Yields Jump, A High-Stakes Visit, and Lefrak’s Real Estate Warning 9/23/26

0:00At Janice Henderson, we strive to deliver better outcomes through insight-led investing, innovation for clients, and a partnership approach that's core to our identity. I'm Jessica Lianzini, Head of Fixed Income Client Portfolio Management. I'm passionate about my role in investments. It allows me to partner with our clients, simplify fixed income, and support them in achieving better outcomes for their clients. Janice Henderson, investing in a brighter future together.

0:30Something amazing is happening in networking. Organizations are scaling with less stress. That's because CDW is designing and implementing intelligent HPE Aruba networking solutions that simplify and secure operations. With automation at the center of your data center, growing pains can be a thing of the past. HPE Aruba Networking and CDW. Make amazing happen. Learn more at cdw.com slash aruba.

1:03Thank you very much, Scott. Yields are shooting higher, and so are the odds of another rate hike next month. Welcome to The Exchange. I'm Kelly Evans. The 10-year Treasury yield is well above 5 % today, hitting its highest level in 19 years. Multi-year high for the twos as well. All of this on the back of a hotter-than-expected flash PMI report, not the official day one of the month ISM report, the flash, the preview number. Stocks are under pressure as a result this hour, with the Nasdaq down 1.2 percent, backing off its record high, 1.5 percent drop for the Russell 2000, S &P down three quarters of a percent.

1:40Rate height probabilities are now at 64 percent for October, up from 55 percent yesterday and just 8 percent a month ago. Gold is lower and now negative for the month. The dollar is near a two-month high on hawkish Fed comments as well. And WTI oil, Well, that is hovering around$92 a barrel. It's up just under 1 % today. The Iranian president delivering a defiant speech at the U.N. this morning. And President Xi of China is set to arrive in Washington this evening around 6 p.m. Eastern time. We'll get to all of that. But let's start with this dramatic move in yields today. Wells Fargo's Paul Christopher joining us to discuss that and more in today's opening exchange.

2:18Paul, it's good to see you. Good to see you, too. I mean, I had to look twice earlier. I said, is that 509 on the 10-year? That's a pretty big jump for flash PMI. What do you think is going on? Yeah, sure. It's just another sign that the market wants to push the Fed to make sure the Fed is totally on board with inflation control. The two-year pushing, what, 495 on the news. And it's just a sign that the market wants some reassurance here. They were reassured last week when the Fed hiked. Now they're pushing for four rate hikes, almost four rate hikes from the Fed to come before the end of next year.

2:57Again, the market looking for some reassurance here. So we're showing 491 on the two-year. The two-year Treasury yield is up 13 basis points today. So it was 479 yesterday, something like that. Now we're at 493. The two year's almost at 5%. Here's my concern. This goes back to the Fed's decision to hike last week. Since then, by the way, we've seen relief in oil prices, which should have brought Treasury yields lower. But what are markets doing now? They're running with expectations of more hikes. So$4.94 for the two-year,$5.10 for the 10-year. Do you think the Fed itself is one of the forces that is pushing Treasury yields higher?

3:37Because all of this hawkishness is now being priced in. Higher rates are now being priced in. Yeah, you're right. Right. But I don't think it's the Fed that's doing the pushing. I think it's the market that's pushing the Fed. And as I mentioned in my first set of remarks, you had the Fed come out with really strong language and a rate hike. OK, what are we going to do in October? What are we going to do in December? And what are we going to do into 2027? The markets still want some of that forward guidance that the new Fed leader has been reluctant to provide. OK, but so talk me through then what are the data points that would go into this, if not just a more hawkish bet, right?

4:15Have we gotten incredibly strong economic data points? Do we see accelerating inflation? Are we seeing accelerating commodity prices, oil prices? I mean, is it a global bond sell-off that's driving yields up 15 basis points on the two-year today? Yeah, I mean, you know, markets can overshoot, obviously. An advanced PMI is not typically a kind of report where you get this kind of reaction. But yes, you are seeing global bonds rise and they're rising more in places like France and in Japan where there are more fiscal problems than you're seeing in a place like Germany. So let's establish, number one, that there is some upward momentum here in global bond yields.

4:53Some of that is being driven by additional issuance from AI related companies whose issuance now is going to be probably close to 40 percent of net U.S. treasury issuance. So that's a serious competitor for investor dollars, and that's going to help push up yields as well. And then you've got the whole picture with inflation. And by the way, I would focus not on oil prices but on diesel prices. Those are the main drivers. Consecutive all-time highs here in the last week or so, basically since September 15th. That's what's really pushing inflation. So those are the factors here at work. Some competition for treasuries pushing yields higher and inflation pushing yields higher.

5:34and then the market demanding that the Fed respond in kind or give some signal of a coming response. Right. We're looking at 652 and the price of diesel. Just checking our, you know, AAA fuel gauge is my go-to these days. I know for a lot of investors, too, for literally the first page they'll often look at. We're pretty much at a record high today for the diesel price. 652, as I mentioned, 447 is the price at the pump. The details, by the way, of the flash PMI, I don't want to be too dismissive. I mean, they look. Listen how strong this is. September, all industry output rose two and a half points to 58.4, highest since July of 2021.

6:11Input cost inflation accelerated to its highest level since late 2022. We also, by the way, just had a five year note auction. That could be what's pushing yields up a couple more basis points right now. Let's turn over to Rick Santelli. Paul, stay right there. Rick Santelli does have those results for us over at the CNB. How'd it go, Rick? Yeah, not well, not well. But then again, with the yields jumping the way they are in double digit formation, trying to do an auctions like trying to tune up your car when it's going down the expressway. So these results are not good. It powered right through most levels.

6:45The yield at the 70 billion, 70 billion five year notes was 5.033. Now that's the highest yield at an auction since June of 06. But here's the rub. The when issued market was basically at 5%. So it had a 3.3 basis point tail. That is huge, but it should not be unexpected given the way the market is selling off. And all the metrics were fairly poor. The dealers took too much. The indirect direct relationship when you pair it up was on the light side. Bid to cover was on the light side. I gave it a D, and I'm probably being generous. If this was more of a normal day and yields weren't up double digits, I'd probably give it a D minus.

7:27But I understand. And in terms of what's propelling the market, see, you know, I was on Fast Money about a year ago. And I said, you know, there's a very small chance that if things get nuts, you can see the teens in terms of yield. And the point is, when things start to get dicey and you go guns hot domestically on interest rates and globally on interest rates, they can hit air pockets, OK? There were a lot. Just think about the 10 and 30 year auctions we had a couple of weeks ago. Many investors were enthralled to think that they could get these yields and they looked at 5 percent in a 10 as a buy point.

8:00Four and three quarters in two years as a buy point. Well, they're not buy points. We went through them like a hot knife through butter. And that doesn't mean that there's a problem in the treasuries. We had an air pocket. It'll come back and do backfilling. But I'll tell you what, we could get up to 517 to 519. We're almost there. That was my resistance from a month ago. The next one above that's around 521. But the high five teens is most likely where we can go and we'll come back and we'll backfill. But I don't see anything negative on the horizon. I actually think the PMIs really paint a picture of an economy, especially in manufacturing, that's starting to hit its stride.

8:40We see the dollar is getting stronger. That helps domestic buyers. You know, all of us buy our goods a little bit cheaper with a stronger dollar. So there's a lot of positives. But many of those positives can translate into higher interest rates. And I'm not even discussing what's going on with oil, although I do see it has reversed a bit. And if you look at 945 today when the PMIs came out, I brought those out on the air. And even though oil had an influence, it was moving up at the time. There is no doubt the minute I saw those hit the screen, I saw the offers start pushing yields up aggressively.

9:14I mean, Rick, it's worth pointing out how unusual it is to have five year yields rise 18 basis points in one session. 18 and equally unusual. How unusual is it to have zero interest rates for seven years around the globe? It's still unwind, you think? This is the price we pay for manipulating and it's a normalization. I'll give you something. Since 1980, the average yield on a 10-year note is around 5.5 % to 5.6%. That should put things in perspective. And that, look, I'll add this as well. Here's from S &P with its flash PMI report this morning. Just listen to this. Barring the spike in demand after COVID-19, the latest improvement in business activity is the greatest recorded since early 2015.

10:03Is this AI? I mean, then they say the growth is being accompanied by some of the most severe supply chain bottlenecks seen in the near two decade history of the survey, other than the pandemic. We make too much of supply bottlenecks. Is that the companies worry about it? Is that AI? You know, I think AI is a big part of it. But I also think that our domestic energy, our exporting. I know that there's all these stories about diesel, but go through the macro. Let's rise above that. There's a lot of positives, less regulation. We have a lot of capital in the system from the tax issues of a couple of years ago, tax policy.

10:39We have the AI build out. We have plenty of capital. I'll tell you what, capital is out there and it's looking for a home. And I think that there's 80 percent of the story on interest rates is good news. The other 20 percent has a lot to do with the Middle East and what's going on with oil. And I'm not dismissing it, but there's some positives here pushing yields up as well. Rick, appreciate it. For now. No, I'm not going to cry. You've got a couple more weeks. Rick, thank you. Paul Christopher still standing by. Paul, can you kind of put a coda on this? And I like how Rick just said 80 percent of this is good news.

11:12It's the 20 percent you have to worry about. But I don't know. I think if I'm sitting in Treasury today, I'm going, do I need they've already done the long term buybacks. 18 basis point jump in fives. If Rick's right and we're going back to historical norms, we're going to five and a half, six plus percent on the 10 year. Yeah, I mean, I would agree with Rick. This is mostly a positive story. It's not one that makes me be afraid of holding stocks. It doesn't make me want to sell out the AI trade. But it does put things into perspective. And yes, we are seeing some normalization and even some strong pickup in the economy that's going to take us there.

11:50So I think this is generally a positive thing. Look, on fixed income right now, you're a fixed income investor. You're losing on these higher yields. But you have a chance to buy maybe at lower prices. Ultimately, we wouldn't touch long duration right now, but we will put that money into cash, short term treasury bills out to two years and then to hold on to that. Let's wait for this thing to play itself out for those yields to normalize. Then we can start looking at duration again. In the meantime, I would still be looking at stocks and buying on pullbacks, especially in tech and tech related sectors and and materials.

12:24materials. Yes, you're very positive on equities and on commodities where you're overweight and see a lot more upside potentially. Overweight commodities. Thank you. Yes. Yeah. Paul, thank you. Thanks for sticking with us. Thanks, Kelly. During this time, Paul Christopher of Wells Fargo. We've got a news alert on energy. Ultra low sulfur diesel futures just fell as much as 6 % a few moments ago. I want to make sure I said that right. This is ultra low sulfur. Let's just call it diesel. Diesel futures fell 6 % a few moments ago on reports that the White House is preparing a plan to ban diesel exports for 90 days in an effort to bring down prices.

12:59Any halting shipments would be the first restriction on U.S. energy exports since the Obama administration lifted a 40-year ban on oil exports. That was back in 2015. Again, this is a report. We'll continue to follow it. Diesel futures down 4 percent right now on this developing story. Let's turn now to the high stakes meeting between President Trump and China's President Xi, who is set to arrive in Washington this evening. Megan Costella has the latest at the White House. Megan. Hey, Kelly. So, so much is on the agenda for that state visit, which, as you said, will kick off this evening. That's when President Xi will be greeted by President Trump on the tarmac at Joint Base Andrews.

13:35Now, that's an exceedingly rare diplomatic gesture and one that President Xi did not give President Trump when he landed in Beijing back in May. That arrival is what you're seeing here. But today's red carpet welcome will set the tone for all the pageantry that the White House will be laying out this week for the Chinese president. And in many ways for this visit, the pageantry is the point. None of the analysts that I've spoken with are expecting any truly major breakthroughs on policy. So the focus is much more on the pomp and the circumstance, showing Xi the utmost respect and portraying stability and closeness in the U.S.-China relationship.

14:07Now, that said, there are, of course, possible deliverables that we're watching for, an extension of the Busan trade truce for one, a new AI safety dialogue, maybe more Chinese ag or aircraft purchases. But on areas of deep division, so think Iran, Taiwan, China's military buildup, export controls, there is little expectation of much being accomplished there. And that's led to some criticism, even from some Republicans, who would like to see this president take a stronger approach when it comes to China. Kelly? Yes, pressure from a lot of different sides. Megan, thanks. For more, let's turn to Michael O 'Hanlon now.

14:39He's director of research for the foreign policy program at Brookings. Michael, always great to see you. A lot of a lot is being said. I'm trying to avoid the word pageantry, but that's what this is really about the arrival, the way President Xi is being greeted. What do you think President Trump is trying to accomplish here? Greetings. Well, I think President Trump is right that a good relationship with his Chinese counterpart is actually healthy, especially at a time when we have so many disagreements on policy. And I think keeping a certain ballast in the relationship through personal ties, you know, it's not going to solve our problems, but it's better than the alternative.

15:12So I don't have any big problem with that. I do think, however, building on the report that you just aired, that if we really see no business done whatsoever, no decisions made at all, that's unfortunate in a couple of domains, one of them being Taiwan policy, where, as you know, a$14 billion promised arms package for Taiwan has been held up. And if President Trump is sort of trying to be nice with Xi Jinping, he's unlikely to approve that sales package. At the same time, China keeps building up its military. So standing in place is falling behind. Doing nothing is a net negative for Taiwan's defenses.

15:50So there are a couple of issues where I really hope they will be able to just have some honest disagreement and not have so much positive personal chemistry that President Trump is unwilling to take tough steps to defend our interests. But am I correct in reading that this was really President Trump that really wanted this meeting to happen? And if so, again, we've mentioned the pressure coming from the Republican Party on him about this. Why? Why would this be so important to him? Well, you know, I don't usually equate President Trump with Henry Kissinger, whom I was fortunate to know in the latter years of his life.

16:21But I think Trump gets one thing right that Kissinger also tended to underscore in his writings and his statesmanship, which is that you do want to maintain a certain degree of respectful relations with great powers in particular. Now, sometimes Trump should actually try to do that towards our allies a little more than he does as well. But I think it is correct not to demonize China. For example, in recent years, we had two secretaries of state in a row say that China was guilty of genocide. I think that's way too strong language. It's true China abuses human rights, and we should push back firmly against how they treat the Uyghurs and how they treat the Tibetans and how they treat dissidents.

17:00But it doesn't mean you accuse them of being genocidal. And so I think Trump gets that a certain amount of workable, respectable relationship is actually important for sort of being able to manage the big problems we've got with Beijing. A few weeks ago, we spoke with Derek Scissors, who said something fascinating that I've since watched news reports bear out. So I'm curious for your take on this. But he mentioned that we've ultimately backed down from a lot of the China tariffs that we've wanted to impose because they keep holding rare earths over our head and we don't have a good response. I see this in the news even in the past several weeks.

17:34They continue to be able to exert leverage on the U.S. because of rare earths. Is that correct? Do you also perceive the same thing? And if so, what can we do about that? Yeah, it's a great question. They also have a lot of leverage over Japan and certain other countries for that same reason. And their relationship with Japan right now is quite poor. And so, you know, in contrast to the Trump-Xi relationship, which is more or less workable. Now, you're right. We've identified the problem of rare earths, but the policy response is slow. I think we're trying to build one big refinery on American soil out west, and that's just getting started.

18:10At last, I'm going from fuzzy memory, so forgive me, but I have a sense that that's not going to come online for another half decade. And even when it does, we're not going to get enough from that. So in this situation, all you can really do is try to diversify supply across the world as much as possible, create economic incentives, offer long term contracts to people who would also build up their mines and their refineries. And then to the extent you can stockpile. But otherwise, you're right. We're still in trouble and China still has leverage. A quick another comment he made, I'd love to bounce off of you, which was he said, as a result, we've ended up in some ways treating China better than Canada through trade and maybe through the style that the president is using when it comes to China versus Canada.

18:55Is that true? And if so, what are what are the are there big consequences from that? Or is it a reflection of what you said that's more about kind of great powers? And, you know, in this case, that's why China gets what it's getting and Canada doesn't. I don't know. I hate to relegate Canada to a lesser place in our diplomacy. I think President Trump's just flat out making a mistake in the way he handles Canada. And even though Canada is a smaller country in terms of population, its resource base is tremendous. And it can help us solve some of these problems with things like minerals, metals, obviously hydrocarbons.

19:28And so the way that Prime Minister Carney is being treated and the Canadian people more generally is just a mistake of this administration and a reflection, I think, of Mr. Trump's personality more than any sophisticated worldview. All right. Michael, we'll leave it there. Really appreciate it. And we'll see what happens this evening and beyond. Michael O 'Hanlon from Brookings. Coming up, the CraneShares China Internet ETF is down 75 percent from its record high five years ago. What's keeping China's market under pressure? Or at least this is kind of like their MAG-7, if you want to think about it that way.

19:58Can anything at this week's summit help unlock it? We'll talk about that and the K-Star ahead. But first, Meta having its third best month ever. fueled by momentum from the launch of its Muse personal AI assistant, though there could be some unintended consequences for the rest of the internet economy. We'll dig into that next on The Exchange.

20:22When you partner with CDW, you get more from your devices with solutions that take modern work to the next level. CDW experts are delivering powerful productivity with Lenovo AI PCs. helping users block out distractions, access virtual support anytime, anywhere, and share content seamlessly between devices. Make amazing happen. Learn more at cdw.com slash Lenovo. 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.

21:11Make every moment unforgettable. Find great gifts starting at$250. Jared, make the holiday last forever. Shop Jared Jewelers. What's going on? I'm Arch Manning, Viore athlete and college quarterback. Whether I'm running, training, traveling, or just unwinding at home, I love doing it in my core shorts from Viore. With a breathable box of brief liner, they're quick to dry, super versatile, and stand up to even my most intense training sessions. Plus, they come in three inseams and a ton of colors. Ready to try a pair? Go to viuri.com slash arch and get 20 % off at checkout. I think you're going to love them as much as I do.

21:40That's viuri.com slash A-R-C-H and get 20 % off your first order. Exclusions apply. Visit the website for full terms and conditions. Not only will you receive 20 % off your first purchase, but enjoy free shipping on any U.S. orders over$75 and free returns. Have a great day. Meta's Muse is creating a huge shakeup for companies built on direct consumer relationships. Expedia and Instacart are among their latest partners, giving Muse a direct path now to book travel and build grocery carts. Meantime, Schwab, Booking Holdings and Airbnb came under pressure yesterday as investors ask whether they need to partner with Muse or risk losing share.

22:16For more on who may be next to get on board with our little friend we call Muse is Evercourse head of Internet research Mark Mahaney. I mean, the icon's cute. And then they announce things on Twitter and he's dressed up with different logos. It's very, I don't know, it's very youthful. It feels like it's got this growth and momentum behind it, Mark. There's a real question now for all these Internet businesses. Do they partner? Do they block it? How do they respond? I think all of these companies are going to have to develop either their own agentic capabilities or they're going to have to tie up with one of the agents.

22:50By the way, there's going to be more than just Muse. I think Muse is great. I've written two reports on it. Fine. I think Google is going to come out with it. I can't imagine that Google is going to let this space go to Muse. And I think ChatGPT's got more coming out. They must. They had something crude like this called Operator about a year and a half ago, but it just was too clunky. It didn't really work. So we're going to see more competing models. Apple, too. I'm expecting something out of them. And I think all commerce companies, consumer-front-end companies, are going to have to figure out how to work with them and develop those capabilities themselves.

23:20I mean, the bar's being raised here. You want to have a personalized, intuitive interaction with any e-commerce site. And if you don't, you're going to lose share. Now, whether Muse and other agents become drivers of traffic or actually capture the value, I don't know, Kelly. That's the big debate in the market. The market's kind of very quickly deciding that Muse is going to take all that economic value. I'm sort of skeptical of that. This reminds me of the debate we had over what ChatGPT would do to the market, you know, two years ago that didn't really come to fruition. So I'm a little skeptical on a lot of the sell-offs that this is causing.

23:53But I get it. We're at an agentic moment that is really triggered by Muse. And it's a beautiful app. And it's gaining, you know, this is going to soar to 100 million users, is my guess, in 6 to 12 months. Here's a couple of examples that I collected from the Internet today that I think help illustrate. This one's from a Twitter follower named Dominic. He says, hey, Muse, please order me a pizza from Joe's and have it delivered. But don't use DoorDash. Call them directly because I don't want to pay the premium. Also, order my groceries, but call the grocery store direct. I don't want to use Instacart.

24:21I mean, because now they can call, they can go do that. This is beyond just, so what am I missing? I mean, is he right? And if so, how do people who are sitting in the middle and collecting a fee from that not end up being pushed to the side? They may, Kelly, you're right. They may all be pushed to the side. It depends on how good that operator, how good of a relationship of value proposition they offer to consumers. So you could tell it to, you know, go buy the latest Scott Galloway book, but don't use Amazon. I think very few people are going to do that because when you order from Amazon, you know you're going to get the product same day, next day.

24:58You're probably going to get the best price out there. So it really depends on how much of a lock or how much of a strong value proposition the operator has with the consumer. So, again, the bar is being raised. I don't think too many people are really going to go on there and say, you know, do my weekly Costco shopping, but don't use Instacart. People use Instacart or they use DoorDash because they've got loyalty programs. They've been using them for a while. The delivery is very good. You know, and the first time that that local grocery store kind of screws up the order, makes it late, something's not right with the tomatoes, people are going to probably blame Muse.

25:35So I think that a lot of these companies, if they just make sure that they tighten up their value proposition, they keep with the high service levels. Probably have to be higher now. As long as they do that, I don't think there's a major market share issue for them. It's possible, but I don't think it's likely. Yeah, 860 is your target price on Meta now. As you say, this could really drive the stock the way that Gemini 3 did for Google. And again, here's another example from Nikita who says, they can tell Muse, find every Amazon purchase I ever made. Call the number of the manufacturer. Say you're not satisfied.

26:04Request a refund. If they decline, threaten to leave a bad review. If they decline, find the CEO's phone number and ask him for a refund. Repeat the process for items I never even purchased. See if you can get them to send me money. If they ask for a receipt, generate an image of one and send them that. Do not stop until you've collected a million dollars in refunds. I mean, you and I know people are going to go do this, right? Anyway, we have to leave it there. That'll be for your next note, Mark, I think. Yes. Thanks for making the time today. Hats off to Nikita. That's a really great idea. I'm going to do it this afternoon.

26:33Scary stuff. Mark Mahaney of Evercore. Muse isn't just disrupting e-commerce either. It's also hitting the brokerage names. Schwab falling 6 % yesterday and not bouncing today, up to a tenth of a percent, call it. Robinhood, meanwhile, is up 20 % in the past week. And options traders are betting on more upside. They think it could be a benefit. Another name getting hit is the New York Times after Deutsche Bank warned they could be vulnerable to subscription cancellations driven by Muse. Those shares are down 10 % now in two days. And coming up, record high fuel prices are hitting American farmers.

27:06And the timing for Republicans couldn't be worse with midterms around the corner. For more, we head west to the Hawkeye State, specifically Indianola, Iowa, where Pippa Stevens is harvesting some answers. Pippa? Hey, Kelly. While Iowa farmers are preparing for the busy fall harvest season, all of this corn is going to be picked. But this year, record diesel prices are complicating the profit outlook. We talk to farmers about how this is influencing their votes ahead of the midterm. More on The Exchange coming up next.

27:41When you partner with CDW, you get more from your devices with solutions that take modern work to the next level. CDW experts are delivering powerful productivity with Lenovo AI PCs. helping users block out distractions, access virtual support anytime, anywhere, and share content seamlessly between devices. Make amazing happen. Learn more at cdw.com slash Lenovo. 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.

28:30Make every moment unforgettable. Find great gifts starting at$250. Jared, make the holiday last forever. Shop Jared Jewelers. What's going on? I'm Arch Manning, Viore athlete and college quarterback. Whether I'm running, training, traveling, or just unlining at home, I love doing it in my core shorts from Viore. With a breathable box of brief liner, they're quick to dry, super versatile, and stand up to even my most intense training sessions. Plus, they come in three inseams and a ton of colors. Ready to try a pair? Go to viuri.com slash arch and get 20 % off at checkout. I think you're going to love them as much as I do.

28:59That's viuri.com slash A-R-C-H and get 20 % off your first order. Exclusions apply. Visit the website for full terms and conditions. Not only will you receive 20 % off your first purchase, but enjoy free shipping on any U.S. orders over$75 and free returns. Have a great day. Welcome back and keep an eye on WTI crude. It's up 1 % today, though well below last week's high of about$106 a barrel. We don't want to remember those days. And still no relief from diesel prices sitting at a record high of$6.52. What is the impact all of this is having on politics and the upcoming midterms? For more on that, we're heading out west to Iowa to hear from the farmers directly affected by these higher costs.

29:38Pippa Stevens is in Iowa with more. Pippa? Hey, Kelly. So here in Iowa, farmers are squarely focused on their rising costs, including for diesel. Now, for farmers, there are two peak fuel demand seasons. planting and harvesting. And right now we are in harvest season. And so these record high diesel prices couldn't come at a worse time. Farmers plan years in advance. So an unexpected large cost like this really eats into their bottom line. There are also price takers. They buy retail and sell wholesale. There's not a lot of flexibility. And this has now gone on for a lot longer than farmers and Americans more generally thought was going to be the case.

30:16So that is the backdrop here in Iowa as we head into the midterms. You have an open Senate seat, a governor race, and two of the four House seats are open. And Democrats are really hoping to make inroads here in Iowa, a state that recently has swung solidly to the right. So I'm here in Warren County, which is part of the first congressional district. Democrat Christina Bohannon is gearing up to face off against Republican incumbent Marionette Miller-Meeks for the third straight time. In 2024, Bohannon lost by less than 800 votes. Now, this is a really interesting district because it includes metropolitan areas like Davenport and Iowa City, which Bohannon did win in 2024.

30:56But then it also includes the rural Republican counties like this one. And these counties are seen as key if Democrats do want to flip this seat. And I've heard that Bohannon has been out and about in the community in Warren County talking to farmers as she really tries to sell them on her agenda. And of course, Kelly, a key part of that is also our trade relationship with China. Soybeans squarely in focus as this President Trump and Xi Jinping summit is set to get underway. That is a great point, Pippa, and a rising issue. I know they often feel like a political football being tossed between as these two fight it out.

31:31Pippa Stevens, thanks so much out in Iowa for us today. Let's get over to Mackenzie Sigalos now for the CNBC News update. Hi, Mackenzie. Hey, Kelly. After holding talks with both Russia and Ukraine at the U.N., Secretary of State Marco Rubio said today that Kiev and Moscow are open to a limited ceasefire on energy targets. President Trump has proposed such an effort to try to help control the rising cost of diesel. Of course, diesel prices in the U.S. are at all-time highs, with the average hitting$6.52 a gallon. Senator Bernie Sanders and Representative Greg Kousar unveiling long-anticipated legislation today on AI.

32:06The bill from the two progressive lawmakers, which was first provided to the Associated Press, calls for a ban on artificial superintelligence and to create a federal agency to oversee advanced AI. But the bill's passage far from certain as lawmakers struggle to come to an agreement on AI legislation. An NFL network reporting that New York Giants quarterback Jason Dart is out for the season. Dart was injured in the opening possession of Monday night's loss to the L.A. Rams. sources telling the network that Dart will have season-ending knee surgery, but that his ACL is intact and is expected to make a full recovery.

32:42Kelly? That is heartbreaking, reminiscent of the Aaron Rodgers episode with the Jets a couple years back. Mackenzie, thank you. Mackenzie Sigalos. Coming up, Chinese ETFs are underperforming this year, although international stocks in general are doing pretty well. Can anything from this week's summit help boost them? We'll discuss that next.

33:04Welcome back. Alibaba is stepping up its AI ambitions, unveiling a new chip it says is China's most powerful yet. This comes as President Trump emphasized the need for the U.S. to maintain its edge over China when it comes to AI in his U.N. address. But the AI push hasn't translated into broad gains for Chinese tech investors this year. Alibaba shares are off 24 percent since January. Tencent is down 53 percent. Baidu skidding 31. For more, let's bring in Brendan Ahern. He's the CIO of CraneShares. It's good to see you again. And you would emphasize, I haven't looked at KSTAR. I mean, doing better, presumably, than, yeah.

33:40Oh, significant. I mean, by 60 percentage points better. Yeah, that makes a lot more sense. And these are areas that include, like, memory chips. And, you know, is CXMT in there? CXMT is in the port. So you have this tale of two Chinas. You have KWeb, really the AI hyperscalers of China, which, just like the MAG-7, is off its all-time highs. And then you have the AI picks and shovels trade where you have these semiconductor companies in mainland China that we hold in K-Star. Very strong performance like you're seeing in Japan, South Korea and Taiwan. Yes, exactly. So that all of that said, you would still think because we've started to see the Mag 7 get their momentum back.

34:19You know, we're now back at and I think the other day we were back at maybe year to date highs. They had finally traded better meta. I mean, I don't know if meta is technically a Mag 7 name, but they're acting a little. better. Why is it that when we look at some of the big Chinese names, which presumably are doing all of the right things, I mean, we worry about them taking the lead in AI, why are the shares not reflecting that? Well, a lot of this is because a big part of their business is e-commerce. So that's where you have this housing crisis in China. It's really weighed on domestic consumption.

34:50Yes, in the case of Alibaba, Tencent, Badu, exceedingly strong cloud revenue growth. That's the monetization model for AI. It's just coming off a low base where that traditional e-commerce business has been a little bit low single digit revenue growth. Now here in the U.S., I talked to you like you don't live in the U.S. Here in the U.S., Brandon, we're talking about Meta's Muse disrupting e-commerce. Whether or not that remains to be seen, you mentioned, I mean, these are important e-commerce giants in China. Are they at risk of disruption? Well, we're actually more constructive that company, particularly Tencent, which runs the kind of Facebook of China WeChat, is going to infuse WeChat with a Muse-like tool, which actually has started to give some life to the stock.

35:38We're actually seeing money come out of mainland China into Tencent, the southbound Stock Connect. So we're actually pretty constructive based on some of the forward expectations of revenue and earnings per share growth, despite what's been a pretty tough year from a performance. My final question is a very simple one. Who's winning? And is it true we're still maybe six or so months ahead of China? And what are the stakes for the meeting between the U.S. and China? I mean, just looking at look at the gigawatt capacity of the U.S. versus China. It's not really a race. The U.S. has two to three times as much capacity.

36:10that's expected to only grow over time. So I think the race narrative is a little bit of a U.S.-centric. It kind of makes people throw money at something without maybe doing a lot of due diligence. On U.S.-China, we're a little bit more constructive. We think$30 billion reciprocal tariffs goes away. U.S.-China Trade Commission is established. And fentanyl, we think that's something where you have a, you know, really both sides, they can do a lot of good there. So we're a little bit more constructive and then trying to maybe helping out with things like Iran and Russia, where it's in their interest to try to facilitate a little bit of a stabilization.

36:45Interesting point. Brandon, thanks for joining us today. Important day, Brandon Ahern. Coming up, President Trump also saying in his U.N. speech yesterday that he will, quote, encourage AI. But three AI leaders who support slowing it down take the stage today. We'll tell you what to expect from Sam Altman, Dario Amadei, and the Hugging Face CEO at this afternoon's security briefing. That's next.

37:10The CEOs of OpenAI, Anthropic, and Hugging Face are set to brief the U.N. Security Council on AI and their safety concerns. This comes just today after President Trump rejected the idea of a global entity to oversee AI. That was in his U.N. speech. Kate Rooney has more in today's Tech Check. Kate? Hey, Kelly. Well, the AI portion of this U.N. Security Council is expected to kick off around 3 p.m. today Eastern in New York. So as Sam Altman will be there in person, I'm told Dario Amadei, the CEO of Anthropic, will join remotely. And despite this public rivalry between former co-founders, now two of the biggest companies in AI, they have actually moved a lot closer on AI guardrails and agreeing there.

37:53I've spoke to sources who say that Open AI's Altman today will try to strike what they described as a pragmatic middle ground between sort of no rules at all and then what someone described as the sky is falling safety rhetoric. Altman does plan to ask for some common global benchmarks to measure some of these AI capabilities. Dario Amade, meanwhile, has often been painted as the more extreme voice on AI safety. He has long warned about cybersecurity, bioweapon risk, but he's also talked about the upside, things like curing diseases and cancer. He has pushed back on some of the Doomer criticism and says he is balanced between the risks and the benefits.

38:29Amadei was the first to call for industry coordination between all the labs and tech companies. He has also argued for international cooperation. But there has been a split in Silicon Valley. Not all the CEOs out there agree with that. And the White House, as you mentioned, Kelly, is clear on their stance. President Trump did take, I was going to say take the stand. It wasn't a stand. He stood up at the yesterday. And he said that the U.S., quote, totally rejects the global AI system that some are proposing to control AI and any sort of new laws out there. Finally, there are some reports now that Treasury Secretary Scott Besant is emerging as the new possible AI czar.

39:06He would be replacing David Sachs, who did step down from that role, but I'm told still very much has real influence in the White House on AI. We could say take the podium, but then someone told me once that I think the podium is actually the floor that people stand on. So if I... I was like, take the stand. He's not in court. He's up there. The stage. Anyway, maybe stands very clear. Yes. Kate Rooney. Our next guest says this effort by the CEOs for global regulation is a logical move as they won't be able to afford the infinite liability as public companies. Let's bring in Sam Lesson. He's the co-founder of Slow Ventures.

39:39Sam, it's good to see you again. Yeah. So do you really believe that they have an existential problem if they don't get regulated here? I believe it's very convenient for them, is what I would basically say. Like, look, in the end of the day, I think, you know, Mark Zuckerberg said a line on this that a lot of that kind of says, like, safety and making sure what you're releasing is safe is actually just a core part of engineering. It's a core part of what these companies should be doing. And it's a really interesting position for companies to say, well, we're going to go as fast as we possibly can.

40:10We're going to take the profits and then push out the risks and socialize it to others. You know, I do think that the big problem for these companies, if they're trying to be public, it won't be the New York Times lawsuit, although that is also a big deal. Right. It really will be the fact that they can't afford the liability that they basically are causing with a lot of the work they're doing. So I think it's like a it's a very interesting cycle because you started from Sam Altman and Dario pitching to investors the infinite upside of AGI and the infinite risk and how they had to be ahead because they're the only ones that could possibly control it.

40:43And so they were worth infinite amounts of money and needed infinite capital. You know, as they've grown up and become leaders with real revenue and real businesses, they're now flipping that and saying, well, we'll take the profits and socialize the risks. We'll take the profits and socialize the risks. So I think there was a guest on CNBC earlier today who said this is a cry for help. They said if we took this at face value, if we if we treated it as genuine, they are asking for help because they they can't. I guess we could say can't. Maybe we should say won't slow down development of these AI models, but acknowledge that there are a lot of problems that come with them.

41:22If you took that to heart and you're listening to this and you're saying in the U.S., we want fast, we want best, we want best in the world, but we want to also address that problem, what would you do? I'm making you AIs are, Sam. What would you do? Look, I think I'd say you're responsible for your agents. You're responsible for what you build. You do have liability in terms of what you release. And it's your job to engineer well for that. And if you can't engineer well for that, then we have a problem. But I think in the end of the day, like there's a great irony to this whole thing, right? Which is you go unwind a few years, the entire OpenAI fundraising story, as well as Anthropic, was AGI is coming whether we want it to or not.

42:06We have to be the ones that win it because it is so valuable and so high risk. We can't possibly let anyone else have it in their hands. Right. That was literally the pitch. And so now they're saying now that they actually things are going well, it's kind of it's kind of rich, I would say, to flip around and say, OK, well, now that we're in this leading position, we should flip it around. If they said, look, we should nationalize all this. This is too risky. We should not have private companies doing this. We can't control our own systems anymore. And therefore, this is a federal government problem because we think the federal government will be better at doing this than we will.

42:39That's one extreme. That would be intellectually logical, at least. But I think the interesting part of saying, like, you can't say we're going to keep all the profits and we want all the upside and we're going to do whatever we want to within reason. But we want to push out all the problems and make it an industry thing. The simplest solution is that they are responsible for what they build and it's not that big of a deal. And if they face a lot of liability, then price it in. I mean, that's what companies do. The price is zero in that case. I think that is the issue. Are we sure? No, but we might be.

43:12I mean, this is the whole moment that we're in is we have no idea if we're looking at infinity or zero. Like, that's what this is the thing. Markets are not designed to price things that are told those stories as infinite possible upside. Let me argue the opposite. And I bet you'd be sympathetic with this. They're all commoditized models. They can all do a version of this. I don't see that there's that much value in it, frankly. So I don't see infinite upside. I see kind of ho-hum upside. Like, as for the downside, is it really zero or is it just you can price anything in, especially if laws or liability or Congress or, you know, a couple of these.

43:47It's like class action lawsuits. I mean, you can price that in. It's actually not that expensive. Well, it all depends. Like, again, if you looked at Meta, right, which is a company that's been in the news recently that has created enormous value in the world and done amazing things, but has also had some liability issues and had to deal with those. Like, they priced what the liability is, and we figure it out. I think because the story that's been sold on AI is an infinity story, there is this story of, like, well, what happens if they launch nukes by accident? Right, right. Who's taking responsibility for that?

44:16True. In terms of the actual value of these things, like, you and I have discussed this before. I do think, like, look, in the end of the day, a lot of this core stuff is commodity. Most of what people are using, very valuable stuff. It's just very, there's a very big difference between it's valuable for users. and it creates a valuable company. Absolutely. The question is, as we push to this edge and we're finding that people are trying to go super fast and because there's such a race on for this concept of infinity, that there's a lot of steps in safety that are being skipped and you're causing huge breaches.

44:45And you could imagine a breach which does cost$100 billion. You could imagine that. You could imagine a breach that costs more than that. So go bankrupt. So go bankrupt. I mean, we have ways to deal with that. That is, I think, the correct answer, right? Which is you have to have liability for your actions. Like that's the big thing. I think when you think about agents versus people, if you go back to, you know, there's a great old, I think 1970s IBM line about how a computer can never make a decision, should never make a decision because a computer can never be held liable. Right. We're decades past that mentality.

45:16Right. But we are at a new place, right? Where again, that same old phrase from the seventies is quite appropriate. And I would say computers can hold liability. It's got to be the companies that own them. It's got to be the companies that run them that sign the bills. Just like with self-driving cars. I mean, this is not the only avenue where we're going to face this question. Sam, thanks. Appreciate it as always. Always fun. Sam Weston, Slow Ventures. Coming up, higher interest rates are freezing the housing market and impacting the commercial side of the equation. One of New York's biggest landlords sees trouble ahead.

45:45Those details are next. Not just hitting housing, they're also impacting commercial real estate. Diana Olick joins us now. Diana? That's right. After a brief reprieve, mortgage rates are on the rise again today. The average rate on the 30-year fixed jumped nine basis points this morning to 7.26 percent, according to Mortgage News Daily. Rising rates also hit commercial real estate, causing property values to drop. I sat down today with legendary real estate developer Richard LaFrac for the Property Play podcast. He talked about a wall of debt coming due in the next few years and what that will mean in a higher rate environment.

46:25If I had debt, I would be petrified. If I had debt, I'd be petrified. But the extend and pretend party is over. And banks are being more aggressive about either selling off the loans or trying to dispose of the assets one way or the other. And so for ownership, the truth that, you know, we kind of the rubber hit the road now and there's going to be a lot of opportunities and also a lot of heartache as a result of this. Now, the frack was, however, bullish on New York City, both office and residential. But he said development is getting hit hard by rising costs for materials from tariffs as well as labor.

47:13For much more from LeFrac on data centers, AI, and of course, New York City's Mayor Mom Donnie, check out the full podcast. You'll see it in the next weekly newsletter, cnbc.com forward slash property play. Kelly? Does he think there's more to come on Mom Donnie or it's, you know, the scare's over? He says he wasn't scared in the first place, but he also says that he doesn't think a lot of the things that people were worried about came to pass. They did not, companies nor residents did not flee New York City. He says, in fact, he's seeing a revitalization right now, especially due to AI and the financial sector using tech.

47:48That's a great point. And I was down there earlier this week. I couldn't believe how vibrant it was. Diana, thanks. Diana Olek, appreciate it. That's it for us. Thanks for watching The Exchange. Power Lunch with Brian is up next.

48:03Tyler Reddick here from 2311 Racing. And Bubba Wallace. You know what's the worst part of a race? A rain delay. Sitting around and waiting for the track to dry is dull. But instead of waiting, we hang out with Chumba Casino. Social casino slots, bingo, solitaire, plenty of fun to keep us entertained. So why let a rain delay slow you down? Play now at ChumbaCasino.com. Let's Chumba! No purchase necessary. VGW Group. Voidware prohibited by law. CT &Cs 21 Plus. Sponsored by Chumba Casino.