Yields Surge, The Fed vs. Oil, and a Predictions Pop 9/15/26

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1:00Thank you very much, Scott. Stocks are down again today as the 10-year Treasury yield goes back above 5 percent. It's right below those levels this hour, though. I'm Kelly Evans, and welcome to The Exchange. Yields are piercing 20-year highs today as the Federal Reserve begins its policy meeting and as oil prices rise again. Take a look at WTI, now breaching 106 a barrel. The Fed is widely expected to raise rates tomorrow. We'll ask David Zervos if that will push long-term rates up or down and what the fallout might be. Plus, do AI labs need antitrust immunity if they want to act together to slow down?

1:34We'll talk to former DOJ official Jonathan Cantor about that. And it's not just the number of points that is soaring so far this NFL season. The amount of bets and prediction markets is also almost doubling from a year ago. J.B. McKenzie of Robinhood is here with that story. But we begin with this looming decision from the Federal Reserve tomorrow. If they do raise rates, It will be the first time since the summer of 2023, and it will follow six rate cuts since then. Does the economy actually need rate hikes right now? Is this an effort to just bring down longer-term Treasury yields, or are those hikes themselves the reason that yields have been on the rise?

2:11Let's debate all of this with David Servos. He's the chief market strategist at Jefferies and a CNBC contributor. And Dave, a lot of people are making the point that rate hikes rarely happen in isolation. Usually there's four coming. So it is a big deal if this is the end of the cutting cycle and the start of a tightening cycle, not least because rate cuts were one of the things that was supposed to be underpinning the bull market. Yeah, Kelly, I think that's probably a fair assessment of history. But the bull market has done pretty well, and we've just priced in a lot more rate hikes than anybody thought or very few people had thought possible at the beginning of the year.

2:46So I think the most important theme of all in markets is just how resilient risk assets have been. They've been resilient to oil prices, which continue to rise up to these new highs every day almost and hold them for a much more sustained period than people thought. And the interest rates that have come along with that, largely, I think, because of the oil price in many ways, people have pushed that expectations. But here we sit up, what, 12 percent total returns on the year for the S &P. It's a pretty unbelievably resilient risk asset market, I must say. That would be making the case for rate hikes.

3:19So it would be saying, look, the market's practically egging you on. And yet I know you think that the Fed might be getting ahead of itself by hiking. So explain. Well, I try not to do too much of what I think the Fed should do. And it's what I think the Fed will do, given the seat that I'm in. I'm trying to help our clients, your viewers, navigate that. And I think they have backed themselves into a corner here. I think the odds are actually a little too high. I wouldn't certainly put 96 down to make$0.04 or 92 down to make$0.08. That's a pretty bad bet. And I think the bet's probably actually much closer to a 60-40 or 65-35 bet, to be honest with you, as there is a chance that they did something a little out of the ordinary and didn't go.

4:02But I think that's not a huge story here. The huge story is really much more on the risk asset space and how largely irrelevant this reset in rates has been to that economic outcome and actually the economic data as well. The economic data continue to show very resilient strength, even with this rate rise. The Atlanta Fed, I think, was just highlighted by the secretary of the Treasury as coming out at much higher levels. And even the survey of professional forecast in the mid twos. That's great growth, even in the context of these rate moves and in the context of a negative supply shock coming from energy.

4:42Not terribly long ago, Dave, I don't know if you caught this, so we'll play it again. But Rick Reeder was on with Scott, and he also has some sympathy for the idea that a hike could be a mistake right now. Take a listen. I wouldn't because I think you're not going to really do much. I mean, talk about moving the funds rate 25 basis points. Are you really going to do anything for inflation? What's driving inflation today is interest rate insensitive. Obviously, you've got war, you've got energy price, you've got education, insurance costs, health care. It doesn't really do much. So what I do it, what it does adversely impact, look at the housing market that's frozen.

5:14The same point you had made a couple of days ago, the last time we were talking is. Couldn't agree with, as usual, I couldn't agree with Rick more. He's a wonderful investor, a good friend and always articulate. Glad to see him on there. And as I said, I couldn't agree more with that assessment. But it is a little bit about, you know, Kelly, what are they going to do, right? I don't I think this is a there are some political motives that underlie this committee. They're not particularly friendly with the administration. We know that Kevin's in a very difficult place with his reception back into the family of the Fed with, as he says, family feuds or family fights.

5:51I'm sure there's one going on right now as we speak in the buildings not too far away from where I'm sitting here in D.C. Against this, though. And here's what I'm curious about. if he said, and a lot of people would make this point, you don't necessarily want to hike rates because of fuel price shock or things happening, as Rick put it, kind of non-interest sensitive parts of the economy. So why isn't Warsh the one in Jackson Hole and elsewhere making that case? He could have made that case and just said, you know, paint me as a Trump, you know, acolyte fine. I mean, that's independence to me in a way is him saying this is why I think this is the right thing to do.

6:25Yeah, it's an interesting tactic. We've certainly heard from, you know, Kevin Hassett at the NEC and other folks in the administration that, you know, that convey a message from the administration on how they're looking at interest rates, exactly what you're saying, exactly what Rick's saying, kind of exactly what I'm saying. This is kind of not necessarily the brightest idea, if you want to step back and think about it from an inflation-fighting standpoint. And you can add to that, Kelly, the inflation expectations. Just look at these TIPS numbers. I mean, they continue to be extremely anchored in terms of long-term expectations, and they've been coming down recently.

7:03So even with oil up here, it's a pretty remarkable stat. So again, I will have to defer to Kevin to get a read on why he's not doing that. Maybe if he did that, he would feel too close to the administration. He wants to distance himself. He wants to ingratiate himself a little bit with the committee. I'm not sure. Maybe he sees what we don't see inside the committee, which is kind of an inevitability of it all. So if you can't beat him, join him sort of attitude and then try to work from within to get something done. Maybe behind the scenes he could say, look, I'm trying my best. And it's just you've got a committee that's really hell bent on this.

7:43Someone was making the point today, I'm trying to remember where that the last time we had a one and done rate hike was in 1995. Correct me if I'm wrong. Maybe it was 97. It was right before the tie. Yeah, 97. Yeah, exactly. So it would you say it's pretty unlikely that if they hike today, they would just do it one time? I mean, then if you're hiking and then you're cutting. Let me just say, I mean, all the parallels to the 90s have been the favorite of a lot of these folks in the market that are we're in the Internet bubbles like the AI bubble. There's all these long term disinflationary consequences, but maybe some short term inflationary risks.

8:26We've seen dollar yen like it rose up in a big way in 1998 and then intervention to push it back down. There's lots of things that really smell and taste like the 90s in these markets. And folks have used that analogy quite a lot to even say maybe we're in the irrational exuberance phase and it's early. Maybe we're in the 1999 sort of pre-Y2K phase. You've had that for a while now. So why not have a one and done 97 style rate hike that everybody goes, you know what, we really didn't need that. But, you know, Greenspan, you got to remember, Greenspan got pushed into that. He really didn't want to do it.

9:03Well, Warsh is about to get pushed into a hike. And Warsh loves Greenspan. He's trying to emulate him. So maybe you just answered your question. Quick last question, because this, again, is a hat you wear so well. There are others who are pointing out we saw yields globally spike. And this keeps happening. Right. I come on at 1 p.m. I'm talking about rates over five and then they go back under. So there's a there's a global element to what's driving the sell off in rates. It's happening in the overnight sessions, the overseas sessions. We had Japan rattle off the European countries, global highs in those rates, which seem to be pushing ours around as well.

9:36So I see why Besson's pointing the finger back at Japan saying you guys better keep hiking. But again, should we be hiking in response to long term bond yield moves that may be to some extent globally driven? I think they I think to me, this actually supports more of the notion that the secretary has talked about, that that there is this overwhelming demand for long term capital and it's affecting all long term capital. markets globally. I mean, we know what these hyperscalers want to do in terms of issuance at the long end. We've seen those spreads blow out. These are double A and single A issuers that are basically coming to market and trading like double Bs effectively, but people still want their debt.

10:16And it's just been such a massive size. I think that has affected all these global markets. And to me, it's a resounding kind of endorsement of the opportunity set that some of the most talented folks in the growth economy, in the MAG-7 and those attached to it, see that they're willing to put this much senior capital into the capital structure, debt, not equity, but debt, and move forward. So I think it all still stems from a sort of strength story. And you see that in the inflation compensation data that comes when you decompose yields. This is not a credibility story. It's not really about long-term debts and deficits, although you could make some correlations there.

10:59I really think this is about real rates getting pushed up temporarily as we see the competition for capital, particularly at the long end. And you know what? I expect that the Treasury is going to be doing things like the buyback programs to maybe minimize some of that when it comes to the U.S. markets. And we'll see how those go. The first one seemed to be a little bit messy in terms of how people brought their demand to the marketplace with a little bit less. But then they had two great auctions. So I'm optimistic. I'm optimistic that this isn't the start of a really unwieldy period in long-term interest rates.

11:31All right, David, thanks so much. Really appreciate your time. My pleasure, Cal. David Zervos with Jeffries. And by the way, we will be live in Washington, D.C. tomorrow for that big Fed decision with a great lineup of guests. Our special coverage kicks off at 1 p.m. Eastern. Really looking forward to that. And let's turn now to a key vote expected next hour in the Senate, a procedural vote known as cloture that will determine whether the Clarity Act moves forward. Our next guest is a general partner at the crypto investing firm Pantera, Cosmo Jiang. Cosmo, it's great to have you here. TD Cowan says this still only, from their point of view, has a 25 % chance of passing.

12:05What happens if it doesn't? Well, so I think it's important to realize that today's vote isn't necessarily the vote on the bill itself. It's more a vote to advance the bill in the Senate. And so even if today's vote doesn't work out, which many markets and the people that we talk to would suggest that today's vote probably will not, It just means that there's more debate and more back and forth about what are the key clauses that are needed to get there. What does the crypto world look like if this never passes? I think it's actually going to be fine. You know, the SEC and CFTC, our regulators, have come out and said that they are going to put in place frameworks for digital assets to continue to succeed.

12:38So the SEC has regulation crypto, which is going to make it easier to issue tokens. The CFTC has come out with proposals around perpetual futures and the ability, talking to other regulators about the ability to access decentralized finance. And so we're going to keep seeing meaningful progress from regulators, even in absence of legislation. Of course, we care about legislation and hope that comes to be. And I do think that there is real desire from both the White House and both sides of the House, both the Democrats and the Republicans, to pass comprehensive legislation. And even if it advances today, it could still be kind of tabled until after the midterms or something like that.

13:13I mean, effectively kind of pushed to the sidelines. So what would be the reasons? Do you see any sign that would increase the odds that it passes? And what change would it mean for your business or for the companies that you invest in? What is the meaningful change this would have if it does pass? Well, so the two things that are still being debated really around the ethics clause. So what do we do about politicians who are involved in digital assets, as well as the stablecoin yield provision, which it sounds like we're getting closer on the second one and still a little bit far off on the first one.

13:43If we see meaningful progress there and both sides coming together, that would be great. What it would mean for us is really unlocking of even more growth than we're already seeing today. So when I think about the main constituents, there's the entrepreneurs. For them, durable, regular clarity means that they have the ability to actually innovate and create new businesses. For institutions, it means that they have the ability to interact with decentralized finance and start distributing these products in a more broad way to their customers. And for customers, digital assets really have the opportunity to level the playing field and democratize access to financial services.

14:15But to me, and correct me if I'm wrong, this all comes down to the stablecoin products. It's about what are these products? What are customers getting? What are they being promised? To what extent do these compete with bank deposits and pull people out of the banking system? Obviously, that's the big concern by banks. It's fine. They can be against it because it hurts their business model without it being a bad idea. But I am just concerned about whether this would protect the typical American enough from a stablecoin yield product if they don't really understand what it is that they're being exposed to.

14:44So what's great about stablecoins, actually, because of the genius bill, is all the stablecoins are backed one to one by U.S. treasuries. And so they're actually very sound and in a lot of ways less prone to failure than perhaps a U.S. bank. We've seen U.S. banks fail because of deposit flight. And so I actually do think stablecoins are inherently a much better product. This digital dollar is faster, cheaper, safer, and more convenient for customers. Is there any leverage involved? Is it all just Treasury yield pass-through? Circle, which is a U.S.-regulated stable point, is all just backed by U.S.

15:16Treasuries. Currently, they do not pass through any yield because of the agreement that the banks have come to. So why do we need this additional legislation, then, if the past one kind of instituted these practices? I think the banks are just looking for more clarity and for more certainty around whether or not that makes sense. And then this additional legislation really unlocks everything else. stable coins are a piece of a larger movement called tokenization, which is bringing everything else on chain. So after we get past stable coins, which is just digital dollars, we go to digital money market funds.

15:42We go to digital equities and all these other things that can really advance how financial services are given. But they don't carry the same protections that direct ownership of equities does. They may be an easier way for people to have synthetic exposure, but it's not the same as actually having a genuine share of the company. So I don't think it's a given that after this, even if this does pass and even if it doesn't, that we move on to kind of broad acceptance of tokenization. So I think there's market forces and there's regulatory forces that end up causing what the framework ends up being for market products.

16:14And I would think that actually the regulatory movement is to solve some of those questions, which is to say this is what tokenized equities can look like. This is what tokenized securities can act and feel like. And then I think the market will force the providers of these products to actually just get in line and make these actually very safe products for consumers. All right. Cosmo, thanks. Really appreciate it. We'll see what happens next hour. There's always a chance. I don't know. That's right. Some people say the odds are rising today. Cosmo, Jake, thank you from Pantera. Coming up, an exclusive interview with Morgan Stanley's co-president, Dan Simkowitz.

16:44We'll get his take on the looming IPOs of Anthropic and maybe OpenAI. Plus, Meta may have settled its social media addiction case, but its copyright challenges are still ongoing. And former assistant AG for Antitrust Jonathan Cantor says that should be a wake-up call for Congress. He'll join us to explain after this. This is The Exchange on CNBC.

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18:32Make every mile count with a Toyota truck that's built to outlast so you can outlive. Welcome back to The Exchange. Bankers can't wait for Anthropic and OpenAI to go public. The two firms are targeting nearly trillion-dollar valuations and potentially hitting the market either this year or early next. But how long can investors afford to wait, and what does it mean for the future IPO pipeline? We're hearing more and more small startup companies trying to optimize AI agents and all the rest of it. Dan Simkowitz is Morgan Stanley's co-president, and he joins us now with David Faber at the Morgan Stanley Healthcare Conference.

19:06David? Kelly, thank you. Dan, nice to have you. You didn't hear because you don't have a little thing, but Kelly was talking about Anthropic and OpenAI and prospects of IPOs. So let me just start there. Are you guys going to be lead left for the Anthropic IPO? It's great to be here, David, at our health care conference. I won't talk about individual deals, but we're excited to be involved deeply in the IPO ecosystem, the AI ecosystem. So we talked about that at Milka. We can't do individual names. We can't do any individual names. So is Anthropic going to come public this year? I don't know when Anthropic will come public, but I think those two and others, you know, the IPO market is ready for big deals.

19:48We saw that with SpaceX. So each individual company will make up their own timing decision as an example. Do you think this slowdown in AI that has been discussed by Dario Moday, Sam Altman, even Elon Musk, is going to have an impact on the capital markets activity associated with some of those companies? I think the pause or the slowing of release on the frontier really doesn't change the core dynamics. So we, as a user of AI at Morgan Stanley, and we see it both at the firm but also all of our clients, whether it's research, customer service, cyber processing, we're ramping up at extraordinary pace with all of our partners in the technology ecosystem.

20:35So the demand is not going to change with some of the discussion around safety. The spend on compute and building compute and buying chips is also not stopping. And therefore, I don't think the financing of that compute build is also. So even if we do get this pacing of the frontier models, you're not concerned ultimately about the pacing of spending on compute overall. Obviously, much of which is going to your point. I think you're making for inference, not necessarily for training. Yeah, and enterprises are going to keep going. The consumer is going to keep going. You know, this is a remarkable technology.

21:09Not only can Morgan Stanley and our clients and big corporates use it, but the consumer everywhere in the world, as long as you have a mobile device, has access. As long as you have an internet connection. And so the pacing at the frontier doesn't change the build, it doesn't change the demand, and it doesn't change the financing of that demand. So right now we're seeing everybody proceeding at pace. You are. Yeah, I mean, because it obviously has been important to yours and many other of the companies that are the firms that you compete with in terms of what have been very strong quarters. I mean, you're coming off an incredibly strong quarter at Morgan Stanley, and yet you're coming out of a conference, not this one.

21:45One of your competitors at a financial conference, you were there and you said not peak earnings. Does that mean that you expect these IPOs to happen, that you expect this financing train to continue moving along at the pace it is? Yeah, what I said at the other conference, and again, this is a great conference, so thank you for coming. We have trillions of dollars of market cap and$100 trillion of investors here. It's one of our premier conferences. At the other conference, what I talked about is we don't think 26 is peak earnings for Morgan Stanley. We have a wealth management opportunity that is extraordinary at the firm.

22:24There's$60 trillion of TAM in wealth management. We think it's going to$100 trillion. Even though we're number one in wealth management, we think there's market share there. And then there's two dynamics that you and I have talked about. The M &A and IPO cycle is probably, it's not late innings. It's either early to mid innings around M &A activity and IPO activity. We're levered to that. And then AI spend and compute build, we're in the middle of that. And it's extraordinarily large. The numbers are insane. I mean, you and I have both been at this respectively at our respective careers for a long time.

22:58I've never seen anything like the numbers that we're dealing with. Have you? The numbers are extraordinary. And yet the market is absorbing the numbers. Do you ever worry that there's going to be a lack of capital somehow, that one day people are going to go, nope, that's it, we're done? Well, I think, again, the technology ecosystem, the companies that are really the great leaders, Microsoft, Apple, Meta, Google, et cetera, Amazon, These were companies that ran big net cap positions for their entire lives. In the old days, Microsoft had hundreds of billions of dollars of cash. Now they're negative free cash flow.

23:29But they're also using that cash flow. They're negative cash flow as they build. They're not negative cash flow in their core businesses. And they're using that capacity to build what is a transformative technology. And we're able, we saw it in June, I think, right after I met you and Milken. Yes. Google, Alphabet, and SpaceX do close to$150 billion of equity raised. Incredible. In addition to all the innovation that you're seeing in the debt markets, we're really honored. We're the advisor to NVIDIA and Broadcom and Google and the LLMs, as well as some of the neoclouds. They're all raising the capital to build this transformative technology.

24:10All right. Speaking of AI, and you mentioned it, in terms of Morgan Stanley's use of the technology, Are you in the early days as well of gaining efficiencies? And on the other side of it, given you're a financial firm and a large one, cyber attacks obviously have to be a key concern as well. Are you guys spending enough to make sure you're defended? I would say we're middle, but we're middle in a really long game is the way I would define it. If you go back, we, and I mentioned it at the conference today, we had Sam Altman and OpenAI at our board meeting May of 22, pre-ChatGPT. We're deep partners with Anthropic and Google and XAI and Microsoft.

24:47They're delivering us incredible value in that construct. We're using it, as I said, customer service, cyber, as you mentioned, a whole bunch of research. And on the cyber front, you know, it's a big part of what we're using it to make our perimeter safe as an example. And so I think these are some of the use cases. we would see that use element continue to grow pretty dramatically. Finally, on the financing front again, I mean, the 10-year has eclipsed a 5 % yield today. Oil's at 106. Any concerns overall about the macro economy, particularly the rise in rates and what that might mean to appetites for credit?

25:27I think credit is hanging in there on rates. I think the concern, and you're starting to see a little bit of today. So yesterday when I was here at the conference, biotech index still at its highs with the tenure at five. Today, a little bit of, you know, do rates matter? I think it's a bigger issue around some of the edges of growth investing. But the credit dynamics that we're seeing in the marketplace, insurance capital, pension capital, sovereign wealth capital, in order to finance, let's say, AI or finance M &A, that's pretty intact. All right. So just to wrap up here, I don't hear you worried.

26:03at all? We're worried about fiscal. We're worried about$100 oil. We're worried about$40 billion of debt. $40 trillion, by the way. $40 trillion of debt. Sorry, billions and trillions. We wish it was$40 billion. I think those are the dynamics to be focused on and not get complacent about. But at the micro, the innovation layer in the AI space, the innovation layer in biotech and And biopharma in this country, these are good powers of growth. And so you've got to balance. Micro, really strong, 6.7 % GDP nominal in the second quarter against geopolitics, oil, and probably most on people's minds, fiscal.

26:45Yeah. All right, Dan, to be continued. Thank you. Always appreciate your taking time with us. Really appreciate coming to the conference. Thank you. Dan Simkowitz is co-president of Morgan Stanley. Send it back to you, Kelly. All right. More to come. David, thanks very much. David Faber. Coming up, week one of the NFL season is in the books, and the number of pro football contracts traded on Robinhood nearly doubled versus last year. We'll ask the firm's head of prediction markets about that growth and what impact the midterms will have. The Exchange is back after this.

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28:40Transcription ships straight to your door. Join the women who found real relief. Head to myalloy.com and use code SXM20 for 20 % off your first order. Valid on products only. Welcome back. Stocks are taking a leg lower with yields back on the rise after a very weak 20-year auction at the top of the hour. Rick Santelli told us he would give it a D minus. The high yield, I think, was 542. It's about a two-basis point tail. Remember, that's always the least liquid part of the yield curve. of the highest yielding, as you can see there as well. Still, it's ignited some concerns just after the 10-year had been below 5 percent at the top of the hour.

29:17At half-pass, we're back up to 501. Oil is also above 106 a barrel. These levels are pretty much session highs, and you can see that putting some pressure on equities. The Dow is currently down about 400 or 500 points. As we count down to the Fed decision tomorrow afternoon, the options market is seeing a lot of movement in rate-sensitive trades. Oliver Renick is in Chicago with more. Oliver? Hey, Kelly. Options are now implying a less than 84 basis point move for the S &P 500 tomorrow. But VIX at 17.5 suggests we should already be moving by at least 1%. That arguably makes tomorrow's options look cheap.

29:55For bulls, we did see one big trader in the queues decide to close out a bearish$1.5 million,$685,$675 put spread before it expired on Friday. But actually where we see a lot clearer bullish appetite is in gold after a three-week losing streak. There are call spread buyers all over GLD on above average volume and one big buyer of 11 ,440 strike calls expiring in December worth$7.7 million that need a 14 % rally to pay off. By the way, the love for gold seems to align with bullish bias in TLT, where the 80 strike calls expiring one month from today were the most popular trade on the tape, Kelly.

30:39Makes sense. We always see the biggest moves into these both decisions and especially these press conferences. Oliver, thanks very much, Oliver Rennick. Coming up, AI leaders are jointly calling for a slowdown with antitrust strings attached. We'll tell you what those are and ask Jonathan Cantor why he thinks it's a bad or maybe unnecessary idea. We're back with more after this.

31:04Welcome back. AI leaders like Elon Musk, Sam Altman and Google's Demis Hassabis are all supporting the idea of slowing down AI development, an idea that comes from Anthropics CEO Dario Amadei. But President Trump is not proving receptive to those calls, saying the doomsday talk about AI is a hoax, and even reaching out to Jensen Wang, NVIDIA's CEO, about this in an event in Los Angeles. Kate Rooney has more on the divide in today's tech check. Kate? Kelly, well, it is becoming a divide. There are different camps starting to form around whether or not to slow down AI. On one side of this, you have the AI labs in part.

31:40You have Anthropik CEO Dario Amadei, who really kicked this off over the weekend with an essay on Saturday calling for an AI slowdown. Sam Altman tweeted his support for that. And OpenAI told us this afternoon that the company is working with some of its competitors, other AI companies on this issue and ways to slow it down. So Anthropik and Google in particular. Elon Musk agreed. He tweeted, basically agreeing with Dario Amadei, saying exactly that. He said, I agree. was also on stage there at the All In Summit. He said essentially a couple of things, Kelly, but first started with the AI model, said agrees that they're dangerous.

32:19He said we should call that out. He says if the AI labs say that, we should believe them. And then he also called for more of a peer review of the most powerful AI models. He then suggested that AI competitors check each other's models. So instead of grading your own homework, you would at least have competitors, he said, grading each other's homework and then raising alarm bells if they do see concerns. You also, as you mentioned, Kelly, Jensen Wong at the same event, you had him on stage, the NVIDIA CEO saying that companies should take safety seriously, but they also need to draw a line between concrete risks and talk of human extinction.

32:56He called some of the rhetoric recently irresponsible. Also said slowing down could cost the U.S. its lead over China right now. And President Trump very much agrees with that, calling some of these fears a, quote, hoax. He also called Jensen Wong on stage. It was on speakerphone. That's where he made those comments. We also expect to hear from Dario Amadei, the CEO of Anthropic, on stage at Dreamforce this afternoon. I believe he's coming up in the next hour. Sam Altman is going to be coming up later today, Kelly. So to be clear, two of the leaders of the most powerful AI companies are at the Salesforce Dreamforce event.

33:31They are partners, as I understand it. They're part of Agent Force or whatnot. So then do come back, Kate, if we do hear from them. I will be bringing my own alarm bells if we get news. Thank you, Kate Rooney, monitoring that for us. In his open letter last week, Anthropics CEO Dario Amadei called for his company and other leading AI firms to coordinate on slowing down AI development. He said this might require targeted antitrust exemptions. Our next guest disagrees. Jonathan Cantor is the former assistant attorney general for antitrust under President Biden. And he's here on set with me. First of all, it's good to see you.

34:05Lovely to be here. So why do you I like to just get people's attention by saying you disagree and they can wonder from what angle you're coming from. But is this because you effectively think that there is no antitrust they'd have to worry about, even if they were coordinating in this? Yeah, I ran antitrust for the country for over three years. And I can tell you, These companies do not need an antitrust exemption in order to deliver safe products. They can be general standards on safety without violating the antitrust laws. And it would be a mistake. In fact, I think it's highly suspicious to give an antitrust exemption that would allow them to coordinate or throttle back the extent of innovation that they're engaging in.

34:43So safety and security concerns are legitimate. They don't need an antitrust exemption in order to put that forward. Lena Khan, I believe, said the same thing, which really jumped out to me because it could be an opportunity for an antitrust official like her to say, yes, yes, yes, you guys can't wait. But she said, no, you don't need, there's no antitrust concern here, so let me play devil's advocate. Yes. These companies working together to slow down AI, I mean, that has big effects on all of their suppliers. That's moving around hundreds of billions of dollars of market cap. Those suppliers presumably might think, well, you're colluding and you're affecting our business, right?

35:16What about that? Well, they shouldn't collude, right? What's the difference between collusion and collaboration? So collaboration on safety standards is perfectly legitimate if it doesn't affect output, if it doesn't affect price, if it doesn't affect aspects of competitiveness. Separately, these companies should be innovating themselves to figure out how to deliver safer and better products. Let me back you up for a second. You said it's not colluding if it doesn't affect price and output, but this would affect price and output. Any measure taken that would, quote unquote, slow down the release of these models inherently affects pricing and output.

35:50I don't think they should agree to slow down innovation. They can come together and figure out what are some standards that we should suggest that the government impose? What are things that we can do to make our products more safe? However, the companies should continue to innovate on their own. They don't need to coordinate or collaborate how much they're innovating. But they think they do because no one on their own is going to say, you know what, we'll let someone else take the lead. The people inside these companies are saying to you guys, we need help. They're saying we need help. No one here is going to voluntarily slow down.

36:21That would be ludicrous. It might even be unsafe. It might even lead to a worse outcome than staying at the frontier. But you know what else is also ludicrous? Delivering products that break into other people's companies. Delivering products that harm children and affect mental health. The companies are not obligated to deliver unsafe products. If they find that their products are unsafe, you know what? Go back to the innovation lab and figure out a way to deliver them safely. That's what companies should do. And if they don't, they should be held accountable under the law. Are there two different things we're conflating here?

36:52You know, anything, and someone, Mark Warner, Senator Warner, is making this point on our air earlier today, saying the Chinese have ways to make sure that kids are not falling in love with chatbots. And, you know, we could do that. But that's not really what we're talking about. We're talking about the general pace of AI development. When the leaders say no company on its own is going to slow down, is there some way to slow down the whole industry? Yes, there are two things that should happen here. First is what should the companies be doing and second, what should the government be doing? What the company should be doing is first and foremost, don't deliver products that are unsafe.

37:23If they find that their products are hacking into other people's servers, if their employees were hacking into other people's servers, they would fire those products. So fire those robots, pull them back, figure out how to deliver them safely. That having been said, we have invented cars, but we don't have roads, we don't have lines, we don't have stop signs, and we don't have traffic lights. The government, Congress, needs to get his acting gear and put some lines in the road. It doesn't have to be heavy-handed regulation. Simply rules that's saying you're going to be held accountable if you deliver unsafe products.

37:56And I heard a warning in there that if companies deliver something that is unsafe, they will be held responsible for the actions that those products take. Absolutely. So just as if your employee goes and breaks into someone else's company, you're going to be held responsible. If a car company delivers a product that drives off the road because of bad manufacturing, they're going to be held responsible. This is where innovation comes in. We need companies innovating not just to deliver products that are useful, and these products are, but also to deliver products that are safe. And they need to go back to the drawing board and figure out a way to do that.

38:32That's the kind of innovation we need. That's the kind of American exceptionalism. That is what will allow us to be China. And I think there is a frontier bill, if I'm not mistaken, that would at least require there to be monitors within these companies. Because, you know, logs and transparency around this is one of the most important things. This happens all the time. Companies have SEC compliance. They have compliance on lots of different ends. There's no reason why we can't have the same kinds of standards and compliance inside of AI labs and tech companies. Then quickly, just to leave it here, then I listen to this and I go, no one's slowing down.

39:02Like what you've outlined is be careful and responsible for what your own product is doing. Otherwise, Congress is going to give us a bunch of roads and traffic lights. But I see nothing in there that would really be the industry coming together to slow down in any meaningful way. The industry doesn't need to come down to come together to slow down. If a company is delivering unsafe products, you don't need to ask the next guy whether they're delivering unsafe products, too. Stop delivering unsafe products and figure out how to make them safer. That's what we need. All right, Jonathan, thanks so much.

39:29Appreciate it. Jonathan Cantor, former assistant AG. And don't miss our second annual CNBC AI Forum on October 1st in Dallas, where leaders and entrepreneurs will share their take on the AI market and how the world is adopting. To learn more, just scan that QR code or go to CNBCevents.com slash AI. Coming up, the San Francisco 49ers coming out on top of the L.A. Rams down under last week. But the real winners this NFL season may be prediction markets. We'll talk about that next right after this break.

40:01Welcome back. We are watching stocks move a little bit back towards the downside this afternoon. The Nasdaq and the Dow are both kind of tied as the worst performers, down 0.8%. The S &P is down 0.5%. The small caps are down 0.7%. Yields are also back on the rise after a very weak 20-year auction at the top of the hour. As we heard, Rick Santelli told us it was on the border of D plus C minus. Dealers taking the most since February. Again, the 20-year, highest yielding, lowest liquidity part of the yield curve, but still triggers some anxiety, and it has the 10-year back above 5%. Oil is also back above 106 a barrel.

40:36The oil-sensitive stocks, as you might imagine, moving lower. The cruise lines and the airlines all in the red today. And the rate-sensitive stocks like utilities are hitting their lowest level in over a year, about a year, since September of 25. NRG, Exelon, CMS Energy, and PSE &G are all at 52-week lows. Coming up, Robinhood's head of prediction markets, J.B. McKenzie. He'll talk the trends they're seeing with pro football underway and the midterms approaching, and maybe some Fed odds. We'll be back after this.

41:08Welcome back. Football season is back with a bang after the NFL matched its highest scoring opening week since 1970. And they're not the only ones scoring big. Robinhood says the number of unique customers who traded pro football contracts was up over 75 % compared with week one of last season. Will that momentum continue? Let's bring in Robinhood's head of prediction markets, J.B. McKenzie. It's great to have you here, first of all. Thanks for having me on. Sports is not the only thing that are in prediction markets. We can talk some Fed and some midterms and all that too, but it is the overwhelming amount of what people are doing in your prediction markets, is it not?

41:42Well, it is right now. And I think the reason is because it's sort of top of mind. So when I was here just for the World Cup, we were talking about whether or not we thought that World Cup would be the biggest traded event ever. And it was. Across the board with Robinhood, over 5 billion contracts traded. And I think when it comes to the NFL and college football, that same momentum has continued. But what we're starting to see is there's other areas of interest. With the resurgence of Bitcoin, we're seeing 15-minute price volatility contracts as one of the strongest new products that we offer.

42:12Same thing with questions of what's going to happen with interest rates. So it is broadening out there. But I think because there are so many top-of-mind sporting events on right now, that's kind of why you're hearing more and more about that story. And I know for a lot of people it makes the experience more fun. And, you know, for us it's always kind of fun to use them as a reference point. But I just I wonder if they're so big now that the amount of money going into basically outcome betting is money that, you know, could have been going into owning Coca-Cola for 40 years or something. Maybe not every 22 year old is going to do that, but I don't know.

42:44Do you have any more insight on kind of who's using the prediction markets and to what extent and what else they might be doing on the platform? Yeah. So, I mean, what's interesting is, is most of our clients are actually trading additional assets. So those that come in are not coming to Robinhood to just trade prediction markets. They can. But what we actually see is they actually look to trade other products. So we see that, you know, within less than a week of them opening and trading a prediction market product, they're actually looking at trading equities. They're also looking at trading crypto and they may even look at trading options.

43:12But really what we see is it's part of a diversified view. Now, look, sometimes you have a risk on view, which is maybe I have a little bit more of a view of like oil right now, which is racing above one hundred and five dollars, one hundred and six. Maybe I want to take a different view that maybe it'll come down tomorrow. But that's a guess or that's an estimate based upon what I want to see in the market. That's the same thing these prediction markets do. And that's why we're starting to see them not only in sports, but in other areas. It really allows people to kind of diversify their views and be very specific in their view that they want to trade.

43:40This is a really specific question that you may not have the answer to. But we often see like the Cal sheet contract for the Fed trading about 10 points above where like the CME Fed odds might be. Why might there be a difference or how should we interpret that data? Is it take it at face value if your contract says 60-40 at 60-40? Or do we need to build some kind of, you know, what is that margin that might be some difference in there, in that spread? So I think there's a couple of things. And I can't comment too much on how Calci does theirs versus the CME. But I think when people are looking at the Fed funds and what we see on our platform is the vast majority of people have it either at no change or a 25 basis point rate raised.

44:18Now, the reason it's looking there is that's looking for the immediate decision that's on there. I think sometimes with the CME Fed Fund Tracker, it's also looking at what's coming next. So it's a little bit more guiding to where it's going to go. The dot plot becomes much more important when it comes to that component of the Fed Tracker. So I do think what you get with the event contracts is that moment in time. What is the decision going to be? Is it maintained or is it going to be raised, which is a little bit different than what you get out of the Fed Fund Tracker that's on there, plus different participants in that market.

44:44Are perps under your purview? They are. Okay. OK. So this is a tool where, again, if you're in crypto, if you're in oil and you want to kind of trade or express a view without having to receive a barrel of oil, fine. Aren't they leveraged like 20 to 1, though? I mean, there's a lot of leverage in these products, is there not? So it depends, right? So here in the U.S., some of them are actually a little bit higher than the average future, right? The average future is somewhere between 4.5 to 5x leverage. In some cases, most of the ones that we're seeing are in the market right now are maybe at 6 or 7.

45:14So I think we have to be careful. Overseas, completely different. But in the U.S., it's regulated at a much different level. And that's also decided upon the exchanges and also the FCMs who offer the products. What would fall, if I were scanning through your sort of offerings, how would I know which was a U.S. product versus more of an overseas product? Well, we only offer U.S. products. That's the easiest first way to do it. And I think it's important to highlight that because I think in the U.S., we have the strongest regulatory oversight and body that's in the market or in the world by far.

45:41And I think having, you know, U.S.-based products and showing the integrity of those products are critical for us to be successful and make sure you have customers who feel comfortable trading the products. You mentioned crypto and how there's been some more interest in that again. Did you guys just do another partnership as well with Crypto.com, is it? Yes. What is the intent there? Yeah, so we've always been sort of a multi-venue company. So we believe that having choice breeds competition, which also breeds innovation. And we started this off when we did stuff with ForecastX and Calci over the last couple of years.

46:11But then what we also realized is that there was an opportunity to improve pricing for our customers, liquidity, and also the clarity of the contracts that we were offering. And with Crypto.com, they were one of the original participants in the whole entire market. And so watching them evolve and develop, we felt as though they had a great product that we could actually onboard to our clients. So for us, we've got an equity stake immediately by this partnership. And we think as we continue to build it, as we continue to send flow to them, we can earn additional equity from them as well. So it becomes a win-win for all of our customers.

46:41Finally, what's next? Give us a preview, a tease or something. Well, I think we're going into a super cycle right now because you have sports at an all-time high coming through with NHL, NBA, college football, all coming to fruition here in the next couple of months. You have a ton of information from an economic standpoint, both domestically and internationally. Are they going to try to shut this down, though, some of the states during this, you know, some of the ones who don't allow gambling for kids under 21 and all? Well, we have we follow the CFTC rules. Right. And that's the federally mandated rules are out there.

47:10And so we participate often out there. But we do work with the states that are out there. I think you're going to continue to see this product evolve and develop. And I think it'll be not just in sports. But I mean, remember, we have that small thing called elections coming up here as well. So those midterms are going to be very interesting. All right. JB, thank you so much. It's great to have you here. Thanks for having me. Mackenzie. And that's it for The Exchange. Don't forget, we'll be live in Washington tomorrow for the big Fed decision. Our coverage kicks off at 1 p.m. right here on The Exchange.

47:33But first, I'll join Brian for Power Lunch right after this break.

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