Rob Seach (2:11)

Well, there's no question it's jittery. You can have good reports from companies like in video. Really doesn't matter. It's been driven by C sentiment in market headlines almost entirely. And I Think what we've been trying to do through this is prioritize diversification and an emphasis on more durable cash flows and reasonably valued companies. We all have to know that volatility is a part of a bull market as it ages. Does not mean it's over. It just means that it's aging. And sentiment is going to drive in the near term in fundamentals are going to drive long term. What we've seen is a rerating of fundamentals. And so now you have some of the best growth companies in the world trading at more attractive levels. That it was almost a necessary and healthy reset. And underneath the surface, you've seen a lot of change. The market has broadened out. The indices are not down that much for the year. Obviously, the headlines are. We all kept asking each other on this show all the time, Scott, can the market do okay without these big names? Guess what? I would argue it's done okay. Nearly all active managers or many active managers are beating the indices.

Scott Wapner (3:26)

Well, it feels worse than it is to your point.

Rob Seach (3:29)

Yes.

Scott Wapner (3:29)

Three of the four majors are green year to date. The Russell's up almost six. The Dow's up one in three quarters. It's just been really choppy, Jimmy. It's been really volatile. The Nasdaq's down 2 and a third percent to start the year. It just feels worse than that.

Jim Leventhal (3:49)

Yeah, and I think there's an obvious reason, Scott, why it feels worse than that, which is that the leaders over the last three years have been, for the most part, really sucking wind this year. You know, pick your pick, whichever stock, Amazon, Microsoft, I mean, these are big important stocks. But to the point that you and Rob were just making, I'll add this data point that the equal weight S&P 500 is up a little under 6% year to date. So the average stock is doing well,

Scott Wapner (4:13)

9 out of 10 months positive and in out of 10 months. Yeah. For the equal weight. This is not a newer phenomenon. Yeah, this has been the way it's been going.

Jim Leventhal (4:24)

So we take some comfort from that. But let's also be, you know, very frank that this has been a lousy week kind of across the board from the news flow. And I don't care if you look at block 40% layoffs like that should give somebody pause, like what's going on.

Scott Wapner (4:39)

Yes, it's given a lot of people pause. We'll get to that.

Jim Leventhal (4:41)

Obviously, you know, and I will just quickly say, okay, we can. We have a cushion. We have a cushion in the macroeconomic indicators. So that for instance if you look at jobless claims that would say, hey, there's not a problem. We have things like concerns about private credit, which I know we'll get into later. On the other hand, we're in a situation where interest rates are low. The Fed wants to be accommodative. We have the ppi. You know, as you mentioned, Scott, not a good read today. By no means was it a good read. On the other hand, the CPI is not exactly flashing a warning sign. And just to sum this up under the heading of cushions, this does not look like a market or an economy that needs rate cuts. We've got 3% projected GP GDP growth this year. We've got profit growing around 15% right now. So I don't think this is a market that really needs rate cuts, which are certainly in doubt.

Scott Wapner (5:32)

I'd say there, you know, the big news of the day is there are just many things that are on the list of the big news items of the day. Perhaps none bigger than the open air raise under 10,730,000,000,000 valuation and of course the strategic partnership and Investment from Amazon, $50 billion. Amazon, by the way, is pacing for its worst month since December of 22. And as you'll find as I go down the list of the mega cap names, it's going to be the worst month since. I mean Microsoft fifth down month, longest losing streak since 09. Obviously some of the others Alphabet worst month since last March. But Kev, I'll come to you first on this story of the day. The arms race that just continues to ramp up and these investments and these big numbers that continue to get thrown out. Angst be darned in this market, these companies don't care how investors feel about the money that is being spent or they wouldn't be doing it because they feel it's worthwhile. As you continue to hear, as you did again today from Andy Jassy of Amazon, they think they need to spend this money and they need to invest it in places like OpenAI.

Kevin Simpson (6:48)

Yes, you had Andy and Sam on the heels of Jensen Huang saying the same thing, that this is by no means over and that this hyper spending will continue. But we're not seeing that reaction in the stocks. We're seeing a complete opposite to what we did for three years where the Mag 789 ran the party. And I think it's incredibly healthy. It's not a correction or a rollover. It's really a repricing and that's why we see the broader markets moving higher. We went from enthusiasm, where all you had to do was just mention AI in a conference call, your stock would go higher. Then we had somewhat of an exhaustion, which started in the third quarter of last year. That's where the breadth started. We saw that in the fourth quarter. We're seeing it more. I wouldn't call it AI paranoia. And certainly this deal with Open Air today, we validate some of.

Scott Wapner (7:33)

Maybe you want to call it AI paranoia. I mean, Ed Yardeni yesterday called it AI Derangement Syndrome.

Kevin Simpson (7:39)

Well, how about skepticism?

Scott Wapner (7:42)

Doesn't it feel like it's risen to a level higher than skepticism?

Kevin Simpson (7:45)

Yeah, but I don't know if it, if it breaches paranoia. But I think that it's now a show me story. For so long, it was like, who's going to pay the check? Who cares? Now it's about roi. It's about some path to profitability. And I like Dad's piece and I agree with it.

Scott Wapner (8:00)

Weiss, I'll come to you now. I saved you for last on purpose. Not just because you didn't have enough courtesy to wear a blazer on the program today, but just because I wanted to hear from everybody before I got to you, because you have moves today that are relevant to this conversation. So you sold Amazon and you sold in video. Those are really curious moves. On the back of this, you know, almost historic news from OpenAI $730 billion. They raise 110 billion from some sources, including Amazon, which is 50 billion. Why'd you sell both of those names? There are obvious fallouts for Microsoft and Nvidia, which has not had a good week. We know, but tell me more.

Steve Weiss (8:50)

Sure. So the stories are related in terms of sale, but also very different. Let's talk about Nvidia first in video. I think that what the market's seeing and has seen from for some time is the stock is pretty much wallowed in the 180 to 190 range. Now, I think go up over time. I just think near term it's going to be stuck there. And you see competition coming. The announcement with Open Air and Amazon today was competition, Right. They're using the training chip and there are chips that are coming that and out there that you don't have to buy the most expensive chip, as we saw in the story in the Journal today, you can buy chips that are just dedicated to the purpose that you need it for. Additionally, not only is Amazon putting their chip in the market, which they already have, you've got Alphabet, you've got Matter, you've got Microsoft working on it you have Apple. I don't have a lot of faith in Apple doing it, but there's competition coming now. I don't think stock's expensive, but the other part of it is. Excuse me, Scott, sorry. And where this links to the Amazon trade is that I own, I own Microsoft, I own Alphabet, I own these two, so. Or I own these two. They're highly correlated. I also own Taiwan semi. So the horse I'm choosing to play in semis is Taiwan semi because Nvidia can't succeed without. Can't succeed without them because they make the chips for everybody. So they've got sustainable business where they're really overbooked in demand. So I'm going to ride that horse for quite some time as I have it on Amazon. In addition to the capex, Andy Jassy is very clear we're not going to see return on this money for 18 to 24 months. I do think they'll see a retake, a return on it. I do believe it's a smart thing to do to invest, but it's also the kind of investment that you have to make and that you have to hedge your bets by making multiple investments at large amounts of money. So the other part to the Amazon story is unlike what we continue to hear, where this technology is going to create jobs like every other technology going back to the steam engine, I just don't believe that's going to be the case. So I think you'll see why.

Rob Seach (11:12)

Different. Why is that different necessarily this time? Productivity leads to more productive workers, tends to lead to more hiring, granted, different types of workers. But if you have a higher productivity per employee and you are in a growing business, history would tell you that there's more investment and it leads to greater productivity, which leads to greater profitability. I'll tell you why that's the fact. Well past different this time. Well, it's different this time is what you're saying.

Steve Weiss (11:51)

Of course, I'm saying that because the productivity is not for the worker, right? The productivity, unlike the past, really, I think you know near as much more to the enterprise. So that's why you're seeing, you know, Jack Dorsey saying 40% less. You're seeing UnitedHealth, which was lost in the news flow yesterday, saying we're spending a billion and a half to cut our operating ratio by 50%. So where are those people going to go? You're not creating new industries to. Hold on, hold on. You're not creating new industries like you did for the steam engines manufacturing or for Cars for anything else.

Scott Wapner (12:34)

You guys like this Amazon News as, as shareholders, everybody up here owns it. Yeah. Where's the heads of. Why is the pause?

Jim Leventhal (12:45)

Look, I like Amazon here. I'm not selling it. I understand Steve selling it and I heard Stephanie yesterday selling it. And really what this comes down to for me is where are we in the cycle of this disruptive technology? This is not the first time that humankind or America has seen disruptive technology agree. And I just don't think we're in the final three innings. I really don't. Now I do think when we get to the final three innings what we will see is that there are too many data centers and that the, the last however many hundred are added are not profitable. But right now what I hear from Andrew Jassy, from Brad Gerstner, from a lot of these people who are leading this charge is that every increment of compute that they put on is profitable. That they are supply constrained right now, that the demand is higher than what they can meet. I mean so right now it's just a question. To a certain extent I agree with Steve. To a certain extent I disagree in that. I just don't think we're in that turning point. We find we have double the number of railroads that we.

Scott Wapner (13:42)

You got more commentary from Coreweave today. I mean the CEO sat right on this desk this morning with the guys and if you look at coralweave shares, those were, were down on weaker than expected revenue guide, their elevated capex. They take a margin hit and CEO doesn't care. He doesn't care. Why? Because he says, quote, you know what I mean? He cares. But you get the broader point is he's going to do it anyway. You're going to sacrifice your margins in the near term for the greatness that you think you can achieve in the longer term. To which he says, quote, this is a once in a generation opportunity. For every dollar we invest today we're going to earn dollars. For every dollar we invest today we're going to earn dollars in the years ahead.

Rob Seach (14:33)

And the stocks have rerated giving you an opportunity to get invested while the market is digesting them. Going from cap light businesses to cap intensive businesses as they build out their infrastructure. These guys know their businesses. You do not think that they are investing to earn, to just play defense because everybody else is doing it. They're investing just the way we do because they see higher forward returns. By making these investments now the market can go sway from side to side. We're okay, just like they did with matter. They went from not being okay with their spend on the metaverse to being completely okay with what they were doing. And then ultimately they started to show monetization of their AI, perhaps in advance of anybody besides Google in a turn. And the stocks rebounded tremendously.

Scott Wapner (15:29)

So you, you bought more Microsoft. Right. That's part of this whole story too, of the OpenAI and Amazon investment. What was a few years ago thought to be Microsoft's turf, sandbox to play in and elbow everybody out. Obviously hasn't turned out to be the case. Now, OpenAI is still going to have a very important relationship with Microsoft, but they got a really good relationship with Amazon too. But you bought more Microsoft today.

Kevin Simpson (15:56)

We've been buying Microsoft for the past two weeks. This is the third time that we've added to it under $400 a share. There's going to be winners, there's going to be haves, there's going to be have nots. We just believe that this is one that's rolled over too severely. Rob, I want to pick up on what you said because I think regardless of what the market, what we might think about this hyper spend, the companies themselves, they're not blinking. And if you talk about it correctly, which I agree with, they know their business model. So I think that reinforces some of this trade. Maybe there is a repricing, but if you're in here, I wouldn't be somebody trying to time my way out of it. Now. Steve sold two of these positions, but he still has exposure there. That's not, that's not an either or trade. That's just him refining.

Scott Wapner (16:35)

No, but sometimes this, the spending is maybe you could argue, misguided, misdirected. Rob just talked about the metaverse and Metta. I mean. Yeah. Did Mark Zuckerberg know his business better than anybody else? Yeah. Were they spending money that. For that. That hurt investors and the share price? Yeah, because it was deemed to be too much and misguided.

Rob Seach (17:01)

So I'm going to say something that I heard at a tech conference. The goal is to go in and make decisions when change is happening so rapidly and pivot quickly. If the decision you made didn't work, it's not to sit here and overanalyze what we should be doing. There's. When change is happening this fast, you can't do that. You have to pick a lane, drive down that lane. I see it in my business every day, and then ultimately redirect that if it's the wrong lane, that's exactly what matter did, by the way, exactly what they did.

Scott Wapner (17:35)

Yes. After the shares suffered tremendously, investors got fed up. Brad Gerstner wrote a letter. Right. And then they did get fit, as he urged them to do, and sort of retooled what their focus was going to be. Now, speaking of decisions that are being made by corporates, we mentioned the block job cuts because maybe you can suggest that some of the uneasiness in the market today is how this is reverberating through it. The market, 40% of the staff shares are surging. That's not surprising given what job cuts normally do to stock prices. I urge Everybody to read CNBC's Steve Sedgwick. His op ed blocks layoffs should be a wake up call on AI and jobs. The Wall Street Journal out today. Tech has never caused a job apocalypse. Don't bet on it. Now Ed Yardeni says we're not too worried about this recession mongering I mentioned yesterday. He called it a derangement syndrome, which is in his mind filtering through the market here that the worst case scenarios are not going to be realized. But this move and nobody owns block shows you exactly what CEOs think they need to do.

Jim Leventhal (18:51)

It's creative destruction, Scott. It doesn't feel good when you're on the destructive side of that phrase, creative destruction. And it doesn't make for good headlines either. But there is a creative aspect of this. So when we talk about technology, has whoever said that technology has never created a jobs recession? We can look right around us. I know I did this Tuesday or Wednesday, but I didn't finish the point. I'm going to do it now. We can look right around us right here. There are roughly 300 people on the floor of the New York Stock Exchange. Thirty years ago I was here and there were 5,000 people. That is a greater than 90% decline during that time frame. Financial industry employment has gone up by 20%. Okay. Technology redefines jobs, by the way. I will tell you that I think price discovery on the floor of the stock exchange is better for the advent of digital technology. But it is creative destruction and it sucks when people have their jobs removed. But they will likely find other jobs.

Steve Weiss (19:45)

Yeah, I just don't think you can draw that connection. Look, we've never had a technology that can actually replace workers and make the enterprise so much more profitable by replacing workers. That's what Dorsey's telling you. So yes, there'll be some retraining and some people find jobs. But I think number one, that the money that white collar workers are making now. And it's not just block, it's not just united, it's Amazon itself that's cutting tremendous number of jobs and has consistently. So I think that's the difference here. So I think it'd be a mistake to rely on what we know, what we have the tech people saying who are behind a high, saying that they'll grow jobs because they don't want to come out and say the truth, which

Jim Leventhal (20:30)

is that you disagree with me because you say technology has never before replaced workers. And I'm going to tell you, I just described it right here. You're here often enough. Do you see runners going back and forth from the specialist station to the well, you tell me, Jim, to call it. Do you tell me to brokers? Do you see the clerks? Do you see the paper clerks actually writing out the buy and sell slips? Technology has quite often replaced work, Jimmy.

Steve Weiss (20:57)

So you must, you must hold on, Jimmy. You must have the statistics on how many of those workers didn't retire, right? Or didn't go into another industry because

Podcast Host / Announcer (21:08)

you couldn't make that.

Jim Leventhal (21:08)

Steve. I just, I just gave you the number. I just gave you.

Steve Weiss (21:12)

Hold on.

Jim Leventhal (21:12)

The population is down. Overall industry employment 20%. I'm giving you the numbers. If you want to disagree with me, find other numbers. But don't you think I disagree? It's like licking your finger and putting a second.

Steve Weiss (21:28)

Let me talk. You're drawing correlation.

Jim Leventhal (21:31)

Can you say something that has numbers to dispute the numbers that I gave you?

Steve Weiss (21:36)

The number you gave me have no correlation to the financial industry. The jobs in the financial industry were created by the democratization.

Jim Leventhal (21:45)

He's going to disagree to disagree. He's just going to disagree to disagree.

Steve Weiss (21:49)

You know, that's, that's a bunch of crap, okay? You guys don't want logic. And the logic is.

Jim Leventhal (21:54)

No, we do want logic. We want logic backed up by data. By data. Don't just say I disagree with the numbers when I give them to you. You know, alternative numbers. I don't like it when you do this, Steve. You just say I disagree for the sake of disagreeing and you give no logic to back it up.

Rob Seach (22:10)

You get no killers. Guys, the reality. Hey, Steven. See, he gave you every opportunity to talk him back it up with numbers.

Steve Weiss (22:20)

That's absolutely not true, Rob.

Scott Wapner (22:22)

Go ahead.

Steve Weiss (22:22)

I'll tell you what, Rob, why don't you be quiet right now and you, Jim too, and I'll give you my logic, okay? No, so here's the logic. The logic is the light. I'll give you numbers Index investing has gone from a fraction of the market to the majority of the market. That democratized investing. That's what's driving the financial services jobs. You've seen household exposure equities continue to increase. That's what drove financial services jobs. Getting rid of jobs on the floor of the exchange, which is, which is such a minor data point has nothing to do with the growth in financial services. Period. End story. Unless you can tell me how getting rid of a clerk on the floor led to greater job growth in financial services. I don't know.

Jim Leventhal (23:14)

Time finding.

Scott Wapner (23:15)

How about Dell, everybody?

Jim Leventhal (23:18)

Employment is up 20% from 5.7 million at the turn of the century to 6.8 million right now.

Scott Wapner (23:25)

How about Dell?

Jim Leventhal (23:26)

Okay, so.

Steve Weiss (23:26)

So tell me how reducing the floor population created that.

Jim Leventhal (23:31)

Steve, that's your goodness. Like, why are you. Why are you trying to disagree? You said, you said technology destroyed jobs. I gave you an indication of work.

Scott Wapner (23:40)

Destroyed jobs and created jobs. I let that go. I let that go long enough. Some might be making the argument as they're throwing things at the television a little too long. But how about Dell, everybody? Should we show that? Because it is surging today. As we change the subject. Thank God. Which is up 21%. Dell surging stronger than expected. Current quarter and the full year guide to which Jim Cramer described this as a, quote, monumental quarter for that company. No one owns it. But why do we bring it up? Because of the big debate over software, data centers and demand and everything else. As we're about to turn the page on, what's been a bad month for software stocks? Palantir got upgraded today to a buy from neutral. 180 is the price target. They urge investors. Kevin's listening because he owns it. Investors take advantage of this 35% move, the peak for the premier growth story in software and a company that is at the nexus of the two most powerful spending trends, AI and data. At 50 times our 2027 free cash flow estimates, Palantir shares are now very attractive. What do you say?

Kevin Simpson (24:46)

I like everything except that last part. 50 times is a big number to swallow. But if they're close, was. Was ridiculous. It was insane. But they're calling for 70% revenue growth in 20, 20, 26. That's powerful because their margins are 50%. Is this thing volatile? Yes. Do you question the valuations on it? Absolutely. Always. But when you have a pullback on something like this, if you want to have a speculative name in the portfolio, this is one that I would keep in there whenever. Whenever it's down and you can buy it. You can take a look at it. Now. That doesn't mean the volatility is going away, because it isn't. But I agree with this UBS report and I like the stock here.

Scott Wapner (25:20)

All right. It points us also towards a cyber trade which has been dicey lately. Take a look at ZSC scaler. It's in the news today. The stock was down. They deferred revenue and billings missed. We see that. Yeah, there it is, down 16%. Rob, you don't own this, but you own Fortnet. You look at CrowdStrike. Some of the other stocks in this

Rob Seach (25:38)

space been wanting to buy some of these other names to listen.

Scott Wapner (25:42)

You mean on the dip?

Rob Seach (25:43)

On the dip, yeah. We have. We have. We haven't yet. We've owned fortnet for quite a bit. You know, these names are not immune. Immune as any names are not immune to the broad destruction that we're seeing right now in the software industry. But in our view, the cybersecurity companies are mission critical services. These are powerhouse cyber companies. They have comprehensive platforms. Protection of data is going to become more and more important. I just don't know how you can look at this space and not take advantage of some of the. Some of what has happened recently.

Scott Wapner (26:19)

Okay, let's just take a break, right? Let's let Jimmy go on his third water third. We're only 25 and 15, 16, 17 seconds in to the program.

Jim Leventhal (26:32)

Supercomputer. You run hot.

Podcast Host / Announcer (26:34)

All right.

Scott Wapner (26:34)

Yeah, you do. You need a reboot. You need a reboot. We needed Weiss. We just need to hold the power button down on him for about three seconds. We'll come back to him later. We'll come back after this break. Your new home is now ready. Dr. Horton, America's builder has new homes that are ready today. With new construction communities throughout the Puget Sound and central Washington areas And more

Jim Leventhal (27:09)

coming, Dr. Horton has the right home for you.

Scott Wapner (27:13)

Dr. Horton, we're still building with more construction, more communities and more homes available every day. Tap your screen now or visit drhorton.com to find your new home now ready. Dr. Horton, America's builder and equal housing opportunity builder.

Podcast Host / Announcer (27:28)

This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Lansford for this information packed daily market Preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions and key results and statistics that may impact your trading. Download the latest episode and subscribe@schwab.com MarketUpdatePodcast or find Schwab market update wherever you get your podcasts. Before we had ATT Business Wireless coverage, our delivery GPS wasn't the most reliable. Once our driver had to do a 14 point turn to get back on route. A 14 point turn, an influencer even livestream the whole thing. Not good for business. Now with AT&T business wireless routes are updating on the fly and deliveries are on time. And the influencer did get us 53 new followers though.

Scott Wapner (28:22)

AT&T business wireless connecting changes everything. Okay, well, from one fight voice to another, Netflix is out of their fight for Warner Brothers discovery after Paramount's offer was deemed to be superior. Shares are surging as you see and Steve Weiss bought back in. So now the stock. When did, when did you buy back in? Because the stock is this is I think the third straight day that the stock is up on the at first I think hope from investors that they weren't going to win and now the realization that they have not.

Steve Weiss (29:18)

Yeah, so, so I originally bought, I nibbled on it earlier in the week because it was up, I think it's been up more than three days in a row. Started last week, stock hit 75 I believe was low. And then all of a sudden it starts marching up. So I thought this may be happening and insider trading is alive and well, you know, in the world. But then I bought from others last night, not with me, but I bought

Jim Leventhal (29:45)

most of it last, hitting just more

Steve Weiss (29:47)

than where it's, more than where it's trading. Actually right about where it's trading right now. Look, that's been the overhang on the stock and not only are they not spending, you know, ridiculous sum on a library of old films, they've got now not just, you know, weak two week competitors, but one much weaker large competitor who's going to strangle under the debt load and Netflix is then going to buy more content and they'll be able to bid outbid them on other content like sports. So for me, this is panacea for Netflix, I think it was nil fated to attempt at an acquisition anyway.

Scott Wapner (30:26)

All right. The commentary is universally positive, at least from the sell side. What I've seen today, Wolf, Target 110 BMO Outperform 135Jefferies 135Baird 120Your final trade the other the other day, yesterday. Yesterday was Netflix.

Rob Seach (30:43)

Yesterday it was Netflix, but we bought it earlier in the month. We didn't get to talk about it on the show because I wasn't on where I 15% since we added it. That does not Include the day we bought it for a very different reason. It's rare that this company trades it 25 times. It's a 50% discount to its long term average margins on this business are four times the industry average. It's got a great balance sheet they have. I mean they produce a ton of their own content. They've become a media powerhouse.

Scott Wapner (31:15)

Guys pull this out for two years

Rob Seach (31:17)

for me growing ad business. I mean as this company matures they're going to, they're to broaden their IP portfolio.

Scott Wapner (31:25)

Yeah.

Rob Seach (31:25)

And these are the times that you take advantage of great businesses when they're. We wouldn't have worried by the way if they ended up closing on this Warner Brothers. We were good either way. We were good that we were buying. This is a nice catalyze.

Scott Wapner (31:39)

I mean the market wasn't good through the whole process, right?

Rob Seach (31:42)

Yes, but that's why post that.

Scott Wapner (31:44)

No, I know, but that's why some had sold it. You see it was such a darling of the market and that beautiful ramp up to the mountaintop and then that started to get a little weak and then this news transpired and the stock has just been a steady decliner since I remember. I think it was the day that the, the, the deal was announced that Netflix made the bid. Josh Brown I think sold a big piece of his going stock's going to be in nowhere land for the foreseeable future. This clears that, doesn't it? Is it?

Rob Seach (32:17)

Certainly the market is definitely saying it does but the price had already recalibrated quite a bit on the announcement of the deal when people like Josh and everybody were selling it. We do not buy names that were as expensive as Netflix was.

Scott Wapner (32:33)

Just not generally speaking. Right. Generally speaking be okay. So another move to get to you bought more Apple. Which is, which is interesting. Tell me more about this move.

Kevin Simpson (32:41)

So Apple's been one of the few names, Scott, that hasn't suffered in this big sell off because they never put and made the investments into artificial intelligence to begin with. For better or worse, they're not suffering at this point. But I think under the surface we're seeing a few things that are worth paying attention to. Not the least of which is the Google Siri experiment that we think will work. You know, how many years have we sat here saying they'll get Siri right at some point? I think this is the year in which that comes to fruition. If it doesn't, then maybe some of these bets are off. But the other thing that I'm looking at from an AI Perspective is the Mac. The Mac is something that AI consumers, programmers are really gravitating towards. And that's not something that we're paying attention to. We're not talking about it here on the desk. But if there's an AI attraction to it, it's Mac and it's Siri.

Scott Wapner (33:27)

Energy hit a new high today. It's the top sector year to date. So you bought more slb, Kev, did you? And the transports are one of. They're having the best month since last May. And you bought Norfolk Southern. So you bought more slb and it's a new buy in Norfolk.

Kevin Simpson (33:45)

Yeah, Norfolk Southern is a new purchase for us. This is a name that we've looked at for a long time. Obviously they had some problems a few years years ago with the derailment. They've done an amazing job of recreating their balance sheet to look like something that we would want to own. Really cutting down on capex, getting lean and mean. 1.7% dividend, 7% dividend growth, which is modest. The stock's not cheap at this point relative to its momentum. But I think getting in here for us makes a lot of sense. You own Union Pacific. If we get the merger done and we have a transcontinental railroad, this could be something thing that you cannot replace with AI. They're not going to go out there and rebuild the rails. So I like the name here.

Scott Wapner (34:22)

You and unp, right?

Rob Seach (34:24)

We do, we do. We also own just in energy, cnq, Suncor, Devon, eog. These names have been on terror of late. It's funny though, they're such a great hedge. Right. One of the worst things that I think could happen to markets is energy continues to do really, really well because it puts the inflation, inflationary pressure on everything. And it's just, it's a, it's a nice portfolio diversifier. We do own UNP. We've owned it for one year. It hasn't been a great performer. It's up 9%. But you know the country's largest trail rail business. As industrials are recovering, transports are recovering. That's a good place we think to be.

Scott Wapner (35:04)

All right, let's get the headlines now from Christina Parts novelist either. Hi, Scott.

Christina Parts (35:10)

Well, Republican Representative Nancy Mace said today Commerce Secretary Howard Lutnick should face the House Oversight panel for questioning about his ties to the late sex offender Jeffrey Epstein. The Secretary is facing heightened scrutiny following the release of government records showing that his business and personal relationship with Epstein was more extensive than previously known. Mace made the announcement before the panel began its deposition of former President Bill Clinton. In Clinton's opening statement, which he shared on social media, he said he had no idea of the crimes Epstein was committing, saying, I saw nothing and I did nothing wrong. And NASA said today it will add an extra moon mission to its Artemis flight lineup before attempting a high risk, crewed lunar landing. The added mission will focus on putting a lunar lander into Earth's orbit for docking practice. It comes after the space agency pushed off the launch of the Artemis 2 flyby of the moon until at least April because of rocket problems.

Steve Weiss (36:16)

Scott, back to you.

Scott Wapner (36:18)

Christina, thanks. I was just looking at the declines today in the private equity, private credit names and the financials more broadly. We will discuss next. Picture this.

Podcast Host / Announcer (36:33)

A curve in the road, a change in plans.

Scott Wapner (36:36)

Well, what do you say with the

Steve Weiss (36:39)

all new Audi Q3?

Scott Wapner (36:40)

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The all new Audi Q3 made for

Jim Leventhal (36:59)

the yes Life

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Scott Wapner (38:15)

We need to talk about the financials today and we do that through Goldman Sachs, at least to start stocks down near 8%. Weiss the whole group is weak. It's been a bad month for these names. What is going on here?

Steve Weiss (38:28)

Well, what's going on is that you have echoes of 2008 that, that people are worried about and if they didn't get out of it when the first warning sign didn't get out. Mark when the first warning signs appear, then they suffered in some cases permanent capital loss. So it's more that than anything else. Look, I think they're going to be more issues. I don't know if you talk about it on air yesterday, but there is a two and A half billion dollar fraud occurring in the UK right now. Alleged fraud and that was underwritten by some of the top banks out there. And I believe Goldman was involved with Jefferies and others. So nobody wants to get in the way of this. I personally think it'll be contained. I do believe that the underwriting is not flawless as all the private credit companies underwriters have been saying and that there'll be more happening. But I think it's an opportunity actually to buy more gold than some of the better risk managers out there.

Scott Wapner (39:22)

It's funny, there's a note today from UBS on the banks and they, they put out five names to add to the cart. From a regional perspective, they mentioned Huntington, they say bank of America that investors are wary about the credibility issues in terms of clearly communicating expense expectations. That said, all the company has, all the, all the company has to do is hit consensus. JP Morgan they like considered defensive the first stock to give positive revisions. Capital One they like as well. Jimmy, what about this group? I mean it just continues to get punished. Can we look, let's look at a one month guys of the XLF instead of that, please.

Jim Leventhal (40:02)

I think in every way Scott, you have to be selective in this sector. This is, there are better companies and there are worse companies. You mentioned the five there. I happen to think Citigroup is one of the better companies, better valued. There are stories coming up with the Banamex IPO coming up. But I think whether it's that entire industry or the sector that is private credit, you have to be selective. There is a lot of news coming out of private credit it and some of it's really kind of dire. As Steve just mentioned with the UK there's fraud, there are credit concerns. There's an Apollo Fund, a publicly traded BDC that marked down assets by 3% today. So look, the public BDCs are not the place to be. It's just, it's very clear that the worst loans are in the public bdc. So if you're going to be in private credit, you have to have somebody who's telling you which companies and which offerings to be in. But I can just tell you the, the public BDCs are not the one.

Scott Wapner (40:54)

I mean but the, the, the regular companies are, are down also.

Jim Leventhal (40:59)

Yes.

Scott Wapner (41:00)

So you're to your distinction between. I'm saying. Hang on one second. Just to your point on you have to be selective. Where is that selectivity coming from?

Jim Leventhal (41:08)

Okay, thank you for allowing me to make the distinction.

Scott Wapner (41:10)

You're public equity companies.

Jim Leventhal (41:12)

All right. There's three things we're talking about. Public BDCs. I already slammed those. The public equities of the, the private credit companies like Blue Owl and Apollo. Frankly, I like those. But then within the non publicly traded BDCs that are offered by those companies, you have to have people who are guiding you, who are doing the due diligence on those non publicly traded BDCs. You can't just wait in there on your own.

Scott Wapner (41:37)

Well, I'm just telling you that like. Let's just use Blue Owl as an example since you're talking about them specifically. Their, their technology vehicle that, that trades publicly is down 17% year to date. All right, so you don't like the BDCs, but you like the, the companies themselves. Well, Blue Al capital is down 27%. So even worse than the BDC.

Jim Leventhal (42:03)

Yeah. And unlike the first thing you referenced, I think Blue Owl will come back. I'm in Apollo as well, which are very similar companies. Okay. In this regard. And I do think they are getting marked down. This is the public equities of the credit companies themselves. They're getting marked down on an overreaction to legitimate fears. These are legitimate things. Steve brought up the UK mortgage lender. We can talk about Tricolor and First Brands. Those are factual things that happened. But I do not think that these are systemic risks. That's where I think there's a meet

Scott Wapner (42:33)

me and there's a meet me in the middle of. You can use idiosyncratic examples for the things that you cited. You don't have to go all the way to. Well, this is not a systemic crisis. You could still have the number of loans that have been made to software businesses and the losses that may result from that as those are marked down. This whole thing is about where the marks are anyway.

Jim Leventhal (43:00)

Yep.

Scott Wapner (43:01)

So you don't have to go from here all the way to here. Well, it's just this. It's not going to be this. Well, it's this.

Jim Leventhal (43:07)

Yeah. The reason I'm responding the way that I am is because I speak to a lot of people on this. I speak to clients, I speak to advisors. Spoke to Doug Ostroover this week, the CEO of Blue Owl. And I will tell you that the words that are coming in are systemic risk. And I'm telling you the analysis that my team does at Sarity Partners would tell us otherwise than systemic risk. But that's why I'm saying that I

Rob Seach (43:29)

would respectfully disagree with Jim. You know, I've talked about it yesterday. I think there is value created in the public BDCs at some price because they re or they re rate and they dislocate from the underlying nav. The question is can you believe it? And the answer is found in the work under the can you believe it? And the reality of it is some of those probably should trading at 22% yield and others maybe shouldn't trade at the 9 that they trade at. The business processes that these companies are incredible how they underwrite. I talk to Doug Ostroever all the time too. I talk to all these guys all the time. It is very important that you pick the right partner. They also have liquidity buffers built in for what I would call maybe even outsized with draws. So clients want to get out. They are prepared for that. In many cases, not all cases, you will get carried out if you're not ready for that. The most thoughtful companies in private credit have already thought ahead on that. The largest ones have had to really think ahead on that. And they are prepared to meet those redemptions. There will be some gates, there will be some actors that didn't quite act as responsibly. But this industry could cannot be painted with one brush. And what I fear is if we do too much fear mongering, what ends up happening is the liquidity dries up from the retail community, which is a large new community here, and they're going to make the wrong decision. A Lehman type decision where everybody tried to run to the door at the same exact time. This is on credit now. I'm not talking about the underlying equity. Run to the door and everybody's going to get hurt. If you yell fire and they all try to run out and there is no fire, they're still going to get hurt. Okay, so you better.

Scott Wapner (45:20)

No, I know, but there were some advisors there. I'm sure there were some advisors over the last couple years who were yelling sunshine about private credit, endless days of sun, and now there's some turbulence and storm clouds and things are a little more worrisome. And those people who were in those assets, because they're either semi or highly illiquid, are stuck without an umbrella and they're going to get soaked.

Rob Seach (45:50)

So let me tell you what a poor advisor would do in that situation. They wouldn't want to deal with the headline risk because you know what? They don't want to tell the client something they don't want to hear, which it may be fine, we've done the work. Because they're scared to be wrong. A great advisor will actually dive in and do the work.

Steve Weiss (46:10)

All right.

Scott Wapner (46:10)

That's the last word. Santoli's next.

Steve Weiss (46:28)

All right.

Scott Wapner (46:28)

Welcome back. We have a developing story. Our Kate Rooney has it for us. Hi, Kate.

Kate Rooney (46:32)

Hey, Scott. So I'm just getting a copy of the Memo Sam Altman, OpenAI CEO sent to employees last night. This is addressing the Pentagon fight with Anthropic over their use of AI technology. Altman telling his employees that he is now working with the Defense Department to see if OpenAI's models could actually be used in classified settings. Says, quote, we would like to help try to de escalate things. Says they have had a variety of meetings over the past couple of days. Says, quote, this is an issue for the whole industry. Also goes on to say we're going to see if there's a deal with the Dow that allows our models to be deployed in classified environments and that fits within our principles. He does go on to say that OpenAI essentially has the same red lines as Anthropic. He mentioned this on our air earlier, domestic surveillance and autonomous offensive weapons. So he says in this memo that they would be able to build technical safeguards and deploy personnel to partner with the government to basically ensure things are working correctly and then offer similar services to other allied nations if they are successful. He says, quote, perhaps this can be a path that can work for other AI labs to no comment from Anthropic on this. I'm also told that company is still working ahead of a 5pm deadline with the government today. But Anthropic CEO Dario Amadei has said, at least said yesterday in a statement, virtually no progress on those negotiations with the Pentagon. He said we can cannot in good conscience accede to their request. Scott?

Scott Wapner (47:54)

Okay, Kate, thanks for the update. We'll see how this progresses throughout the day ahead of that deadline. Mike Santoli is here for his midday word. The senior markets commentator, of course, overtime co anchor. What is this all this about? A lot of stuff it is right today.

Mike Santoli (48:09)

It's a tough way for the market to try and stay flat year to date. It really is. It's truly defensive the way that market is even being held to the losses it is right now. It's like Netflix, Wal Mart, a bunch of big pharma stocks. I do think you have to at least squint when treasury yields are down as much as they are and banks are down as much as they are and the cyclicals can't rescue things. Homebuilders are weak consumer discretionary relative to consumer staples equal weighted now neck and neck on a one year basis. So you want to, you would prefer to see consumer take a little bit of relief here. Obviously it's not going to define the whole trade. We know we've had these hiccups before but I do think you have this element of, you know, nothing is quite picking up the slack the way we've gotten used to this year. So therefore you got a Vix 20 and you have an S and P flat for the year. So it's an unsettled situation.

Steve Weiss (49:00)

But I have to say you keep

Mike Santoli (49:01)

giving credit for the market not breaking out of its range in either direction.

Scott Wapner (49:04)

What breaks it out of the range up? I mean, from here, you know, ostensibly you're going to continue to have stories about jobs and AI and the future of our existence as those things collide. That's not going to make people feel easy.

Mike Santoli (49:19)

It's not. And I don't really know exactly if there's one thing people are looking as a trigger point to say, okay, we were worrying too much about this stuff. The capex is going to pay off. I do think everyone's watching how stretched software versus semis are right now. And just to see if that creates a little more momentum for the mean reversion there just to have a little more discriminating approach to those groups. But we'll see. And by the way, we get through this weekend, nothing happens in Iran. Oil comes down. It turns out, you know, the banks can find their footing. Maybe not much has changed.

Scott Wapner (49:49)

That's another thing, right? We didn't even mention geopolitics and Iran. And here we are 54 minutes in. So I'm glad you did. I'll see you later on this afternoon. It's Mike Santoli. Finals are coming up. Welcome back. I have a special announcement. Tomorrow is Rare disease day calling attention to the nearly 400 million people around the world with a rare disease. It's important to us at cnbc. This year we launched CNBC Cures to raise awareness. And coming up on Tuesday, Becky Quick hosts the first annual CNBC Cures Summit in New York City. Becky's going to be joined by leaders in the space to discuss the the biggest issues impacting the rare disease community. You can register to watch a free livestream of the event by scanning the QR code on your screen now or go to cnbc.com/cens. Let's get to the setup before we do final trades. Berkshire Hathaway earnings Saturday, the first report without Warren Buffett as CEO. Jimmy, how you think about that?

Jim Leventhal (50:47)

Well, the stocks had a Rough go since the announcement that Mr. Buffett was stepping down. But I think there is tremendous value here. I think when you actually analyze the company, strip out the stock holdings, which are fine, frankly, and just look at the operating businesses. They are attractively priced in the low to mid teens, depending on whether you're looking at the aerospace business, the energy or the railroad, Burlington Northern. It's very attractively priced.

Scott Wapner (51:10)

All right. So we'll see what happens there. That's always a must. A must. Watch. Let me tell you what's coming up on closing bell at 3 o' clock, we have Gold, Goldman's head of hedge fund coverage, Tony Pescarello, always a thoughtful guest and we'll get his views on where these markets go from here. Eli Kasdan is a healthcare hedge fund manager. He'll be with us as well. Dan Ives is going to join us. How about this Oswath Demoter, and he's the so called dean of valuation. He's going to tell us why he is right now, according to him, the most cautious he's been in his whole career. He'll tell you exactly why he thinks that now. And if that's not enough, we'll talk to Tom Lee. So we'll send you into the weekend with some big thoughts, I think on what's all transpired here and what this new month could bring. Stephen Weiss, do you have a final trade for us?

Steve Weiss (51:56)

I do. Scott. Qxo. They reported earnings this week, delivered exactly as they said and they're on their way to 10 billion in earnings. So I'm very excited about it.

Scott Wapner (52:06)

All right. Who's Blackstone?

Rob Seach (52:09)

Me.

Scott Wapner (52:09)

Okay. You want to tell me more? You okay?

Rob Seach (52:15)

I was dangerous.

Scott Wapner (52:16)

Did I stun you?

Jim Leventhal (52:17)

Industry leader.

Rob Seach (52:18)

It trades in an 18 times forward PE with double digit fee growth.

Scott Wapner (52:24)

Who just sold that? Was that, was that Malcolm Etheridge who just sold that this week? He did. You don't. Thank you. Appreciate you.

Jim Leventhal (52:31)

Farmer Jim ExxonMobil, also known as Esso, outside of the United States. Respect the trend.

Scott Wapner (52:37)

Okay.

Kevin Simpson (52:37)

I like the consumer electronic company Apple Computer, a massive install base that constant growth services. And let's not discount how much the AI developers like the new MacBook.

Scott Wapner (52:49)

It's all the way back to 1985 or whatever. That's where we're at with you. All right. I'll see you on the bell. You've been listening to CNBC's Halftime Report, the podcast. You can always catch us live weekdays at 12 Eastern only on CNBC.

Disclaimer Narrator (53:07)

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