CoreWeave bonds near 15%, Goldman upgrades anyway, and is the MBA finished? | Market Hang

Hi, welcome to Market Hang. It is Monday, October 19th. I'm Jen Sarbach of the Wall Street Skinny [music] here with my lifelong best friend and co-host, Kristen Kelly, and we have some amazing guests for you guys today. [music] We want to start off by talking about the bounce in tech stocks this morning. [music] The NASDAQ is having its a little bit of a rebound after its worst week since the summer. And nobody got hit harder last week than Core Weef, which lost about a quarter of its market value in 5 days as investors panicked over more than $35 billion of borrowings and close to $50 billion in total obligations that the market is very worried they will not be able to repay. Now, while everyone's feeling so optimistic on the stock this morning, we had Goldman STA Goldman Sachs upgrading them to a buy signal. And we've got Mike Wilson from Morgan Stanley telling everyone to load up on risk assets. Credit markets aren't so sure that 5-year CDS for Coree is trading right around,00 basis points, which puts a cumulative 5-year probability of default right around 60%. Um, so what do we feel like here? Do we feel like buying the dip or do we think that the credit market is right? I'm going to put it over to you, Mark. >> Wow. Right to me. Uh, well, you know, look, uh, the the the thing about where the market is right now. We used to be able to talk about the market, this AI ecosystem as a whole. I think that's the big learning that we've been having over time right now more recently, which is not all stocks are created the same, right? We can't just go and buy all the AI companies because they all dipped. Uh there are some of these stocks that are honestly down for the right reason. Uh and that is going to be the theme going forward, right? This is an opportunity for us to reassess. Uh the repricing of some of these stocks makes a lot of sense for Coreweave specifically. It makes sense. It's been something that I think had that was that sort of needed to be repriced properly to factor in all those risks that we're probably going to talk about now. Uh but there were other ships that went down with a tide that I think are buying opportunities. So, I wouldn't back up the truck and load up, but carefully and selectively is how I would answer that question. >> Kristen, you >> you're in with the is it is it a market of stocks or is it a stock market, right? >> Yeah. Well, I mean, certainly now, you know, certainly now. I mean, >> I feel like the moments where people there aren't when people aren't paying real or people don't pay attention to individual names and don't do the work to differentiate it from one company to the next, uh, there's there's a common conversation. there's you know there people want to talk about things they don't know a lot about so they fall into generalities and the market you know did all go in one direction or the tech stocks all went in one direction last week uh whereas the problems there was nothing new with coreweave last week but I think it was just sort of when you look for I'll I'll take your metaphor your you know that great Buffett line right when the tide goes out you could see swimming naked and I think that you know with the tide going out with some skepticism being applied maybe for a rare moment to some of the valuations Cororeweave has long looked like one of the weakest players. Um and and it's an old story, right? Long-term duration debt and short-term commitments to pay for it can be mismatched. It wasn't anything very different in Silicon Valley Bank as it relates to Coreweave. Um and you know, it's an interesting uh tact that they have taken to finance their business uh that is different than a lot of the other data centers. Well, to your point about Silicon Valley Bank, I think one thing that we have in common with where we were in the spring of 2023 when SVB went under is that we are in a Fed hiking regime. And Kristen, you had a put out a big article yesterday on Substack about Cororeweave talking effectively to the negative convexity of these high yield financing plays. Um, can you talk a little bit about what you think the risks are to Cororee's business model in a rising rate environment that might be overlooked by the by the rest of the market? Yeah. Well, I mean, I I think it was interesting that the sort of impetus or the initial um sell-off seemed to happen after co-host of the All-In podcast Hapatia uh tweeted a screenshot of their um unsecured notes basically blowing out to 15% to which Elon Musk replied, "Yikes." And then that kind of took everything down with it. Now, the thing about their business model is they are so >> paragons of financial [laughter] carefulness. >> Well, like I think the momentum, >> but but again, it's like the momentum traders versus I mean, Jen, you you made the point that it's like the bond market, I think, was they kind of know because it's like they're the ones who if things go wrong, they're getting they're not getting their money back. Like there's no upside if you're a bond investor. And so, um the the risk needs to be priced accordingly. And the I mean, the biggest problem with them is a obviously they're, you know, nine and a half or 9.2 times levered, which is quite high. a lot of their debt is secured right by these like very high quality contracts some of them right they do have these offtakers like your Microsofts and like your metas and then there are um the offtakers where it's like anthropic and open AI and I think that so much of the conversation um at least as as I see it is like is it are open AI and anthropic ultimately going to be able to become profitable because anthropic we know has like five half a trillion dollars worth of um compute contracts for the next 10 years and they're not profitable, right? Like they're sure their revenues look like they're getting better. It's growing amazing. But I do think so much of this hinges on um again an OpenAI and Enthropic who I saw a stat that they make up like 60 to 70% of the entire compute demand um for next year. So, um, back to the point that like when you have these super highly levered companies and at the end of the day, like it relies on the ability to actually have people who are maybe trying to figure out their business model buy stuff from you and so much of your um, earnings are eaten away with depreciation and interest. Like, I don't know. I mean, it's a it's a scary it's a scary place to be. >> Julie, what's your take on this? Um, one thing that I've noticed is that the Cosby has become a little bit of the canary in the coal mine, if you will, for the AI trade writ large. How do you think investors are looking to South Korea's stock exchange for cues, if at all, in the current kind of market environment? Yeah, I mean I think they're looking some. I think that it felt to me like last week that was sort of the realistic. I keep hearing from people, oh um the hyperscalers and the AI trade is price ins is rate insensitive. And I think last week sort of put to bed the idea that the AI trade is rate insensitive, right? Yes. I mean rates came down by the end of the week, but even so, as much as the Chimath tweet, it was the fact that CPI came out and sent yields, you know, much higher. they they weren't at their highs, but it just sort of like we don't know at the end of the day what is the specific catalyst sometimes for these worries coming back into the market. When it comes to coreweave, they have been incredibly regular. I mean, the thing has sold off more than 20% from peak to trough like a dozen times since it's come public. So, these are not new worries. And so you could argue I guess that like the the strike of the match it doesn't take a lot sometimes to get people worried about it. So the Cosby doesn't help. Yields being at those levels don't help. And I think we just are in this environment now where there is a consistent um sort of background concern about the AI trade. And so when the Cosby falls, when yields go up, when a new report comes out and says, "Guess what? there's a gap between capex and revenue, you know, all of these things um just sort of remind people >> that they're already worried maybe, you know, and then you get these sort of selling waves that happen. >> Well, I think that brings us into our next topic that I'd like to get into, which is what does this mean for Anthropic's IPO? Um I think we've been batting around these astronomical valuation numbers from two trillion to three trillion. And if the market's feeling this jittery, Kristen, what do you think that means for the prospects of the IPO? And how much of their image are they trying to launder here with this new unveiling of the public benefit fund? Well, I mean, look, I think that um the irony is a lot of the potential concern about sort of the AI image, if you will, sort of does come a little bit from Daario, who I actually do think at the end of the day like does want to do right. But at but at the it's sort of like um you you want to save humanity, but there's there's the the irony that you're you know making you you make money off of this potential product which can have negative um negative outcomes. The public benefit fund is interesting and actually backing up I did think it's interesting that they're a public benefit corp. And so Jenna, you and I were talking about we're like what does that actually mean? And so it's interesting. It just means that in addition to like having to maximize shareholder value, they can also take into consideration like what's actually good for the public. OpenAI is also apparently um similar structure. But the public benefit fund just means that now they're going to they're trying to they need to get approval from um the current investors to put 5% of shares into again a fund that then they can decide what they want to do with it for again the public if you will. Um, but it the the irony is like, well, but who's who is actually um looking over this? It reminds me a little bit of like the Facebook oversight board. Like, who's governing it? And then where does the money actually go? And so, I don't know. I guess um yeah, like Mark, what do you think? >> I mean, people have shown that I think you're right. They've shown that they haven't actually, you know, we can we have seen, you know, if you want to ask what's what's with the public benefit of of Facebook/ Meta, we've seen how Facebook and Meta treats children in the public for, you know, more than a decade, for two decades almost. We've also seen that Anthropic was founded to be a different kind of company and indeed those people fled OpenA because they didn't believe they were living up to those promises. Um, so, uh, but it also has an effect interesting market effect. I'd love to get your guys take on it. taking 5% of the shares is yes it's hundred billion dollars into a new charity isn't that wonderful for the world we hope but it also takes 5% of the float away from the IPO filing right so in the IPO you've got this restriction of 5% of the shares that can't be sold you've got insiders that can't sell we don't know how big the float's going to be and we probably won't know with the first filing of the S1 but what we you know the the gamesmanship of of we think it's Morgan Stanley on the left and Goldman Sachs as well in this deal of gaming the IPO by putting out a limited and float and then what the lockup's going to look like. We saw the weirdness of the SpaceX lockup. We also have the new rules of of many of the indices that have to buy the shares really early into this deal that you know they they and it's kind of amazing they could price this thing kind of wherever they want if they keep the float low enough and this does that even further. >> Yeah. You know I I would love to just comment on the you know the the whole uh you know this whole the the softer side of uh of investing. Um, you know, it it is it is clear to me that this are this is these companies trying to control the narrative before the narrative controls them, right? We've seen how the the public narrative can shift against some of these companies, these behemoth companies. Uh, but look, it's this this won't be the first company that has tried this, right? I I actually did my my doctoral dissertation on CSR, right? Like what is the return for this corporate social responsibility, right? The softer side, right? um you know focusing on your your stakeholders right >> what is the return >> there is not one and I you could read I you could read the whole dissertation maybe karmic return mark it >> it I don't believe it is if you you look we we we invest our money in these companies because we want them to give us return on our assets right so that is not necessarily the best return on their assets going out there saying okay we're going to spend all this money to make people feel good right if they're if they're turning down contracts that obviously if they're following the the law, right? They have to follow the rule of the law. But if they're following the law, uh, and they're investing in things that don't have great returns, I'm going to question that as an investor every day of the week. >> This isn't but this isn't investment, right? This is donations. This is charity. >> Yeah. But this is this is this is charity, but this what is the charity return? See, I would rather invest. You see, there's something called an agency problem with that, right? So like if I want to invest in charities, I'll invest my own money in charities. But when I invest in anthropic, I'm investing in anthropic, making sure they have the best damn models that are out there, the the most cost-effective models that are out there. I want to see them plow every penny that I give them back into research and development, building that you building that moat and so on and so forth. Sure, I don't want them out there doing bad things to children and, you know, but the fact of the matter is is we're paying them. It's a commercial entity. And you know, look, I've looked at the data and like I said, the data shows that these companies uh that try to do this, some of them do it to try to sort of mask over some of their issues >> and actually companies that do that, companies that don't have good return on their equity, for instance. These companies are actually punished by the market, right? So uh so if you're doing well right if you have a high ROE and then you are investing money wisely in in these CSR types of things we do see a very slight uh potential benefit right that doesn't mean they shouldn't be good corporate citizens they absolutely should be but taking my money and investing it no that's what I do >> Mark I used to have this argument with my father who was very involved in the Episcopal church and he was always bothering the bishops to get them to not invest in companies that made cigarettes and companies that made weapons weapons manufacturers. There weren't a lot of them in the public markets when he was doing that, but he was constantly arguing with them saying this is not the the kinds of investments that equal returns can be gathered uh from other kinds of companies to invest in. And I wonder over the long term, and I don't know the answer, if if if these companies have been able to get more investors, companies that have avoided doing things that have pernitious effects on on the world have managed to get more investors involved in them because they're they're not um a-holes. Yeah, I think I think that has I I think that was the the thinking the logic that a lot of these companies that are out there like Tomms who gives away shoes when you buy a pair of shoes. This it makes sense. You you definitely are going to garner some investors, right? People are going to be like, I want to invest in a company that does good, right? But they at the end of the day, we all know they want to invest in companies that do good but really that do well, right? Because again, you know, we have limited dollars to invest. We all want to make great returns on our investments. I do agree that it does help some people. There may there are cases where you have a stakeholder like for instance someone will say oh I will buy Tom's shoes because I like what they're doing but in terms of the investors. So if we're talking about investing I don't think the returns are there. So but that said >> but how many people have said to you Mark I wonder I'm not giving meta my information for this this new social media this this uh this new AI. >> I'm one of those people. Yeah, I know your problem and I've heard that. So there is a business problem in in this new era when you're not known for great data security and maybe Anthropic has an edge over open AI and meta and others because they're putting themselves out there as a business and maybe they are indeed a business that where where they're taking ethics first and business second. I mean, I will say I actually wonder if a bigger potential threat here though is the I mean, well, we know that the threat of open source is huge, but if you can also somehow um combine open source with local AI and then you don't have to be giving anyone your your information. I mean, I think that that is like the ultimate um I mean, it's what I would want. I just at the end of the day, Jen and I were talking about this like before we hopped on that the the reason that you have like your anthropics or you know Muse or whoever people want what's easy but I do think as there's continues to be concern about what's going on with people's data. I mean we saw with the Navier Stokes equation getting solved um by OpenAI but it was because there were I mean I think the allegation is there were these like math um mathematicians who were utilizing uh I believe it was Chad GBT and and they ultimately Chad GBT utilized their info to solve it when it was like these other two people one who was an open sorry anthropic researcher um and I forget where the other mathematician was but I mean I think that as you have more concern I actually wonder if it becomes comes a potential um problem for anthropic as people are like well I actually want to ultimately go somewhere more that's local AI if we're able to find a type of model and ease of use um for a company that does something like that like that I think is >> yeah I mean it could ultimately become like a differentiator right saying hey look you know we we have a model that is not going to do this that and the I don't know how big that market is uh I think you know all of us are are are concerned about our data I mean it's a it's a real problem for all of us and it's a concern for all of us. But uh the question is is you know is it going to if if you started a company that said okay ours is different we will absolutely you know lock that stuff away. Uh how much of the how much of the public is going to use it. How powerful will that be if it only serves a smaller sector? Look it's a big dilemma right you dealing with so many different it's not a business problem. Uh it's it's it's a technical problem. It's an oversight problem. The the reality is is as this is all evolving, we're asking the right questions, right? It's good that it's in the public discussion at this point. How it gets solved, if it gets solved, if it can get solved in a world where there's so much capital uh that is looking, you know, there's so much tied to the the success of these companies. You know, we're talking all about this high leverage and will they even become profitable? you know, what is going to make them say, "Okay, we decide we're not going to be profitable this quarter. Let's push it off to next quarter and invest in more security or maybe we should, you know, build some more playgrounds or something like that." The pressure on these companies, right? The amount of capital right now uh that is invested in these companies, I would I see that there's just a huge dilemma uh you know, how do you do that? How do you maintain that? It's it's just not realistic. I'd like to see that happen. We're going to learn a lot more about how this works as soon as we see finally see the S1. >> Cory and I have been talking about this for so long. >> Oh, that thing. Oh, that thing. >> The S1. >> So, we are launching a new product. I'm not pitching the product here, but we're launching a new product called the quiet period, which is a research product focused on really in-depth research on IPOs. We're launching it with this anthropic IPO. I think >> I've been waiting for this thing like pins and needles for weeks now. Like literally every day. I can't believe it's coming this late. Um, but I think once we're going to learn so much more about the direction of the business, the direction of the spend, the time frames for those big commitments, uh, that you guys were talking about that are was we understand to be a half billion dollar, half trillion dollars, sorry. You know, when do those take place? How much can they get out of those? We're going to learn a lot of details about that when this filing hits, but we just don't see it yet. Um, and we'll maybe start to also understand why so many venture investors have continued to plow money into Anthropic at some really high valuations uh with what they've been able to see about the business that the rest of us have not. >> Oh boy. >> Well, and and also I mean the recent IPO environment has been lousy, right? You had the firmst IPO in um Australia. Ncale seems reportedly investors are saying they want a lower valuation for that. Aura got pulled um because of valuation. So I mean I I know >> these are different >> I was gonna say I know anthropic is like >> stunk because the pricing was too high and it wasn't really a service. They said it was a service firm stunk because one of their biggest contracts blew up the week that they were pricing the IPO. >> Well it seems like that's happened to Ncale too. >> Yeah. Yeah. So I mean you can go through these deals one by one and you know the the SB energy thing was an insane valuation at 180 I think 186 time sales for a data center and power company. I mean there was a lot of attempt to sort of be part of a SpaceX wave that I think these deals were just overpriced and and maybe not well managed for what the market had right now. I I think once Anthropic is through, if Anthropic comes anytime soon, uh things will start to change into the end of the year and certainly the first quarter of next year. I >> I have a curveball for you on Anthropic. You know, it's like, you know, first of all, it's easier for us to value those other types of companies, right? We're talking about assets. We're talking about contracts. We know where they're spending the money. Uh it's not easy, right? None of this is easy, right? Because it's very hard to see the end of the runway with some of these companies, but you understand their business models well. uh when it comes to a company like Anthropic, um you you really are betting on the growth, the technology, the ability for that to become uh to become commercially viable. Uh what that actually looks like. We all know it looks like it's interesting, right? We know it's something big, but we can't necessarily wrap our hands around it. My concern is, and this is the curve I promised, um, which is I'm starting to think to myself, have we thought about anthropic and open AI as possibly commodities, right? Because, you know, there's increasing competition now. Uh, that means the challenge for them to produce the type of service that they're producing at a cheaper at a lower cost. I mean, to me, that's a business that historically, Julie, we wouldn't invest in businesses like that. we'd be like not at huge valuations, right? I mean, >> they're making Q-tips at the end of the day, right? >> I mean, well, that's that, you know, we've I think that's been well talked about, right? That like every wave of innovation we've seen from railroads to electricity to the internet. >> Yeah. >> Eventually is a commodity and it's not the builders of the commodity that end up profiting. >> Yeah. It's tough in the short. >> Listen, you go and you look down further down the ecosystem like if you look at the chips and we've been talking about Nvidia, you and I for so long now, right? Um these companies they have the ability though differently than than maybe uh open AI right or you know but because they can continue to innovate right they can keep going and going and going like you know Apple has the next phone the next phone the next phone the next phone and they're able to stay ahead of that wave they're able to innovate themselves uh build a moat around themselves while these other companies it's going to be all about how much capital they can throw at it and how quickly they can grow these things. It's a very very tough market. Uh >> but the moat the mo these AI companies is going to be the data, right? So if Anthropic is capturing if Claude is already got your data, it knows your preferences. It knows how you like the answers to eight of the last 10 questions that you ask and is able to give you an answer that's got the context of your data and the kind of work that you do. That starts to become a moat, right? or whether it's it's whether you're writing something or you're solving math problems whatever as the as the AI system is tailored to you and responds to your data with answers that you like that starts to become the mode and makes it the such that an openweight model from China might not be able to match that and indeed we might end up with openweight models under under the sort of hood of claude so you can select a cheaper openweight model to do the dumb work and have their their cutting edge models like mythos do the smart work >> but I yeah I think though problem is it kind of goes back to what we were talking about at the beginning which is like the cost of compute and the massive amount of spend that you need in order to like get these tokens as an output and I mean back to like anthropic and open AI I mean their um edge to your point it's the data it's also like having the sort of newest iteration of the model but think about how much they're actually I mean I I think I saw a semi analysis um came out and they said that it cost like $1,400 for a $20 pro subscription like that's what it's costing you know, open AI. So, if the um you know, if the market price was actually what these companies were charging, like how many customers would they lose and also how many people are then going to go switch to your open-source model. So, I think that that's the biggest problem is like how are they going to ultimately figure out from a business standpoint how to become profitable, not just get revenues. Yeah. Exactly. And then what happens to demand if they can that's what concerns me if they can raise the prices. That's the problem is that in some cases at this stage it's still early enough where they have a little bit of control over the price points but I would I would say that that we have to factor in that possibility where you know companies can choose right they're going to be agnostic to which uh open which model that they use underneath their service or the service that ultimately we're going to pay for right um they could choose right we pay open AI or we pay anthropic but think about all the the business cases that are out there that rely on these models B2B uh to be their back end, right? They're now sitting sitting like what's Apple ultimately going to use? They could choose, right? Because they didn't get married to their own model. >> They're going to buy the cheapest one, but they'll someone will come around with something better and cheaper and they might say, "All right, we're switching, you know, we're going to switch to anthropic next year because they're cheaper." So, you know, look, I am think it's amazing, right? I'm not saying it's a bad investment, but I think we really have to that is the hardest part of making doing this analysis as we see how fast this whole ecosystem is evolving. We know how these happen. Even though we're talking about exotic technology here, but this is no different than any kind of ecosystem that we see out there that's making widgets. Uh you know, you see parts of these uh that you know, once somebody innovated the first nail, right? Then everyone started making nails. So, >> here's what's different. >> Yeah. Let me let me throw this idea out here and you have to understand that I come at this as a veteran short seller and as a skeptic forever >> but there's a bullish notion underneath this which is agents no if you talk to a company like Palo Alto Networks or fortunet or even Cisco or something they'll tell you that most of the hacks on their networks are coming from robots not humans which is to say most of the users most of the threats in cyber security are no longer human threats they are AI created agents and you know I I I meet with anthropic uh partners almost daily uh as we get ready for this IPO offering as I get ready to write this first quiet period report and there's a notion that agents there are so many more agents than humans what if the total addressable market the the kind of slide that I think is completely BS whenever I see it from any venture company or startup what if the total addressable markets is market is greater than the number of humans in the world right which is which I think it is I think if agents can start to ping the software and use the software to make money maybe there are more use cases than there are humans on the earth and we start to have a really different kind of market around big AI companies be it anthropic open AI or whatever and and the numbers start to look really different and maybe these companies that that have captured so much venture capital money to go out and and get customers first even though every single query cost them Christian as you pointed out uh you know hundreds or thousands of dollars more than they can possibly get in a gross margin basis today maybe by capturing these things and then unleashing a world of agents They start to create markets that are bigger than we've ever had in the world. >> Well, it's funny that actually reminds me a little bit. I think wasn't the SpaceX in their S1 they were talking about like the TAM and it like expand expanded to like outer space everything. Yeah. I'm not saying that. Yeah. Well, I did think it was interesting that when um uh Anthropic announced the uh public benefit fund and actually Mark, you had said I don't want them to give money and they decide where they're going to spend it. I want to decide where I want to spend my money. And so that was the argument that Elon Musk made was like, well, hey, you're going to take 5% and put it into some fund and then decide what to do with it. I'm going to just take like a share of SpaceX and I'm going to give SpaceX shares to all ch children in America apparently. So, I'm curious what you guys thought about that. Apparently, it >> apparently is doing a lot of work in that sentence, Kristen, [laughter] because we know like Elon says a lot of stuff. Is he really going to do this? I think that's the question. That's that's question number one. Is he really going to do it? >> Mhm. >> Thing number two is, and this is the same thing I said when the reports came out, that the Trump accounts were going to allow individuals to donate shares of specific companies through foundations, right? And Gwin Shotwell reportedly already had done that um and had given shares of SpaceX. And I think Trump accounts are a great thing, right? Give the kids of America money, put it in index funds. I think when you start donating specific companies, you run into some real conflict of interest problems. And I know we're in a world of conflict of interest. But if you look at the latest polling and you see what people are most concerned about in America, for the first time, corruption is number one. So here you have the richest guy in America giving shares of his company to every child in America. Okay, you can easily see, we talked this about this on the 8:30 this morning, you could easily see like what if the SEC goes to investigate SpaceX? What if uh they have a government contract that the government are talking about uh cancelling? But the children, >> you can't What about the Simpsons episode? What about the children? No, but seriously though, like you I mean and I and I I I have argu I keep having arguments with my old friend Eric Baltunis from Bloomberg about this on on Twitter on X, you know, that like he thinks it's great. Give them, you know, this will help close the wealth gap. I just think there there is too much opportunity for conflict when you have specific companies rather than um an index fund, for example, being being donated to. Anyway, that I'll get off my soap box now and let somebody else win. >> Eric's not here to defend himself. He is talking. [laughter] He's doing it. [gasps] >> Yeah. Know, again, I I think that that I agree with that. I think that giving specific like companies stocks is is potentially problematic. Um but to your point, you know, I I have four kids, so I'm like, if I get, you know, a share, that seems great. But back to the I mean I think that the unintended consequences or maybe this is actually not at all but the the actual um impact in terms of like also kind of just like buying people off a little bit that it's like you know like here you get some some some shares like >> look if you're if you're a holder of million if you're a holder of any SpaceX right you should be upset about this. IG I keep I hate I don't want to keep sounding like you know the Monopoly guy and even though I dress like the Monopoly guy but you know look they're diluting they're diluting the shares. >> No he's not creating >> if he gives No, but if he gives out shares this is this is this is he's giving something away for free. He could be taking this much shares and selling it and investing in rockets, right? I want him to invest in rockets. I really do want to see him get life on Mars, right? I like I want to see that. That's what people are investing in. like we're not investing in him to give away money to you know I I would love my kids to get some of that money no question about it and I believe in all the positives of the investment in the Trump this is all very good on you know there are very clear paths to great returns for the country the nation by investing in the children giving them money teaching them how to invest giving them incentives and things like that forget about the moral hazards like let's say we get we figure out how to deal with all that stuff assuming we could >> you just think it's a bad idea for an invested investing. >> I hate to be that guy that keeps saying that, but you know, in the end of the day, it looks like a bunch of companies. >> Why don't you hate to be that guy? >> Listen, you know, everybody is, you know, they're trying to control the narrative right now, right? Because they don't want to appear to be the bad companies. Look, obviously there are people are the community, you know, there's a little sensitivity out there right now these days. So, they're trying to play on that sensit sensitivity. He says next year he's going to give away some shares, but this year he's spending over $250 million to swing the election in a in a in one direction. So, >> that's where he's there. There's talk and there's action. We can see where his action is. >> Yeah, great point. >> Yeah. >> Well, pivoting slightly, I want to talk about the Fed. We mentioned interest rates earlier, but there was a little bit of quizzical price action in the bond markets last week. Um, we had a gang busters inflation print. We've got problems still looking at the price of oil. Nothing has changed on the inflation picture. Yet the C when we look at the market's odds of a Fed hike at the end of October, we are looking at less than 20%. Now, I do think the bond market did a lot of the Fed's dirty work for it earlier this month. But I think the question is is can Worsh hold the line here? Does he keep exactly where we are with interest rates? Does he signal something? I know he likes to communicate a little bit differently than his predecessors. What do you guys think? Bank of America is still calling for a rate hike at the end of this month. Non-conensus view there. >> Mark, you want to weigh in on that one? >> Oh, wow. Well, I think uh I will weigh on that. I think um look, I'm expecting at least one one hike between now and the end of the year. Let's just say that. Whether it's this month or whether it's in December. Look, um I think the market has s sort of factored that in. Um you know, if we look at the Fed funds futures, uh we see that stuff, you know, moving up and down constantly. Let's remember that's also speculation, right? It doesn't mean that that's really, you know, what is going to happen. That's just what the market's thinking right now. >> It's usually right. >> It's pretty close, especially as you get closer. It definitely does. Yeah. And I think, you know, I don't know what the unfortunately there's not they're not numbers that suggest otherwise. I think if we look at the inflation prints from last week, super hot, right? No matter how you slice it, it's not looking good, right? The PPI numbers, right? You you can't you can escape the CPI stuff because that can that can move up and down. But when you stick when you get that type of print in the PPI, that means it's in the pipeline, right? Somebody has already paid those prices for the products that are already what I like to call the conveyor belt and they're coming to you and me, right? So, it's going to hit us and I'm sure the Fed is thinking like that. Well, but I think so a few different things. First of all, the he may not wor may not be communicating. Of course, when he spoke at the IMF meeting, they asked him directly and he said, "We're not in the business of of giving forward guidance anymore." But his colleagues are, right? And almost universally, they've been talking about a lack of urgency that they can be patient even, you know, they haven't I don't know if any of them have said that directly after we got the CPI and PPI prints, but that has been the general message, right? And so that's thing one that all things being equal, the Fed should raise rates next week, but it doesn't seem like they're going to, right? And the other factor is, yes, yields have been going higher, so I guess the market's been doing some of their work for them, but the midterms are coming up. And so it's, yes, they're a non-political organization, but it still would be highly unusual. um our colleague Ben Worskull who covers DC for us went back and looked at the history and it's something like 40 years since they raised rates on the meeting going into a midterm election. So it would be super >> but then itself is a political decision to to to not do what the economy is calling for is a political decision and and maybe these time with certainly everything else in politics is really different right now and and we the inflation effects the inflationary effect of higher gasoline prices is felt in the numbers but the the inflationary effect of higher diesel prices takes further time to go through the economy because when the Feds wants to strip out energy and food you see other things start to get more expensive over the longer term from uh these high cost of diesel, which has been really jaw-dropping. And we're going to see that u through the next few months regardless of what happens uh in the in the multiple wars of war in Ukraine uh and of course the war in Iran um against Iran and and that effect is going to continue to blow through this economy in in some big ways. >> Yeah. I mean, you could definitely see it now already leaking into the core numbers, right? Especially from diesel, right? But honestly, to be clear, I'm not supportive over that. I don't believe I think the Fed knows that they they cannot control the type of inflation that we're dealing with by raising interest rates, right? That's you know demand pull the the demand pull inflation that we're all you know traditionally used to. That is not what's happening here. This is not an overheating economy. This is absolutely supply driven. Now it is definitely bubbling into other areas of the economy. um you know the solution is to see energy prices come down and yes it'll take time but again if the argument the only argument I can make for not hiking right now why they would be pulling back is simply because of that right the Fed by not they're still they're like you said they're still talking quite a bit right the Fed folks uh they have not slowed down one bit right and they're talking way more than any of times in my whole career uh and I've been around for a minute uh as you could probably tell by looking at me um but They're talking an awful lot. And for a for a a Fed that is not giving forward guidance, they're giving a lot of forward guidance. Similar with with with WH himself saying, "I'm not, you know, I'm not give I'm not going to answer that question." Well, that's his forward guidance, and we know exactly what that means. Uh the point is, uh is that, you know, they're talking the talk because they're trying to keep a lid on top of any kind of overheating. But the reality is is they know because they're economists. Most of them they know they cannot fix anything by raising rates. They will d you know they will only serve to destroy certain pockets of the economy that are struggling under higher interest rates specifically uh specifically real estate right with this big refinancing wall that that we're coming up against and things like that. So I if if I could make any case for why they shouldn't be raising rates or why anyone saying I don't think that they're going to raise rates that would certainly be it. They cannot they have to be seeing that. But they can't be sitting around also saying, "Yeah, we have no problem. You know, it's all based on the straight of our moods. They'll fix that. It's a political problem. We're just going to sit back. We're going to take an extended, you know, winter break, you know, or something like that." But I don't see they can't do that. So, I think, you know, looking through that, you know, I think that, you know, unfortunately, the the wave uh toward raising one more time by the end of the year probably that that I think that that horse has already left the barn. The market has factored that in. It's going to happen. But what's 25 basis points going to do? It's not going to change things materially. Although it's not going to help the market psyche right now, which is obviously very delicate uh over here. So, you know, that's another factor that has nothing to do with the interest rates themselves, right? So, >> but I feel like I mean just to play devil's advocate, it's like raising rates, it just shows that you are serious about wanting to combat inflation, which then potentially makes the I mean, at the end of the day, it's like if you think about um consumers, the mortgage, you know, their mortgage rate is basically priced off the 10-year. And that's not that that's based on the sort of sentiment of the market. So, potentially raising rates has a beneficial effect. You know, it's like counterintuitive, but they raise rates and maybe it actually makes the 10ear come down. I mean, we've I think the tenure is up what 100 basis points in the last >> weekly after they after they raised last time and then it did but it didn't last. >> Yeah. I have a hard time with that. Right. I have a hard time because you know you've seen those those FOMC folks. They look pretty serious to me. Right. Yeah. >> Well, and I would say I would say the other thing is about about what we're talking about is that and I would I would say this to you Mark is that I agree with you that as we know monetary policy is a blunt instrument as they say. >> Yep. and it won't necessarily bring it's not going to bring down fuel prices. However, this is a guy running the Fed who has said very explicitly inflation is a choice. >> Yeah. >> And if that is the position that you're staking and that price stability is their is their job, >> then that to me isn't monetary policy is a blunt instrument, right? Like to me either he needs to tweak his messaging then or or follow through on on his rhetoric. It is a very tough situation. I remember being in the car with my brother and sister growing up. My father would be like, "Don't make me pull this car over, right, when we get out of hand in the back seat." And you know, the question is, did he ever actually pull the car over? But, you know, he quieted us down for a few minutes, right? And so, you know, look, in a lot of cases, I think this is the market seeking something uh some kind of information where there is no information. Um, and you know, the Fed is going to Fed has always been reactive. no matter who was at the helm at the Fed, you know, some it's all about how they communicate with the market. And now this new Fed head is not communicating by choice, which in of itself is just thrown a bit of a spanner into the works. And we're all trying to game it out and figure out what does this mean? Is he going to have to pull the car over? You know, is someone going to get get a whoop in here or what's going to happen? Um >> well and you you make a great point about the drivers of inflation too being a little bit out of the control of typical um drivers of inflation, right? The drivers of inflation are everything around me here in Silicon Valley, which is spending on AI and spending on data centers and all the things that go into it. It's also tariffs. It's also the high price of fuel, whether it's diesel or gasoline. And it doesn't look like any of those things are going to slow down more. But I would make the argument, and I'm sure the people in the Fed do as well, because they believe in the efficacy of of rate hiking, that if a smaller part of the economy is under their sway, because they can't stop the war, and they can't stop the president from slapping on tariffs on Canada and everybody else around, and they can't seem to stop the build out of data centers, maybe they don't want to, then the the things that they can affect are require even higher rates. And that that waiting too long uh is something I think this Fed seems to be concerned about. >> Yeah. I mean, the one thing that you didn't that wasn't on that that pretty almost complete list of what's causing inflation is resilient consumer spending and the wealth effect. The market is the reason that we still have inflation. The fact that yes, we took a hit last week, but the fact that the market has gone up so much and that the wealthiest Americans are driving most of the spending. Um, and those folks you could argue are pretty resilient to K-shaped yet. No, we haven't said K-shaped, but you know, but it's important. >> Well, that'll be the first time we've had a conversation about the Fed and not talked about the K-shaped economy uh pretty much in the last 12 months that I can remember. Yeah. Know, I agree with all of this. I I I do think too that so much of what the Fed is trying to sus out, I listened to Scott Bessant talk about this in person in Charlotte a month ago, is what's the impact of AI going to be on the employment numbers that we see going forward on kind of household income. All of these things that are very concerning at the individual consumer, the individual employment level that have nowhere near begun to flow through the system. And I think that the Fed is very concerned this time around about making a decision and having to change course and having to reverse their action and losing that credibility. I think they are holding guarding that very preciously. They want to retain that angry driver in the front seat image as long as they can and do as little as possible to act while kind of, you know, speak softly and carry a I guess like sharp steering wheel in your analogy. So, I think that that's a a difficult challenge for Kevin Worsh and it'll be interesting to see how he rises to the occasion. I think what communication he did give over the summer kind of didn't really help the market and I think uh he learned from that um say less and do less to Q one of my favorite movies ever forgetting Sarah Marshall um [laughter] but uh pivoting a little one of the topics that we were talking about over the weekend there was a New York Times op ed and the title was I teach at a business school it's time to shut them down Um, we're having a lot of conversations about the utility and the ROI on getting an MBA. Julie, I'd love to hear your thoughts on this on business schools. Is it worth it? >> Well, as it happens, I have a senior in high school who is applying not to MBAs obviously because he'll be undergrad, but is applying to undergrad business schools. Um, and I know Corey has some kids in college, too. So, um, although I can't remember from business schools, >> most [laughter] of them. >> So, so I too many kids. Yeah. I read that oped family. I thought I thought it was really interesting and I didn't know the sort of the background that the op-ed also talks about the sort of genesis of business the business major as a concept um which I guess is a more uh recent invention. But I thought the reason why the author said he wants to get rid of the MBA program it didn't quite hit for me. He kind of says like we're we're not looking at the business at the MBAs holistically enough and looking at the place of enterprise in society. Like you might have like a sustainability and business um class here or there, but it doesn't really like we need to it almost felt like it was like a we need to rethink capitalism and teach like I don't know. How did you guys read it? I don't know if that if I if I was interpreting it the right way. Well, listen, I have some very strong feelings on the overall premise of the MBA as a whole. I did not get one uh myself. I never even really seriously considered getting one. I came straight out of undergrad, straight into the world of investment banking and kind of never really turned back. Um but my husband got a Wharton MBA and he told me the story that when he was applying he um his mom asked him, "What schools are you applying to as a safety school?" And he said, "None. either it's this and it's the network and it's the recruiting opportunities or it's not worth me spending, call it $150,000 at the time on being out of the workforce and these two years of education to then get a fancy little initial after my name on an email signature. And I think that's something that's being called into question wholesale in America is the value of higher education and the ROI on spending money at, you know, private colleges on, you know, I was an English literature major. And I think that they put out some list of majors that are now under consideration for being exempt from federally funded student loans potentially that being one of them like that if we're not majoring in something that is deemed you know enough of a contribution to society eligible to borrow money to go to said school. So in the current environment, you know, the prospect of then going and getting an MBA like for kicks >> does seem questionable. It really has to be a very specific use case for that MBA. And I think that use case is dwindling. >> Well, sorry, I just want to jump in. I think it's funny because I was similar to Jen, although I studied engineering, I ended up going to Wall Street and I worked, you know, in investment banking as well. And then 2008 hit and I was like, well, maybe I should go back to business school. And I was talking to um some friends about that and they were like it sounds like a very expensive vacation because the goal was to go and then to come back into finance. And so I think that if you're depending on like where you're starting it can be again a very expensive vacation that by the way it's like it's a double whammy right? You're not only spending money you are also giving up earnings for 2 years. So it's like so expensive because you're taking yourself out of the workforce. But there are there are jobs and there are situations. I mean, Jen, obviously your husband, it was like a amazing career choice because what well, sure, like maybe what you're learning isn't like something you couldn't learn elsewhere getting the value of the network and the brand and the access like getting I mean he then was able to pivot from a job that got him an entry into Wall Street and he's brothers the day we went bankrupt. So like >> I mean yes, [laughter] >> but I mean he's been very successful since. So, I think that like there has to be something more than just like I want to go and get this fancy degree. Like you have to have a real reason for why you're going to do it. And I think that education for the sake of education like I think for a while it's not it it's been less about like what you're learning. Again, I am not utilizing my engineering degree. I'm not there like you know making I mean that's a mechanical engineering biome. >> But you are wait I'm gonna push back against that. And this is I'm gonna push back strongly against that. You are using your engineering degree. You know why? Because engineering taught you how to think. >> Thank you. >> Engineering taught you how to think. True. And so you're you are using it every day. It just because you're not being trained in a particular discipline like like Jen, I was an English and French major. >> I mean like what you you use it because it teaches you how to look at the world and you use those skills every day. >> Yeah. >> I% English majors by the way. >> I'm 100%. Look guys, I unfortunately I fortunately I have the NBA and I went beyond the NBA and have a doctorate. So look, I'm a >> So you can talk about CSR. >> I could tell you. No, but I could tell you I could tell you that look, not everything and even though I talk about ROI or the whole h, you know, beginning half of this this conversation, I talk about ROI. Some things don't have a specific ROI attached to them. It's very hard. We all want to put a number to everything. But I can tell you, you hit it right on the head. I learned things in the classroom, being with colleagues, uh being with my classmates, meeting the professors, having the discourse. I learn things a way of thinking that for some for like for instance, lawyers do M&A also. Okay? >> MBAs do M&A also. I personally believe, sorry lawyers, that MBAs do a better job because they're trained to think in that way. Lawyers are trained differently to solve problems differently and so you learn something. But I will say that you get out of most like most things in life. You get out of those things what you put in, right? I agree there are a lot of people that they have nothing better to do so they just go and get that graduate degree or they haven't gotten a job yet and so they just go and get a graduate degree. Um you know there's there's a lot of that and you probably are not going to get a great return out of that because you don't want to be there. But when I went and got my doctorate, I wanted to be there. Like I was a vessel. I wanted to learn. I wanted to have discourse. And so look, there are and there by the way um you could read this in a different way also. There are a lot of universities that don't have great curriculums, right? They're not addressing because I could tell you I hire MBAs and they're different from every different school and I could tell you that even the ones that you expect to be really really good by the names, I'm not mentioning any, they're not as good as you think. >> You can tell us. I can't I would make a lot of enemies if I haven't made them yet. But >> I don't want my kids to end up in one of those schools. [laughter] Please warn me now. >> No, but clearly clearly there is the network which is extremely important in business. You cannot that is extremely important but that doesn't mean you have to go to Wharton or nothing, right? Wharton has a great network but but that said there are there are schools that have great curriculum that focus on very real problems. Like I you know people have to learn skills. there are skills that need to be taught and for lots of years the MBA programs they didn't teach they didn't teach it right they were teaching you you know uh theory and things like that theory is good but that's not going to help us when you hire a person we they need to know how to program they need to know how to use spreadsheets they know how to think smart on how to create those spreadsheets and the curriculum has to know how to do spreadsheets no to do it correctly they do have to know how to do it correctly I know many people kids know how to do but they they don't know how to think and create those spreadsheets. So, you have to have someone guiding you through that process and you know make you know there are so many good things because I teach so you know I'm giving you the this is my pitch. Hire me. No, I'm kidding. [laughter] No, but >> so I've got I've got three kids in college right now. I had one that just graduated uh earlier this year and my youngest son who's a middle kid in that in that was in college is is at USC wants to be a banker. He's totally devoted to it. He runs the investment club at USC. He's teaching some of the younger kids how to go through the application process to be a banker. And what he tells me is, and it it's what struck me wrong about that Times essay, was that the kids who don't who are in the business program at the Marshall School at USC who are some of the best, you know, business students in the country, for whatever that's worth, many of them are focused on becoming entrepreneurs and working at startups. They're not all looking at banking or consulting, uh, as it used to be the case. um he makes fun of the kids who are going to who think they're going to go start a company, but that there is that notion of entrepreneurship and running a business uh from the very earliest moments of the education of these young business people. Um and they're not all focused on banking. You know, he's he's chosen this path of banking and and it's insane also the recruiting process that he's gone through. Before he was 19 years old, he'd had over 300 interviews. you know, it was just a crazy number of coffee talks and Zoom meetings and and you know, he was locked into an internship right about at the time of his 19th birthday that he hopes after he does finish his internship will turn into a job after school. And it's it's like we're recruiting basketball players or something. He's got to show the skills that require him to be a banker before he's 19 years old. It's amazing. >> You bring up a very good point though because like, you know, I think the problem lies in the with us in the industry, right? because it's, you know, we all know there's such a thing as target schools, right? So, you're bringing this up. So, you know, there are probably brilliant kids out there. >> Yeah, of course. >> That won't get a job because they don't go to one of those target schools and they're all the all the bulge bracket companies out there. They will only hire from certain schools and then they're extremely selective, you know, once, you know, once you even get into that funnel to get in the door. But you absolutely need to have that union card, right? like you have to have that union card. So if you want to go into banking, >> you have to go to one of these top tier business schools if you want to get a job at a bulge bracket bank. I don't care how smart you are or even who you know, right? Of course, there are a lot of other skills you need to get. Interestingly, it's not just technical skills, right? So when they interview, when we interview people, it's more like how are they going to fit into the program? Can they talk to our clients? These are things right that you will not learn in a classroom really you know by reading a book but by being in the classroom and and learning how to interact with people and doing group projects and you know that stuff you do learn and it's invaluable education. So, it's like the whole system is unfortunately and we're just talking about investment banking right now, but it goes like you don't need to have an MBA or a PhD to to be a good uh to be a good entrepreneur, right? Those are skills that you probably learn on the playground as a as a kid or from your parents and all that other stuff, you know? But uh anyway, that's my that's my two cents on the matter. >> No, that's exactly right. I I couldn't agree more that it is uh it the technical skills are mere table stakes and everything else that you just mentioned is the differentiating factor for anyone who's looking at entry- level jobs or you know even frankly much more senior jobs um within these industries. Um >> you guys so much on Wall Street skinny about that. That's so good. >> Such great stuff about how to become I love it. It's just great stuff. >> A thank you. [gasps and sighs] So question for you guys when you are thinking about your kids who are in college right now who are you know looking at those internships who are looking at those jobs who are thinking about the ROI on on their education right now what's the thing that scares you the most >> you know I there's a cons my concern is that um companies are pulling back on hiring because they don't know the effect of AI and they don't so they're not they're they're some it seems that some companies who used to just go up and g gather up these kids from the right schools or with the right resumes, whatever, um without knowing exactly what they would do with them are now starting to think, well, let's figure out what we want to do with them first and let's figure out if AI is going to make this job go away. And they haven't decided that AI is going to make the job go away, but they're a little more hesitant to hire in that environment. And it's an interesting sort of pause. Uh my oldest daughter is graduating from Lehi right now and looking for parallegal gigs in Manhattan. and it her conversations have with thus far with some of these companies has been interesting and I haven't gotten a sense from her that there's been any notion of a slowdown yet but at the end of the day when they look at hiring a class of 120 or 150 maybe they bring that down to 100 and I think that that's a real concern that the companies just don't know what the anthropic IPO is going to mean to them and how it's going to change [music] their business >> seriously. All right well thank you guys so much. Um, [music] we're going to have to wrap up, but again, thank you, uh, Julie, Mark, Corey, and, um, we'll be here again tomorrow. So, see you next time. >> Thanks, guys. >> Thank you. >> Thank you. 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