome in Michael Kantrowitz, Piper Sandler's chief investment strategist. Michael, great to have you on this Friday. Do you worry about that? I mean, is the market, we talked about a top-heavy market for years, it's not mattered. But do you worry that it's too skewed to AI? I mean, it is reflecting much of the fundamentals. Many of the bigger cap AI stocks have gotten cheaper. So unlike the late 90s, when we were trading peak multiples on top of peak earnings, that's not really been the case today. So I'd be concerned more if I was a retail investor and I'd had a lot of exposure to the passive index.

2:52Fortunately, institutional investors can do stock selection to mitigate that concentration. I feel like I want to coin this as the Taylor Swift stock market, Michael, because whatever comes at the market, it just tends to shake it off. And you know what I'm talking about. And you have pointed out that the stock market has never been this negatively correlated to interest rates. What does that mean? And what is it telling you? Well, it means a couple of things. It means the biggest risk to equities is higher interest rates. And that's been a view of mine for many, many years. Most of my career, the first 20 years of my career, beginning in the early 2000s, the risks to markets were growth scares.

3:37Since 2022, the inflation shock has left a lot of scar tissue. We've had a lot of supply disruptions, And we continue to have a market that becomes very susceptible to higher interest rates. And we've seen that this year. The market multiples down about 14, 15 percent. So all year the market's been feeling the pain. The good news in the rearview window has been that we've had really robust earnings. But that is not necessarily going to repeat itself over the next 12 months. No, but and by the way, I think I caught the red hot chili peppers reference with the scar tissue thing. But that aside, Michael, I love that on a Friday.

4:13Is there a point? We kind of thought it was 5%, right? The 5 % 10-year might sort of kill the stock market rally. It's early, but at least right now, that seems to be not happening. Is there a level, if bond yields keep going up here and around the world, that does kneecap the stock market rally? Well, again, the issue with the stock market, you know, is the stock market seven stocks? On one hand, you could say yes. But if you're a stock picker or an asset allocator and you have more than seven stocks or don't own the index, we've already seen that. Look at the RSP equal weighted S &P 500 or the Russell 2000.

4:49They've had a very bad couple of months here, are down sharply on the back of higher rates and higher yields. So, again, the rearview mirror, we've mostly been offsetting the weakness coming from multiple compression through stronger earnings. But the average stock really hasn't done anything in the last four months. As rates go higher, that pressure gets greater. Yeah, I get that. And, you know, we've pointed out all the stats for years now that it's seven stocks or 10 stocks. And I've called it sort of the market donkey pulling the cart. But investors, if you're bought into an ETF, you don't really care, do you?

5:30I mean, you're not saying, well, I keep making money, but it's only because of seven stocks. Fair, unless, again, in this year, the first several months of this year, the S &P index and the MAG-7 were massive underperformers, while the equal-weighted index was beating the, in small caps, were beating those groups. So I would say you don't care when it works, but you care a lot when it doesn't work. Higher rates and higher oil have put a lot of pressure on the broadening trade, and you're seeing investors move back into larger names and higher quality names over the last several months. And I think that could continue unless we see a real material drop in oil and interest rates.

6:09So where do we invest right now to make some money? Yeah, so I think there's three ways to mitigate the risks of higher rates in oil prices or even rates in oil that stay at these levels. One, the only sector of the 11 sectors in the market that is positively correlated to interest rates is oil. There aren't many times where rates are rising sharply and oil's not doing the same thing. Obviously, we've had that for the last several months. The second way is to find stocks within each sector that are more positively correlated to interest rates. So you could buy energy or you can buy a basket across sectors and not just be exposed to one sector.

6:50So that's another way we've pointed clients to. And then the third way, in a strong backdrop of economic and earnings growth with rates and oil moving higher or staying high, the types of strategies that typically work in that backdrop and they're working this year are value strategies more than growth. And I'd say increasingly over the last three months in looking ahead is companies with higher levels of profitability or simply higher quality names. So last year, it's been a surge in markets. It's been a broad increase in the market. We've had a lot of positive surprise on the economic and earnings backdrop.

7:29That's not going to repeat itself next year. So you want to be increasing the quality and profitability and visibility of the stocks that you own in your portfolio to mitigate the risks of slower growth next year or higher rates and oil currently. So what is we're going to talk about McDonald's with an analyst coming up soon. That's the value meal. What is the value stock? What does that mean to you? Because I'm not sure right now, Michael, I don't know if I know what the word value means anymore. Yeah, well, we look at stocks relative to their peer group. So we're trying to take out where the P of the market is today or where stocks trading today versus its own history, because the history doesn't reflect today's backdrop.

8:16So we look at stocks cross-sectionally or versus each other and look for the names within each sector that have a composite ranking of more attractive valuation, higher levels of profitability, and strong earnings momentum. So it's not just go buy cheap stocks. It's buy cheap stocks that have good fundamentals in improving earnings. I love it. Michael Kantrowitz, Piper Sandler. Michael, thank you very much. And you and yours, have a great Friday and good weekend. Thank you. You too, Brian. All right, so now let's kind of continue that conversation, but shift a little more to borrowing costs because they continue to rise both here and around the world.

8:52A 10-year yield here, about 5.18, 5.2%. But listen to this. The yield on Japan's 30-year bond just hit its highest level ever. What is happening in bonds right now is a U.S. story. It's also a big global story. Let's talk about it all with Gilbert Garcia, managing partner, Garcia Hamilton and Associates. Gilbert is the bond king of Texas. Gilbert, great to have you back on. So kind of in non-bond market speak, maybe, because I know you're very good at just being direct and plain. What the hell is going on? Well, a couple of things. First of all, thank you for having me. And you talked a lot about the Red Hots and Taylor Swift.

9:31I think it really comes back to BTO and you ain't seen nothing yet. This is probably one of the best opportunities to rebalance from stocks and risk assets into the bond market. If you think about rates now, the five year and the 10 year, et cetera, just over five percent. If you were to buy something, the high quality space, like a high quality mortgage backed securities, the highest quality there is with a cash flow yield of about 100 over. You're talking about yields of about six percent. Many pension funds have actual return assumptions just over that. So why wouldn't they move out of the stocks?

10:06They've had great runs and start moving into the fixed income market, which is now at some of the most oversold levels that we've had in three years. Gilbert, if you're going to drop Canadian rock bands, you've got to at least go to like Rush or Neil Young. Give me that a little, not the Bachman-Turner overdrive. Speaking of, how about this? Do you think that these rates, and it sounds like you do, will sort of put the bond market into overdrive because there are also a lot of tax benefits in certain corners of fixed income, whether that's municipal bonds, there's certain state and local tax benefits to investing in treasuries, although they're going to get you on the federal level no matter what you do.

10:41In most cases, where are those holes and what kind of yields can your clients and our viewers and listeners reasonably expect to get right now? Sure. First of all, again, this is some of the most oversold levels that we've had in three years. But what happened back then, Brian, just three years ago was when we were at these levels on relative strength and other measurements of momentum, in very short order, less than three months, rates rallied 110 basis points. And I think that's what we're going to see happen now. We're going to get their quarterly statements. People are going to see it. And pension funds are going to see it and they're going to say this is a great time to go back into the bond market in a big way.

11:23And I think that's what's going to happen. It's just going to take one or two catalysts, some sort of one or two numbers to show any type of weakness that's coming. And then that's when people are going to make their move. And it's going to be big. OK, so when you say make their move, do you mean they're going to just buy treasuries en masse and send yields back down? Sure. I think what they're going to be doing, first, on the pension side, I think all the consultants are looking right now. Those are our clients, and we're seeing it. We're getting a lot of contributions back to our firm. Why? Because they're rebalancing from stocks into bonds.

11:59The other thing is many of our clients have had significant cash reserves. They're now starting to put their cash to work further out in the bond market because it makes perfect sense. This is the time. Again, the Federal Reserve, in my view, is making a big policy mistake by raising rates right now. Whether you look at consumer confidence, which is near almost all-time lows, whether you look at the housing market, which is probably already in a recession, and that's before the 749 or the rate that they mentioned earlier on the show, and that's before that. If you look at savings, which is very low, all of these things add up to this is not the time to be raising rates.

12:38They're making a significant policy mistake. Well, they did it. So if you agree with Gilbert Garcia, it's too late, although maybe we could argue for the October 28th meeting. So where are people then going to buy? This big move that you've been talking about, Gilbert, in this segment, are they buying treasuries? Are they buying municipal bonds? Are they buying corporate debt? Are they buying D, all the above? Sure. A couple of things. First of all, in the bond market itself, about anywhere on the yield curve is exciting and attractive. So in other words, if you're in cash, now's the time to go further out of the two year, three year.

13:11If you're in the short one to three area, now's the time to move into the five year area. If you're a pension funds, now's the time to add duration, whether it goes out to the aggregate bond index, which has a duration of about almost six. But to go as long as you can within your risk tolerance, because starting with the risk free rate, which is just U.S. Treasuries, you're already pushing very close to five and a half percent almost all along the yield curve. You add in something else high quality and you're already at six percent. Very attractive. I do not think it's attractive to go into corporate bonds for all the reasons we talked about earlier, meaning on the show, about the stock market froth, the consolidation of concentration of names, et cetera.

13:53I think the stock market is primed for a significant correction and the driver is going to be higher real rates. By the way, I don't know if we could throw up, but I know we're ending a five-year TLT, the 20-year bond ETF. I mean, it's gone from$160 to$79 in six years. Hey, thanks, guys. Good job. Would you be a buyer of, like, the TLT, Gilbert? Yes, I would. I think now's the time to go into the bond market to get as much duration as you can. Your risk tolerance will allow. And whether it's in the long area of the curve, what's the intermediate part of the curve, they're all very attractive. And frankly, you could put in any slide that you have there and look all along the yield curve.

14:35They're all very low in price and they're all very attractive for all the wrong reasons. If you look, inflation expectations are not what's higher. What's driving rates higher are real rates. And that's just because real rates, people are concerned about what's happening with the Federal Reserve, the Treasury, what's happening with the war, all those things. Soon we will be on the other side of the war. And I expect that oil prices are going to come down significantly. I think the Federal Reserve is going to get those task forces. And I think those task forces are going to show and give them all the support they need to change the narrative to get ready to lower rates.

15:12Well, we just extended that TLT chart out to about 20 years, and we're near 20-year lows on that TLT. I should have noticed that. That would have been a great intro. Shame on me for not seeing that earlier. But your point is very well taken. We'll see if those task forces are going to do anything other than meet and order lunch. We'll see. Gilbert Garcia, Garcia Hamilton & Associates, have a great weekend, Gilbert. Appreciate it. And if you come to the races in Austin, let me know because we'll get some good Mexican food. And you know it. You know me. So, Gilbert, I love it. You had me at Mexican food.

15:45All right, on deck. Halima Croft is here. She'll talk oil. She'll talk geopolitics. And you definitely need to hear from her right now. Plus, we just kind of talked about it. How much will higher mortgage rates hammer an already hammered housing market? Or are cash buyers still king and a thing? Sir Hans, Peter Zaitsev is here. This is The Exchange on CNBC. See you next time.

16:41Try Google Workspace with Gemini at go.gle slash Workspace with Gemini. Hey, what's up, guys? It's Haley Bailey. Okay, I need to tell you about something. I just got YouTube Premium. It's got tons of awesome features like offline downloads, so I can download my favorite videos before I travel and watch them whenever I don't have Wi-Fi. Because we all know airplane Wi-Fi is the worst. I get ad-free, I get backroom play, and there's like a ton more in there. You should try it. If you like YouTube, you'll love YouTube Premium. Try it now for two months free at youtube.com slash premium. Trial eligibility varies.

17:14Terms apply. Cancel anytime. That's a mouthful. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash market update podcast or find Schwab Market Update wherever you get your podcasts. Buddy oil prices, they're heading a little bit lower right now.

17:50There's a lot of reports out there. Another one is that talks between the U.S. and Iran have entered what they call the technical stage. But again, we've seen these headlines before. Is this just another head fake? Let's talk about what we do know, what we don't know, what we hope to know. Joining us, one of our favorite people, Halima Croft, head of global commodity strategy at RBC Capital Markets and a CNBC contributor. I understand and I'm glad that we're talking. That's a good thing. If you're talking, you're not hopefully punching each other in the face. I just don't know if we're talking to the right people.

18:23How do you see Iran right now? Is anything different than what we saw in June? I mean, the Iranians continue to say they want the MOU fully implemented. mentioned. That's what they're saying is a price of entry for reopening Hormuz. That includes billions of dollars in frozen accounts, having access to that. They want sanctions relief. They want us to end all wars to end in the Middle East. And they want money and a pony. And they want a double blockade lifted. So it doesn't seem they have moved off the negotiating position that for now the White House says is unacceptable. So again, what has changed?

18:58And by the way, who is actually in the room. Where is the IRGC? Because ultimately, the IRGC will have the final say in whether this goes through. I'm so glad you said that because I've been saying it and people are like, oh, you keep saying the same thing over and over again. It's because it's true. The people that are in the negotiating room are not necessarily the people with the guns and the money. And the people with the guns and the money are going to sadly, ultimately be the ones that may determine the course of this. They determine what missiles are fired. And the question is, does the IRGC believe they have more leverage before the midterms or after the midterms?

19:34The civilians that are in town for UN General Assembly may believe that their leverage is to get a deal before the midterms. But again, nothing has seemingly shifted in the negotiating position. And again, we're getting into the weeds a bit. I had some meetings this week, probably with people that you had some meetings with this week, representing Gulf nations, that's all I'll say, and they are incensed that the United States put anything about the Strait of Hormuz in the MOU because that, in Iran's mind, that gave them sort of implied authority. We put it in the MOU, and Iran's like, well, look, America, you put it in there.

20:12You signed this. You signed it in Versailles. How do we get around that apparent massive strategic blunder? That is, from the Gulf states' standpoint, It is entirely unacceptable that this war ends with Iran in charge of Hormuz. I say, where does it end? This was an open waterway for all commerce. Now one country basically has a de facto say on who goes through or not. So the question is, can you refashion a deal and somehow remove that key line? But the problem is the IRGC now seems to believe it's an essential ingredient. They want to reestablish deterrence. They want Hormuz control rights. We kind of blundered by giving them a little bit of implied authority by putting it even in writing in that MOU.

20:53By the way, some new Reuters headlines as well. It's Reuters, so it's not my reporting or Halima's. Iran will show no flexibility over its nuclear program, even if the United States accepts its proposal to, quote, reopen. And I hate that term, reopen the Strait of Hormuz. So Iran's not even negotiating. They're just like, here's what we're going to do. And it's this or nothing. That's not negotiating. That's not negotiating. It's basically restating your demands. We want everything we want. Right. Or we're going to keep lobbying missiles at you. And the issue is a lot of people in Washington are saying we're getting some ships through.

21:26We've had an increase in closer home. We are. And so is time on our side or on Iran's side? And I think there's some in Washington who say let the blockade do its work. We can wait out Iran. But it's an we're getting oil through anywhere. It's hard. It's very expensive. So these are expensive. And it's a huge U.S. military commitment. It's freight costs. Look at how they have soared. And another thing that Gulf leaders are upset about, they don't like the idea that people believe that this is an acceptable state of affairs. Like, they want Hormuz open. They do not think— It's an international waterway.

22:02They do not think this is a substitute, having this patchwork arrangement of ship-to-ship transfers, military escorts, for having Hormuz open. You know, I got—you don't know this about me. I got one A in law school. That's it. The rest were Bs and Cs and Ds and other grades. I find that hard to believe. One A. You know what that A was in? Admiralty law. And if I can go back 20 years, I believe that you control two to three miles of your coastline. Any admiralty lawyers out there, you can check me on that one. That means Oman's got a little slice and Iran's got a little slice. And I bring this up not to talk about my poor academic record, but because Iran does not have any authority over hormones except for mines, fake mines, missiles, drones, but that's a lot of authority.

22:46Even a couple percent of ships getting hit or attacked, any sailor's life at risk is going to be too much for most big shipping companies. Well, exactly. Maersk, International Seaways, Frontline, they're not going to go through there. And the question is, if you allow Iran to have this now, where does this end? Are we going to be having discussions about Straits of Malacca? Are we going to be litigating all the world's choke points. So how do you see this then? We're on month seven. On month seven. Month seven. How does this play out? Where are we? I don't know anymore. Are we in a protracted stalemate?

23:22Is either side so tired and so beaten down that they're willing to make major concessions? It does not look yet like we've moved off those positions. I heard people at UNGA saying on the U.S. side, time's on our side. We can wait this out. And then you have obviously the harder liners in Iran saying, no, here's our term sheet. We're not budging off our term sheet. As far as I know, and as far as I've reported on air information I'm getting, Iran has not moved at all. They're like, this is what we want, and we're going to get all of it, or we're going to get none of it, because none of it's going to happen, because the guys that have the money and the weapons, they're the ones that have the most to lose.

24:01In some cases, they might lose more than their job, if you know what I'm saying. When does Europe, because there is some talk that this diesel export ban idea is sort of designed to kind of nudge Europe because they're in big trouble. Europe's a big$12 a gallon in some countries for diesel. We're paying six and a half a year. I look at diesel dependency in Europe. Correct. They use a lot of diesel in their cars, too. If you go to Europe, you know this at the Peugeot stick manual wagon. When does Europe get involved? Well, we already saw some statements from the French. They're going to become more militarily involved in protecting Saudi assets.

24:39And this is a really interesting point of contention because the Saudis apparently asked the United States for support in helping to deal with the Houthi threat. The United States facing potentially two fronts has seemingly taken a pass. And now the French are saying that they will come in and provide some military assistance. That's a good thing. At least the Europe, parts of Europe, France, vive la France. They want some burden sharing. They're helping a little bit. And also Total has apparently been helping in terms of navigation through Hormuz. Stay tuned for next week. I might have an interview that then on that front that you might be interested in.

25:13Fantastic. International man of bad grades. Or a mystery. 1A. Lee McCroft, thank you very much. One of our favorite people always. All right. President Trump posting on his social media account just moments ago that he and Chinese President Xi Jinping will meet again in November, this time in China, and then they will meet again at the G20 in December in Miami. Trump also saying much has been and still will be accomplished. All right, coming up, we may need to change the name to Little Mac because McDonald's stock, it just keeps going down. So what is really wrong with the golden arches? We'll talk about that.

25:53We'll also hear some of your ideas around Mickey D's. Stick around.

26:25We'll see you next time. with Gemini at go.gle slash workspace with Gemini. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash market update podcast or find Schwab Market Update wherever you get your podcasts. You've never been one to settle, stand down or stand still.

27:06You're a lifelong learner energized by excellence. There's a fire inside you. You can't ignore. You've got competition to outrun momentum to build on and your own high standards to meet. Stop now? Not a chance. At Capella University, we help you catch what you're chasing because you've always had the drive. Now, go earn the degree. Capella University, what can't you do? Visit capella.edu to learn more. Get a check on your Friday markets because we're trying to go out on a high note. Remember September historically, the worst month of the year for the stock market. Well, somebody forgot to tell September because I guess call earth, wind and fire.

27:46Who knows? Either way, the markets, they are higher right now looking to end a high week as well. What's not higher is McDonald's. Now, McDonald's this week unveiling a 10-year growth plan to upgrade its restaurants, but investors not loving it. Shares on track to post their first seven-week losing streak in 12 years. In fact, McDonald's stock is down 10 % this month, closing out its worst month since the COVID lockdowns closed their stores in March of 2020. And this stat will make you, dare I say, grimace. McDonald's has now wiped out one third of investor value in less than a year. Here's what McDonald's CEO Chris Kempinski told us this week about that underperformance.

28:31What I tell our teams is we manage the business, we don't manage the stock price. And ultimately, if we're doing our job of managing the business in the right way, managing it for the long term, the stock price will take care of itself. So while it's something that I think gets some headlines, our focus is really on driving the business long term. And I'm really confident about what we're going to be able to deliver for shareholders over the long term. I'm not the CEO of McDonald's, but you could do stock buybacks. That's one way. You could actually impact the stock. Anyway, we also want to be here from you about the biggest thing that McDonald's needs to fix.

29:06Well, I put that out on X, and apparently I triggered a lot of you. got hundreds of replies. I can't show them all. Take the entire show. Some of you said the McDonald's should have never gotten rid of their playgrounds. Others said that their vibe of McDonald's, the colors, the metallic chairs, that that is just not good. That's a big problem. One person helpfully suggested maybe teaming up with Nike to stop each other from dying. But on a serious note, McDonald's, the third worst stock in the Dow this year. I'm not sure we've seen a I will say that Jack in the Box and Shake Shack have done worse than McDonald's in the stock market among restaurants this year.

29:49Now to Brandon Gomez, who runs Marathon, so I don't think he's going to either of those places with a CNBC News update. I've been there before. Yes, a CNBC News update first and a sign of just how much the relationship between the U.S. and Canadian governments has frayed amid a trade war and the president's repeated threats to acquire Canada. Prime Minister Mark Carney tells The New York Times that his government is prepared for the possibility of a U.S. military action against Canada. Carney tells The Times he's not anticipating it, but that it would be irresponsible not to prepare. Meantime, New Jersey Democratic Governor Mikey Sherrill calling for the resignation of her Lieutenant Governor Dale Caldwell.

30:24This comes after an independent investigation found he made a sexual comment to a staffer and tried to get a promotion for a romantic partner. She gave Caldwell a deadline of today to step down. His lawyer called the investigation one-sided and said Caldwell was not given due process. And David Beckham is cashing in on the World Cup. The Financial Times reports he earned$51 million through his work with multiple brands. He appeared in about a dozen ad campaigns throughout the tournament. Brian, I don't know about you, but every time I feel like I looked up, I saw David Beckham. I was sticking to the same thing, Brian.

30:55I was going to say, I think there were more commercials with David Beckham than all other commercials. Right. He sold. Now all I want to do is buy beer, go to Home Depot, and whatever else he was selling. They over-indexed on it. But, yeah, he was everywhere. And I love your car. I've been there. Brandon Gomez. Brandon, thank you very much. Thanks, Brian. All right. Coming up, what do 7.5 % mortgages mean for the housing market, or do they mean nothing because everyone's paying cash anyway? Peter Zadsev of Sirhan and one of the stars of Netflix's Owning Manhattan is next.

31:32All right. So we're talking a lot about interest rates and borrowing costs today. I mean, what is maybe the most interest rate sensitive environment? It's got to be housing, right? And the interest rate on a 30 year mortgage coming close to seven and a half percent yesterday, the highest in about two years. We briefly touched that level, came back down. Now we're back there. But Diana Olick, I mean, whether we were there two years ago or not, seven and a half percent for people locked in at two and a half and three percent is a nonstarter to move. Absolutely a nonstarter. And rates did go up again today.

32:04The average on the 30-year fix has had quite the ride, hitting 7.49 percent this morning, according to Mortgage News Daily. It started this week with a little dip back, then shot up Wednesday and Thursday, a total of 28 basis points in just two days. Now, most of this in response to oil prices and economic data pushing bond yields higher. But yesterday afternoon's move, it didn't seem to have any other reason than investors just wanting to sell. But for anyone looking to buy a home, this is just making it that much harder. As a comparison, go back to the last low on the 30-year fixed, which was 5.99 % the day before the Iran war started in March.

32:42If you were buying a$450 ,000 home with 20 % down, your monthly payment, just principal and interest, was$2 ,156. Today, it would be just over$350 a month more than that. And given all the other inflation in the economy, that is making home buying more cost prohibitive, not to mention that as the rate moves higher, fewer buyers will actually qualify for a mortgage. And just to answer your question from before, Brian, not everyone, in fact, the vast majority of people, at least outside of Manhattan, do not pay all cash for their loans. I know. We're going to talk about Manhattan, but hold on. Hold on.

33:19I know it's a unique group. I get it. So if that$400 ,000 house goes from$2150 ,000 roughly to$2 ,500, don't insurance rates and property taxes also go up with a higher number? So it's not just paying higher mortgage cost. You're paying higher everything, I'm guessing. Well, I mean, I guess if the value of your home, your insurance rate wouldn't go up at that point. Property taxes take longer time. But I mean, it's really just the fact that it's getting that down payment and then qualifying that for that mortgage with the debt to income ratio levels, which the banks, the lenders are quite strict on now as they weren't maybe 10 or 15 years ago.

33:56All right. Diana Olick, thank you very much. And your point well taken about cash, not happening in Cleveland, but in Manhattan, it happens a lot. Let's talk about that and elevated new mortgage rates as well. What Diana just hit on joining us now is Peter Zaitsev. He is licensed real estate broker at Serhant and Star, one of the stars. I don't want to say just the star because there's other people on the show. I'm going to get you in trouble, Peter, of Netflix's Owning Manhattan series. Diana's point's well taken. Yes. Listen, you guys do high-end stuff. I get it. But how many of your buyers are all cash at your level?

34:30A lot of them right now are all cash because most of the other market, the mid, call it mid-tier,$1.5 to$5 million that need mortgages, right, because they can't put all cash down have been totally pushed out of the market. So what are people doing? What are they saying to you? What they're doing is that they can't afford to buy. These are first-time home buyers, right? So they can't afford to buy. So what they have to do is rent. And so that's why we talked about this before we went on air. That's why the rental market is through the roof. I have buyers, I have renters paying$150 ,000 a month in rent,$100 ,000 in rent.

35:12And also those renters, those rental properties are few and far between. So all of that trickles down to the everyday New Yorker that is now paying$10 ,000 a month for a one bedroom apartment in, you know. And I know, listen, and Peter, you said$150 ,000 a month for rent. Right. Okay. And I understand we got a lot. We got the richest, most successful audience in media. Right. CNBC. We got billionaires, millionaires. We got a lot of people that are not. Right. People just love the stock market. I want you to repeat that. These costs, and you're not making a joke, $8 ,000 to$10 ,000 a month rent for a very, very average one-bedroom apartment in Manhattan.

35:54Very average. I mean, these are not mansions. I want our people to understand we're not talking about gilded lilies here. No, you're talking about 860-square-foot space. That's insane. Insane. Insane. And it's all because, like, we have a lot of issues, right? The consumer price index just came out. We're up 49 % since 2019. Inflation, as you talked about, is through the roof. The national debt is what we're on,$4 trillion right now. There's a host of issues that we're having where it's like the ultra-rich are the ultra-rich. But there is working class New Yorkers that need New York as a lifeline.

36:32And it's being harder and harder to live. So there's another angle to this that is real estate adjacent, which is the job market. And I'll tell you why. Because people may not, if they don't live in New York, let's say you live in Cleveland. Right. And your company says, hey, Mr. and Mrs. Worker, we want to give you a promotion to our New York headquarters. Right. And you say, I can't afford to move. Even if they give you a raise, a big raise, you're still going to do the math at home and say, I can't do it. And unless some of this changes, Peter, I think there's going to be a negative impact on the job market in certain markets.

37:09Miami, New York, any expensive place. Any metropolitan area where people want to live. I mean, look at New York. New York's a bellwether for all the places, whether it's Cincinnati, whether it's Miami, whether it's L.A., whether it's San Francisco, Houston, etc. We are the starting place for all of this. So every other metropolitan area in the United States is going to experience the same thing we're experiencing. You know, 7 % rates are not just felt in New York City. They're felt around the United States. And to make Diana Olick's point, I don't know if you could hear her, it makes it harder to get a mortgage also.

37:43Oh, 110%. Because they're going to look at your debt to income and be like, well, I'm sorry, Mr. and Mrs. Worker, you don't have the income. Right, because you've been spending that money for your 20s, 30s, and into your 40s on a high price threshold. So how do we fix it? What would you do? I mean, I'm not an economist. I know, but I'm asking you as one of America's top realtors, what would you do? What I would do, I would build more affordable housing in New York. I would let builders build. You know, we used to have 421A tax abatements that would allow, you know, the relateds of the world, the Naftalis, the Wyckoffs of the world, to build and build buildings.

38:17A thousand unit buildings. And you put, as part of their stipulation to build, you build affordable, right? And then you build outside the city, out into the boroughs, because we're getting already, you know, there's only a limited amount of land in Manhattan. So you build out to the boroughs, and you build affordable, and you make it part of the essence of New York City and building. There you go. Damn it. I love it. You need an eagle on your shoulder. By the way, did you see the city they built next to us here in New Jersey? Like, that was like an old office building. It's now like 20 ,000 apartments next to us here at CBC.

38:50And it made it more affordable for people to go and live in New York. One would hope. One would hope. Peter Zaitsev of Sirhan, really appreciate it. Yeah, this is great. Thank you very much. Thank you. Coming up, Anthropic. Already on the sidelines when it came to the Pentagon business, thanks to some of its AI safeguards and a new ruling today. We'll keep those there. We'll tell you more on the potential impact on other AI labs. Stick around.

39:16A federal appeals court upholding the Pentagon's blacklisting of Anthropic. The Department of War originally designated the AI lab a supply chain risk all the way back in March. Remember that? Blocking it from doing any business with the military. Kate Rooney here with more on this story in today's Tech Check. Well, Sally, Anthropic just lost part of what has been a months-long legal battle with the Trump administration. A federal appeals court today in D.C. upheld the Pentagon's decision from earlier this year to blacklist the AI company. It came in a two-to-one ruling. And to remind everybody, it's been quite a long journey here.

39:51The fight started back in February. The Pentagon designated Anthropic a supply chain risk after talks broke down over how the military could actually use Anthropic's clawed AI models. That designation essentially bars the U.S. military from using clawed and then prevents defense contractors as well from using these AI models for any sort of work that they do with the Pentagon. Monanthropic had argued that the move was arbitrary and unconstitutional. But today that appeals court rejected all of those arguments. One judge writing for the majority here said the Defense Department had, quote, ample support for its conclusion that continued use of clog could present a national security risk.

40:30The Pentagon relied on two different designations originally to actually do this blacklisting, which meant the company had to challenge them in two different courts. And then we also earlier this year had a federal judge in San Francisco ruling that one of these designations was illegal. So bottom line, government's restrictions on Anthropic are in place for now, even though the company won a separate part of this fight here in California. In a statement today, Anthropic says it respectfully disagrees with the decision and is considering options, including further review. Brian. OK, I don't want to put you too much on the spot, Kate, but I know you know this stuff forward and backwards, which is what makes Anthropic different?

41:09Like, why is the U.S. Department of Defense, Department of War, why are they sort of going after Anthropic? How is Anthropic different than some of the other AI models out there? Like, what's the risk they pose versus the risk that a grok or open AI or perplexity or whatever might pose? The risk, Brian, is the way that they argue that it's been trained. And in some ways, this gets into politics in some ways. I mean, it's based on what they say is biased and that they think that the models reflect the political thinking behind, you know, the CEO, for example, Dario Amadei. They've described as somebody who basically they have called him woke, which is part of this.

41:52But they basically say that the way that this model was trained makes it so that it's not safe, so that it might back out of doing a certain thing that it thinks is immoral. So in the context of war, they're saying if this model decides that it doesn't want to do one of these things for a variety of reasons, that is actually a risk. And that has been Emile Michael's issue here is that he does not trust the way that this was trained. He has not had the same criticism of open AI or XAI within Elon Musk's universe. So part of it is also diversifying the technology. They've relied only on Claude up until this year.

42:26And Emile Michael, regardless of politics, has said that's just not good practice. You need to have a variety of tech partners in the background, but it does does get into politics quite a bit as well. Great. Any day you can learn something is a good day. And I learned something today. Kate Rooney, thank you very much. Appreciate it. All right. Coming up this name, that mystery chart right there. Higher on the back of strong results. And trader Victoria Green is a buyer calling it a low volatility play in a, quote, minefield. Huh. We're going to reveal the mystery chart with all you meddling kids.

42:59next.

43:04All right, welcome back and happy Friday. Stocks having kind of a happy Friday as well. The markets are higher to end the week. The 10-year yield is also higher, just keeps going up, and it's right at around 2007, so almost 20-year highs. We're at 5.2 percent. Your next guest has some trades in some of the more interest rate sensitive sectors. Let's bring in Victoria Green, G-Squared private wealth CIO and a CNBC contributor, Victoria, at the very tippy top of the show. We talked about how bonds, Gilbert Garcia was saying, well, bonds are going to take money from the stock market. I think you're there.

43:37You there?

43:41Bueller? Something OOO economics? Anybody? All right. I don't think we have Victoria. That's a thumbs down. Well, Victoria, we're going to get you set up. Don't you worry. We're out there and we're here for you. We know that you're there and you're safe. we're going to find you as well. Why don't we do this, guys? Why don't we show... Look at that. It's like they read my mind. I literally was going to say that, and then it pops up. It's kind of crazy. At this point, they may actually be, folks, in my head. All right. Here's how your markets look right now. Ten-year yield at 5.2%. NASDAQ, S &P, and the Dow all also higher.

44:15By the way, as I said at the top of the show, September, historically, the worst month of the year. So, like the Packers last night, just not good. But guess what? This has been an up month for the NASDAQ 100. So there you go. All right. We're still waiting on Victoria, but I understand that we have Kate Rooney back because, Kate, not only are you. I don't use the word hero lightly, but you're back. Not all heroes wear capes. No, but they do wear red blazers and they have some breaking news on Microsoft. They hang out on set in case these things happen. I was kind of after our hit was just reading some emails and you know what?

44:56We manifested this. No, I mean, the big news for Microsoft today was this co-pilot redesign. So this is sort of their AI agent within Outlook, within your Microsoft suite. You know, you open up your computer, at least speaking for us at CNBC and Versant, and it gives you the option to use co-pilot. Right now, it has not been competitive with Anthropics Cloud, with Microsoft, or excuse me, with OpenAI's co-work. They're trying to fix that. They're trying to bring some of their assets, whether it's coding or these AI agents, under one umbrella and saying, OK, we're going to make this into a real competitor with Claude, for example, which has really dominated white-collar work.

45:34And they roll out this new version. They are taking a bet here that people will pay extra to have something that's actually useful on the back end that all of us want. That is the endgame here. Have these agents do more work on our behalf. And a big part of that is harnessing the suite of Microsoft 365 and the things that already live on your computer here. It's the big open question, though, will people pay for that extra agent in the background? And that's what they're trying to prove with this big rollout today. But it's a major update. Shares are up more than 3 % on this news. And it's helping the stock year to date.

46:06It's been a bit of a laggard if you look at at least compared to the NASDAQ. But the AI story within Microsoft is extremely important. They want to win this enterprise slice of the business. And this is their answer, Brian. I'm going to do an X poll because I want to ask you, Kelly and I talked about it yesterday off camera, so I'm going to ask you a deeply personal question you could tell me to go slag off, which is, would you trust, do you trust giving agents access to your personal information right now? Yes. We've had, having this debate in San Francisco all week. I know, I know, and I'm older, so I'm like, I'm scared it's going to steal my information.

46:38I am the type of person who already probably thinks that my data and information is out there. I'm willing to make that tradeoff for convenience because I've been using instinct. I've been using Meta and Muse. I just want, I don't like shopping. I want it to do things on my behalf. And I'm willing to roll the dice. Probably making me a target saying that on live TV. But I truly, but it's been so helpful. And it's also, Brian, it is proactive. So I'll give you an example. I'm using this thing. I get a delivery. It's got to go in the fridge. I get a text and it says, did you put your delivery in the fridge?

47:08No, I didn't. And it told me to do that. So I'm willing to make the trade-off for that. Hopefully you didn't eat that because apparently now it's spoiled. I'm glad. It's good enough for Kate Rooney. It's good enough for me. Hero. Kate, thank you. Thanks for watching The Exchange, everybody. Speaking of heroes, Contessa Brewer will join me on the other side of this break for Power Lunch. Join us. You've been listening to The Exchange. Make sure you're subscribed to get each episode every day, same time, same place. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab.

47:43Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash marketupdatepodcast, or find Schwab Market Update wherever you get your podcasts.