Bloomberg Surveillance 10/7/2026

>> THERE IS NOTHING FOR ME YET TO SUGGEST I SHOULD NOT STILL BE BULLISH. >> THE EARNINGS PICTURE IS SO STRONG IT MIGHT BE CONCENTRATED. >> THIS IS PROBABLY THE MOST NARROW MARKET IN MY CAREER. >> WITH THINK THE MASSIVE OUTPERFORMANCE OF TECH CAN CONTINUE. >> THIS IS "BLOOMBERG SURVEILLANCE" WITH JONATHAN FERRO, LISA ABRAMOWICZ, AND ANNMARIE HORDERN. JONATHAN: LIVE FROM NEW YORK CITY THIS MORNING, GOOD MORNING, GOOD MORNING. "BLOOMBERG SURVEILLANCE" STARTS NOW. SPACE-X LOOKING TO RAISE $40 BILLION TO BUY CHIPS FROM NVIDIA AS THE TREASURY DEPARTMENT IS GEARING UP TO OPTION LONG-TERM DEBT. THE SQUEEZE BACK ON FRANCE. YIELDS UP DOUBLE DIGITS. LISA: HOW MUCH IS FRANCE A CANARY IN THE COAL MINE IN TERMS OF WHAT HAPPENS WHEN BUYERS STEP AWAY? OIL PRICES ARE MARGINALLY HIGHER BUT MORE IMPORTANTLY THE HEAD OF THE FRANCE CENTRAL BANK CAME OUT , A MEMBER OF THE ECB, AND SAID ULTIMATELY IT DOES NOT WARRANT INTERVENTION. HE SAID THE ECB IS NOT THERE TO DEAL WITH THE FISCAL PROBLEMS OF COUNTRIES AND IT IS THERE TO FIGHT INFLATION. IF YOU'RE WAITING FOR THE ECB PUT, IT IS NOT COMING. ANNMARIE: YIELDS ARE GOING UP NO MATTER WHAT. RATES ARE GOING UP NO MATTER WHAT. A LOT OF DEMAND FOR CAPITAL IS ON THE AI SIDE. WHEN YOU LOOK AT THE FINANCIAL TIMES, ELON MUSK, SPACE-X SEEKING TO RAISE $40 BILLION. AT THE SAME TIME THE GOVERNMENT IS ALSO GOING TO BE SPENDING AND BORROWING $2 TRILLION AGAIN. THIS IS HAPPENING ALL AROUND THE WORLD. JONATHAN: YOU LOOK AT THE AUCTION WE MIGHT GET LATER AND COMPARED TO EVERYTHING ELSE. THE AMOUNT OF CAPITAL AND THE LACK OF PREDICTABILITY. I HAVE A DECENT IDEA OF HOW MUCH THEY WILL AUCTION. YOU'RE FACING THE PROSPECT OF $30 BILLION COMING TO HIGH-GRADE DEBT TO SOMEPLACE NEAR YOU. COULD BE ANY CURRENCY ANY DAY OF THE WEEK AND IT COULD BE ANY NUMBER ACROSS ANY MATURITY. WE TALKED ABOUT THIS REPEATEDLY. THIS IS THE CHANGE FOR THIS YEAR. YOU COULD WAKE UP AND SEE 30 OR $40 BILLION COMING TO MARKET. LISA: HOW YOU RESERVE ENOUGH CASH TO BUY THE $39 BILLION IN 10 YEAR NOTES BEING SOLD TODAY AND THE 22 BILLION DOLLARS OF 30 YEAR NOTES BEING SOLD TOMORROW IF SPACE-X WILL BE SELLING BONDS , A 10 BILLION DOLLAR LOAN BOOK TO FINANCE THOSE NVIDIA CHIPS? HOW DO YOU GET YOUR HEAD AROUND THAT IF YOU DO GET IN ANTHROPIC IPO THEY WILL DO WHAT SPACE-X DID WHICH IS FOLLOW-ON WITH ANOTHER DEBT OFFERING AND ULTIMATELY EVEN THOUGH YIELDS ARE THE HIGHEST LEVEL SINCE 2002, NONE OF THESE COMPANIES ARE SLOWING DOWN. JONATHAN: IF YOU HAVE LIMITED FISCAL SPACE YOU ARE IN TROUBLE. YOU HAVE TO PAY THE HIGH YIELD TO CLEAR THE SUPPLY. FRANCE IS IN TROUBLE. LOOK AT THE SPREAD OF FRANCE OVER GERMANY. WE ARE GETTING WIDER AGAIN. YIELDS UP ON A 10 YEAR FRENCH BOND. YIELDS IN GERMANY UP ONLY 3%. THE YEAR SO FAR, YIELDS ON FRENCH DEBT ON THE 10 YEAR MATURITY HIGHER 130 BASIS POINTS. THAT IS DOUBLE WHAT GERMAN 10 YEAR YIELDS ARE UP. LISA: ULTIMATELY PEOPLE ARE PENALIZING COUNTRIES THAT ARE NOT ONLY HAVE A BAD DEBT TO GDP RATIO, BUT ALSO WITH POLICY UNCERTAINTY, FACING OFF AN ELECTION WHERE DIFFERENT CANDIDATES TO BECOME THE NEXT PRIME MINISTER HAVE TALKED ABOUT JAILING THE CENTRAL BANK, FORCING THE CENTRAL BANKER TO LOWER INTEREST RATES, ERADICATING DEBT ALTOGETHER. ULTIMATELY NOT GIVING LOT OF BOND INVESTORS CONFIDENCE. JONATHAN: WE HAVE THE ALL-TIME HIGH THE S&P 500. EQUITY FUTURES UNCHANGED. BACK TO WHERE WE WERE IN THE MIDDLE OF AUGUST. THE MARKET HAS DONE A BIT OF A U-TURN -- A ROUND-TRIP. EVERYTHING HOUSE DETERIORATED. THE TWO YEAR YIELD IS MUCH HIGHER, BANK STOCKS ARE MUCH LOWER, THEN YOU HAVE THE S&P 500 BACK TO ALL-TIME HIGHS. WE HAVE NOT SEEN A RECORD ON THE S&P 500 IN DATA GOING BACK TO 1990 WITH A PERCENTAGE OF STOCKS ABOVE THE 200 DAY MOVING AVERAGE THIS LOW. THAT IS HOW NEGATIVE THE BREATH HAS BEEN. LISA: IT IS 30% VERSUS PREVIOUS ITERATIONS THAT ARE ALSO VERY LOW. THE IDEA PARTICIPATION IS INCREDIBLY NARROW. IS THIS A FEATURE OR A BUG? WE'VE BEEN TALKING ABOUT THAT ALL YEAR. A LOT OF PEOPLE ARE LEADING IN AND SING IN A I WILL REMAIN IMMUNE FROM THESE OTHER CONCERNS WHETHER IT BE BECAUSE OF WARNING SIGNS FROM CERTAIN SEGMENTS OF THE CONSUMER ECONOMY OR WHETHER THEY ARE AFFECTED BY GEOPOLITICS. ANNMARIE: WHAT WAS EXCITING ABOUT THE SUMMER FOR SOME OF THE MARKET IS WE HAD AN MOU AND SOME PEOPLE THOUGHT THAT WOULD LEAD TO A PEACE NEGOTIATION. OIL TODAY FOR BRENT BACK OVER 00. ONCE AGAIN YOU ARE SEEING SOME TANKERS BEING TARGETED IN THE STRAIT OF HORMUZ. THE SAUDIS ARE STILL TRYING TO MAKE SURE THE RED SEA STAYS OPEN AND WE HAVE SKIRMISHES IN THE BLACK SEA. JONATHAN: CRUDE A LITTLE HIGHER THAN 1%. EQUITIES HOVERED NEAR ALL-TIME HIGHS. MITCHELL GREEN AS MASSIVE COMPUTER DEMAND FEELS THE ACTED BINGE, PLUS CLAUDIA SAHM AS INVESTORS LOOK FOR CLUES IN THE FED MINUTES. WE BEGIN WITH STOCKS HOLDING ON TO RECORD HIGHS AS THE 30 YEAR CLIMBS TO THE HIGHEST LEVEL SINCE 2002. AARON CAMP WRITING "INTEREST RATES ARE RAISING THE BAR AND STOCKS MUST COMPETE WITH MEANINGFUL RISK-FREE INCOME. REVENUE GROWTH ALONE IS INSUFFICIENT. " ARE WE STARTING TO FEEL THE SQUEEZE FROM THESE HIGHER RATES? AARON: ABSOLUTELY. IT IS ALSO THE PACE AT WHICH RATES HAVE RISEN AND THE VOLATILITY OF THE RIGHT MARKET AND THE PACE OF THE RISE THAT IS BRINGING PAUSE TO SOME INVESTORS. YOU SEE THIS SPACE-X NVIDIA NEWS THAT HAS CLEARLY NOT BROUGHT ANY PAUSE TO THE AI BUILDOUT AS IT PERTAINS TO HIGHER COST OF CAPITAL. JONATHAN: WE HAVE TAKEN DOWN A LOT OF SUPPLIES THROUGH THIS YEAR AND INVESTMENT GRADE SPREADS HAVE NOT MOVED IN THE FACE OF IT AFTER RECORD ISSUANCE THROUGH THE SUMMER. HOW MUCH MORE CAN WE TOLERATE OF THAT? HOW MUCH HIGHER CAN RATES GO ON BORROWING COSTS BEFORE THEY START TO RECONSIDER CAPITAL ALLOCATION DECISIONS AT SOME OF THESE COMPANIES? AARON: IT WILL TAKE TIME FOR COMPANIES TO ASSESS THE SPEND, THE INVEST IN CAPITAL, THE RETURN ON INVESTMENT CAPITAL. YOU MAKE THE INVESTMENT TODAY, IS THE RETURN TOMORROW OR NEXT MONTH OR NEXT QUARTER OR NEXT YEAR? THIS WILL TAKE TIME TO ASSESS. WE HAVE SEEN MAKE A CAP COMPANIES ACROSS THE S&P 500 MAKE INVESTMENTS, ARTICULATE THOSE INVESTMENTS TO THE MARKETPLACE. AMAZON, IT WAS A YEAR OR DOES TWO AGO WHEN THEY FLIP THE SWITCH AND REDUCE THEIR SPEND AND WE START TO SEE FREE CASH FLOW THAT WAS APPLAUDED BY INVESTORS. THERE IS LOT OF PATIENTS AMONG INVESTORS, A LOT OF ENTHUSIASM ON THE EQUITY SIDE. I DO THINK WE SHOULD KEEP OUR EYE ON THE VOLATILITY INDEX FOR THE FIXED INCOME. THE HIGHER THAT MOVES, PERHAPS YOU HAVE SPECULATORS THERE. THE LONG-TERM INVESTORS IN THE FIXED INCOME MARKET REMAIN ON THE SIDELINES. LISA: WENT TO BOND YIELDS GET TO A LEVEL WHERE THE BIG TECH PLAYERS LEAN MORE ON THE EQUITY MARKET THAN THE DEBT MARKET THROUGH ALL OF THIS FINANCING? AARON: WE ARE CERTAINLY MOVING INTO A PHASE WHERE WE HAVE GONE THROUGH THE EQUITY PHASE BUT WE ARE SEEING AN INCREASING AMOUNT OF THE AI BUILDOUT, WHICH WE STILL THINK IS IN MIDDLE INNINGS , NOT THE LATER INNINGS OF LEVERAGING DEBT. THAT WAS ON FULL DISPLAY OVERNIGHT WITH THE FT ARTICLE AND SPACE-X THIS MORNING. AT THE END OF THE DAY HIGHER RATES AT THE MOMENT ARE REFLECTIVE OF MULTIPLE FACTORS. ONE IS NOMINAL GROWTH HAS BEEN VERY STRONG IN THE UNITED STATES. YES WE HAVE DEFICIT CHALLENGES BUT NOMINAL GROWTH HAS BEEN VERY STRONG. IF YOU LOOK AT THE REAL RATE OF THE 10 YEAR TREASURY RIGHT NOW WITH 10 YEAR BREAKEVEN INFLATION AT 2.35% FROM THE EXPECTATION OF WHERE INFLATION WILL BE IN 10 YEARS AT 2.30 5% AND THE 10 YEAR AT 5.30. IF YOU LOOK AT THE LAST 25 YEARS THE REAL RATE HAS BEEN 100 BASIS POINTS ON AVERAGE THROUGH A BUNCH OF CYCLES. 290 BASIS POINTS OF REAL RETURN IS QUITE ATTRACTIVE AND IT SUGGESTS TO ME THAT YOU HAVE THE DUAL PUSH AND PULL. ONE IS THE STRENGTH OF NOMINAL GROWTH AND TWO THE CONCERN WE HAVE A PUBLIC DEBT CHALLENGE GLOBALLY. LISA: THIS IS THE ARGUMENT FOR WHY YOU WANT TO BUY BONDS, THE IDEA REAL YIELDS HAVE BEEN HIGHER THAN THEY HAVE BEEN TRADITIONALLY. SEVERAL DIFFERENT AUCTIONS THE PERFORMANCE HAS NOT BEEN GREAT. AT YESTERDAY'S THREE YEAR IT WAS NOT GREAT, THE COVER RATIO WAS NOT FANTASTIC, THE HIGHEST YIELD FOR AN AUCTION BACK TO 2006. HOW DO YOU SWEAR THE SENSE THAT INVESTORS ARE NOT RAISING IN EVEN THOUGH THIS LOOKS GOOD ON A RELATIVE VALUE? AARON: IF YOU LOOK AT THE FED, WHILE THEY MAY NOT BE RAISING RATES IN OCTOBER, THE ODDS ARE NOW 20%, THEY ARE MOST LIKELY GOING TO CONTINUE RAISING RATES IN DECEMBER, AND THE FIRST QUARTER OF NEXT YEAR. THE FRONT END OF THE CURVE IS VERY FOCUSED ON THAT REALITY. IF YOU LOOK AT THE EXPECTATIONS AROUND FED FUNDS FUTURES FOR OCTOBER VERSUS THE TWO YEAR TREASURY RATE, WHICH IS TO WELL ABOVE THE UPPER BOUND OF FED FUNDS, SO THE MARKETS ARE SAYING WE THINK THE FED WILL CONTINUE TO RAISE RATES. WE ARE NOT SURE WHEN THE NEXT RATE HIKE WILL OCCUR. THOSE ARE TWO THINGS GOING ON LEADING TO A LOT OF CAUTION IN THE FRONT END OF THE CURVE TO GET IN THERE AND BUY THESE CURRENT RATE LEVELS. ANNMARIE: WHEN YOU LOOK AT THE SPACE-X DEAL, THE FINANCIAL TIMES TALKED ABOUT HOW FINANCING SOME OF THIS SAYING THEY ONLY RECEIVED A SHORT -- AND AN ARROW POINTING THE COMPANIES WOULD BUILD DATA CENTERS SOMEWHERE IN THE UNIVERSE. IS THAT MORE ATTRACTIVE THAN SOME GOVERNMENT DEBT? AARON: IT IS INTERESTING. SPACEX IS INVESTMENT GRADE AT BBB. I THINK THIS PARTICULAR DEAL IS ABOUT LEASING OUT THE AI COMPUTER POWER SO IF YOU HAVE IN THE ANTHROPIC'S OF THE WORLD AND THE ALPHABETS OF THE WORLD AND THEY NEEDED AND SPACE-X CAN PROVIDED BY ACQUIRING THE NVIDIA CHIP AND THE OVERALL ARCHITECTURE THAT IS NVIDIA, I THINK THERE IS AN OPPORTUNITY FOR SPACE-X TO GENERATE DECENT CASH FLOW JUST THINKING ABOUT THE NATURE AND THE FINANCE AND THE COST STRUCTURE AROUND THE STEEL AND THE MASSIVE DEMAND FOR AI COMPUTE GOING FORWARD. ANNMARIE: THERE WERE ELECTION DEBATES LAST NIGHT AND IT COMES UP ABOUT DATA CENTERS BEING OPENED UP AROUND THE COUNTRY. CITY COUNCIL ARE MEETING TO TALK ABOUT AI AT THE PUSH IN REGULATION. YOU SEE ANY POLITICS PUSHING BACK ON THIS TRADE? AARON: IT IS CHALLENGING. WE ARE ALL TRYING TO FIGURE THIS OUT. I THINK THE AI DATA CENTER GROWTH CONCERN AS IT RELATES TO THE POLITICAL ELECTION ISRAEL. IT IS THE SAME AS IF THERE WAS AN INFRASTRUCTURE BUILDOUT OF SOME OTHER SORT THAT NEEDED TO BE BUILT AS WELL. HIS NOT IN MY BACK YARD. WE SEE THAT ALL AROUND THE COUNTRY. THE CHALLENGE IS THE DATA CENTER BUILDOUT IS HAPPENING IN SUCH A CONTRACTED TIMEFRAME. IT IS HAPPENING IN MULTIPLE STATES AROUND THE COUNTRY. IT IS BECOMING A NATIONAL CONCERN OF NOT IN MY BACK YARD. CLEARLY YOU ARE SEEING REPUBLICANS IN STATES LIKE CONNECTICUT WHERE I LIVE RUNNING FOR STATEWIDE OFFICE, PUSHING AGAINST THE DEMOCRATIC GOVERNORS DESIRE TO CONTINUE TO BUILD OUT DATA CENTERS. THIS IS AN INTERESTING POLITICAL DYNAMIC. YOU WOULD NOT HAVE ANTICIPATED THAT SIX MONTHS AGO. JONATHAN: THE OUTCOME OF THE MIDTERMS COULD SET THE TONE FOR THE DEBATE FOR THE NEXT TWO YEARS. THAT IS THE RISK TO THIS MARKET DEPENDING ON WHICH WAY IT GOES. ANNMARIE: IF YOU'RE INTERESTED IN THROWING YOUR NAME IN THE RING FOR 2028 YOU'RE INTERESTED TO SEE WHICH IS STUCK IN THE MIDTERMS. JONATHAN: EQUITY FUTURES ON THE NASDAQ DOWN JUST A BIT. -.4%. WITH AN UPDATE ON YOUR NEWS WORLDWIDE VONNIE QUINN HAS MORE. VONNIE: ECB GOVERNING COUNCIL MEMBER SAYS THE SITUATION IN FRANCE'S BOND MARKET DOES NOT WARRANT CB INTERVENTION. HE SAYS THE ECB'S JOB IS TO FIGHT INFLATION, NOT ADDRESS COUNTRY'S FISCAL PROBLEMS. FRANCE'S FACING A BOMB SELLOFF OVER CONCERNS OF ITS DEFICIT. DONALD TRUMP SAYS HE WILL SPEAK TO VLADIMIR PUTIN SOON ABOUT A SUSPECTED CASE OF PLAGUE. CONCERNS ARE GROWING SINCE THE DEATH OF A WORKER AT AN INFECTIOUS DISEASES RESEARCH INSTITUTE IN SIBERIA. THE 28-YEAR-OLD DIED AFTER DEVELOPING SEVERE PNEUMONIA. ALMOST 200 CONTACTS ARE UNDER OBSERVATION. HSBC IS REPORTEDLY PLANNING TO ELIMINATE HALF OF ITS MANAGEMENT AND SPECIAL ITS POSITIONS ACROSS ITS U.K. WEALTH DIVISION. THE FINANCIAL TIMES REPORTING THE DIVISIONAL CUT FINANCIAL ADVISORS BY 70%, PART OF A PUSH TO USE AI TO SERVE CLIENTS MORE EFFICIENTLY. JONATHAN: BIG NUMBERS. UP NEXT, KEEPING OIL FLOWING THROUGH HORMUZ. PRES. TRUMP: DOING VERY WELL. IRAN IS DOING VERY POORLY. THERE ECONOMY IS GONE. THE STRAIT OF HORMUZ I'M A MILLIONS OF BARRELS OF OIL DELIVERED OVER THE LAST FEW DAYS. JONATHAN: LIVE FROM NEW YORK CITY THIS MORNING, GOOD MORNING. ♪ JONATHAN: A BIG FOCUS ON THE COMPETITION FOR CAPITAL. LATER THIS AFTERNOON A 10 YEAR NOTE AUCTION FROM THE TREASURY $39 BILLION WORTH AHEAD OF TOMORROW'S $22 BILLION AUCTION. ALL OF THAT STILL AND A SNEAK PEEK OF THE FED SPEAK. A READING OF THE FED MINUTES FROM THE FED'S LAST MEETING. A DECISION TO HIKE INTEREST RATES. ON THE EQUITY SIDE OF THINGS SHAPING UP AS FOLLOWS PAID FOR DAY WINNING STREAK THE LONGEST WE'VE SEEN IN ABOUT TWO MONTHS RECLAIMING ALL-TIME HIGHS. THIS MORNING PULLING BACK BY 1/10 ON THE S&P BY 4.4 ON THE NASDAQ. IN THE BOND MARKET TWOS, TENS OF 30 SHAPING UP AS FOLLOWS. YIELDS HIGHER ACROSS THE CURVE UP BY A BASIS POINT ON TWOS. UP BY FOUR ON TENS AND 30'S. THE HIGHEST LEVELS GOING BACK TO 2002 AND GETTING CLOSER AND CLOSER TO A SIX HANDLE ON 30'S. LISA: THE THRESHOLD WE'VE BEEN TALKING ABOUT NOW WHERE THEY BEEN SAYING IT'S REALLY UNLIKELY ALMOST AN INEVITABILITY THIS YEAR. INTERESTING SEEING THE PAIN FOCUSED ON THE LONG END OF THE CURVE. THAT GOES TO YOUR POINT ABOUT COMPETITION FOR CAPITAL. IF YOU ARE IN AN ENVIRONMENT WHERE YOU HAVE RATE IN SENSITIVE BORROWERS THAT ARE BORROWING BILLIONS AND BILLIONS OF DOLLARS CREATING A REAL PROBLEM FOR DEVELOPED MARKETS THAT HAVE A LESS ROBUST AND POTENTIAL BIGGER NEEDS FREEDOM JONATHAN: 30'S ALMOST 50 BASIS POINTS HIGHER THAN WHEN THE TREASURY SECRETARY OFFERED SOME VERBAL INTERVENTION. HE SAID HIMSELF RECENTLY HE CAN CONTROL THE BOND MARKET AND IT SEEMS NO ONE CAN. WTI AND BRENT SHAPING UP AS FOLLOWS. SLIGHTLY ELEVATED JUST SHORT OF 102 ON BRENT CRUDE. KEEPING OIL FLOWING THROUGH HORMUZ. >> DOING VERY WELL, IRAN IS DOING VERY POORLY, THEIR ECONOMY IS GONE THERE INFLATION ALMOST 300%. THE HORMUZ STRAIT TREMENDOUS AMOUNTS -- MILLIONS OF BARRELS OF OIL DELIVERED OVER THE LAST COUPLE OF DAYS AT LEVELS EVEN SOMETIMES EXCEEDING PRIOR TO THE WAR. JONATHAN: CRUDE PUSHING HIGHER AS IRAN ESCALATES ATTACKS ON SHIPS IN THE STRAIT OF HORMUZ. THE STRIKES INTENSIFYING AS ENERGY FLOWS APPROACH PREWAR LEVELS. TYLER KENDALL JOINS US FOR MORE. TYLER: THE NEW WAVE OF ATTACKS APPEARS TO BE THE LATEST BID BY IRAN TO TIGHTEN ITS GRIP OVER THE STRAIGHT AS DIPLOMACY REMAINS STALLED AND OIL FLOWS STEADILY PICKED UP IN RECENT WEEKS. IN LARGE PART DUE TO U.S. PROTECTION BUT ALSO WE'VE SEEN GULF COUNTRIES FIGURE OUT HOW TO DO THESE SO-CALLED SHUTTLE RUNS. NOW WE HAVE THE U.K. MARITIME TRADE ORGANIZATION CONFIRMING AT LEAST NINE SHIPS HAVE BEEN ATTACKED SO FAR THIS MONTH AND WE ARE IN THE FIRST WEEK OF OCTOBER. THAT IS HALF THE TOTAL AMOUNT OF ATTACKS WE SAW ON SHIPS IN THE ENTIRE MONTH OF SEPTEMBER. SHIPPING EXECUTIVES TELL BLOOMBERG NEWS AT THIS POINT IT IS TOO CERTAIN TO TELL IF THIS LATEST ESCALATION WILL CAUSE SHIPMENTS TO FALL AS DATA FROM RESEARCH SHOWS US CRUDE EXPORTS THROUGH THE STRAIGHT IN SEPTEMBER WERE APPROACHING THOSE PREWAR LEVELS. THE LEVELS FOR REFINED PRODUCTS LIKE DIESEL CONTINUE TO LAG. AS DISRUPTIONS CONTINUE PRESIDENT TRUMP TOLD REPORTERS HE IS CONSIDERING A TEMPORARY SUSPENSION OF THE FEDERAL GAS TAX. JOHN AT THIS POINT HE WOULD NEED CONGRESS IN ORDER TO PASS THAT AND LAWMAKERS ARE OUT OF TOWN AND UNLIKELY TO RETURN BEFORE THE MIDTERM ELECTIONS. JONATHAN: TYLER KENDALL WITH THE LATEST FROM THE NATION'S CAPITAL . TOBIN MARCUS WRITES THE FOLLOWING EITHER A BONA FIDE BLUE TSUNAMI IS COMING OR THE POLLS ARE OFF AND EXTRAORDINARY CLAIMS REQUIRE EXTRA ORDINARY EVIDENCE. HIS FLIPPING TEXAS AND EXTRAORDINARY CLAIM? TOBIN: I THINK IT IS. FOR DEMOCRATS TO WIN A SENATE MAJORITY THIS CYCLE NEED TO WIN AT LEAST TWO OR MORE SEATS THAT WENT FOR PRESIDENT TRUMP BY 11 POINTS OR MORE. WHICH THE POLLS SUGGEST THEY ARE ON TRACK TO DO. ABOUT 52 SEATS IN THE SENATE. BUT THAT PATH RUNS THROUGH SOME VERY RED TERRITORY. WE ARE SEEING A PATTERN OF POLLING AROUND THE COUNTRY WHERE THE SHIFT FROM 24 TO 26 HAS BEEN BIGGER THE BLUE SHIFT HAS BEEN BIGGER IN REDDER PLACES. A SIMILAR PATTERN TO WHAT WE'VE SEEN IN THE PAST. IT LOOKS TO ME LIKE SOME OF THE SENATE POLLING EVEN IN A VERY GOOD YEAR FOR DEMOCRATS AS IT SURELY WILL BE I THINK PEOPLE ARE GETTING A LITTLE OVER IN TERMS OF THEIR EXPECTATIONS. ANNMARIE: WE HAD A GUEST BASICALLY TALKING ABOUT THE FLIP OF THE SENATE TO BLUE BUT OBVIOUSLY IT HINGES ON TEXAS TURNING BLUE. DO YOU SEE ANY CHANCE OF THAT HAPPENING AND ESPECIALLY AT A WEEK WHERE THE TEXAS GOVERNOR GREG ABBOTT HAS DECIDED TO NOT GO CAMPAIGN WITH THE PRESIDENT WHEN HE GOES TO SAN ANTONIO. TOBIN: THERE IS CERTAINLY A CHANCE. I THINK IT IS TOTALLY REASONABLE TO LOOK AT THE SET UP. TEXAS, OHIO, IOWA ALASKA AS IN PLAY. BUT I THINK YOU NEED TO BELIEVE THAT THEY LEAN CLEARLY TOWARDS DEMOCRATS AND I THINK DEMOCRATS ARE FAVORED FOR THE OVERALL SENATE MAJORITY THE WAY CONSENSUS EXPECTATIONS HAVE SHIFTED. I WOULD NOT BE SHOCKED IF DEMOCRATS WAKE UP HAVING ONE TEXAS. IT IS A SHOCK TO BE IN THAT POSITION COMPARED TO WHERE WE WOULD HAVE BEEN SIX OR NINE MONTHS AGO. I STILL DON'T THINK THEY ARE ON IN A CLEAR WAY THE WAY THE POLLS ARE INDICATING. ABOUT TEXAS, A LOT ON TRACK TO WIN THE TEXAS SENATE SEAT IN THE GUBERNATORIAL ELECTION WHICH LOOKS AT A MUCH BIGGER RACE TO ME. PAUL'S POINTING IN BOTH DIRECTIONS DOES WITH THE SENATE POLLING. ANNMARIE: HOW MUCH TAKE SHAPE IN THE MAP ABOUT CANDIDATE QUALITY VERSUS A REFERENDUM ON TRUMP? TOBIN: CANDIDATE QUALITY IS A DIMENSION. IN MANY OF THE STATES WERE DEMOCRATS ARE SURPRISINGLY COMPETITIVE INCLUDING KANSAS IS THE REAL DARK HORSE INTO THIS CYCLE. THERE IS A VERY GOOD KIND OF DEMOCRATIC ALIGNED CANDIDATE THERE AND THE REPUBLICAN CANDIDATE TAKING SOME PERSONAL LIABILITIES. SO THAT'S A DIMENSION IN TEXAS KEN PAXTON'S VERY WEAK CANDIDATE. WE ARE SEEING THE POLLING MOVE PRETTY HEAVILY ACROSS CANDIDATES EVEN ONES WHO DON'T HAVE THOSE LIABILITIES. IF YOU'RE SEEING SHIFTS IN BOTH PLACES IT MAKES ME THINK IT IS NOT JUST PICKING UP A CANDIDATE QUALITY ISSUE BUT ALSO A MASSIVE NATIONAL SHIFT OR SOME OVERSTATEMENT. ANNMARIE: WHAT ARE THE SIGNS YOU'RE SEEING THE POLLS ARE SLIGHTLY OFF. TOBIN: WE ARE SEEING MUCH BIGGER BLUESHIFT IN REDDER PLACES SO YOU HAVE THE SURPRISINGLY COMPETITIVE STATES LIKE DEMOCRATS BEING AHEAD IN KANSAS, ONE POINT BEHIND IN SOUTH CAROLINA WHICH WOULD BE A SEISMIC SHIFT FROM TWO YEARS AGO. AT THE SAME TIME MINNESOTA LOOKS CLOSE, NEW HAMPSHIRE LOOKS NEW YORK IS NOT THAT DIFFERENTIATED. SO IT WOULD BE VERY SURPRISING TO SEE ALL OF THOSE RESULTS AT THE SAME TIME. WE HAVE SEEN THAT IN THE PAST. THE ERRORS HAVE BEEN BIGGER IN REDDER PLACES. WE ALSO JUST GEOGRAPHICALLY IOWA, MICHIGAN, OHIO THESE UPPER MIDWESTERN STATES WHICH ARE SOME OF THE PLACES WERE DEMOCRATS ARE DOING WELL AND WILL NEED TO DO WELL TO TAKE THE SENATE WITH OHIO IN PARTICULAR BEING ONE OF THE KEYS. THAT'S BEEN GROUND ZERO FOR POLLING ERRORS. A LOT HARDER TO POLL VOTERS IN THOSE STATES THAT IT HAS BEEN TO GET GOOD NUMBERS IN THE SUNBELT. JONATHAN: TOBIN MARCUS THERE OF WOLFE RESEARCH. TEXAS IS AN EXAMPLE YOU ASKED THE QUESTION OF THE EITHER OR. WITH CANDIDATE QUALITY OR REFERENDUM ON THE PRESIDENT. TEXAS IS BOTH. A WEAK CANDIDATE LIKE PAXTON. IT'S NOT A REFERENDUM ON THE PRESIDENT. ANNMARIE: WE COULD'VE HAD CORN AND AND MOST PEOPLE WOULD AGREE THAT INDIVIDUAL WOULD'VE WON THE SENATE SEAT BUT THEN YOU HAVE TO THINK THERE HAS TO BE SOME SORT OF PERSONAL REFERENDUM ON THE PRESIDENT WHEN YOU HAVE THE SITTING GOVERNOR REFUSING TO GO TO HIS SAN ANTONIO RALLY AND REPORTERS ASKING THEM WHY SAYING I HAVE A FIXED SCHEDULE I AM BUSY. THE PRESIDENT IS COMING TO YOUR STATE USUALLY FREE UP THE SCHEDULE YOU CANCEL SOMETHING ELSE TO MAKE ROOM SO CLEARLY THIS IS ABOUT MAKING SURE THEY HAVE SOME DISTANCE BECAUSE THEY KNOW IT IS A REFERENDUM. LISA: ULTIMATELY IT DOESN'T SET THEM UP FOR 28. WHAT IT DOES IS REALLY, UP TO A PATCHWORK OF INDIVIDUAL CANDIDATES IN EACH STATE. JONATHAN: STOCKS NEGATIVE BY AROUND 2/10 OF 1%. WE WILL CATCH UP WITH MITCHELL ON AI'S INSATIABLE QUEST FOR CAPITAL. LIVE FROM NEW YORK CITY YOU ARE WATCHING BLOOMBERG TV. ♪ JONATHAN: BACK AT ALL-TIME HIGHS ON THE S&P FOR THE FIRST TIME SINCE AUGUST ADDING SOME WEIGHT TO THE RALLY. THE LONGEST WINNING RUN GOING BACK TWO MONTHS. FUTURES PULLING BACK 2/10 OF 1% DOWN BY ZERO .4 AND ON THE RUSSELL SMALL CAPS OFF THERE. IN THE FACE OF THIS A REPRICING IN THE BOND MARKET. WHAT A REPRICING IT'S BEEN FOR THE YEAR SO FAR. HIGHER BY SOMETHING LIKE 115 BASIS POINTS AND YET STILL WE'VE SEEN A DOUBLE-DIGIT RETURN IN EQUITIES THANKS TO A MASSIVE RUN-UP IN TECH THANKS TO A MASSIVE RUN-UP IN EARNINGS. YIELDS BY 45 BASIS POINTS. MORE SUPPLY LATER. MORE SUPPLY COMING TOMORROW FOR THE 30 YEAR BOND. HIGHER BY FOUR OR FIVE BASIS POINTS. ON 30'S PRETTY YIELDS WE HAVEN'T SEEN IN 24 YEARS. PUTTING THE PRESSURE BACK ON FRANCE. THE SPOTLIGHT VERY MUCH IN THE EUROPEAN DEBT MARKET RIGHT NOW. THE FRENCH 10 YEAR YIELDS HIGHER ON THE SESSION BY 15 BASIS POINTS APPROACHING 4.90 ALL OVER AGAIN. THE SQUEEZE CONTINUES TO BUILD. LISA: COMPETITION OF CAPITAL EXPOSING SOME OF THE LEAST CAPITALIZED COUNTRIES OUT THERE. FRANCE AMONG THEM HAS NOT HAD A BUDGET SURPLUS SINCE 1970 FOUR CURRENTLY ENGAGED IN A HUGE CAMPAIGN BETWEEN CANDIDATES WITH NEITHER OF WHICH PROPOSING SOMETHING THAT PEOPLE THOUGHT WAS A FEASIBLE WAY TO REDUCE THE DEFICIT. THEY HAVE HEARD FROM THE MARINE LE PEN THE PRIMARY LEADER A FRONT RUNNER SPOT TALKING ABOUT REDUCING THE DEBT CONSIDERABLY. PEOPLE SAY HOW ARE YOU GOING TO DO THAT YOU'RE ASKING FOR COOPERATION FROM THE ECB WHILE THE BANK OF FRANCE IS SAYING WE ARE NOT PLAYING THIS. JONATHAN: IT'S FUNNY HOW THINGS HAVE CHANGED. SHE USED TO BE KNOWN AS FREXIT AND HER PROPOSAL WAS SEEN AS ALMOST SENSIBLE COMPARED TO THE LEFT-WING RIOTING WE'VE SEEN. THE DEBT MARKET THIS MORNING I BE MORE CONCERNED ABOUT WHAT'S COMING FROM THE FAR LEFT IN THE FAR RIGHT OVER THE LAST WEEK. LISA: TALKING ABOUT DEFICIT REDUCTION FOR THE FAR LEFT TALKING ABOUT CANCELING 14 TO 16% OF THE DEBT BEING HELD IN THE ECB AND BANK OF FRANCE. EITHER PLAYER HERE IS NOT OFFERING SOMETHING THIS MARKET AND GET THEIR HEAD AROUND AND THAT UNCERTAINTY OFFERS AN ADDITIONAL PREMIUM ON TOP OF A DEFICIT THAT'S CONTINUING TO CLIMB. ULTIMATELY THIS IS WHAT KEEP PEOPLE KEEP TALKING ABOUT. IS THIS A CANARY IN THE COAL MINE OR IDIOSYNCRATIC LIZ TRUSS MOMENT. ANNMARIE: THE ELECTION IS NOT FOR MORE THAN SIX MONTHS AWAY AND THAT MIGHT BE THE CATALYST FOR A CLEARING OF THAT WHEN IT COMES TO THE DEBT MARKET. TO YOUR POINT JONATHAN IT IS NO LONGER JUST PARIS YOU SEE THESE PROTESTS WHICH HAVE TURNED VERY VIOLENT IN CLASHES WITH POLICE. MORE THAN 40 FRENCH CITIES USING PROTESTS AROUND THE ENTIRE COUNTRY. JONATHAN: EURO-DOLLAR WEAKER ON THE EURO SIDE OF THINGS. THE INTRADAY LOWER THAT WAS ONLY A FEW DAYS AGO NOT TOO FAR OFF THOSE THIS MORNING. THREE HOURS AWAY FROM THE CASH OPEN LET'S GET YOU SOME SIGNAL NAMES. YAHAIRA: THE TABLES HAVE TURNED FOR THESE CHIPMAKERS THIS MORNING. INTEL IS RISING WHILE TSMC SHARES ARE FALLING AFTER ELON MUSK CLARIFIED TSMC'S ROLE IN ITS PROJECT OVER IN TEXAS. EARLIER THIS WEEK HE SAID HE WAS IN TALKS WITH TSMC RAISING QUESTIONS ABOUT INTEL'S ROLE IN THIS PROJECT. NOW HE SAYS HIS COMPANIES WILL BUILD AND OPERATE THE FACILITY WITH INTEL JUST HELPING TO DEVELOP THE TECHNOLOGY. AS FOR TSMC HE SAID THEY COULD POTENTIALLY LEASE PARTS OF THE SITES BUT SAYS NOTHING MORE THAN THAT. MEANWHILE WE WERE SEEING JETBLUE SHARES ALSO DOWN ABOUT A QUARTER OF A PERCENT. THE COMPANY GOT THE GREEN LIGHT FROM THE FAA TO TAKE OVER 22 OF SPIRIT AIRLINES TAKE OFF AND LANDING SLOTS AT LAGUARDIA AIRPORT. JETBLUE CAN ADD FLIGHTS AT THE TIME WHEN IT IS TRYING TO PROJECT PROFITABILITY. THE IRONY IS JETBLUE AT ONE POINT TRIED TO BY SPIRIT WITH THE GOVERNMENT'S BACKING THAT MERGER. WE END ON CONSTELLATION BRANDS, OF THOSE SHARES FALLING FOUR AND THREE QUARTERS PERCENT WITH INVESTORS DISAPPOINTED THE DID NOT RAISE ITS PROFIT OUTLOOK EVEN AFTER BETTER-THAN-EXPECTED EARNINGS. IT GOT A BOOST FROM THE WORLD CUP WITH ACTIVITY AT BARS AND RESTAURANTS BUT THEY SAY CONSUMERS ARE STILL CUTTING BACK ON LIQUOR. GROCERY STORES AND LIQUOR STORES AND FOR THAT REASON CONSTELLATION SAYS IT IS NOT CONSIDERING PRICE INCREASES ON ITS PEERS. >> MORE IN OUR NEXT OUR. SPACE X SEEKING TO RAISE 40 BILLION TO BUY CHIPS FROM NVIDIA , COULD BE ONE OF THE BIGGEST DEBT FINANCING OF THE AI BUILDOUT. THE FINANCIAL TIMES REPORTING APOLLO IS EXPECTED TO LEAD THE DEAL. THE LATEST FROM THE JP MORGAN BOSS DELIVERING A WARNING. >> THERE WILL BE A POINT WHERE THE MARKET WILL ASK FOR MORE AND MORE AND AT ONE POINT THAT WILL FEED INTO CORPORATE DEBT AND CREDIT SPREADS. DEAL WITH THAT BEFORE IT BECOMES A CRISIS. IF IT COMES TO A CRISIS WE WILL DEAL WITH IT. >> DISTRESSED LOANS HAVE RISEN TO THE HIGHEST LEVEL SINCE THE PANDEMIC EXPECT IN HIGH-YIELD BONDS AND LEVERAGE LOAN DEFAULTS RISE. WITH THE LATEST IN EUROPE THE EU PREPARING TO IMPOSE SAFEGUARD MEASURES TO LIMIT IMPORTS OF CHINESE VEHICLES. SIMILAR TOOLS COULD BE USED ON OTHER SECTORS TO EASE TRADE IMBALANCES. LISA: SO AUTO MANUFACTURER SHARES RALLYING IN RESPONSE. CHINESE BRANDS ACCOUNT FOR ONE AND FOUR HYBRID SALES IN THE REGION. ONE AND THREE PLUG-IN HYBRID SALES IN EUROPE. SOMETHING THAT'S BEEN ON PEOPLE'S MINDS AS YOU SEE THAT RATIO INCREASE. THE EU TRADE CHIEF IS GOING OVER TO BEIJING TO FIGURE OUT HOW THEY CAN AVOID SOME SORT OF SERIOUS PUSHBACK OR PENALTY FROM CHINA GIVEN THAT IT IS STILL A BIG TRADE PARTNER. IT'S GOING TO BE THIS STANCE YOU WILL HEAR SOME MORE ON THIS IN THE NEXT COUPLE OF DAYS. ANNMARIE: CHINA SAYING THEY WILL RETALIATE IF EUROPE ADOPTS "DISCRIMINATORY" MEASURES. DO THEY TRY TO FEND OFF THE EUROPEANS DOING IT FOR ANY OTHER PRODUCT. THE ISSUE IS THEY ARE BASICALLY JUST TAKING A PLAYBOOK FROM TRUMP TO PUT UP THE WALLS BECAUSE THEIR INDUSTRIAL BASE IS BEING HOLLOWED OUT BY CHINA. JONATHAN: YOU HAD A SERIES OF GERMAN BUSINESSES THAT HAVE HAD TO CUT JOBS. WE CAN SEE MORE OF THOSE HEADLINES IN A COUPLE OF MONTHS AND COMING YEARS. WHEN YOU START TO IMPACT THE POPULATION THROUGH JOB CUTS PEOPLE ASKED THE QUESTION WHY IS IT HAPPENING IN EASY COUNTRY TO BLAME FOR THE CRISIS HAPPENING IN THE AUTOS MARKET. THAT MARKET IN CHINA WE'VE SAID REPEATEDLY IS PROBABLY THE MOST COMPETITIVE MARKET ON THE PLANET RIGHT NOW. THE GERMAN MANUFACTURERS ARE STRUGGLING TO COMPETE IN CHINA AND DOMESTICALLY IN EUROPE. LISA: INCREASINGLY IT WILL BE A POLITICAL ISSUE. HOW MUCH PEOPLE HAVE THE WILLINGNESS TO PUT TEETH INTO THIS IF THERE IS RETALIATION THAT IS WHAT PEOPLE ARE LOOKING TO TRY AND UNDERSTAND. JONATHAN: LET'S TURN BACK TO TECH. COMPANIES FLOODING WITH MORE THAN 400 BILLION BETTING BIG ON THE FUTURE OF THE TECHNOLOGY. A TECH EQUITY INVESTMENT FIRM STAYING CONSTRUCTIVE WRITING A TOOL THAT MAKES SOMEONE MORE PRODUCTIVE ALMOST IMMEDIATELY BUT CHANGING HOW THE BUSINESS WORKS TAKES LONGER. THE GAP IS SHAPING WHERE WE SEE INVESTMENT OPPORTUNITY. JOINING US IS MITCHELL GREEN. GOOD TO SEE YOU. OPERATING ON TWO DIFFERENT TIMELINES. CONSUMER AND INDIVIDUAL ADOPTS THIS TECH AND HOW A BUSINESS MIGHT TRANSFORM. CAN YOU BUILD THAT MORE FOR THE INVESTOR PERSPECTIVE. MITCHELL: YOU'RE GOING TO SEE THINGS LIKE THE CONSUMER NOW BUSINESSES FOR THE LAST COUPLE OF YEARS HAVE BEEN FOCUSED ON ADOPTING AI AND TRYING TO CREATE NEW PRODUCTS AROUND IT WHETHER IT'S THE SOFTWARE COMPANIES WHICH WE SAID AREN'T GOING ANYWHERE. BUT NOW THEY'RE STARTING TO SEE OVER THE LAST COMPANIES LIKE RELEASING MUSE AND OPENAI RELEASING THESE. THESE CONSUMER AGENTS ARE EXPLODING RIGHT NOW. LISA: DO YOU THINK THAT WILL BE A PATH TO MONETIZATION THAT JUSTIFIES THE RAPID PACE OF BUILDOUT AND THE HUGE BILLS TIED TO DATA CENTERS IN EVERY THING ELSE. MITCHELL: THEY ARE SURE GOING TO TRY. WHAT YOU WILL SEE IS INSTINCT EXPLODING ALONG THE CONSUMER BASE. BUT NOW YOU WILL SEE IT I THINK IF YOU TRY TO USE AMAZON OR WALMART. THE QUESTION IS NOW ARE THESE DEALS SO THAT THEY CAN WORK. EVERYBODY WANTS A PIECE OF THE ACTION. IN FIGURING OUT HOW TO MONETIZE IT. I THINK THERE ARE A LOT OF CONSUMERS THAT WILL SPEND $50 A MONTH OR HUNDRED DOLLARS A MONTH. I DON'T KNOW HOW THEY WILL BE DIFFERENT THOUGH. HOW IS INSTINCT DIFFERENT FROM USE AND DOTS WHY DO YOU HAVE TO STAY IN ONE APP VERSUS YOU CAN USE ALL THREE OF THEM AND BOUNCE BACK AND FORTH. LISA: HOW PRESSING IS THE NEED TO MONETIZE. TALKING TO A NUMBER OF CEOS WHO SAY THE BILLS THEY PAY FOR CYBERSECURITY ARE GOING THROUGH THE ROOF AS A RESULT OF AI. AND THE PRODUCTIVITY GAINS ARE JUST MEETING THAT TO OFFSET IF NOT AT ALL. IT'S BEEN THE SORT OF RACE TO FIGURE OUT HOW PRODUCTIVITY CAN MATCH THE INCREASING SECURITY RISKS THAT ARE OCCURRING. HOW DO YOU SEE THAT BALANCE? MITCHELL: THE CHALLENGE OF THE FRONTIER COMPANIES HAVE IS THOSE ARE GETTING GIGANTIC DEBT DEALS THAT ARE COMING UP. ENOUGH MONEY IS BEING SPENT TO BUILD THIS STUFF IS INCREDIBLE. PRICES ARE FALLING AND THINGS LIKE THAT THE THING NOBODY ELSE CAN ANSWER IS WHEN ARE THEY CAN TO BE ABLE TO TRULY MONETIZE. I'M AS EXCITED AS WE SHOULD'VE BEEN THERE ON OPENAI. BUT I'M VERY FASCINATED TO SEE ANTHROPIC F1 DROPS AND UNDERSTANDING THE FINANCIALS OF THE BUSINESSES. I THINK THERE WILL BE PROBABLY POSITIVE SURPRISES AND SOME THINGS THAT ARE PROBABLY PRETTY SHOCKING AS WELL. JONATHAN: LAST TIME WE CAUGHT UP WITH YOU IT WAS CAPEX UNDERPINNING THIS BUILDOUT. YOU SEE MORE EVIDENCE OF THAT? MITCHELL: THERE IS A MASSIVE WHETHER YOU WANT TO CALL IT BUBBLE OR BUILDOUT THE AMOUNT OF MONEY BEING SPENT IS UNPRECEDENTED. THE AMOUNT OF MONEY RIGHT NOW FOR INSTANCE PEOPLE ARGUE IS THE 10 YEAR YIELD MOVING AFFECTING MORTGAGE RATES AND EVERYTHING IS IT A FUNCTION OF INFLATION FROM THE WAR IN IRAN. IF YOU LOOK AT THE AMOUNT OF OIL FLOWING THROUGH ITS MOST BACK TO PRE-WAR LEVELS IN A LOT OF AREAS. AS IT THE AMOUNT OF CORPORATE DEBT BEING IMPACTED BECAUSE OF ALL THIS AI DEBT IT'S PROBABLY A COMBINATION OF ALL THREE. SOMEWHERE BETWEEN RATES WHERE THEY ARE TODAY AND RATES AT SEVEN A LOT OF STUFF STARTS TO BREAK AND YIELDS START TO SEE. JONATHAN: SOME PEOPLE MIGHT THINK CAPACITY WILL BECOME OFFSIDE BUT IT'S THE DEMAND THAT'S REQUIRED. ARE WE OVERESTIMATING CAPITAL OR THE AMOUNT OF EFFICIENCY WE WILL SEE FROM TECHNOLOGICAL PROGRESS? MITCHELL: DEMAND IS CLEARLY THERE. IF YOU TALK TO THE HYPERSCALERS LIKE AN INFINITE AMOUNT OF DEMAND THE PEOPLE WANT. THE QUESTION IS CAN YOU DELIVER THE CAPACITY AND CAN YOU DELIVER IT WHETHER IT IS POWER OR A THINK LIKE CHINA HAS A HUGE ADVANTAGE OVER THE U.S. RIGHT NOW WHETHER IT'S DATA CENTER CAPACITY OR CHIPS. IT'S ALL THIS STUFF COMBINED. HISTORY TENDS AND SO THEY'RE IN EVERY OTHER MAJOR BUILDOUT OF TECHNOLOGY IN THE LAST 100 YEARS. THERE'S BEEN SOME SORT OF BUBBLE. WE'LL SUPPLY DEMAND MATCH PERFECTLY, NO. THIS TIME THERE'S A MASSIVE AMOUNT OF DEBT INVOLVED. LISA: WHICH PART OF THE CAPEX BUBBLE ARE YOU WILLING TO INVEST IN AND WHICH WILL YOU NOT TOUCH WITH A 10 FOOT POLE. MITCHELL: WE DON'T INVEST IN DATA CENTER STUFF. WE DON'T TRULY UNDERSTAND THEM AND WERE NOT SEMICONDUCTOR INVESTORS AS WELL. WHAT WE ARE TRYING TO INVEST IN OUR SOFTWARE COMPANIES AND AI COMPANIES THAT ARE WE THINK THERE'S A HUGE OPPORTUNITY AROUND LEGACY SOFTWARE BUSINESS. IT'S NOT EVEN THAT OLD BUT COMPANIES THAT HAVE VERY STRONG CUSTOMER RELATIONSHIPS, COMPANIES THAT HAVE YOU KNOW A GREAT PRODUCT TEAMS. THEY CAN USE THESE TECHNOLOGIES TO INNOVATE AND MAKE THEMSELVES MORE EFFICIENT. YOU ARE SEEING THAT COMPANIES LIKE SNOWFLAKE OR DATA DOG WHICH ARE ALL OBSERVABILITY DATA COMPANIES THAT ARE ACCELERATING THE REVENUE GROWTH. JONATHAN: ARE WE SEPARATING THINGS OUT. MITCHELL: YOU'RE STARTING TO SEE THAT CYBERSECURITY I THINK PROBABLY THE BIGGEST GLOBAL RISKS RIGHT NOW. WE ARE NOT CYBERSECURITY EXPERTS BUT WHAT TENDS TO HAPPEN WITH MARKETS IS WHAT EVERYBODY'S NOT TALKING ABOUT. IT'S AMAZING OPENAI HUGGING FACE THING HAPPENED AND IT'S JUST THE TIP OF THE ICEBERG. ALL THESE TOOLS I THINK AI SAFETY IS SOMETHING THAT YOU KNOW PEOPLE NEED TO FOCUS MORE ON AND I THINK IT IS A TRULY GLOBAL RISK AND CYBERSECURITY COMPANIES ARE ONLY TO BECOME MORE POWERFUL AND IMPORTANT. JONATHAN: I PROMISE TO TRY TO SQUEEZE IN BYD. MITCHELL: INCREDIBLE PRODUCT. HAVE YOU EVER BEEN IN A CAR BUT MAKE SURE YOU DRIVE OR RIDE IN ONE OF THE BACK OF THESE CARS. THEY ARE INCREDIBLY BUILT. ALL I WILL SAY IS I'M SURE A LOT OF VIEWERS ARE WATCHING THIS I'VE BEEN IN THEM. IF YOU'VE NEVER BEEN ONE OF THESE JUST GO FOR A RIDE. JONATHAN: DELAYS ABOUT CHINESE MANUFACTURING TO THE BUILD QUALITY IS NOT AS GOOD BUT THAT THE RIPPING OFF EUROPE. WITH THIS INDUSTRY I THINK THAT'S JUST TOTALLY WRONG. MITCHELL: INCREDIBLE PRODUCT. I THINK THEY BUILT AN INCREDIBLE PRODUCT. CLEARLY THAT'S 95% AS GOOD AS A TESLA. AND 90% CHEAPER PRICES. I THINK BEING PROTECTIONIST AGAINST THESE LIKE THIS COMPANY I UNDERSTAND WHY. THE FACT THAT THEY LET THEM IN EUROPE I THINK YOU HAVE BIG GERMAN AUTO MANUFACTURERS THESE CARS ARE INCREDIBLE. I WOULD ARGUE THEY SHOULD FIGURE OUT HOW TO INNOVATE THAT AND COMPETE WITH THE ACTUAL PRODUCTS. JONATHAN: THEY REALLY STRUGGLING. MITCHELL: IT'S KINDA LIKE THE APPLE IPHONE. REVOLUTIONIZED. JONATHAN: WHEN YOU'RE BEING DRIVEN. LISA: I WILL SAY THOUGH INCREASING THE TALKED ABOUT THIS AND YOU'RE RIGHT. JUST ALSO THE COST OF THOUGH. HOW MUCH DO THEY PAY PEOPLE TO MANUFACTURE THESE CARS IN CHINA VERSUS EUROPE. ANNMARIE: THE CHEAPEST VERSION IS 10K. JONATHAN: INCREDIBLE. ANNMARIE: IT'S WHAT EUROPE IS REALIZING THAT WHAT THE PUT UP SOME WALLS. JONATHAN: I'M SURPRISED MORE MANUFACTURERS HAVEN'T JUST EXITED CHINA BECAUSE THEY CAN'T COMPETE THERE. WHY ARE THEY STILL THERE TRYING TO COMPETE. LISA: MAYBE TRYING TO INNOVATE AND LEARN FROM THEM. JONATHAN: A BIG 180 OVER THE LAST 20 YEARS. MITCHELL IT IS GOOD TO SEE YOU. A LOT TO THINK ABOUT. LET'S GET YOU AN UPDATE ON NEWS WORLDWIDE WITH YOUR BLOOMBERG BRIEF. FUNDING: PRESIDENT TRUMP SAYS HE'S CONSIDERING SUSPENDING THE FEDERAL GAS TAX AS HIS ADMINISTRATION LOOKS FOR WAYS TO LOWER ENERGY PRICES AHEAD OF THE MIDTERMS. GAS PRICES ARE 46% SINCE THE IRAN WAR BEGAN. THE NATIONAL AVERAGE FOR A GALLON OF REGULAR GASOLINE WAS AT $4.37 YESTERDAY. BILLIONAIRE INVESTOR RAY DALIO WARNING AI IS "A CLASSIC BUBBLE IT'S GOING TO BURST SOON." DALIO POINTED TO RISING INTEREST RATES AND THE AMOUNT OF DEBT TECH GIANTS WANT TO TURN INTO CASH. ARGENTINA BIDS FAREWELL TO LIONEL MESSI. AFTER 21 YEARS 126 GOALS, TO COPE AMERICA TITLES IN THE WORLD CUP CHAMPIONSHIP. SCORING A PENALTY IN SETTING UP ARGENTINA'S OTHER TWO GOALS FOR A 3-0 VICTORY. THAT IS YOUR BLOOMBERG BRIEF. JONATHAN: UP NEXT THE FED ON CERTAIN POLICY PATH. >> WITHING THE FED CAN BE PATIENT EVEN WHAT HAPPENED. >> I HAVE NEVER HAD MORE CONFUSION OR UNCERTAINTY ABOUT WHAT THE FED WILL DO. JONATHAN: WE ATTEMPT TO GET SOME CLARITY. CLAUDIA JOINS US LIVE FROM NEW YORK CITY YOU ARE WATCHING BLOOMBERG TV. ♪ JONATHAN: STOCKS DOWN PULLING BACK FROM ALL-TIME HIGHS. NEGATIVE BY ONE QUARTER OF 1%. DOWN BY .6 ON THE NASDAQ 100. THE FED ON CERTAIN POLICY PATH. >> IT CAN BE PATIENT OTHER THEY'VE DONE ONE HIKE. >> DECEMBER SQUARELY IN THE MIX. IT DOESN'T FEEL IT MOVES IN CONSECUTIVE MEETINGS. >> I'VE NEVER HAD MORE CONFUSION OR UNCERTAINTY ON WHAT THE FED WILL DO. JONATHAN: INVESTORS COUNTING DOWN TO THE FED MEETING MINUTES. SCHEDULING MORE RATE HIKES MAY NEED NEEDED TO TAME INFLATION. CLAUDIA SAHM WRITING THE SEPTEMBER HIKE WAS RISK MANAGEMENT NOT THE START OF AN AGGRESSIVE HIKING CYCLE. THEY ARE HEDGING THEIR BETS, THE COMMITTEE IS CENTERED AROUND ONE MORE HIKE THIS YEAR. BUILD ON THAT A LITTLE BIT MORE. MANY BELIEVE BECAUSE WE ARE MOVING ACCOMMODATION THERE ARE TWO MORE DOSES TO GO. DO YOU SEE MORE? CLAUDIA: I'M NOT SURE WOULD CHARACTERIZE IT AS REMOVING A DOSE. IT'S HARD TO SAY WHERE IT IS RESTRICTIVE OR ACCOMMODATIVE. THE REELS RATES WE ARE TRYING TO PULL SOME DEMAND A LITTLE BIT, PRETTY MODEST OUT OF THE ECONOMY. I THOUGHT JOHN WILLIAMS DID A GOOD JOB GIVING VOICE TO THE COMMITTEE'S THINKING. WE GOT THE DOT PLOT ON DECISION DAY AND THAT LOOKED MUCH MORE LIKE A RISK MANAGEMENT. MOST OF THE COMMITTEE ONE MORE HIKE SOME OF THE COMMITTEE TO MORE HIKES. WE DID NOT HAVE KEVIN WARSH'S VIEW THE CHAIR STATE OF THE DOT PLOT SO IT'S HARDER TO KNOW WHERE HE SITS WITH THIS BUT THAT IS NOT A FED HIKING CYCLE. EVEN TO END DONE IS UNUSUAL. THIS IS ABOUT TRYING TO KEEP A BAD SITUATION FROM GETTING WORSE. FINDING A LARGELY SUPPLIED DRIVEN INFLATION WHICH IS DIFFERENT THAN A LOT OF THE DEMAND DRIVEN INFLATION THEY HAVE SEEN IN THE PAST AND SO THEY ARE TRYING TO MAKE SOME ADJUSTMENTS AND KEEP INFLATION FROM GETTING OUT OF CONTROL. IF IT COMES BACK DOWN IT'S BECAUSE OF THOSE FACTORS WHETHER IT'S ENERGY DISRUPTIONS, TARIFFS, THOSE NEED TO WANE THAT THEIR BASE CASE AND WE NEED TO SEE THE AI BUILD OUT TO THE EXTENT IT'S AFFECTING CONSUMER PRICES. LISA: WE TALKED ABOUT THE INSENSITIVITY OF THIS TO HIKES. SEEING SIGNS OF A CONSUMER JUST ON THE MARGINS REALLY BEGIN TO CRACK. CLAUDIA: WE HAVE INTEREST RATE SENSITIVE CENTERS, HOUSING IS ONE WE HAVE SEEN CLEAR SIGNS OF HIGHER RATES NOT JUST THIS YEAR WEIGHING ON THEM. AND ABSOLUTELY WHEN YOU THINK ABOUT THIS A LOT OF RESILIENCE IN THE OVERALL ECONOMY. WE'VE BEEN TALKING FOR SOME TIME ABOUT LARGE GROUPS OF CONSUMERS LOWER INCOME MIDDLE INCOME THAT HAVE BEEN STRUGGLING. THE HIGHER INTEREST RATES WHEN THE FED RAISES ITS RATES THE PRIME RATE CREDIT CARD RATES GO UP. WHO GETS HIT BY THAT. PEOPLE TRYING TO MAKE IT ALL WORK BY CARRYING SOME BALANCES ON THEIR CREDIT CARDS. THAT GOT HARDER FOR THEM. WE HAVE HEARD THE STORIES COMING OUT. HAS BEEN ENOUGH TO MOVE THE AGGREGATE NEEDLE OF CONSUMER SPENDING BECAUSE WE HAVE THE AI TRAIN BUILDING WEALTH AND PUSHING AND THE OTHER DIRECTION SO THE OVERALL RESILIENCE BUT IF WE DRILL DOWN FOR SOME TIME WE HAVE SEEN STRAINS OF CERTAIN CONSUMER GROUPS. >> DO YOU THINK THE TWO YEAR YIELD GETTING CLOSER AND CLOSER IS WAY OVER ITS SKIS IN TERMS OF HOW MUCH THE FED IS WILLING TO MOVE AND WHAT IT COULD MEAN FOR THE ECONOMY. CLAUDIA: TIME WILL TELL HER THE FED FUNDS FUTURES ARE PRETTY WOUND UP WITH WHAT LOOKS LIKE OUT OF THE ECONOMIC PROJECTIONS WHAT WE'VE HEARD FROM WILLIAMS, JEFFERSON MAYBE ONE MORE HIKE THIS YEAR. IT LOOKS TO BE THE CASE IT'S MORE THE DISCREPANCY WHEN WE LOOK OUT THE NEXT YEAR MARKETS ARE DEFINITELY PRICING IN MORE RATE HIKES. IT LOOKS LIKE THE FED IS THINKING RIGHT NOW. THIS IS GOING TO COME DOWN TO DOES THE CONFLICT IN THE MIDDLE EAST SEE MORE RESOLUTION. DO WE STAY AWAY FROM NEW TRADE WARS. THERE ARE QUESTIONS GOING INTO NEXT YEAR IT IS REALLY AN OPEN QUESTION OF WHO IS GOING TO BE RIGHT. WILL BE THE MARKETS WILL TAKE MORE FROM THE FED OR WILL WE BE AN OPTIMISTIC CASE WERE SOME OF THESE FACTORS START TO ROLL OFF AND THEN THE FED DOES NOT NEED TO DO AS MUCH BECAUSE IT DOES NOT NEED TO DO AS MUCH TO CONTAIN THE SECOND ROUND OF FACTS. WE ARE NOT GOING TO BE ON THE DATA TO DECIDE THAT UNTIL INTO EARLY NEXT YEAR. I DON'T THINK WE WILL GET A LOT OF RESOLUTION THIS YEAR. JONATHAN: TO CLAUDIA'S POINT, SPREADS BETWEEN THE TWO YEAR THE POLICY RATE AND POLICY IMPLIED BY THE DOTS INCREDIBLY WIDE INTO NEXT YEAR. LISA: A DELTA OF TWO TO THREE RATE HIKES BEING IMPLIED BY THE TWO YEAR YIELD VERSUS THE DOT PLOT. NEEL KASHKARI WAS ON THE PROGRAM TALKING ABOUT IN THE PAST HISTORICALLY HE TOWARDS HISTORIC ANALOG THE FED CORRECTED TO THE MARKETS SO ULTIMATELY THIS IS SOME PARANOIA BEHIND THAT FROM FED OFFICIALS. JONATHAN: THE TWO YOU'RE SETTLING IN AROUND 4.80. BACK END OF THE CURVE STEEPENING RIGHT NOW. THE MARKET ON BOTH TENS AND 30'S. UP NEXT WE CATCH UP WITH HENRIETTA TREYZ A VEDA PARTNERS, OLIVIA OF APOLLO AND MORGAN STANLEY. THE SECOND HOUR OF BLOOMBERG SURVEILLANCE AROUND THE CORNER. ♪ >> WHEN THE BOND MARKET SPEAKS, EVERYONE LISTENS. >> THINGS ARE GOING TO START TO MODERATE. >> GLOBAL GROWTH HAS BEEN INCREDIBLY RESILIENT. >> IT IS A GROWING ECONOMY. >> THIS IS BLOOMBERG SURVEILLANCE WITH JONATHAN FERRO, LISA ABRAMOWICZ AND ANNMARIE HORDERN. JONATHAN: GOOD MORNING GOOD MORNING FOR AUDIENCE WORLDWIDE THE SECOND HOUR BLOOMBERG SURVEILLANCE YOUR SCORES LOOK LIKE THIS. DECLINING PULLING BACK NEGATIVE ONE THIRD OF 1%. IN THE BOND MARKET YIELDS ARE HIGHER PARTICULARLY ON TENS AND 30'S. A 10 YEAR 5.32. 30 BASIS POINTS AWAY FROM A SIX HANDLE ON 30'S ALREADY THERE IN THE U.K.. THE 30 YEAR AT A SIX PERCENT YIELD OVER IN THE UNITED KINGDOM THIS MORNING. HIGHER BY DOUBLE DIGITS IN THE U.K.. HIGHER BY DOUBLE DIGITS IN FRANCE. SOME LONG AND SUPPLY MOVING TO 30'S TOMORROW. THE COMPETITION FOR CAPITAL HAS BEEN A THEME OF THE YEAR. ACROSS CORPORATIONS. LISA: YOU HAVE THE LIKES OF SPACEX SELLING 30 MILLION DOLLARS OF BONDS TO FINANCE SOME NVIDIA CHIPS THEY CAN PROVIDE SERVICES TO OTHERS. YOU HAVE THE U.S. SELLING $39 BILLION OF U.S. TREASURIES IN TENURE DENOMINATIONS AND THEY ARE ULTIMATELY IN DIRECT COMPETITION WITH EACH OTHER. ONE OF THE REASONS YOU CAN POINT TO THE PEOPLE ARE SAYING YIELDS GOING UP ISN'T A TERRIBLE THING. IT DOESN'T MEAN THE END OF THE WORLD. THERE IS A POSITIVE STORY ON THE OTHERS AT WHAT POINT DOES THAT STOP WORKING. AT WHAT POINT DOES THAT START AFFECTING THE FISCAL BACKDROP OF THE COUNTRIES THAT ARE NOT FACED A RECKONING. JONATHAN: IT STOPS WORKING THE MOMENT YOU WANT TO BUY A HOME AND DON'T HAVE ALL CASH. 30 YEAR UP. ANNMARIE: THIS IS NOT THE NUMBER YOU WANT TO SEE ACROSS YOUR BLOOMBERG TERMINAL IF YOU ARE THE PRESIDENT OF THE UNITED STATES WHO VOWED TO GET INTEREST RATES DOWN AND HAD AFFORDABILITY OF THE CENTER OF HIS PRESIDENCY AND FOR INDIVIDUALS BEING ABLE TO GO OUT AND AFFORD A HOME. NO ONE IS GOOD TO BE ABLE TO GET A MORTGAGE AT THESE RATES. AND IF YOU CAN RIGHT NOW YOU PROBABLY HAVE THE CASH TO DO SO. JONATHAN: THE FRENCH FEELING THE POLITICAL PRESSURE IF YOU LOOK AT THE SPREAD. LAST WEEK 150 PAID WE ARE NOT QUITE AT THEIR BUT WE ARE GETTING THERE. WE HAVE SEEN THE PROCESS AND THE RISE ACROSS FRANCE AND RAISE THE QUESTIONS HAVE YOU SEEN THIS NOW OUTSIDE OF RECESSION TIMES 5% DEFICITS AREN'T ENOUGH, THE SOCIAL COHESION. HOW MUCH DO YOU NEED TO SPEND AND THIS MARKET STARTING TO ASK FOR CUTS. LISA: THE PROTESTS HUNDREDS OF THOUSANDS OF PEOPLE MANY PLACES OVER FUNDING AND RESOURCES AT THE TIME YOU HAVE THIS DEFICIT AND THE ECONOMY IS GROWING. ONE OF THE REASONS PEOPLE DON'T HAVE FAITH WHICHEVER CANDIDATE WINS THE PRIME MINISTER ROLE IN FRANCE WILL BE ABLE TO REDUCE SOME OF THE DEFICIT. IT'S WHY PEOPLE LOOK TO THE ECB AND SAID WHEN WILL YOU STEP IN. ULTIMATELY WHAT WILL THE ECB GOVERNORS ALSO IN THE BANK OF FRANCE CAME OUT OVERNIGHT SAYING THE ECB IS OUT THERE TO DEAL WITH THE FISCAL PROBLEMS IN THE COUNTRY. SO THE CONDITIONS ARE NOT THAT TODAY FOR AN INTERVENTION OF THE ECB BUT TOMORROW WILL BE DIFFERENT ULTIMATELY THAT'S THE ORDER. ANNMARIE: IF YOU LOOK AT THE PICTURES OUT OF FRANCE IN THIS DOMESTIC BACKDROP THIS PLASTERED ACROSS A LOT OF NEWSPAPERS AND TELEVISION SCREENS IF YOU'RE AN INVESTOR CLEARLY YOU WANT MORE COMPENSATION ESPECIALLY WHEN THE ELECTION IS MORE THAN SIX MONTHS OUT. JONATHAN: INVESTORS WHO APPROACHED SPACEX ARE NOW FINANCING AS YOU DID EARLIER WITH A MULTIBILLION DOLLAR CHIP PURCHASE. WITH AN ARROW POINTING DOWN THE COMPANY WAS GOOD TO BUILD DATA CENTERS SOMEWHERE. SO MAYBE MORE CONFIDENCE ABOUT THAT. FRENCH 10 YEAR DEBT THIS MORNING. ANNMARIE: THINKING ABOUT THIS WHEN IT COMES TO CAPITAL RATES GOING HIGHER AND PEOPLE LIKE TO BET ON HIM AND THEY MADE IT SIMPLE. WE WILL BUILD DATA CENTERS NOT IN YOUR BACKYARDS. JONATHAN: COMING UP WE CATCH UP WITH STOCKS LOOKING FOR A FIFTH STRAIGHT DAY OF GAINS. SPACEX SYSTEM RAISE TO BY NVIDIA CHIPS. BOND AUCTIONS CONTINUES TO BUILD. STOCKS AT RECORD HIGHS AND YIELD STILL ELEVATED. WRITING HIGHER RATES NOT A THESIS BREAKER. THE RATE CYCLE THE LEADERSHIP WILL NARROW AND VOLATILITY WILL RISE. ALICIA GOOD MORNING. ARE YOU SEEING THAT SINCE OCTOBER IS THAT THE STORY WE ARE STARTING TO SEE. >> WE'VE BEEN SEEING THAT SINCE JACKSON HOLE WHEN WARSH BECAME UNAPOLOGETICALLY HAWKISH STARTING TO SEE THE SMALL CAPS UNDERPERFORM, OF THE MAG 7 GOT THEIR FOOT IN WITH A FLOOR UNDER THOSE CHARTS. AND THE STOCKS THAT HAVE CARRIED THIS MARKET REALLY FOR 15 YEARS CONTINUE TO GET THEIR MOJO BACK AFTER BEING MORIBUND. IF THAT'S WHAT WE'VE SEEN. WE SEE THE MUCH NARROW LEADERSHIP. IF YOU OWN THE INDEX YOU'RE FINE. THIS HAS BEEN THE THESIS. BY GROWTH BECAUSE IT'S WILL CAN GET YOU THROUGH ALL KINDS OF RUMBLINGS IN OTHER PARTS OF THE MARKET AND ASSET CLASSES. BUT YOU'VE SEEN THE SMALL CAPS ARE ABOUT 8% BELOW THE HIGH. YOU SEE WHAT'S HAPPENING IN THE SPREADS. YOU ARE SEEING THE BANK STOCKS NOT BECAUSE THEY AREN'T RESILIENT BECAUSE ON THE MARGIN IF YOU'RE HAVING THE YIELD CURVE EXPECTATIONS FOR HIGHER FED FUNDS RATE. THAT IS WHAT'S GOING TO PUT PRESSURE ON THAT AREA AS WELL. YOU SEE WITH CYCLICALS BECAUSE ULTIMATELY THEY BORROW SO THE MARGINAL COST IS HIGHER. JONATHAN: THE DOUBT IS OUT THERE PEOPLE WILL SPEAK TO THE DETERIORATION AND SAY THIS CAN'T CONTINUE. YOU SEE IT DIFFERENTLY? ALICIA: IT CONTINUED FOR YEARS. IF YOU THINK ABOUT THE MARKET IN COMING OUT OF SILICON VALLEY THE CRISIS IN SILICON VALLEY WHAT LED THIS SPRING ESSENTIALLY 10 STOCKS LED THIS AND THERE WAS HANDWRINGING THIS CAN'T CONTINUE BUT IT DID. IT CONTINUED AS LONG AS WE HIT MANUFACTURING RECOVERY IN THE U.S. AND THEN WE HAD A BROADENING OUT OF WHAT'S HAPPENING IN EQUITIES. LET'S TALK OF THE BROADENING OUT TRADE WE TALKED ABOUT FOR THE LAST YEAR OR SO. YES WE HAD A BROADENING OUT ON THE OTHER HAND THE INDEX DIDN'T REALLY ROCKET HIGHER BECAUSE THE CAPITAL CAME FROM THE TOP OF THE MARKET. SO IT DEPENDS ON WHERE YOU ARE INVESTED WHETHER YOU THINK THIS IS A GREAT THING OR A TRAGIC THING. WE HAPPEN TO THINK IT'S A GREAT THING BECAUSE ULTIMATELY YOU'RE KEEPING THE TECHNICAL SPINE ON THE S&P AND ULTIMATELY THAT DOES MATTER FOR TRADERS. LISA: HAVE THE BROKEN DOWN THE CORRELATION THE BOND YIELDS HAVE TO TORPEDO SOME OF THE RETURNS IN STOCKS. ALICIA: THE CORRELATION HAS BEEN BROKEN SINCE 2023 WHEN WE CAME FROM A ZERO RATE WORLD. THE RATE RISING ENVIRONMENT WHICH IS WHAT WE WERE IN FIRST FOR BONDS TO BE THE OFFSET TO STOCK VOLATILITY. SO YOU COULD HAVE IT ON THE MARGIN ESSENTIALLY IF YOU'RE LOOKING FOR CAPITAL RETURN AND YOU'RE LOOKING FOR TO GO OUT LONGER IN DURATION. WE ARE HAVING THIS CONVERSATION EVERYWHERE. YOU HAVE TO BET THAT THE FED IS GOING TO STOP THE HIKING CYCLE AND HAVE TO CUT AT SOME POINT. THAT'S WHAT YOU ARE BETTING ON. A MORE NEGATIVE STORY TO GO OUT FOR THE DURATION HERE. SHORT-TERM TO INTERMEDIATE FOR OUR CLIENTS IT'S BEEN A GREAT PLACE TO BE AND A SAFER PLACE TO BE. ULTIMATELY THE COMPETITION FOR CAPITAL THE BOOM WE ARE IN, NOMINAL GROWTH AT SIX POINT 3% IT'S NOT A PLACE WHERE YOU WANT TO EXPERIMENT GOING ALL THE WAY ON DURATION. THERE IS PRESSURE ON THE LONG END. LISA: AT WHAT POINT DO BONDS PRESENTED COMPETITION TO STOCKS. ALICIA: WE COULD SEE YIELDS GOING TO FIVE AND A HALF PERCENT HERE. AS PART OF THE NORMALIZATION CYCLE IN AN ECONOMY GROWING TWO AND A HALF PERCENT WITH TWO AND A HALF TO 3% WITH INFLATION AT 3% THAT FEELS ABOUT RIGHT. AND AT THAT POINT IT BECOMES COMPETITION. ON THE OTHER HAND THE CONVERSATION WE'VE HAD THE EASE WITH WHICH THESE LARGER COMPANIES CAN BORROW SUGGESTS THAT INVESTORS REALLY FEEL MORE COMFORTABLE GIVING CAPITAL TO SOME OF THESE HYPERSCALERS AND CASH FLOW MACHINES WITH VISIONS OF WHERE THE BUSINESS IS GOING PERHAPS THEN TO THE SOVEREIGNS OUT THERE. THAT IS THE COMPETITION FOR CAPITAL. ANNMARIE: YOU SEE RISK WITH THE MIDTERM ELECTIONS, EXPLAIN. ALICIA: IT'S THE RAPIDITY OF THE AI BUILD OUT IF THE CAPEX SPEND. THAT IS FUNDING THE S&P SO IT'S LIKE GOODNESS CIRCLE IT'S A GLORIOUS CIRCLE. HOW DO YOU BREAK THAT. YOU BREAK THAT IN A COUPLE OF WAYS. NO ROI ON THE SPENDING BUT IT LOOKS LIKE THEY ARE STARTING TO BE OUR ALLY WHICH WE HAVE A LEG HIGHER IN THE TECH STOCKS STARTING IN AUGUST WITH THE QUARTERLY EARNINGS SEASON. THAT LOOKS TO BE OK. WITH STOCKS IT'S THE SLOWDOWN IN THE DATA CENTER BUILDOUT. AND THAT'S POLITICAL ACROSS THE SPECTRUM. I THINK IT IS LESS WHETHER CONGRESS FLIPS AND MORE WITH THE GOVERNOR'S RACES WHERE YOU SEE KENNEDY TEXAS, OF THE STATES YOU WOULDN'T EXPECT TO FLIP. IF THOSE FLIP THAN RUNNING ON SLOWING DOWN THE DATA CENTER BUILDOUT WILL BE AN ISSUE IN 2028 AND THAT'S REALLY WHERE YOU CAN HAVE A RUMBLING IN THE MARKETS. THE MARKETS NOT PRICING IN YET. IT IS A CONCERN, THAT'S REALLY THE ISSUE. ANNMARIE: DO YOU THAT COULD POTENTIALLY BE HEALTHY FOR THE TRADE. ALICIA: WE JUST HAD A CONVERSATION YESTERDAY ABOUT THIS. THE WEIRD THING IS IS THAT IF YOU SLOW IT DOWN A LITTLE BIT YOU PREVENT THE CONSUMERS IN A BUBBLE. IT BECOMES A LITTLE BIT HARDER TO RAISE THE CAPITAL THERE MORE CONCERN OVER IT SO IF YOU SLOW IT DOWN A LITTLE BIT, THEN IT HELPS THE LONGEVITY OF THE TRADE AND YOU DON'T GET THIS BUBBLICIOUS FEELING IN MARKETS WHERE THE BOND MARKET. THAT'S NOT NECESSARILY A BAD THING. IT WILL AFFECT THE EARNINGS GROWTH AND THAT WE HAVE TO FOCUS ON. WHAT DOES THAT LOOK LIKE, TO US TO LOOK LIKE A CORRECTION WHICH WOULD BE EMINENTLY VIABLE BECAUSE WE DON'T SEE A RECESSION. JONATHAN: GOOD TO SEE YOU. EQUITIES AT ALL-TIME HIGHS. I CAN'T SAY IT'S A LOVED BULL MARKET. A LOT OF PEOPLE HAVE MISSED OUT ON THIS WORRIED ABOUT WHAT WAS HAPPENING ELSEWHERE. ANNMARIE: ULTIMATELY IT'S UNDERSTANDABLE WHEN YOU LOOK AT SOME OF THE DISPERSION. SOME OF THE ALL THE KNOW WHAT'S INTERESTING PEOPLE ARE BEHIND AT HOW MANY ASSET ALLOCATORS WITH THE BENCHMARKS AND A RACING OUT TO CATCH UP. LOOKING AT EVERY POCKET TO TRY AND GET SOMETHING BIGGER. JONATHAN: ONE OF THE BIGGEST BANK FAILURES. POP QUIZ. THERE'S A GOOD ONE AS PEOPLE AT THE FED DID THE MONTH AFTER JUST ASK WHAT THEY DID AND THEY WILL BE LIKE INTERESTING QUESTIONS. YOU CAN GET THINGS REALLY WRONG IN MARKETS SOMETIMES. BAD THINGS CAN HAPPEN IN THE STOCK MARKET CAN BE OK. LISA: ULTIMATELY THIS SORT OF DIFFICULT BACKDROP IN JUXTAPOSITION. JONATHAN: EQUITY FUTURES DECLINED BY ONE THIRD OF 1%. LET'S GIVE AN UPDATE ON NEWS WORLDWIDE. VONNIE: IRAN SAYS IT WILL SOON OPEN LEGAL ROUTES AND REITERATES THE STRAIGHT WILL STAY CLOSED UNTIL ITS DEMANDS ARE MET. MARITIME TRADE OPERATIONS WERE 49 SHIPS HAVE BEEN ATTACKED SO FAR THIS MONTH. THAT'S HALF THE TOTAL FOR ALL OF SEPTEMBER WITH THE STRAIGHT AND THE PERSIAN GULF COMBINED. U.S. MORTGAGE RATES JUMPING FOR SEVENTH STRAIGHT WEEK TO THEIR HIGHEST IN NEARLY THREE YEARS. THE CONTRACT ON 30 YEAR FIXED MORTGAGE IS 7.49%. THAT'S UP ABOUT HALF A PERCENTAGE POINT ACROSS THREE WEEKS MARKING THE FASTEST INCREASE SINCE EARLY 2023. PORSCHE EXPLAINED INCREASE PRICES FOR ITS TOP AND SPORTS CARS BY AN AVERAGE OF 20%. THE COMPANY OUTLINING A FRESH STRATEGY TO SELL FEWER HIGHER END CARS WITH SPECIAL FEATURES TO TRY AND DRIVE RETURNS. PORSCHE IS ADDING A NEW MODEL THAT WOULD SIT ABOVE IT'S A FLAGSHIP 9/11 LINEUP. THAT IS YOUR BLOOMBERG BRIEF. JONATHAN: GIVE PEOPLE WHAT THEY WANT. A FRIEND OF MINE SENT ME A PICTURE IT WAS A VIDEO OF LEWIS HAMILTON LOOKING AT A FERRARI F 40 HE'S RENOVATING RIGHT NOW. AND THE HUNGER THAT PEOPLE HAVE TO GO BACK TO THAT ERA OF AUTOMOBILE MANUFACTURING, THAT'S WHAT PEOPLE WANT. I DON'T KNOW ABOUT THE MASS MARKET BUT THE SPORTS CAR MARKET IT SO OBVIOUS. LONGTIME VIEWERS HATE WHAT F1 IS BECOME AND THEY WANT TO GO BACK TO V-10 SPREAD THE ROLE OF THE CAR WITHOUT THE BATTERY PACK AND THE ELECTRICITY INVOLVED IN ALL OF THIS. THE CHINESE MANUFACTURERS RIGHT NOW GET AWAY FROM THE TECH AND THE BATTERIES AND AWAY FROM THE SCREENS. GO BACK TO THE BUTTONS, GO BACK TO THE MANUAL GEAR SHIFT WEST A FEW ON THE CAR. THE SOUND OF A ROARING ENGINE. EUROPEANS CAN CHANGE THE BRAKES THEY CAN MAKE THIS HAPPEN QUICKLY AND YOU CAN HAVE THESE LEGACY MANUFACTURERS THE FERRARIS THE PORSCHES PICK YOUR NAME OR COMPANY HAVE A VERY GOOD SHELF LIFE. MAKING TONS OF MONEY. THE CHINESE WON'T BE ABLE TO TOUCH IT WHEN THEY GET ANYWHERE NEAR TO WHERE THEY ARE. LISA: CAN YOU IMAGINE IF THEY JUST FOCUS ON PANELS ESPECIALLY IN JUXTAPOSITION WHAT IF THEY JUST HAD THE MOST BEAUTIFUL AND SATISFYING HANDLE THAT ACTUALLY WORKED. ANNMARIE: IF YOU'RE GOING TO BE SPENDING THE MONEY ON A PORSCHE JUST BY A FERRARI. JONATHAN: WHY SACRIFICE THE HERITAGE OF EUROPEAN AUTOMOBILE MANUFACTURING TO COMPETE WITH THE CHINESE ON MAKING BATTERIES. WHY ARE EUROPEANS DOING THIS. IT'S SUICIDE. ANNMARIE: THEY LOVE THEIR CAR BUT THEY DID NOT UNDERSTAND THE FERRARI REBRAND. JONATHAN: THAT'S THE LATEST THIS MORNING. UP NEXT ON THE PROGRAM, AI SAFETY. >> IT'S ALMOST LIKE THE CONSTITUTION AND AWAY. >> WE WANT TO GIVE THE AMERICAN PEOPLE AND OUR CUSTOMERS CONFIDENCE THAT THE TECHNOLOGY WORKS IN THE WAY WE INTENDED. WHOEVER WINS AI WINS. I THINK THE TECHNOLOGY IS VERY REAL RISKS. JONATHAN: WE CATCH UP WITH HENRIETTA TREYZ FROM VEDA PARTNERS. GOOD MORNING. ♪ JONATHAN: COMING UP LATER, FED MINUTES AND A LITTLE BIT LATER AS WELL 1:00 P.M. EASTERN TIME, BOND AUCTIONS AND SUPPLY 10 YEAR TREASURIES COMING TO MARKET. FUTURES DECLINING BY ONE THIRD ON THE S&P AND YIELDS RISING IN THE LONG. TENDS UP BY FIVE, A UP BY SIX. 6% IN THE U.K. ON A 30 YEAR AND THE PRESSURE CONTINUES TO BUILD IN FRANCE. THE DEBT SITUATION AND SQUEEZE GETTING WORSE. LISA: AND THE LACK OF AN UNDERSTANDING OF HOW THE POLITICAL CLASS WILL REMEDY ALSO ADDING TO THE SALAFI ARE SEEING IN THE LONG END WHAT WILL THE BACKSTOP BE BECAUSE RIGHT NOW WE ARE HEARING FROM THE ECB. AS OF NOW THEY ARE NOT PART OF THAT SOLUTION. WHETHER THAT CHANGES REMAINS TO BE SEEN. JONATHAN: UP 16 ON THE SESSION. A FRENCH TENURE THIS MORNING ABOUT 140. GOT A LITTLE BIT BETTER FOR A HEARTBEAT NOW ARE BACK TO WHERE WE WERE BEFORE. ECB IS NOT STEPPING IN. CAN THE FRENCH GOVERNMENT STEP IN. LISA: MARINE LE PEN HAS TALKED ABOUT REDUCING THE BUDGET DEFICIT BUT ALSO TALKED ABOUT THE BANK OF FRANCE AND ECB LOWERING BENCHMARK RATES WHICH IS VERY DIFFICULT. HER OPPONENT HAS TALKED ABOUT SIMPLY ERADICATING 14% TO 16% OF FRANCE'S DEBT WITH RESPECT TO FORGIVENESS PLANS FROM THE ECB AND THE BANK OF FRANCE. ALL OF THESE NOT NECESSARILY LANDING WITH ANY KIND OF HEFT IN MARKETS. JONATHAN: MORTGAGE RATE IN AMERICA WHEN TWO PEOPLE HAVE DOUBTS THE COMPETITION FOR CAPITAL IN AI IS HELPING THEM PUSH YIELDS HIGHER AND ULTIMATELY LEAD TO MORTGAGE RATES HITTING SEVEN POINTS OF 5%. YOU THOUGHT OPPOSITION TO DATA CENTERS WOULD BAD IT COULD GET A WHOLE LOT WORSE. PROMOTING AI SAFETY. >> IT'S ALMOST LIKE CONSTITUTION IN A WAY. IN THE BIGGEST PEOPLE IN THE WORLD SIGNED THAT AND I SIGNED IT AS PRESIDENT. >> WE WANT TO GIVE THE AMERICAN PEOPLE AND OUR CUSTOMERS CONFIDENCE THAT THE TECHNOLOGY WORKS IN THE WAY WE INTEND IT. WHOEVER WINS AI WINS. I THINK THE TECHNOLOGY IS VERY REAL RISKS. JONATHAN: THE AI DATA CENTER BUILDOUT AND CONCERNS OVER TECH WEIGHING ON CONCERNS. 79% OF VOTERS SAY PRIORITIZING SAFETY IS BETTER -- IS MORE THAN MAINTAINING AN EDGE. TYLER KENDALL HAS MORE. TYLER: THIS IS THE TENSION CANDIDATES ARE GRAPPLING WITH AS BOTH SIDES SEEM TO BALANCE THE NEED TO SUSTAIN THE U.S. COMPETITIVE EDGE BUT ALSO ADDRESS SAFEGUARDS VOTERS ARE DEMANDING ESPECIALLY AS WITHIN THE LAST WEEK WE SAW THE WHITE HOUSE THE IDEA THAT AI NAMES WILL BE AT THE CENTER OF POLICING THEIR TECHNOLOGY AND NOT THE U.S. GOVERNMENT. LAWMAKERS LEFT WASHINGTON WITHOUT ADVANCING ANY SUCH LEGISLATION ON THE ISSUE. THAT'S WHY POINTED TO ANOTHER NEW POLL AT THIS MORNING FROM REUTERS AND IPSOS WHICH FINDS MOST U.S. VOTERS FEEL THE CONGRESS AND THE WHITE HOUSE IS NOT TAKING THIS SERIOUSLY ENOUGH. VOTERS IN MANY STATES WILL BE ABLE TO VOTE ON SOME TANGIBLE POLICY MAY BE NOT RELATED TO THE FUTURE OF THE TECHNOLOGY ITSELF BUT DEFINITELY RELATED TO THE BACKGROUND TO SUSTAIN IT. 35 DATA CENTER NATIONS REFERENDUMS ON FULL BANDS. I DO HAVE TO SAY I CAUGHT UP WITH THE DEPUTY CHIEF OF STAFF AT THE EPA WHO RUNS A LARGE PART OF THE DATA CENTER POLICIES TELLING ME THE BUILDOUT IS HAPPENING WHETHER IT HAPPENS IN ONE COMMUNITY OR ANOTHER IT WILL OCCUR. JONATHAN: HERE IN NEW YORK HENRIETTA TREYZ OF VEDA PARTNERS HAS THIS TO SAY IT'S ONLY A MATTER OF TIME BEFORE WASHINGTON STARTS TO CONSIDER THE MORE IMPORTANT QUESTION AROUND AI. HENRIETTA JOINS US FOR MORE. THAT DOESN'T APPEAR TO BE ON THE RADAR AND THE MIDTERMS. DO YOU SEE IT. HENRIETTA: WE ARE GOING TO BE MORE CONCERNED WITH THE FEDERAL GAS TAX BUT I'M TRY TO LOOK AHEAD FOR CLIENTS AND THERE ARE SOME OBVIOUS QUESTIONS ABOUT REGULATING AI. BUT I WOULD ENCOURAGE YOU TO FOCUS ON THE COMMITTEES THAT WILL GET THE JOB DONE WHICH IS SENATE FINANCE AND HOUSE WAYS AND MEANS COMMITTEE RON WYDEN WOULD BE THE CHAIRMAN OF THE COMMITTEE IF DEMOCRATS WIN HE ALREADY HAS A PLAN THAT EFFECTIVELY IS ROLLING BACK THE ONE BIG BEAUTIFUL BILL ON RESEARCH AND EXPERIMENTATION, ON BONUS DEPRECIATION ALL OF THESE COMPONENTS WE SAW THEIR GIVING TAX PREFERENCES TO THESE INDUSTRIES THAT AMERICAN VOTERS DO NOT LIKE AND THEY DON'T KNOW WHY THEY ARE GETTING BASICALLY FEDERAL TAX DOLLARS TO BUILD THESE DATA CENTERS THAT THEY DO NOT WANT IN THEIR BACKYARDS. IF YOU ARE LOOKING AT AI REGULATION IT IS SUCH AN UNWIELDY LITANY OF THINGS WE NEED TO ADDRESS I FIND COMFORT IN THE TAX CODE SO I GO TO SENATE FINANCE AND WAYS AND MEANS. ANNMARIE: WHY TAX IT WHEN YOU CAN TAKE AN EQUITY STAKE. HENRIETTA: HOW MUCH ARE YOU COMFORTABLE THE FEDERAL GOVERNMENT TAKING IN AI IN YOUR COMPANY IF YOU ARE METAL OR ANY OF THE OTHER COMPANIES. IT IS INTERESTING IF THEY ARE GOING TO SAY AT BRIDGEWATER IT'S 18% DISPLACEMENT OF THE HUMAN WORKFORCE WE NEED $785 BILLION. DO WE WANT TO FIND SOME MONEY FOR THAT IN THE TAX CODE TO OFFSET THOSE OR TAKE AN EQUITY STAKE. IT'S REALLY ABOUT HOW THE INDUSTRY WILL BE WITH THIS IN AN ADMINISTRATION OR WHATEVER ADMINISTRATION IS NEXT WHETHER IT'S JD VANCE OR A DEMOCRAT OR WHAT. ANNMARIE: JD VANCE HAS SOME INTERESTING VIEWS ON AI THAT SOMETIMES MATCHES UP WITH INDIVIDUALS ON THE LEFT AS WELL. DO YOU SEE THIS PUSH FOR WHETHER YOU'RE TAXING WERE TAKING EQUITY STAKE BASICALLY HOW THE U.S. GOVERNMENT CAN GET A PIECE OF THIS. HENRIETTA: I THINK THEY ARE UNCLEAR ABOUT WHAT THEY CHOOSE TO DO. THE BILL I MENTIONED DOES NOT INCLUDE AN EQUITY STAKE COMPONENT BUT THE BERNIE SANDERS TO YOUR POINT HAS A 50% EQUITY STAKE THAT HE WANTS. AND THERE IS SOME REALLY EXCELLENT WHITE PAPERS ABOUT WHAT A 10% STAKE MIGHT LOOK LIKE. SO WE ARE GOING THROUGH A LOT OF CHANGES POLITICALLY IN TERMS OF POPULISM BEING ON THE RISE. WHAT IS IT ARE WE GOING AFTER? THIS IS NOT LAISSEZ-FAIRE CAPITALISM. LISA: POTENTIALLY TAXING SOME OF THESE COMPANIES LEAD TO A BETTER DEFICIT REDUCTION POLICY OR WHAT IT ULTIMATELY JUST FUEL ADDITIONAL SPENDING PLANS. HENRIETTA: ONE THING I CONCENTRATE ON IS HOW BIG IS THE PROBLEM AND CAN AI FIX IT. WE TALK ABOUT AI FROM THE SECRETARY BESSENT PERSPECTIVE AND SAY WILL FIX GDP BUT I NEED MONEY THEY CAN PAY DOWN THE DEFICIT, I NEED CONGRESS THAT CAN SPEND MONEY IF WE NEED IT. I NEED CONGRESS TO BE WRITING THIS LEGISLATION. THAT'S MORE THAN JUST EQUITY AND GROWTH. JONATHAN: CAPITAL GAINS CORPORATE TAXES IF IT HITS THE EMPLOYMENT MARKET THROUGH NAFTA CUT TAXES ON EMPLOYMENT. THE FEW PEOPLE THAT WILL HAVE JOBS YOU NEED TO CUT TAXES ON THAT OR DO SOMETHING WITH CAPITAL GAINS. YOUR INCOME. ISN'T THAT THE ULTIMATE SHIFT HERE ISN'T THAT THE SOLUTION WE WILL SEE ON THE HORIZON. HENRIETTA: THERE'S A REASONABLE ARGUMENT. A BILLIONAIRES TAX. POLLS VERY WELL. 70 SOMETHING PERCENT OF THE POPULATION CAP GAINS CARRIED INTEREST CORPORATE TAX RATES. BUT REALLY YOU ARE TALKING ABOUT DISPLACING A HUGE PORTION OF THE WORKFORCE. WE'LL HAVE TO FIND A SOLUTION OR TREASURIES WILL BE OUT POTENTIALLY TRILLIONS OF DOLLARS ANNUALLY. SO THERE IS A LOT TO DEVELOP AND REALLY DEPENDS ON WHAT YOU THINK AI WILL DO. IS IT GOING TO EXPLODE AND WE GET TO SIT ON AN ISLAND SOMEWHERE AND NOT WORK ANYMORE OR IS THERE GOING TO BE A MIX. JONATHAN: HENRIETTA TREYZ THERE OF VEDA PARTNERS. DOUBTS ABOUT WHETHER THAT IS THE CASE. TURN MANHATTAN INTO A LARGE DATA CENTER. WE'LL ALL GO SIT ON THE BEACH. LISA: THAT IS QUITE A PROSPECT. JONATHAN: COMING UP NEXT, SPACEX LOOKS TO RAISE $40 BILLION TO BUY NVIDIA CHIPS PLUS YOUR MORNING MOVERS. MICRON FALLING AS WORKERS IN TAIWAN VOTE TO STRIKE. ♪ JONATHAN: RECORD HIGH ON THE S&P 500 FOR THE FIRST TIME IN MONTHS. A BIT OF A PULLBACK THIS MORNING. NEGATIVE BY ABOUT ONE THIRD ON THE S&P. THE LOSSES BUILDING A LITTLE BIT THE LAST HOUR OR SO OFF THE BACK OF SOME OF THIS ACTION IN THE BOND MARKET. TENS OF FIVE BASIS POINTS. 30'S AT LEVELS WE HAVE NOT SEEN SINCE MARCH OF 2002. A 30 YEAR TREASURY OVER 6% IN THE U.K., 6%, THE HIGHEST LEVEL SINCE MARCH OF 1998. UP THIS MORNING BY DOUBLE DIGITS IN THE U.K. SAME STORY IN FRANCE. SPREADS WIDER. 140. LAST WEEK, 150. UP 17 BASIS POINTS NOW. 4.92% ON FRENCH TENS. LISA: EARLIER THIS SUMMER, YOU COULD HAVE TALKED ABOUT HOW RISING OIL PRICES WERE HELPING TO FUEL THOSE GAINS. RIGHT NOW, YOU ARE NOT SEEING THAT. IT REALLY IS THE COMPETITION FOR CAPITAL. WOULD YOU RATHER LEND MONEY TO THE FRENCH GOVERNMENT OR LET MONEY TO ELON MUSK SAYING TO THE MOON? ULTIMATELY, PEOPLE ARE SAYING TO THE MOON WORKS FOR ME AS THE AI BUILDOUT OUT A VISIONARIES ARE LOOKING TO RAISE MONEY. JONATHAN: YOU ARE LENDING MONEY TO THE FRENCH GOVERNMENT AND THE FRENCH PEOPLE WITH THE PROMISE THAT THEY WILL PAY IT BACK. THERE ARE RIOTS THAT SUGGEST THEY WANT TO SPEND MORE AND BORROW MORE. IF YOU ARE THE FRENCH GOVERNMENT COMMUNITY TO FIND A SOLUTION. WHAT WILL BE THE POPULAR SOLUTION? LISA: PEOPLE ARE LOOKING FOR WHAT THE BACKSTOP WILL BE. ULTIMATELY, THE ECB IS COMING OUT AS OF NOW AND SAYING IT IS NOT US. YOU ARE SEEING POLITICIANS COME OUT AND SAY WE WILL REDUCE THE DEFICIT. WHERE WILL THE POLITICAL WILL BE GIVEN THAT THERE ARE PROTESTS THAT HAVE TURNED VIOLENT AS A RESULT OF BUDGET CUTS TO THE SYSTEM? JONATHAN: THEY WANT TO BURN SCHOOLS AT THE SAME TIME. ANNMARIE: IT STARTED OUT PEACEFUL AND ENDED UP AS RIOTS. JONATHAN: CAN RECALL THEM WHAT THEY ARE? ANNMARIE: THEY ARE RIOTS. IT HAS MOVED BEYOND PARIS. JONATHAN: DEEPLY UNCOMFORTABLE SITUATION BUT YOU HAVE TO CALL THEM WHAT THEY ARE. THEY ARE NOT PROTESTS ANYMORE. THEY ARE RIOTS. DOES IT SCREAM PROTEST TO YOU? THAT IS NOT A PROTEST. IT IS A RIOT. LISA: THE WAY IT HAS BEEN REPORTED IS THERE ARE RIOTS GOING ON AT THE SAME TIME THAT THERE ARE PEACEFUL PROTESTS, ANY QUESTION IS HOW MUCH THIS IS DRIVEN BY INSIDE SOURCES VERSUS OUTSIDE AGITATORS. JONATHAN: TWO HOURS AWAY FROM THE CASH OPEN. OPENING BELL JUST AROUND THE CORNER. LET'S GET YOU SOME SINGLE NAMES, SOME MORNING MOVERS. YAHAIRA: CHIP STOCKS ARE WEAKER ACROSS THE BOARD BUT MICRON SHARES FALLING ON REPORTS OF A POTENTIAL STRIKE AT ONE OF THE CHIP PLANTS IN TAIWAN. NEARLY 90% OF THE UNION MEMBERS VOTED IN FAVOR OF WALKING OFF THE JOB, DEMANDING A BIGGER CUT OF THEIR AI DRIVEN PROFITS. NO STRIKE DATE HAS BEEN SET JUST YET, BUT AS YOU CAN IMAGINE, WITH MEMORY SUPPLIES SO SHORT, THIS CAN EXACERBATE A BIGGER ISSUE IN THE MARKETS. MEANWHILE, WE ARE SEEING INTEL SHARES TRYING TO HOLD ONTO GAINS. TSMC SHARES ARE LOWER BY NEARLY 2% AFTER ELON MUSK CLARIFIED THEIR ROLE IN ITS TERAFAB TEXAS CHIPMAKING PROJECT. EARLIER THIS WEEK, MUSK SAID HE WAS IN TALKS WITH TSMC, RAISING QUESTIONS ABOUT THE ROLE INTEL WILL PLAY. NOW HE IS SAYING HIS OWN COMPANIES WILL BUILD AND OPERATE THE FACILITY WITH INTEL HELPING TO DEVELOP THE TECHNOLOGY. AS FOR TSMC, THEY CAN RELEASE PARTS OF THE FACILITY BUT NO MORE THAN THAT. WE END ON APPLE. THEY ARE BUCKING THE BROADER WEAKNESS WE ARE SEEING AMONG THE MAG 7. WE REPORT THAT APPLE IS TEAMING UP WITH A COMPANY ON HOME DEVICES ON THINGS LIKE SMART DOORBELLS, LOCKS, THERMOSTATS. IT IS PART OF A BIGGER PUSH INTO THE SMART CONNECTED HOME MARKET, BUT THIS IS APPLE TRYING TO PLAY CATCH-UP BECAUSE AMAZON AND GOOGLE HAVE SPENT YEARS BUILDING OUT THERE SMART HOME BUSINESSES. JONATHAN: THANK YOU. MORE IN OUR NEXT HOUR. THE LATEST FROM HSBC, PLANNING SWEEPING JOB CUTS ACROSS THE U.K. WAS BUSINESS. THE BANK PLANS TO ELIMINATE NEARLY HALF OF ITS MANAGEMENT AND SPECIALIST POSITIONS WHILE REDUCING THE FINANCIAL ADVISOR HEADCOUNT IN A BROAD AI PUSH. ELSEWHERE, JAMIE DIMON WEIGHING IN OTHER DATA CENTER DEBATE. JAMIE: DATA CENTERS, BUILD THEM WHERE THEY ARE WANTED. HALF OF THE NEW ONES ARE IN TEXAS AND VIRGINIA. PEOPLE DON'T WANT THEM THERE. THERE ARE A LOT OF STATES THAT HAVE ACCESS TO POWER AND WOULD TAKE IT. ANY BIG COMPANY HAS TO BE A GOOD COMMUNITY CITIZEN. JONATHAN: POLITICAL OPPOSITION TO THE BUILDOUT DELAYING PROJECTS SO FAR THIS YEAR. ANOTHER, SPACEX SEEKING TO BUY NVIDIA CHIPS, SETTING THE STAGE FOR WHAT COULD BE ONE OF THE BIGGEST DEBT FINANCING DEALS OF THE AI BUILDOUT. IT IS EXPECTED TO CLOSE IN THE NEXT YEAR. LISA: $3 BILLION OF INVESTMENT GRADE THAT AND 0 BILLION OF BANK LOAN DEBT AND SHARES FALLING IN THE PREMARKET. NONETHELESS, PEOPLE ARE SAYING THEY WILL BE ABLE TO RAISE IT AND IT WILL FUEL SOME MONETIZATION BECAUSE SPACEX WILL HAVE THE CAPACITY TO LEND SOME SERVICES OUT TO THE MYRIAD OF PLAYERS, FRONTIER MODELS AMONG THEM. JONATHAN: WE MENTIONED APOLLO FUNDING THE AI BUILDOUT, DEPLOYING $20 BILLION IN THE THIRD QUARTER ALONE. OVERVIEW WRITING , WE ARE AND ALL THE ABOVE INVESTMENT CYCLE ACROSS ENERGY, INFRASTRUCTURE, AND BROADER INDUSTRIAL ECONOMY. PAST INVESTMENT CYCLES TELL US THAT UNDERINVESTMENT IS AN UNDERAPPRECIATED RISK. OLIVIA JOINS US FOR MORE. OLIVIA: THANKS FOR HAVING ME BACK. JONATHAN: I AM SURE YOU DON'T WANT TO CONFIRM OR DENY THE NEWS AROUND A CERTAIN SPACEX COMPANY, BUT THE AMOUNT OF MONEY THE COMPANIES ARE RAISING. OLIVIA: LOOK AT WHAT WE HAVE DONE THE LAST QUARTER. YOU PUT IN OUR $20 BILLION NUMBER. THAT IS PARTNERING WITH COMPANIES. IT HAS BEEN INVESTING IN BUSINESSES LIKE A GAS PROCESSING PLATFORM IN WESTERN CANADA. IT HAS BECOME A LARGE PART OF OUR BUSINESS. THERE IS THE AI STORY AND THE BEHIND AI STORY. THERE IS THE POWER, THE GRID, THE GAS DEMAND. JONATHAN: WE CAN BRING UP THE CODE AGAIN. PAST INVESTMENT CYCLES. CAN YOU FLESH THAT OUT FOR US MORE? OLIVIA: YOU LOOK AT PAST INVESTMENT CYCLES AND I THINK ABOUT WHAT HAPPENED 2003 TO 2008 WHERE WE WERE COMING OUT OF THE 1990'S AND UNDERINVESTMENT IN OIL AND GAS INFRASTRUCTURE AND DRILLING. ALL OF A SUDDEN WE HAD THIS DEMAND SHOCK AND DID NOT KNOW WHAT TO DO WITH IT. YOU ARE SEEING SOME REAL PARALLELS TO THAT TODAY. IT IS SOMETHING WE ARE FOCUSED ON NOW. LISA: AT THE SAME TIME, THERE IS WORRY THAT CAPACITY MAY NOT BE THE RIGHT CAPACITY OR IN THE RIGHT PLACES AS IT WILL BE NEEDED IN 10 YEARS. HOW DIFFICULT IS IT TO ASCERTAIN WHERE TO PUT SOME OF THESE, HOW TO GENERATE THE ENERGY, HOW TO CREATE SOMETHING THAT IS GOING TO BE FIT FOR A WORLD THAT WILL CHANGE A LOT THE NEXT 10 YEARS? OLIVIA: ABSOLUTELY. WE HAVE BEEN FOCUSING ON A FEW THINGS. ONE AROUND THE RESHORING THEME, MAKING SURE THERE IS DOMESTIC CAPACITY TO BUILD OUT WHAT WE NEED TO BUILD OUT. AND WE FOCUS ON THE GRID. THE GRID IS ONE OF THE UNDERAPPRECIATED RISKS WE LOOK AT IN THE AI POWER BUILDOUT TODAY. NATURAL GAS, MAKING SURE WE HAVE THE RIGHT NATURAL GAS INFRASTRUCTURE. WE WILL BE USING NATURAL GAS FOR A LONG TIME. THIS IS NOT JUST A TRANSITION FEW ABOUT SOMETHING MORE. MAKING SURE WE HAVE THE INFRASTRUCTURE AROUND IT. THERE ARE OTHER COMPONENTS. THERE IS RESILIENCY WITHIN THE GRID. THERE IS RESILIENCY WITHIN THE POWER SUPPLY. ALSO, MAKING SURE WE HAVE THE INVESTMENT SEEMS COVERED AS WELL. LISA: DOES IT CONCERN YOU FINANCING HAS GOTTEN INCREASINGLY CREATIVE AND THE DIFFERENT COUNTERPARTY RISK IS OBSCURE IN SOME CASES? OLIVIA: NO. I THINK CREATIVITY IS PART OF WHAT WE DO AT APOLLO, MAKING SURE WE HAVE BESPOKE SOLUTIONS FOR INVESTMENT-GRADE COMPANIES. I THINK YOU ARE SEEING A FLIGHT TO QUALITY, LOOKING AT BETTER NAMES, BETTER OPPORTUNITIES, PARTICULARLY IN AN ENVIRONMENT LIKE THIS. ANNMARIE: WHEN YOU LOOK AROUND THE WORLD AT ENERGY SECURITY, THE MIDDLE EAST, YOU ARE SEEING MORE AND MORE DEALS COME ONLINE FOR COMPANIES, FOR COUNTRIES TO MAKE SURE THAT IN THE FUTURE THEY HAVE SOMETHING LIKE SAUDI ARABIA HAD, AN EAST-WEST PIPELINE? OLIVIA: YES, THAT IS SOMETHING WE ARE THINKING THROUGH RIGHT NOW. I THINK WHAT WE ARE SEEING NOW IS THERE IS A PREMIUM FOR ENERGY SECURITY AND BEING ABLE TO INVEST IN AND AROUND THAT THEME. THE OTHER THING WE ARE SEEING IS THE COST OF MOVING THESE MOLECULES HAS GONE UP. IF YOU THINK ABOUT INSURANCE, SECURITY, AND THE FACT THAT VOTER HAVING TO TAKE LONGER ROUTES TO GET TO MARKET, WE SEE A CHANGE IN HOW WE THINK OF PRICES. ANNMARIE: IS THERE A PUSHBACK TO THE WORK YOU ARE DOING? MOST OF AMERICA DOES NOT THINK THIS ADMINISTRATION IS DOING ENOUGH TO TAKE ON AI CONCERNS. YOU ARE FUNDING EVERYTHING THAT BUILDS THAT OUT. OLIVIA: WE ARE INVESTING IN THE INDUSTRIAL RENAISSANCE AND RESHORING AND THE GRID AND POWER. THESE ARE ALL THINGS WE NEED NOT JUST FOR DATA AND AI BUT FOR BROADER WORK IN THE U.S. WHILE I DO THINK WE HAVE SEEN PUSHBACK IN SOME COMMUNITIES, WE LISTEN AND RESPOND TO THAT. WE WHAT TO MAKE SURE WE ARE PUTTING DATA CENTERS WHERE FOLKS WANT DATA CENTERS TO BE PUT, AND MAKING SURE IT IS PART OF A BROADER THEME AROUND HOW WE REALLY GROW THE ECONOMY. JONATHAN: IS THE RISK OF GETTING CAUGHT OFFSIDE WITH A CHANGE OF THE WIND? YOU TALK ABOUT THE RISK OF UNDER INVESTING. I LOOK BACK TO A CERTAIN PERIOD, PULLING DOWN FIBER, THE OTHER CAPACITY WAS A CONSEQUENCE OF UNDERAPPRECIATED TECHNOLOGICAL BREAKTHROUGHS AND THE EFFICIENCY GAINS WE MIGHT SEE. HOW DO YOU MAKE SURE YOU ARE NOT CAUGHT OUTSIDE WITH REGARDS TO TECHNOLOGICAL ESSENCE OF BREAKTHROUGHS WE MIGHT SEE IN THE NEXT SEVERAL YEARS? OLIVIA: WE ARE BEING CERTAIN ON OUR ASSUMPTIONS AND WE CONTINUE TO UNDERWRITE TECHNOLOGIES AND BRING ON THE WORK LIKE SOLAR AND BATTERIES. THESE ARE PROVEN, QUICK TO MARKET, EFFICIENTLY PRICED, AND BECOMING INCREASINGLY RELIANT WITH MORE BATTERY DEMAND, SO FOCUSING ON THINGS WE WANT TO KNOW. WE THINK THAT CONTINUE TO PAY OFF. LISA: AS AN INVESTOR, DO YOU SEE THIS RACE FOR CAPITAL AND INSENSITIVITY TO RATES AS A POSITIVE, THE ABILITY TO SAY WHILE YOU PAY US 10% YIELDS, 11%, 12% YIELDS, WE ARE GOOD, AND YOU WILL NOT GET A BETTER YIELD IN THE PREMARKET SO, HEY? OLIVIA: INFRASTRUCTURE IS A GREAT PLACE TO INVEST. AS WE THINK ABOUT THE TYPES OF ASSETS, IF YOU THINK ABOUT INFLATION PROTECTION, AS YOU THINK ABOUT THE ABILITY TO PASS THROUGH SOME OF THESE COSTS, THIS IS A FANTASTIC TIME FOR INFRASTRUCTURE MORE BROADLY. JONATHAN: 6% ON THE U.K. 30 YEAR THIS MORNING. SIX. OLIVIA: PEOPLE WOULD RATHER INVEST , AN 8% YIELD FOR INVESTMENT-GRADE DEBT IS SHORTER-TERM, 9% YIELDS. ALL OF A SUDDEN, PEOPLE GET EXCITED ABOUT THE OFFSET TO THE POTENTIAL RISKS. JONATHAN: THE DEAL APOLLO MAY OR MAY NOT BE WORKING ON. LISA: IF THIS COMPANY'S ARE TRULY RIGHT AND, WHAT IS TO STOP INVESTORS FROM TESTING THE LIMITS? JONATHAN: IS THERE A MOMENT WHERE THIS MARKET PUTS THE BRAKES ON THINGS? IS IT 100 BASIS POINTS? THESE ARE JUVENILE QUESTIONS ABOUT THINGS PEOPLE ARE THINKING ABOUT. HOW FAR AWAY IS IT? OLIVIA: WE TAKE THIS INTO ACCOUNT AND ARE LOOKING AT DEALS AND THINKING ABOUT WHAT IS THE RIGHT PRICING ON THEM. HOW DO WE THINK ABOUT A DEAL IN JUNE AND HAVE SPENT INCREMENTAL TIME ON, AND WHAT IS THE RIGHT PRICING FOR TODAY? IT IS SOMETHING EVERY SINGLE DAY WE ARE THINKING ABOUT. JONATHAN: CHANGING EVERY 24 HOURS. EQUITY FUTURES DECLINING ON THE S&P. ON THE NASDAQ, DOWN BY 0.8%. VONNIE QUINN HAS MORE. VONNIE: THANK YOU. VICE PRESIDENT JD VANCE SAYS IRAN MUST MAKE A MEANINGFUL REDUCTION IN ITS NUCLEAR ENRICHMENT CAPACITY TO MEET U.S. DEMANDS AND END THE WAR. VANCE SAYS THE U.S. WAS IN TALKS WITH THE IRANIAN PRESIDENT, FOREIGN MINISTER, ADDING IT IS NOT CLEAR HOW THEIR COUNTRY MAKES DECISIONS. JAGUAR PRESENTING THE FIRST MODEL OF THE NEW FULLY ELECTRIC LINEUP IN ITS EFFORT TO BRING NEW LIFE TO THE BRITISH BRAND. IT WAS SET DRIVERS BACK 72,000 AND OPENS EARLY NEXT YEAR AND WILL TARGET YOUNGER CUSTOMERS PARTICULARLY IN THE U.S. APPLE PUSHING INTO THE SMART HOME MARKET. SOURCES TELLING US THAT WE BREAK THE TECH GIANT DEVELOPED A DOORBELL, THERMOSTAT, AND OTHER ACCESSORIES IN AN UNUSUAL PARTNERSHIP WITH LG. THE DEVICE IS SET TO BE INTRODUCED OCTOBER 13. JONATHAN: THANK YOU. UP NEXT ON THE PROGRAM, GLOBAL RATES CLIMBING HIGHER. >> I DON'T THINK THE MARKET IS COMPLACENT WITH RESPECT TO THE MOVE UP IN RATES. >> I DON'T SEE A WAY FOR INTEREST, HIGHER INTEREST RATES TO LOWER INFLATION. >> AT SOME POINT, THE SOLUTION TO HIGHER RATES IS HIGHER RATES. JONATHAN: UP NEXT, A GUEST FROM MORGAN STANLEY. YOU ARE WATCHING BLOOMBERG TV. ♪ JONATHAN: STOCKS DOWN THIS MORNING. WE ARE DOWN BY 0.5% ON THE S&P. DOWN 0.8% ON THE NASDAQ. FIXED INCOME WORLDWIDE. TREASURIES, YIELDS HIGHER. UP 0.06 ON THE TENS. HIGHEST 30TH SINCE 1998 AND COUNTLESS MORNING, ON THE FRENCH 10. THAT OUR PROBLEMS IN THIS DEBT MARKET. GLOBAL RATES PUSHING HIGHER. >> I DON'T THINK THE MARKET IS COMPLACENT WITH RESPECT TO THE MOVE UP IN RATES. >> I DON'T SEE A WAY FOR HIGHER INTEREST RATES TO LOWER INFLATION. >> AT SOME POINT, THE SOLUTION TO HIGHER RATES IS HIGHER RATES. >> YOU GET A LITTLE STABILITY AND WE CAN AND THE INCREASE IN RATES. JONATHAN: U.S. TREASURY YIELDS CLIMBING. INVESTORS LOOKING AHEAD TO MORE SUPPLY. TENURE AUCTION TODAY. 30 YEAR BOND SALE TOMORROW. THE SHAPE OF THE CURVE IS INCREASINGLY BEING INFLUENCED BY TREASURY FUNDING DECISIONS ALONGSIDE FED POLICY. THE NOVEMBER REFUNDING MAY PROVE MORE IMPORTANT THAN THE OCTOBER FED MEETING. OUR GUEST HAS MORE. BREAK IT DOWN. WHAT DO YOU EXPECT TO SEE IN THE QRA? VISHAL: BASE CASE WOULD BE SUPPLY AND DEMAND IMBALANCE. I THINK WE SAW A VERY BRASH STATEMENT FROM THE SECRETARY. TAKING OUT 30% OF THE NET FLOAT OF THE 20 AND 30 YEAR, THE MARKET IS VERY CLEARLY VOCALIZING YOU NEED TO DO MORE NOT JUST FROM THE DEBT BALANCE STANDPOINT BUT FROM THE SUPPLY AND DEMAND. JONATHAN: I READ SOME WORK ON THIS YESTERDAY FROM BNP. TO FUND THAT, YOU HAVE TO ISSUE IN TBILLS AND INTRODUCE A NEW PROBLEM. ALMOST IMMEDIATELY INSTEAD OF OVERTIME. VISHAL: RIGHT AWAY. JONATHAN: GUESS WHAT I DO WITH THE LONG END. I SELL IT AGAIN. SOLVE ANYTHING? VISHAL: THIS IS EXACTLY WHAT A DEVELOPED MARKET WHEN IT DOES NOT PAY ATTENTION TO THE DEFICIT SITUATION AND TRIES TO GET THE AVERAGE MATURITY OF THE DEBT SLOWLY SHRINKING ON YOU BECAUSE INVESTORS WILL PUSH BACK AND WILL NOT GIVE YOU 30, 40, 50 YEAR DEBT ANYMORE AT THESE LEVELS SO WE WILL KEEP DEMANDING THAT UNLESS YOU START SHRINKING THE MATURITY LEVEL. LISA: RIGHT NOW, USING THERE ARE ANY SENSES THINGS ARE BECOMING UNTETHERED, THAT THE SELLOFF IS BECOMING A DOOM LOOP? VISHAL: I THINK I WOULD LOOK AT THAT CUTS THROUGH THE ENTIRE COMPANY. WHAT HAPPENS IN THE ECONOMY IS WHAT THE ARTICLES SAY TODAY WHERE THE TOP AND PRICE TRACK ISSUE THE DEBT AND THEY WILL BE ISSUING THE DEBT AND THE OTHER SIDE OF THE ECONOMY'S MORTGAGE RATES, FINANCING, SOVEREIGN SPREADS WIDENING, TRIPLE B TO DOUBLE B SPREADS WIDENING. STARTING TO SHOW THE BIFURCATION . LISA: JUST THINKING ABOUT WHAT OLIVIA FROM APOLLO WAS SAYING. IT IS A NEW PRICE DISCOVERY AND THEY DON'T HAVE A SENSE OF WHERE THINGS ARE. WE WILL HAVE AN EXERCISE IN PRICE DISCOVERY AT 1:00 P.M. EASTERN TODAY WITH 10 YEAR BONDS BEING AUCTIONED. HOW BIG OF A RISK EVENT IS IT FOR THIS MARKET TO SAY THE RATIO IS NOT AS GOOD AS PEOPLE THOUGHT WERE THE INDIRECTS FALL OUT OF THE EQUATION? VISHAL: SIGNIFICANT. I THINK WE ARE IN THE RED ZONE. WE POINT TO FRANCE BUT WE ARE IN THE RED ZONE HERE IN TERMS OF THE MARKET IS SCREAMING. YOU ARE TALKING FIVE AT THIS POINT ON THE 10 YEAR. 100 BASIS POINTS IN A DEVELOPED MARKET COUNTRY WITH $40 TRILLION TO GO. IT IS SIGNIFICANT. LISA: WHAT DOES RETZER MEAN? VISHAL: WE ARE DOING PRICE DISCOVERY EVERY TIME A SCHEDULED AUCTION COMES TO THE MARKET. THAT IS LITERALLY WHAT IT IS. DEVELOPED MARKET SHOULD NOT BE SUCCUMBING TO THIS WHERE YOU LOOK AT THE PRICE OF THAT EVERY TIME. NOW YOUR AVERAGE MATURITY IS SEVEN MONTHS. LET'S TAKE THE TECH OUT RIGHT NOW. A SIGNIFICANT PORTION OF THAT COMING DUE FOR REFINANCING ON MATURITY IN THE NEXT ONE AND A HALF YEARS. SO YOUR 7% TO 8% COUPONS WILL SEEP INTO THE ECONOMY. MORTGAGES ARE PUSHING BACK. JONATHAN: 5% ON 30'S. VISHAL: EXACTLY, BUT THERE IS A MECHANISM SO IT IS NOT SEEPING INTO THE ECONOMY BECAUSE THESE ARE FIXED-RATE MORTGAGES. ON THE DOUBLE B, SINGLE B PART OF THE ECONOMY THAT IS NOT AS PRICE INSENSITIVE. JONATHAN: AT LEAST HE SUPPLY FROM THE TREASURY IS PREDICABLE. I KNOW WHAT IS COMING AND WHEN AND WHAT AMOUNT. SPACEX, 30 BILLION OUT OF NOWHERE, HIGH-GRADE. VISHAL: THREE MONTHS TO DISCOVER WHAT PRICE THEY CAN CLEAR THAT. JONATHAN: YOU DON'T LIKE IG. BREAK IT DOWN. WHY? VISHAL: I THINK FROM OUR STANDPOINT THE FUNDAMENTALS ARE STILL STRONG. THESE COMPANIES CAN WITHSTAND THE ISSUES OF COST OF CAPITAL GOING HIGHER BY 100 TO 200 BASIS POINTS BECAUSE THESE COMPANIES HAVE DONE A FANTASTIC JOB THE LAST 10 YEARS TO GET THEM OUT OF CASH, LEAVING A LOT HAVE GONE THROUGH. THE COMPANY GOING FROM DOUBLE A TO SINGLE A IS NOT GIVING UP SO MUCH COST OF CAPITAL. THEY ARE HAPPY TO RAISE THE DEBT TO FUND THE COSTS ON THE OTHER SIDE. THE TECHNICALS ARE THE ISSUE WHERE THE SPREADS ON THESE BONDS, MEANING THE PREMIUM YOU ARE GETTING IS NOT COMMENSURATE TO THE PRICE DISCOVERY ISSUE YOU ARE GOING THROUGH. JONATHAN: THE HIGHER UP, THE MORE EXPOSED I AM IN TECHNICALS. VISHAL: ABSOLUTELY, YES. THE OTHER WAY TO THINK ABOUT IT, THE OVERALL INCOME YOU ARE GETTING FROM INVESTMENT GRADE, 90% OF THAT OR MORE IS COMING FROM INTEREST-RATE ISSUES WE ARE TALKING ABOUT FROM THE TREASURY SIDE AND THERE IS ONLY 10% TO 12% YOU ARE GETTING FROM SPREAD PREMIUM YOU SHOULD BE DEMANDING FROM CREDIT'. LISA: WHERE DO YOU HIDE? WHAT DO YOU PREFER? THAT GROWS ESPECIALLY AS THE MORE RATE SENSITIVE PART OF THE ECONOMY START TO ROLL OVER. VISHAL: WE ARE GOING INTO PART OF THE ECONOMY WHICH ARE SLIGHTLY LESS TETHERED TO THE INTEREST RATE SENSITIVITY YOU ARE TALKING ABOUT. BUYING CMBS AT THESE LEVELS WHEN THE 10 YEAR IS HITTING 5.50% IS BACKED BY THESE THAT HAVE A MASSIVE PRICE INSENSITIVE CONSUMER SPENDING. THOSE BONDS ARE FANTASTIC. WE ARE ACTUALLY GETTING CALLED OUT ON A BOND TODAY FROM THIS ONE IN BOSTON FINANCING THIS MARKET AND IS ABLE TO DO IT BECAUSE THERE IS THE DICHOTOMY HAPPENING. JONATHAN: I AM SURE YOU HAVE BEEN THERE TOO. VISHAL KHANDUJA OF MORGAN STANLEY, THANK YOU. APPRECIATE IT. SOME REALLY INTERESTING STUFF IN FIXED-INCOME. LISA: TALKING ABOUT BUYING THE PROPERTIES THAT WILL BE BACKED BY THE REVENUES THAT PEOPLE NO LONGER HAVE TO WORK. WE HAVE BEEN REPLACED BY BOTS FROM AI. JONATHAN: THERE IS A DYNAMIC WE HAVE NOT TOUCHED ON AND YOU BROUGHT IT UP IN THE PAST. LET'S SAY YOU KILLED 20'S, DO SOMETHING ABOUT 30'S, TIE UP ISSUANCE, AND IT WILL BE SHORTSTAFFED. YOU REFINANCE THROUGH TBILLS AND THE AVERAGE BOND GOES UP IMMEDIATELY INSTEAD OF OVERTIME. YOU PUT THE PRESSURE ON THE FEDERAL RESERVE AND THEY ARE IN CONTROL ALL OF A SUDDEN ALMOST EXCLUSIVELY OVER BORROWING COSTS FOR THE U.S. GOVERNMENT. IF THEY DON'T, WHAT HAPPENS TO THE U.S. DOLLAR? GOING TO BE INTERESTING TENSION THAT CAN BE BUILDING. LISA: WHICH IS THE REASON WE MIGHT NOT SEE THE 30 YEAR AND 20 YEAR COMPLETELY ERADICATED IN NOVEMBER. JONATHAN: COMING UP, WE WILL CATCH UP WITH SCOTT, ERIC, MARK, AND SIMON. THE THIRD HOUR OF "BLOOMBERG SURVEILLANCE" JUST AROUND THE CORNER. >> THERE IS NOTHING FOR ME YET TO SUGGEST THAT I SHOULD NOT STILL BE BULLISH. >> THE EARNINGS PICTURE IS SO STRONG, IT MIGHT BE CONCENTRATED. >> THIS IS PROBABLY THE MOST NARROW MARKET IN MY CAREER. >> MASSIVE OUTPERFORMANCE OF TECH CAN CONTINUE. >> THIS IS "BLOOMBERG SURVEILLANCE" WITH JONATHAN FERRO, LISA ABRAMOWICZ, AND ANNMARIE HORDERN. JONATHAN: LIVE FROM NEW YORK CITY THIS MORNING, GOOD MORNING, GOOD MORNING. THE THIRD HOUR OF "BLOOMBERG SURVEILLANCE" STARTS RIGHT NOW. YOUR PRICE ACTION SCORES LOOK LIKE THIS. EQUITIES RETREAT FROM ALL-TIME HIGHS ON THE S&P AND NASDAQ. DOWN 0.3% ON THE S&P. DOWN 0.7% ON THE NASDAQ. LET'S START STATESIDE AND THE WORLDWIDE. YIELD UP ON THE LONG END OF THE CURVE. TENS AS 5.33%. 30'S AT 5.7%. IN THE U.K. , WE HAVE SEEN SINCE MARCH OF 1998. A DOUBLE-DIGIT MOVE IN FRANCE. FRENCH YIELDS TODAY PUSHING HIGHER. MUCH HIGHER. UP 16 ON FRENCH TENDS. GERMAN TENS ONLY UP BY THREE. THAT SPREAD IS BACK TO 140 THIS MORNING. LISA: ULTIMATELY, THERE IS A SOVEREIGN BOND CRISIS HAPPENING, AND IT IS COMING FROM FRANCE. A REAL QUESTION ABOUT HOW FAR THIS CONTAGION WILL GO AND WHERE THE HAVENS ARE. GERMANY RELATIVE HAVENS. SWITZERLAND A RELATIVE HAVEN. IS THE U.S. GOING TO BE A RELATIVE HAVEN AMID A SLEW OF BOND SALES. VISHAL KHANDUJA OF MORGAN STANLEY JUST TALKING ABOUT HOW THE BIG RISK EVENT OF THE DAY IS THE 10 YEAR OPTION AT 1:00 P.M. EASTERN. DO WE GET SOME SORT OF A WOBBLE THAT CREATES A REAL RED ZONE WHERE PEOPLE ARE SAYING PRICE DISCOVERY IS A MESSY PRACTICE AND ULTIMATELY WE ARE HAVING DIFFICULTY? JONATHAN: TENS THIS 30'S TOMORROW AFTERNOON. SANDWICHED IN BETWEEN, FEDERAL RESERVE MINUTES. VISHAL KHANDUJA WENT A STEP FURTHER AND SAID IT WOULD BE MORE IMPORTANT THAN THE NEXT FEDERAL RESERVE DECISION. A LOT IS MY CONDITION WHAT MAY HAPPEN IN THE NEXT MONTH, WHETHER THEY REDUCE THE 30 YEAR ISSUANCE, KILL THE 20, AND IF YOU DO THAT, THE ISSUANCE HAS TO COME FROM SOMEWHERE. IT COMES FROM TBILLS. IF YOU DO THAT CAN BE PUSHED UP BORROWING COSTS BECAUSE AT THE FRONT END WE HAVE A PROBLEM AND YOU DO THAT ALMOST OVERNIGHT AND START TO SELL THE LONG END ALL OVER AGAIN AND HAVE THE SAME PROBLEM. LISA: IF YOU HAVE A FUNDAMENTAL ISSUE WHICH IS THE DEFICIT IS TOO BIG RELATIVE TO GDP GROWTH AND PEOPLE ARE CONCERNED AT A TIME WHEN THERE IS COMPETITION FOR CAPITAL, YOU CAN TINKER ALL YOU WANT. YOU WILL NOT SOLVE THE PROBLEM. AS OTHER BNP NO YOU TALKED ABOUT ABOUT HOW YOU ARE SQUEEZING THE PYTHON. AT A CERTAIN POINT YOU WILL GET THE SAME KIND OF RESULT, WHICH IS HIGHER YIELDS, IN THE FACE OF A A LOT OF COMPETITION, HIGHER INFLATION, AND HUGE DEFICITS. JONATHAN: HERE IS THE POLITICAL REALITY AND THE REALITY FOR MAIN STREET THIS MORNING. IF YOU ARE LOOKING TO BUY A HOUSE AND YOU ARE NOT ALL CASH, MANY PEOPLE ARE NOT ALL CASH FOR SURE, YOU ARE LOOKING AT A 7.5% 30 YEAR FIXED IN AMERICA RIGHT NOW. THAT IS THE MESSAGE YOU WANT TO SELL TO THE AMERICAN PEOPLE HEADING TO THE MIDTERMS? I AM SITTING HERE SAYING THE DEMOCRATS WILL FIX IT. MOST POLLS SUGGEST THEY DON'T THINK ANYONE CAN FIX THIS RIGHT NOW. BOTH PARTIES RUN POORLY WHEN IT COMES TO THE ECONOMY. BUT IT IS A TOUGH ONE. ANNMARIE: IT WILL BE INCREDIBLY TOUGH. I REMEMBER I WAS THERE IN NEW YORK IN SEPTEMBER OF 2024 OF COURSE WHEN HE WAS RUNNING. HE WAS PROMISING MORTGAGES WOULD BE BACK TO 3%, MAYBE EVEN LOWER. THAT WAS A PROMISE FROM THIS PRESIDENT. THIS IS SOMEONE WHO ACTUALLY LOOKS AT MORTGAGE RATES, HIS PRIOR LIFE BEING THE REAL ESTATE MAVEN OF NEW YORK. THIS IS SOMETHING HE IS GOING TO SEE AND OBVIOUSLY WAKE UP AND NOT UNDERSTAND WHAT THEY CAN ACTUALLY DO TO GET IT DOWN. REALLY NOTHING. IT IS OUT OF THEIR HANDS RIGHT NOW. JONATHAN: IF YOU GO BACK TO THE CONVERSATIONS OVER THE SUMMER WITH THE JITTERS ON THE LONG END AND TREASURY SECRETARY SCOTT BESSENT, THE INTERVENTION WITH THE BUYBACKS, YIELDS ARE UP OVER THAT PERIOD LIKE 45 BASIS POINTS. 30 YEAR YIELDS WERE IN THE MID-5.20%'S. WE HAD A CONVERSATION ABOUT WHAT IT WOULD TAKE TO GET 30 YEAR YIELDS DOWN. MANY PEOPLE ON THE PROGRAM HAD THE VIEW WE HAD A MORE AGGRESSIVE FEDERAL RESERVE AND YOU DO SOMETHING AT THE LONG END. WE HAVE HAD A HIKE. 30'S CAP SELLING OFF. THE DATA SOFTENED A LITTLE BIT AND YOU MIGHT SEE SOME FIRMER IN THE LONG END. WE HAD A SOFT ISM, SOFT PAYROLLS. 30'S KEPT SELLING OFF. WHAT IS THE SOLUTION TO THE JITTERS AT THE LONG END OF THE CURVE? NOT JUST STATESIDE, BUT WORLDWIDE. IT IS FRANCE, THE U.K., GERMANY, JAPAN, EVERYWHERE ELSE INCLUDING THE UNITED STATES. LISA: ULTIMATELY, DOES IT HAVE TO BE SOME FISCAL RESPONSE, SPENDING LESS OR POTENTIALLY RAISING MORE REVENUES? YOU LAUGH BECAUSE PEOPLE WILL SAY THAT IS NOT AT, OR IS THIS AN ISSUE OF OIL PRICES COMING DOWN SIGNIFICANTLY, OR IS THIS POTENTIALLY JUST THE COMPETITION FOR CAPITAL? IF PEOPLE HAVE A SENSE OF THE SCOPE AND SCALE OF FURTHER DEBT SALES TIED TO THE AI BUILDOUT, THEY ARE YET TO COME AND THEY CAN CALCULATE THIS. PEOPLE ARE DEALING WITH THE TECHNICAL UNWIND OF THE JAPANESE CARRIER TRADE AND THE FUNDAMENTAL ISSUE, WHICH IS SOVEREIGN NATIONS BORROWED SO MUCH MONEY DURING THE PANDEMIC AND ARE NOW NOT WANTING TO PAY IT BACK. ULTIMATELY, THAT IS THE ISSUE. ANNMARIE: YOU HAVE TWO HOT WARS RIGHT NOW AND YOU SEE A LOT OF COUNTRIES HAVING TO GO TO THE DEBT MARKETS TO REARM AND BUILD UP THE DEFENSE BUDGETS. I LAUGHED ABOUT THE SAME TIME YOU HAVE A 7.5% MARKET AND WE ARE LESS THAN A MONTH AWAY FROM THE MIDTERMS. THIS PRESIDENT SHOULD COME OUT WITH FISCAL RESPONSIBLE STATEMENTS AND IS TALKING ABOUT FUELING THE FIRE WITH $5,000 CHECKS. JONATHAN: YOU SAID REARM AND DEFENSE. THERE WAS A MAJOR PUSH IN THE GLOBAL BOND MARKET. WE TALKED ABOUT THE INCREASE IN GLOBAL BONDS OVER THE LAST SEVERAL DECADES. THE BLACK ZERO IS WHAT IT USED TO BE CALLED, BALANCING BUDGETS IN GERMANY. PRESSURE ON EUROPEAN NATIONS RIGHT NOW. IT MEANS THEY PROBABLY WILL NOT BE ABLE TO INCREASE DEFENSE SPENDING. WE ARE SEEING THAT IN THE U.K.. AS FOR FRANCE, YOU CAN BRING UP THE PICTURES OF WHAT IS HAPPENING IN FRANCE THIS MORNING OVER THE LAST WEEK OR SO AND YOU ARE TALKING ABOUT DEFICIT CUTS. FRANCE IS OUTSIDE OF A CRISIS HOLDING A 5% DEFICIT AND PEOPLE ARE HITTING THE STREETS ASKING FOR MORE SPENDING. WHOEVER WINS THE ELECTION IN THE NEXT 12 MONTHS IS GOING TO HAVE SUCH A TASK ON THEIR HANDS TO DO ANYTHING ABOUT THAT SITUATION AND THERE ARE WARNINGS THAT COME THROUGH CONTINUOUSLY, INCLUDING IN THIS COUNTRY. 6% DEFICIT IN THE GOOD TIMES. WHAT WILL HAPPEN IN THE BAD TIMES? LISA: ULTIMATELY, THIS IS WHY THERE IS CONCERN ABOUT THE POLITICAL RAMIFICATIONS AND WE JOKE ABOUT REDUCING THE DEFICIT REDUCING PLATFORM OR GET YOU WHERE ROSS PEROT WAS IN THE 1990'S, WHICH IS NOT ELECTED. PEOPLE WANT MORE. PEOPLE DO NOT FEEL A CERTAIN DEGREE OF AFFORDABLE AND PART OF THAT HAS COME FROM THE FACT THAT THEY ARE LOCKED OUT OF THE HOME OWNERSHIP MARKET. YOU CAN TALK ABOUT HOW PEOPLE AT THE LOWER END OF THE INCOME SEEM TO BE MISSING OUT A LOT OF THE GAINS. ALL OF THESE THINGS FACTOR INTO WHAT PEOPLE WANT, MORE. ANNMARIE: WHEN IT COMES TO FRANCE, IT IS WHY YOU HAVE THIS FAR RIGHT FRENCH PRESIDENTIAL CANDIDATE ACTUALLY LOOKING TO THE MARKET AS THE RIGHT CHOICE, THE RIGHT VOICE RIGHT NOW BECAUSE SHE IS SAYING THE RIGHT THING. SHE LOOKS MAIN STREET ON HOW SHE CAN SAVE HIM NORTH OF 00 BILLION WHEN IT COMES TO CUTTING THE DEFICIT. JONATHAN: SHE LOOKS LIKE A CENTRIST BASED ON WHAT WE ARE SEEING FROM THE FAR LEFT OVER THE LAST WEEK FROM THE RESPECT OF THE BOND MARKET. ANNMARIE:ANNMARIE: FROM THE MARKETS PERSPECTIVE, ABSOLUTELY. JONATHAN: S&P 500 CLIMBING. BOND YIELDS HIGHER WORLDWIDE. COMING UP, WE WILL CATCH UP WITH SCOTT, ERIC ON HOW AI IS RESHAPING THE WORKFORCE, AND MARK EXPECTING RATES TO STAY HIGHER FOR LONGER. WE BEGIN WITH STOCKS PULLING BACK FROM RECORD HIGHS AND BONDS CONTINUING TO CLIMB HIGHER. THE PAST TO THE BASE CASE TARGET WILL REQUIRE THE AI INFLUENCED AND MORE MACRO IMPACT IN HALVES OF THE MARKET TO PARTICIPATE. SCOTT JOINS US FOR MORE. WELCOME. ENJOYED THE TITLE, IT TAKES A VILLAGE. IT HAS NOT OVER THE LAST MONTH. BACK TO ALL-TIME HIGHS WITH VERY NEGATIVE BREADTH IN A VERY LOW PERCENTAGE OF STOCKS ON THE S&P ABOVE THE 200 DAY MOVING AVERAGE. TO GET TO YOUR TARGET OF 8100, WHAT NEEDS TO HAPPEN ELSEWHERE? DOES ENERGY NEED TO DECLINE? DO YIELDS NEED TO STOP GOING HIGHER TO GET THE REST OF THE MARKET TO PARTICIPATE? SCOTT: I THINK YOU ARE SPOT ON WITH THIS. WE THINK OIL IS THE LINCHPIN HERE. AS GOES OIL, SO GOES INFLATION EXPECTATIONS AND WITH IT RATES. RATES WILL BE INFLUENCED BY THE SUPPLY EQUATION COMING OFF OF AI FINANCING AND THAT IS PRETTY WELL IDENTIFIED AT THIS POINT. WHAT YOU NEED FOR THE CYCLICAL AND DEFENSIVE PARTS OF U.S. EQUITIES TO RALLY FURTHER FROM HERE IS JUST THAT. WE HAD THE TECH COMPONENT, THE AI TAILWIND INFLUENCING ACTIVITY TO THE POSITIVE SINCE JACKSON HOLE, BUT FROM THAT POINT, YOU HAVE LOST THE CYCLICAL DEFENSIVE PARTS OF WHAT WE ARE ARGUING SIMPLY IS THE PATH TO ONGOING NEW HIGHS HERE WILL BE BOTH PARTS OF THE MARKET, CYCLICALS AND DEFENSIVES, PLUS THE COHORT COOPERATING. LISA: CAN YOU GET TO THE 8100 PRICE TARGET ON THE S&P 500 WITHOUT OIL PRICES COMING DOWN MATERIALLY? SCOTT: I THINK IT WILL BE REALLY HARD BECAUSE WHAT ENDS UP HAPPENING IS WE ARE DEALING WITH A NAGGING VALUATION ISSUE ANYWAY. WHAT YOU NEED IS THE FUNDAMENTALS, AND THAT IS CLEARLY COMING THROUGH ON THE TECH COMPONENT. I THINK WHAT WE NEED TO SEE IS BETTER SENTIMENT AROUND THESE OTHER PARTS OF THE MARKETS, WHETHER IT IS THE FINANCIALS, THE INDUSTRIALS, AND SO FORTH, AND CONSUMER DISCRETIONARY AS WELL. ALL OF THOSE NEED TO CONTRIBUTE. YOU CANNOT HAVE HALF THE MARKET GOING UP, HALF THE MARKET FLATLINING, AND EXPECT THAT TO LIFT THE INDEX TO THE YEAR-END 8100. JONATHAN: YOU MENTIONED FINANCIALS. CAN YOU DIAGNOSE T THE FINANCIALS INTO EARNINGS SEASON? WHAT IS THE DRIVER? SCOTT: WE LOWERED BANKS FROM A LONG-STANDING OVERWEIGHT OUT TO A MARKET WEIGHT. I DON'T THINK THERE IS ANYTHING EGREGIOUSLY GOING ON HERE BUT THE BANKS HAVE BEEN LIVING WITH THIS FOR THE PAST YEAR IF NOT LONGER. IT HAS BEEN THE PERSISTENCE FOR FUNDAMENTALS THAT HAVE BEEN THE TAILWIND FOR BANKS PERFORMING. WHAT WE THINK HAPPENS IS BECAUSE OF THE CURVE DYNAMICS, YOU PROBABLY BEGIN TO LOSE SOME OF THE UPSIDE COMPONENT TO NET INTEREST MARGINS. BUT ALSO, WHILE THERE IS THE DEAL, WE THINK BANKS WILL BE OK. BUT WE THINK THAT THE HEADWINDS THAT ARE STARTING TO BUILD HERE NEED TO BE PAID ATTENTION TO. LASTLY, AS WE GO DOWN THE MIDYEAR PATH, THE MIDYEAR ELECTION PATH, IF YOU SEE THE HOUSE AND SENATE MOVING TO THE DEMOCRATIC SIDE, WHAT THAT POTENTIALLY DOES IS LESSEN SOME OF THE TAILWIND THAT HAS BEEN IN PLACE FOR THE PAST YEAR AND HAVE. JONATHAN: ONE PIECE YOU DID NOT MENTION SPECIFICALLY IS TECH. THIS IS A PROXY FOR THE AI BUILDUP. THIS SECTOR. S&P 500 WAS AT ONE POINT INCLUDING UTILITIES. HAS THAT CHANGED FOR THE BANKS? SCOTT: IT IS VERY WELL-KNOWN THERE IS A BIG ISSUANCE DRIVER AT WORK HERE. THERE IS NOTHING NEW. ESSENTIALLY, WHAT ENDS UP HAPPENING IS IF THAT IS PRETTY WELL KNOWN, ANYTHING THAT POTENTIALLY CLOUDS THAT PICTURE BECOMES AN OVERHANG. AS AN EXAMPLE, IF YOU BEGIN TO GO DOWN THIS PATH OF SEEING MORE PUSHBACK ON NEW DATA CENTER BILLS, MORATORIUMS, AND SO FORTH, ULTIMATELY THAT STRETCHES OUT THE TIMING OF SOME OF THIS ISSUANCE COMPONENT TO IT. THERE IS NOTHING HERE THAT I THINK REALLY UPSETS THE LONGER-TERM TRAJECTORY. BUT ON THE SHORT-TERM, THIS PAST 280 100 BY YEAR END, THESE ARE THE TYPES OF NOISE POINTS THAT GET IN THE WAY. JONATHAN: AND THEY CERTAINLY GET NOISIER. SCOTT CHRONERT OF CITI LOOKING FOR SOMETHING NORTH OF 80,000 BY YEAR-END, BUT YOU NEED TO SEE SOME PARTICIPATION FROM ELSEWHERE IN HIS OPINION. LISA: ULTIMATELY, THAT WILL TAKE OIL PRICES COMING DOWN. SHOULD OIL PRICES FROM SIGNIFICANTLY LOWER, THAT WILL HELP QUITE A BIT. JONATHAN: WE ARE BACK TO DECENT LEVELS. NOT GETTING AS MUCH CRUDE PRODUCT. ENERGY FLOWING THROUGH THE STRAIT OF HORMUZ. WHY HAVE PRICES NOT COME DOWN MORE? THE COST OF MOVING THE CRUDE IS MORE EXTENSIVE. THAT IS WHERE IRAN CAN HAVE MORE IMPACT, AND THEY ARE. ANNMARIE: IN THE REUTERS INTERVIEW YESTERDAY, VICE PRESIDENT JD VANCE DISMISSED CONCERNS OVER CRITICAL MUNITIONS SHORTAGE AND ADDED WHILE IRANIAN TROOPS ARE PERIODICALLY ABLE TO STRIKE SHIPS IN THE STRAIT OF HORMUZ, THEY ARE UNABLE TO PREVENT ENERGY EXPORTS THROUGH THE WATERWAY. THE KEY TO BE WAS THIS ADMINISTRATION WAS AWARE AND ACCEPTING THAT ONCE IN A WHILE WE ARE GOING TO HAVE THESE TIT-FOR-TATS, THESE FITS AND STARTS ONCE AGAIN IN TERMS OF THE KINETIC WARFARE IN THE STRAIT. JONATHAN: YOU HAVE A PRICE PROBLEM BECAUSE OF THE AGGRESSION FROM THE IRANIANS IN THE. LISA:. IT IS 9AM LOOKING AT THE MARCH CONTRACT FOR BRENT. ANNMARIE: ALSO LOOK AT WHAT HAPPENED OVERNIGHT IN THE BLANK SEE. TANKERS. THIS IS A HUGE ISSUE. THERE IS A HUGE DIESEL EXPORT BAN. JONATHAN: TO YOUR POINT, THERE WAS A HOPE IN THE MEETINGS AT THE U.N. GENERAL ASSEMBLY THAT IRAN CAN STOP STRIKING ENERGY FOR STRUCTURE. IT HAS NOT HAPPENED. ANNMARIE: IT HAS NOT STOPPED. UKRAINE HAS SAID THEY ARE BELIEVED TO STOP REFRESHER STOPS, AND RUSSIA HAS NOT. JONATHAN: VONNIE QUINN HAS MORE. VONNIE: THANK YOU. SPACEX LOOKING TO RAISE $40 BILLION TO BUY NVIDIA CHIPS, THE FINANCIAL TIMES REPORTS. APOLLO IS A TO LEAD THE DEAL THAT SHOULD CLOSE NEXT YEAR. A LONDON COURT HAS OVERTURNED THE CONVICTIONS OF FIVE EX BARCLAYS TRADERS CONVICTED OF RIG BENCHMARK INTEREST RATES IN LANDMARK FRAUD PROSECUTIONS. THE REVERSALS COME AFTER THE U.K. SUPREME COURT OVERTURNED THE CONVICTION OF THE EX UBS TRADER WHO WAS THE FIRST PERSON CONVICTED FOR RATE RIGGING. PRESIDENT DONALD TRUMP SAYS HE IS CONSIDERING SUSPENDING THE FEDERAL GAS TAX AS HIS ADMINISTRATION LOOKS FOR WAYS TO LOWER ENERGY PRICES AHEAD OF THEM IN TERMS. PRICES ARE UP 46% SINCE THE IRAN WAR BEGAN. AAA REPORTING THE NATIONAL AVERAGE FOR A GALLON OF REGULAR GASOLINE WAS $4.37 YESTERDAY. THAT IS YOUR BLOOMBERG BRIEF. JONATHAN: UP NEXT TO MORNING CALLS. PLUS, ERIC ON HOW AI IS RESHAPING THE WORKFORCE. THAT CONVERSATION AROUND THE CORNER. FROM NEW YORK CITY THIS MORNING, GOOD MORNING. ♪ >> THERE IS A MASSIVE WHETHER YOU WANT TO CALL IT BUBBLE OR BUILDOUT. DEMAND IS CLEARLY THERE. LIKE AN INFINITE AMOUNT OF DEMAND THAT PEOPLE WANT. THE QUESTION IS, CAN YOU DELIVER THE CAPACITY? JONATHAN: THAT WAS MITCHELL GREEN JOINING THE PROGRAM EARLIER THIS MORNING. SO FAR THIS MORNING, PULLING BACK FROM ALL-TIME HIGHS FOLLOWING A FOUR-DAY WINNING STREAK. FUTURES THIS MORNING BY 0.4%. ON THE NASDAQ, DOWN BY 0.7%. YIELDS HIGHER AT THE LONG END OF THE CURVE BY SIX BASIS POINTS. TENS AS 5.33%. 30'S AT THE HIGHEST LEVEL SINCE THE SPRING OF 2002. IN THE U.K., THE 30 YEAR YIELD WITH A SIX HANDLE, THE HIGHEST LEVEL SINCE THE SPRING OF 1998. IN FRANCE, DOUBLE-DIGIT MOVE AT THE LONG END OF THE CURVE. 16 BASIS POINT MOVE, 4.91% ON THE 10. LISA: DEFINITELY SENDING CONCERNING SIGNALS AND PEOPLE WONDER WHETHER THIS IS A SYMPTOM OR A CONTAGION EFFORT AS PEOPLE LOOK FOR THE WORST ACTORS IN A FISCALLY PROPER IN THE WORLD WE LIVE IN. JONATHAN: FIRST UP, UBS RAISING THE PRICE TARGET ON TESLA SEEING FAVORABLE RISK/REWARD AT CURRENT LEVELS. GROWING DRIVERS HAVE SHIFTED TO A STRONG COLLECTIVITY FRANCHISE. MICRON RAISED TO A STREET HI, SEE MULTIPLE SHOTS TO UNLOCK FUTURE TARGETS. THAT NAME DOWN THIS MORNING BY 3%. ELSEWHERE, HSBC PLANNING SWEEPING JOB CUTS. THE MOVE IS PART OF A BROAD AI PUSH TO SERVE CLIENTS. ERIC KUTCHER, THE CHAIR OF NORTH AMERICA AT MCKINSEY, WRITING THE U.S. ECONOMY COULD CREATE MORE JOBS IN THE NEXT DECADE THAN WILL BE REPLACED THROUGH AUTOMATION BUT THE CHANGE MAY REQUIRE THE LARGEST AND MOST SUSTAINED WORKFORCE TRANSFORMATION IN U.S. HISTORY. ERIC JOINS US NOW. GOOD MORNING. GOOD TO SEE YOU. ERIC: THANK YOU FOR HAVING ME. JONATHAN: WHAT IS IN FRONT OF US RIGHT NOW? ERIC: I THINK IT IS INCREDIBLE HEADLINE, ONE THAT YOU WILL NOT GET EVERYDAY. WE BELIEVE THERE WILL BE MORE JOBS IN 2035 THAN TODAY AND THEY WILL BE HIGHER THAN TODAY. THAT IS AN INCREDIBLE DIFFERENCE FROM WHAT I AM READING ABOUT TODAY. JONATHAN: WHERE DOES IT COME FROM? ERIC: AI JOBS WHICH IS NOT UNCOMMON IN TECHNOLOGY CHANGE. LET ME GIVE YOU AN EXAMPLE. WE TALKED FOR A YEAR HOW THERE WOULD BE NOWHERE SOFTWARE DEVELOPERS. THE NUMBER ONE JOB POSTED IN SILICON VALLEY RIGHT NOW IS FOR SOFTWARE DEVELOPERS. WE ARE PRODUCING MORE CODE THAN EVER BEFORE AND THE SOFTWARE DEVELOPERS ARE HELPING THE AI WRITE THAT CODE, AND YOU WILL SEE THAT MORE AND MORE. WHAT WE ALSO SHOULD RECOGNIZE IS THERE WILL BE MORE DISRUPTION OF JOBS THAN WE HAVE SEEN BEFORE. WE COULD SEE AS MANY AS 36 MILLION JOBS CHANGE OVER THE COURSE OF THE NEXT DECADE. THE GOOD NEWS IS ABOUT TWO THIRDS OF THOSE ARE FOR EXISTING ROLES. PEOPLE CAN GROW INTO THEM. I WILL GIVE YOU AN EXAMPLE. I WAS WITH A LEADERSHIP TEAM TALKING THAT WORKFORCE PLANNING. THERE WORKFORCE PLAN TODAY TAKES 7500 MAN-HOURS. WE CAN GET THAT DOWN TO TENS. THAT IS ENORMOUS. WE DON'T NEED ALL THESE PEOPLE TO DO THIS ANYMORE. THE CHRO SAYS, DON'T YOU WANT THEM TO DO A, B, C, D, E? YES. LET'S REPURPOSE THEM. JONATHAN: WE HEARD SOMETHING SIMILAR FROM THE BNY CFO. TAKE INTO MCKINSEY. DO YOU SEE IT INTERNALLY AT HOME? ERIC: I DO SEE IT INTERNALLY AND WHAT OF THE GREAT OPPORTUNITIES FOR US. THIS HAS BEEN TRUE SINCE I JOINED YEARS AGO. EVERY GENERATION IS GETTING THAT MUCH MORE PRODUCTIVE BECAUSE THE TOOLS WE PUT IN FRONT OF THEM ARE PROFOUNDLY DIFFERENT SO WHEN YOU LOOK AT WHAT A TEAM DOES TODAY, THEIR OUTPUT IS THAT MUCH GREATER. WHAT THAT IS DOING FOR US IS LOWERING THE BARRIER FOR ENTRY AS WE TRY TO SERVE CLIENTS. WE CAN GO TO THEM NOT JUST WITH THE PROPOSAL BUT THE FIRST REVIEW. WE CAN ACTUALLY DO THE FIRST PHASE OF A STUDY BEFORE WE EVER GO, AND THAT ALLOWS US TO GIVE THEM THE CONVICTION TO GO AFTER AN OPPORTUNITY THEY MAY NOT HAVE GONE AFTER BEFORE. LISA: SO YOU ARE HIRING MORE PEOPLE AT MCKINSEY? ERIC: WE ARE HIRING MORE PEOPLE. LAST YEAR, WE HIRED 12% MORE CONSULTANTS THAN THE YEAR BEFORE. WE ARE ABSOLUTELY DRAWING OUR CONSULTING BASE. LISA: HOW MUCH IS IT MORE MONEY, MORE PROBLEMS, MORE TECH, MORE PROBLEMS? PEOPLE ARE CONCERNED ABOUT NEW THINGS LIKE CYBERSECURITY, RETRAINING, ISSUES WITH MAKING SURE THERE IS NOT A SKILLS MISMATCH AMID THIS RAPID TRANSFORMATION? HOW MUCH OF THAT IS A BIG PIECE OF WHAT YOU ARE DOING? ERIC: THIS IS THE MOST TRANSFORMED OF MOMENT WE HAD AN OPPORTUNITY TO LEAD THROUGH. EVERY CEO IS RECOGNIZING THE SCALE OF THE OPPORTUNITY THEY FACE, WHICH IS ABOUT THE OPPORTUNITY THEY HAVE CHANGE THEIR COMPANY AND POSITION FOR THE FUTURE. WHEN WE GET TO THAT LEVEL OF DIFFICULT PROBLEM, WHAT WE TYPICALLY SEE IS THEY TURNED TO US. THAT IS WHAT WE ARE SEEING MORE AND MORE. AT FIRST, THERE WAS A LOT OF SMALL EXPERIMENTATION, GETTING TOOLS IN PEOPLE'S HANDS. THEY ARE LIKE, HOW DO I TAKE CORE PROCESSES AND REINVENT THEM OR CHANGE BUSINESS OUTCOMES? THERE IS THE CORE OF WHAT WE DO. THE LEVEL OF TRANSPORTATION IS LEADING TO MORE WORK FOR US. ANNMARIE: BUT HSBC IS CUTTING JOBS BECAUSE OF AI ACCORD INTO THE FINANCIAL TIMES. I REMEMBER WHEN IT WAS CALLED THAT YOU WILL HAVE AI DRIVEN JOB LOSSES BECAUSE OF LOWER VALUE HUMAN CAPITAL. DO YOU THINK SOME EXECUTIVES ARE MOVING TOO QUICKLY AND ARE SEEING THE BENEFITS YOU ARE TALKING ABOUT? ERIC: I THINK A LOT OF THE INITIAL JOB LOSSES WE HAVE SEEN ARE STILL AN OVERHANG FROM THE INVESTMENT MADE DURING COVID AND WHAT WAS A SLOW REACTION TO THAT. JONATHAN: DO YOU THINK IT IS COVER? ERIC: I THINK IT IS COVER. WHEN YOU LOOK UNDERNEATH SOME OF THOSE COMPANIES, ALL THEY HAVE DONE IS REDUCING THE PARTS OF THE BUSINESS THEY DECIDED WERE BAD. IT IS LIMITED WHAT YOU CAN .2. CEOS ARE NOT GETTING THE PRODUCTIVITY YET TO GET THERE. JONATHAN: FACING ANY PRICE PRESSURE? THE CLIENT KNOWS THAT TOO. ERIC: WE HAVE MADE THIS MATERIAL PERFECT TO A LOT OF OUR FEES TIED TO THE OUTCOME OF OUR CLIENTS. SO AS LONG AS WE ARE DELIVERING THAT VALUE, THE FEES COME THROUGH SO IT IS NOT A TIME AND MATERIALS BASED MODEL BUT A MODEL TIED TOWARD WE SUCCEED WHEN OUR CLIENTS SUCCEED SO THAT HAS HELPED. JONATHAN: GIVE US REGULAR UPDATES. ERIC KUTCHER ON THE LATEST PUSH. THE AMOUNT OF CAPACITY CAN INCREASE WITH THIS TECHNOLOGY. LISA: INCREASINGLY, PEOPLE ARE SAYING WHEN THEY EXECUTE LAYOUTS AND IT IS BECAUSE OF AI, IT IS NOT NECESSARILY BECAUSE OF AI. IF YOU SAW THE POTENTIAL OF EXPANDING BUSINESSES, THEY WOULD BE LEANING INTO IT. JONATHAN: BLOCK WAS 10 YEARS AGO. ANNMARIE: IT WAS THIS YEAR. LISA: IT WAS COLD OUT. JONATHAN: QUITE A 12 MONTHS. COMING UP NEXT TO MARK EXPECTING RATES TO STAY HIGHER FOR LONGER. THE EQUITY MARKET OPEN IN ONE HOUR AND FIVE MINUTES AWAY. JONATHAN: 60 MINUTES OUT FROM THE OPENING BELL. THE CASH OPEN JUST AROUND THE CORNER. EQUITY FUTURES NEAR SESSION LOWS. DOWN 0.5% ON THE S&P. RECORD HIGHS IN YESTERDAY'S SESSION. OFF THE BACK OF THAT, THIS MOVE IN THE BOND MARKET PUSHING THE MOVE IN THE EQUITY MARKET. 30'S RATHER AT 5.72%. 5.34% ON THE TENS. SCOTT BESSENT GOT JITTERY AND OFFERED SOME VERBAL INTERVENTION AND ACTUAL INTERVENTION WITH SOME BUYBACKS AND YIELDS KEEP ON CLIMBING. IT IS HAPPENING WORLDWIDE. WE TALKED ABOUT U.K. 30'S, HIGHEST LEVEL SINCE THE SPRING OF 1998. UP BY DOUBLE DIGITS THIS MORNING. SAME STORY IN FRANCE. THE SPREAD JUST ABOUT 140 BASIS POINTS THIS MORNING. HIGHER BY 16 BASIS POINTS ON FRENCH TENS. TRY TO FIND SOME SOCIAL COHESION TO MAKE THE BIG DECISIONS DEFICITS IN EUROPE AND YOU ARE STRUGGLING TO FIND IT IN FRANCE FOR THE MOMENT. LISA: PEOPLE LOOKING TO OTHER CIRCUIT BREAKERS LIKE THE EUROPEAN CENTRAL BANK AND THEY ARE SAYING, NOT AS. THERE IS THIS BOND MARKET CONFLAGRATION THIS MORNING AND IT IS UNCLEAR WHAT IS SPURRING IT AT THIS TIME OTHER THAN A MASS PRICE DISCOVERY EXERCISE AT A TIME WHEN THERE ARE COMPLETE NEW RESETS IN THE UNDERLYING ECONOMY. WE WILL BE GETTING AN AUCTION OF 10-YEAR NOTES TODAY. THIS CAN PROVE THE TRUE RISK MOMENT. JONATHAN: GETTING UNPRINTABLE ISSUANCE FROM CREDIT AS WELL. THE NVIDIA, SPACEX STORY TO THROUGHOUT $30 MILLION FROM NOWHERE, AND WE TALKED ABOUT THIS REPEATEDLY. YOU CAN WAKE-UP ANY GIVEN MORNING ON WALL STREET, CALL IT A WEDNESDAY IN DECEMBER, DON'T KNOW ANYTHING, BY THE WAY. ALPHABET COMES OUT LIKE A $50 BILLION OFFERING. A BUNCH OF DIFFERENT CURRENCIES. YOU DON'T KNOW WHERE IT IS COMING FROM NEXT AND SOMETHING CAN HAPPEN THE DAY AFTER. MASSIVE COMPETITION FOR CAPITAL. CROWDING OUT TREASURIES. WHATEVER. IT IS FINANCING MASSIVE GROWTH, WHICH IS WHY NOMINAL GDP IS SO HOT RIGHT NOW. I FEEL LIKE AT THE MOMENT IT IS THE SAME ENDS PUSHING YIELDS HIGHER AROUND THE WORLD. LISA: THE FACT THAT YOU HAVE NOT SEEN STOCKS MELTDOWN, AT ALL-TIME HIGHS DRIVEN BY THE AI STORY HIGHLIGHTS THE PEOPLE GAIN CONFIDENCE USE CAN REMAIN AT THESE LEVELS FOR A LONG TIME WITHOUT TORPEDOING GROWTH. HIGH YIELDS ARE NOT AT A LEVEL WHERE THEY CURE HIGH YIELDS. ULTIMATELY, WHAT WILL MAKE PEOPLE GET CONVICTION TO COME IN AND BUY? JONATHAN: WE WERE TOLD RATE HIKES MIGHT HELP. RATE HIKES DID NOT HELP. NONE OF THAT HAS HELPED. WHAT WOULD ACTUALLY HELP IS MAYBE THEY CUT ISSUANCE AT THE LONG END BUT THEN THAT INTRODUCES QUESTIONS ABOUT BORROWING COSTS AT THE FRONT END WHICH MY PART PRESSURE ON THE LONG END. I DON'T KNOW WHAT THE SOLUTION IS. I REALLY DON'T. LISA: I DON'T KNOW THAT ANYONE HAS AN IDEA EXCEPT FOR THE IDEA ROLLING OVER OR PRICES COMING DOWN. HOW MUCH IS IT A FUNCTION OF THE CRUDE MARKET IN THE CRUDE PRODUCT MARKET RIGHT NOW? ANNMARIE: YOU HAVE BRENT BACK ABOUT 00. U.S. TURNING TO SEE MORE SKIRMISHES IN THE STRAIT OF HORMUZ. YOU SEE IRAN TRYING TO STOP SOME OF THE VESSELS EVEN THOUGH WE WERE NEARLY AT PREWAR LEVELS IN TERMS OF THE OIL GETTING THROUGH. JD VANCE SAID THE ADMINISTRATION IS CORRECT AND THE OIL IS FLOWING THROUGH THE STRAIT. WHY ARE INVENTORIES AT 10 YEAR LOWS? JONATHAN: THE FEEDBACK I HAD THIS MORNING WAS ABOUT INTERNAL COMBUSTION ENGINES. THEY WANTED TO GO BACK TO THREE V10'S IN FORMULA ONE. THAT IS WHAT THE AUDIENCE WANTS. LISA: NOT GOING TO WORK. JONATHAN: IT DOES NOT WORK. 60 MINUTES AWAY FROM THE CASH OPEN. LET'S GET YOU SOME SINGLE NAMES, SOME MORNING MOVERS. YAHAIRA: WE START WITH THE SPACEX STORY YOU WERE JUST DISCUSSING. SPACEX SHARES WEAKER, DOWN 1.7% ON THE REPORT ELON MUSK IS IN TALKS TO RAISE A STAGGERING $40 BILLION TO BUY NVIDIA CHIPS. THIS WOULD BE ONE OF THE BIGGEST DEBT FINANCINGS WE HAVE SEEN IN THE AI BUILDOUT SO FAR. IT COMES JUST AFTER SPACEX BACK IN JUNE RAISED $25 MILLION IN BONDS AFTER IT WENT PUBLIC, UNDERSCORING THE ENORMOUS CAPITAL IT NEEDS. WE ARE SEEING NVIDIA SHARES NOT BENEFITING FROM THIS DOWN 1% IN THE PREMARKET. OVERALL, WE ARE SEEING CHEAP WEAKNESS ACROSS THE BOARD BECAUSE MICRON SHARES ARE ALSO FALLING DOWN 3%. THAT IS COMING AS WE ARE SEEING REPORTS SWIRLING ABOUT A POTENTIAL STRIKE LOOMING AT ONE OF ITS CHIP PLANTS IN TAIWAN. NEARLY 90% OF UNION MEMBERS VOTED IN FAVOR OF WALKING OFF THE JOB, DEMANDING MORE OF A CUT FROM THE SOARING AI PROFITS. WE DO NOT HAVE A DATE YET FOR THAT STRIKE, IF IT IS COMING, BUT A WALKOUT COULD DISRUPT PRODUCTION AT A TIME WHEN WE KNOW MEMORY SUPPLY IS SUPER TIGHT. WE END ON THE CONSUMER WITH THE MAKER OF MODELO AND CORONA BEER. BEER SALES GOT A BOOST FROM THE WORLD CUP. THEY SAY PEOPLE ARE STILL CUTTING BACK AT LIQUOR AND GROCERY STORES. YOU ALSO HAVE THE PHENOMENON OF PEOPLE DRINKING LESS. JONATHAN: THANKS FOR THE UPDATE. THANKS FOR THIS MORNING. LET'S GET BACK TO THE BOND MARKET BRACING FOR HIGHER RATES. >> RATES ARE GOING UP. A LOT OF DEMAND FOR CAPITAL, GOVERNMENT FINANCING. IN MY VIEW, A LITTLE BIT EXPECTED. IF IT GOES UP HIGHER, IT CREATES RISK. IT CREATES RISK FOR ALL COMPANIES. JONATHAN: JAMIE DIMON HAS BEEN TALKING ABOUT 6% FOR YEARS. MUST BE FEELING GOOD NOW. LISA: I THINK IT WAS IN 2018 HE WAS TALKING ABOUT 6% YIELDS, AND HERE WE ARE. JONATHAN: HE COULD LOCK ON BOB'S DOOR AND SAY I WAS RIGHT AND BOB WILL SAY NOTHING. AHEAD OF MORE TREASURY AUCTIONS FOR LONGER DATED BONDS AND DEFEND MEETING MINUTES FROM A UNANIMOUS DECISION TO HIKE INTEREST RATES LAST MONTH, MICHAEL MCKEE HAS MORE FROM D.C.. GOOD MORNING. MICHAEL: IT WAS JANUARY 2005 THE FED MOVED THE RELEASE OF THE MINUTES TO THREE WEEKS AFTER THE MEETING HOPING TO GIVE INVESTORS MORE TIMELY INSIGHT INTO WHAT HAD BEEN DISCUSSED, BUT IT REALLY DOES NOT MATTER ALL THAT MUCH. IT HAS NOT HELPED ALL THAT MUCH BECAUSE AS SOON AS THE MEETING IS OVER, EVERYONE COMES OUT TALKING. BY THE END OF THIS WEEK, WE WOULD HAVE HEARD FROM 13 OF THE 19 MEMBERS OF THE OPEN MARKET COMMITTEE. IT HAS MOVED FOR FUNDS FUTURES. I ALWAYS TELL YOU FED FUNDS FUTURES ARE NOT WORTH WATCHING BECAUSE THEY ARE SO VOLATILE AND MOVE AROUND BUT YOU CAN SEE THERE IS A STORY. FROM THE TIME WE GOT THE SEPTEMBER CPI THROUGH THE PEAK, WHICH WAS THE KEVIN WARSH NEWS CONFERENCE, PEOPLE GOT MUCH MORE HAWKISH ABOUT WHAT THE FED WAS GOING TO DO AND STARTED PRICING IN THE IDEA OF AN OCTOBER RATE CUT SO OUT CAME JOHN WILLIAMS AND PHILIP JEFFERSON AND SAID WE NEED TO RAISE RATES MORE BUT WE DON'T NECESSARILY NEED TO DO IT IN OCTOBER. YOU CAN SEE HOW THAT HAS FALLEN BACK. THE MINUTES ARE NOT LIKELY TO CHANGE THAT A WHOLE LOT. INSTEAD, WE WILL HAVE TO WAIT UNTIL NEXT WEEK. THE FED BACK, PRESERVED THEIR OPTIONS. THEY CAN IF THE CPI OR PPI COMES IN HIGH GO BACK TO A RATE RISE STANCE, BUT THEY HAVE THEM IN TERMS SIX DAYS AFTER THE NEXT MEETING. THEY PROBABLY DON'T WANT TO GET INVOLVED IN THAT DESPITE WHAT THEY WILL TELL YOU PUBLICLY BECAUSE THEY DON'T NEED THE ABUSE IN THIS CASE. WHAT WE WILL BE DOING IS WATCHING THE MINUTES SESSION. CHRIS WALLER SPEAKS TOMORROW, AND KEVIN WARSH SPEAKS NEXT WEEK, AND THAT WILL PROBABLY GIVE US ANOTHER CLUE. YOU MENTIONED THE 10 YEAR AUCTION COMING UP TODAY. IT IS ALMOST ALL THE SCREWS AT 5.35%. AT THIS POINT, IT DOESN'T LOOK LIKE THE MARKET WILL SEND A MESSAGE THROUGH THAT BUT THERE ARE OPPORTUNITIES TO HEAR FROM THEM BEFORE THEY VOTE AGAINST. JONATHAN: THANK YOU. LOOKING FORWARD TO IT. WE HAVE GOVERNOR WALLER FIRST, CHAIRMAN WARSH LATER, AT A CPI PRINT SANDWICHED IN BETWEEN THE BANK OF AMERICA STRATEGIST WITH THIS TO SAY. RATES WILL REMAIN ELEVATED, RISE FURTHER ENTER MACRO DATA SOFTENS OR FINANCIAL CONDITIONS TIGHTEN. MARK JOINS US NOW FOR MORE. MARK: GOOD MORNING. JONATHAN: 100 IS GOING ON? WHAT ON EARTH IS GOING ON? WHAT IS THIS? WHAT IS HAPPENING? MARK: IT MAY BE SPACEX OR BETTER-THAN-EXPECTED GERMAN DATA FROM OVERNIGHT. IN THE BROADER PICTURE, WHAT WE THINK IS HAPPENING GLOBALLY IS THERE IS A BROAD REASSESSMENT OF WHERE THE NEUTRAL RATE IS. THE MARKET HAD BEEN UNWILLING TO REALLY TEST THAT BASED UPON A LOT OF PRIOR FED GUIDANCE WE WERE RECEIVING. HOW WILL IT HIS LAST MEETING IN APRIL SAID, WE THINK WE ARE MODESTLY RESTRICTIVE. WE ARE AT THE HIGH RANGE OF NEUTRAL. WHAT THAT TELLS THE MARKET AS THERE IS AN EXPECTATION RATES WILL BE COMING DOWN BECAUSE YOU THINK IF YOU GIVE IT ENOUGH TIME, INFLATION WILL SLOW, THEN WE GOT A SHIFT IN GUIDANCE WITH THE NEW FED CHAIR COMING IN, AND WE CLEARLY HEARD THIS AT JACKSON HOLE. WARSH SAID HE WAS "HARD-PRESSED" TO DESCRIBE FINANCIAL CONDITIONS AS RESTRICTIVE. TO ME THAT IS A BIG DEAL BECAUSE IT CUTS THE ANCHOR LINE OF WHERE THE MARKET HAD BEEN EXPECTING THE FED TO GO, AND NOW THE MARKET IS SAYING, WHERE CAN WE GO? WHAT IS TO STOP US? THAT IS WHY IF YOU LOOK AT THE RATE MOVE YEAR-TO-DATE, 10 YEAR IS UP 115 BASIS POINTS. OVER HALF OF THAT WOULD HAS HAPPENED SINCE JACKSON HOLE. OVER HALF OF IT. TO ME THAT IS CONSISTENT WITH CUTTING THE ANCHOR LINE ON FORWARD GUIDANCE. SO OFF WE GO. AND THEN YOU ENCOUNTER STOPS, NEW RANGES THAT REQUIRE NEW HEDGING, THESE THINGS THAT EXACERBATE THE EXTENT OF THE MOVE, BUT THE BROADER CONTEXT IS THE FED IS NOW TELLING YOU THERE IS NO GUARANTEE IT IS GOING BACK TO 3%. IT IS OPEN FOR MARKETS TO FIND OUT WHERE RATES CAN GO SOMEWHERE OFF YOU GO, AND RATES KEEP RISING UNTIL ONE OF TWO THINGS HAPPENS. NOT OIL. EITHER MACRO DATA SOFTENS OR FINANCIAL CONDITIONS REALLY TIGHTEN. WE MAY BE AT THE VERY EARLY STAGES OF STARTING TO SEE RATES BITE. YOU TALKED ABOUT HOW EQUITY'S ARE LOWER THIS MORNING. I DON'T WANT TO OVERPLAY PENNY ONE-DAY MOVE BUT YOU ARE SEEING IT IN U.S. EUROS, FRENCH BONDS, ITALIAN BONDS. SO THERE MAY BE THE START OF RATES BITING. SOME OF THESE POSITIONS AND HEDGING FLOWS EXACERBATING WHERE RATES ARE ULTIMATELY LEADING. JONATHAN: IS THAT SUFFICIENT TO PUT THE BRAKES ON THE ECONOMY, AND TO WHAT EXTENT IS THE AI BUILDOUT AND THE RATE INSENSITIVE TO THE DEGREE THEY ARE RATE INSENSITIVE SKEWING WHERE PEOPLE THINK IT IS INCLUDING THE FEDERAL RESERVE? MARK: THERE WILL BE A RATE LEVEL WHERE THAT SENSITIVITY HAPPENS FOR ALL ACTORS IN THE ECONOMY, INCLUDING THE AI PLAYERS. JONATHAN: THE QUESTION IS IF YOU CHANGE THE AI PLAYERS BECAUSE IT IS HIGHER AND THEN YOU ARE CRASHING EVERY THING ELSE. MARK: THE FED HAS ONE TOOL AND A DUAL MANDATE, THAT'S IT. THERE DUAL MANDATE OPERATES THROUGH THE AGGREGATE MACRO ECONOMY. I GET THIS PUSH BACK A LOT, JONATHAN. I GET THE PUSHBACK OF THERE ARE TWO ECONOMIES, A TRADITIONAL ECONOMY AND IN AI ECONOMY. HOW MUCH CAN THE FED PUSH? THEY HAVE ONE TOOL. THAT IMPACTS THE HOUSING SECTOR, AUTO SECTOR, CONSUMER LEVERAGE SECTOR. YES, IT GOES THROUGH THOSE PARTS OF THE ECONOMY. IT DOES NOT HIT THE ECONOMY EQUALLY. IT IS NOT FAIR. BUT GUESS WHAT, LIFE IS NOT FAIR. THE WAY THIS TOOL WORKS IS IT HAS TO GO THROUGH THE INTEREST SENSITIVE PARTS. THE FED APPEARS A LITTLE SPOOKED BY THIS MUSCLE TO OTHER CENTRAL BANKS FOR OTHER REASONS, BUT THE FED APPEARS SPOOKED. WAIT A SECOND, THE MARKET IS AHEAD OF WHERE WE THINK RATES WILL LIKELY NEED TO GO. IT IS PRICING IN A MUCH HIGHER NEUTRAL RATE THAN WE THOUGHT EXISTED, AND I THINK WHAT THEY SHOULD BE TAKING FROM THE MARKET MOVE IS, GUESS WHAT, NEUTRAL IS PROBABLY A LOT HIGHER THAN YOU THOUGHT, AND THE REASON INFLATION HAS BEEN SO STICKY FOR SO LONG IS BECAUSE RATES WERE NOT RESTRICTIVE. THEY WERE ACTUALLY ACCOMMODATIVE. WE SURVEYED OUR CLIENTS. WE ASK THEM, WHAT IS YOUR VIEW OTHER STANDS OF U.S. MONETARY POLICY? OVER 50% SAY ACCOMMODATIVE. LESS THAN 10% SAY RESTRICTIVE. EQUITIES AT ALL-TIME HIGHS. CREDIT SPREADS VERY TIGHT DESPITE THE VOLATILITY MOVE. RATES NATURALLY HAVE TO BE HIGHER AND THEY SEEM SHELLSHOCKED. MY MESSAGE TO THEM IS THE MARKET IS TELLING YOU SOMETHING. IT IS NOT DOING THE WORK FOR YOU. YOU NEED TO GO DO THE WORK YOURSELF. YOU CANNOT RELY ON THE LONG BOND DOING IT. LISA: I LOVE THAT YOU ARE SPEAKING DIRECTLY TO THEM SO THEY WILL LISTEN TO YOU AND POSSIBLY PICK UP WHAT YOU ARE PUTTING DOWN. WE ARE GETTING A SIGNAL FROM THE MARKET. ARE YOU SEEING SIGNS OF THINGS TRULY BREAKING? IF NOT, ARE YOU SAYING YIELDS COULD GO SIGNIFICANTLY HIGHER THAN WHERE WE CURRENTLY ARE BEFORE WE GET TO THAT POINT? MARK: WE ARE SAYING WE ARE STARTING TO SEE THE BITE OF HIGHER RATES. AGAIN, YOU ARE SEEING IT IN U.S. HIGH YIELD, TRIPLE C'S IN PARTICULAR. YOU ARE SEEING IT IN EUROPEAN BONDS. YOU ARE SEEING SOME SIGNS THAT IT IS IN THE EARLY STAGES OF BITING. IS THAT ENOUGH TO CONVINCE THE FED THAT WE ARE DEFINITELY TOO FAR? I DON'T THINK SO YET. I AM NOT GOING TO BELIEVE IT UNTIL I SEE MACRO DATA SOFTENS OR A BROADER TIGHTENING OF FINANCIAL CONDITIONS. I WOULD IMAGINE THEY WILL JUDGE SIMILARLY. THE CHALLENGE IS THEY ARE SPOOKED IT HAS GONE TOO FAR AND THEY ARE TALKING ON THE MARKET. WE NEED MORE TIME. THERE IS NO URGENCY. WHAT DOES THE BOND MARKET DO? THE CURVE STEEPEN IS MASSIVELY. THE CHOICE WE THINK THEY FACE IS HIKE ORBAN SPIKE RIGHT NOW. THOSE ARE YOUR TWO CHOICES. I WISH YOU HAD A THIRD BUT YOU DON'T. FISCAL POLICY MAKERS CAN DO SOMETHING BUT THAT IS HIGHLY UNLIKELY. FOR THE FED, THOSE ARE YOUR TWO CHOICES RIGHT NOW. WE BELIEVE THEY WILL WANT TO RELY ON THE FRONT END BECAUSE THEY COULD CONTROL THE FRONT END PERFECTLY. IF THEY OVERSHOOT, THEY CAN BRING IT BACK DOWN. THE LONG END THEY HAVE VERY LITTLE CONTROL OVER. IT CAN RESULT IN PERHAPS TOO MUCH OF A TIGHTENING IN THE ECONOMY. SO FOR THEM, I THINK YOU HAVE TO RELY OTHER TOOL YOU HAVE AND YOU HAVE TO KEEP HIKES ON THE TABLE. IT WAS VERY SURPRISING TO US THEY TRIED TO TALK THE MARKET DOWN EVEN BEFORE THEY SAW PAYROLLS AND CPI. HOPEFULLY THE FED SPEAK NEXT WEEK WILL GIVE MORE OPTIONALITY FOR THE FED. JONATHAN: THIS WAS THE OLD GUARD. THIS WAS THE OLD GUARD OF THE FED DOING THAT. MARK: YES AND ALSO THE OLD GUARD OF THE FED TRYING TO PROVIDE FORWARD GUIDANCE. LET'S BE CLEAR, THEY ARE GUIDING. THEY WERE GUIDING LAST WEEK. EVEN THOUGH WARSH IS SAYING I DON'T WANT TO GUIDE, HE IS ASKING OTHERS TO. JONATHAN: THEY ARE BIDDING FOR WARSH. MARK: YES, ABSOLUTELY. THEY PROBABLY TALKED TOGETHER AND SAID WE OVERSHOT HERE. THIS IS MORE THAN WE ANTICIPATED. THEY HAVE A 4.1% MEDIAN DOT FOR THE CYCLE. IT WAS CLOSE TO 5% WHEN THEY STARTED TALKING THE MARKET DOWN SO IT WAS VERY DELIBERATE FORWARD GUIDANCE. YOU CANNOT CHANGE SOME OF THE WAYS THESE INSTITUTIONS OPERATE, NOR SHOULD YOU REALLY. YOU MAY NOT LIKE FORWARD GUIDANCE. YOU ARE GUIDING AND THAT IS DANGEROUS BECAUSE IT IS DRIVING THE CURVE STEEPENING. JONATHAN: MARK, THANK YOU. 5.70% ON 30'S. LET'S GET YOU TO VONNIE QUINN. VONNIE: PRESIDENT TRUMP SAYS HE WILL SPEAK TO RUSSIAN PRESIDENT VLADIMIR PUTIN SUED ABOUT A SUSPECTED CASE OF PLAGUE. CONCERNS ARE GROWING SINCE THE DEATH LAST WEEK OF A WORKER AT INFECTIOUS DISEASES RESEARCH INSTITUTE LAST WEEK. ALMOST 200 CONTACTS ARE UNDER OBSERVATION. U.S. MORTGAGE RATES JUMPED FOR A SEVENTH STRAIGHT WEEK TO THEIR HIGHEST LEVEL IN NEARLY THREE YEARS. THE CONTRACT ON A 30 YEAR FIXED IS NOW 7.49%, UP ABOUT HALF OF 1% OVER THE PAST THREE WEEKS. THAT MARKS THE FASTEST INCREASE SINCE EARLY 2023. IN SPORTS , THE SAN DIEGO PADRES WITH A 4-3 VICTORY OVER THE MILWAUKEE BREWERS IN GAME THREE. THE PADRES VICTORY SETTING UP FOR A GAME 4 TONIGHT. THE NEW YORK YANKEES AND TAMPA BAY RAYS WEEDING FOR GAME THREE OF THE ALDS SERIES IN NEW YORK THIS MORNING. JONATHAN: THE NEW RULE IS WE ONLY TALK ABOUT THEM IF THEY WOULD. LET'S SEE WHAT HAPPENS. UP NEXT, WE WILL SET YOU UP FOR THE DAY AHEAD AND CATCH UP WITH SIMON LEOPOLD WITH A STREET HIGH PRICE TARGET ON NVIDIA. ♪ >> THERE IS THE AI STORY BUT THERE IS THE BEHIND THE AI STORY. THERE IS POWER, THE GRID, GAS DEMAND. THE GRID IS ONE OF THE UNDERAPPRECIATED RISKS WE LOOK AT WITH AI AND POWER BUILD OUTS. I THINK WE SEE A FLIGHT TO QUALITY, LOOKING AT BETTER NAMES, BETTER OPPORTUNITIES, PARTICULARLY IN AN ENVIRONMENT LIKE THIS. JONATHAN: THAT WAS OLIVIA FROM APOLLO ON THE AI BUILDOUT. WE ARE DOWN BY 0.4% ON THE S&P. DOWN BY 0.7% ON THE NASDAQ. 5.34% ON TENS. 5.72% ON THE 30'S. THE STORY THAT SPACEX MIGHT BE LOOKING TO RAISE TWO FUND CHIPS FROM NVIDIA, PART OF THE MIX, PART OF THE BOND MARKET SELLOFF. YOU HEARD IT FROM MARK CABANA MOMENTS AGO. LISA: ULTIMATELY, WHO WOULD YOU RATHER LEND TO, A PROJECT TO GET TO THE MOON? JONATHAN: CLOSING IN ON A DOLLARS MARKET CAP IS NVIDIA. SIMON WITH HISTORY HIGH PRICE TARGET OF $515. SIMON JOINS US FOR MORE. WELCOME TO THE PROGRAM. WHAT IS THE LINE GIVEN HOW MUCH OTHER COPIES ARE RACING TO BUY THESE CHIPS? ARE THEY STILL IN POLE POSITION? SIMON: NVIDIA IS IN A VERY STRONG POSITION IN THE INDUSTRY. I THINK THERE IS TOO MUCH BINARY THINKING IN THE INVESTMENT COMMUNITY THAT EVERYTHING IS GOING ONE WAY OR ANOTHER. THE FACT IS THERE WILL BE OPEN MODELS AND FRONTIER MODELS. THERE WILL BE HYPERSCALE AND NEO-CLOUD. THE POINT IS THERE IS AN INDUSTRIAL REVOLUTION UNDERWAY. NVIDIA IS A KEY ANCHOR TO MAKE THAT HAPPEN. LISA: HOW DO YOU ACCOUNT FOR RISING BORROWING COSTS? MULTIPLES COMING DOWN AS A LOT OF THESE INFRASTRUCTURE COMPANIES AND CHIP COMPANIES HAVE TO PAY MORE AND FRANKLY THEIR CLIENTS HAVE TO PAY MORE IN ORDER TO AFFORD EVEN BEGINNING TO BUY THEIR CHIPS? SIMON: LOOK, THE BIGGEST FACTOR HAS BEEN EVIDENT FOR SOME TIME. IT IS THE CONSTRAINTS ON MEMORY SUPPLY. THOSE ARE THE CHIPS FROM MEMORY COMPANIES, SO THE CONSTRAINTS ARE NOT NEW. THEY HAVE BEEN LONG-LASTING, BUT THE DEMAND CONTINUES TO GROW MUCH FASTER THAN THE SUPPLY. THAT IS A KEY ANCHOR OR ELEMENT TO BUILDING OUT THESE LARGE SYSTEMS. MORE AND MORE MEMORY IS NEEDED. THAT HAS BEEN THE ROOT OF MUCH OF INFLATION BUT NOT THE ONLY THING. IN THE PREAMBLE, WE TALKED ABOUT POWER. POWER IS TIGHT. BUT THE SUPPLY IS ONLY GETTING TIGHTER. I THINK ALL OF THIS IS EVIDENCE WE ARE ON THE RISING SIDE OF THIS BOOM. LISA: DOES IT BOTHER YOU THAT COMPANIES THAT ARE GOING TO BE PAYING FOR THOSE CHIPS ARE NOT NECESSARILY DOING AS WELL? THIS BIFURCATION IN THE MARKET, THAT THE LEADERSHIP HAS COME FROM THE SEMICONDUCTORS, THE HYPERSCALERS, BUT NOT THE REST OF THE COMPANIES THAT ULTIMATELY WILL HAVE TO PAY THE BILL. SIMON: THE ECOSYSTEM HAS TO BE HEALTHY FOR EVERYONE TO WIN. THERE IS NO DENYING THAT. BUT THESE ARE SOMEWHAT NORMAL GROWING PAINS AS A NEW MARKET IS ESTABLISHED. WE HAVE HAD A LOT OF ANALYSIS DISCUSSION AROUND THIS CONCEPT OF TOKEN ECONOMICS. WHEN DO THE COMPANIES MAKE MONEY? I THINK THE FACT IS THAT ANY OF US WHO HAVE BEEN USING ARTIFICIAL INTELLIGENCE PROFESSIONALLY IN OUR WORK ENVIRONMENTS ARE SEEING MASSIVE PRODUCTIVITY GAINS. I THINK IT IS A MATTER OF MATURING DEVELOPMENT OVER TIME FED EVENTS, FINANCING ISSUES, BUT WHEN YOU LOOK AT THE INDUSTRIAL REVOLUTION IN LARGE PART, IT WILL BE SOCIETY CHANGING AND BENEFICIAL. I THINK ULTIMATELY THE ECONOMIC MODELS SHAKEOUT. JONATHAN: BIG PRICE TARGET. GOOD TO SEE YOU. THANK YOU FOR GETTING US UP TO SPEED. THEY DEPEND ON THE TOLERANCE OF THE INVESTORS AND THEIR BIGGEST CUSTOMERS AND IF YOU START TO SEE THE PUSHBACK FROM THE INVESTORS AND THEIR BIGGEST CUSTOMERS, THINK OF THE HYPERSCALERS AND OTHERS, TAP THE BRAKES ON THE STORY. WE HAVE NOT SEEN THAT AT ALL. LISA: ULTIMATELY, THEY CAN KEEP ON RISING EVEN IF YOU DON'T SEE PARTICIPATION IN THE OTHER 493. JONATHAN: THE PAIN IS ELSEWHERE. BOND YIELDS HIGHER AROUND THE WORLD. 7.5% WILL ECHO. ANNMARIE: ABSOLUTELY. LESS THAN A MONTH FROM A MENTOR ELECTION WHEN THIS PRESIDENT WANTED 3% OR LOWER. THIS IS SOMETHING PSYCHOLOGICAL FOR THE AMERICAN PEOPLE. JONATHAN: COMING UP TOMORROW, WE WILL CATCH UP WITH EDWARD, KAY, RICK, A STACKED LINEUP. FROM NEW YORK CITY THIS MORNING, GOOD MORNING. THANK YOU FOR CHOOSING BLOOMBERG TV. THIS WAS "BLOOMBERG SURVEILLANCE ." ♪