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Squawk on the Street
SOTS 2nd Hour: More Powell Probe Fallout, CPI Market Impact, & Bank Earnings Breakdown 1/13/26
00:44:09
Carl Quintanilla, Sara Eisen, & David Faber kicked off a big morning on Wall Street with more fallout related to the DOJ-Powell probe, before hitting 2 other key stories of the day: consumer inflation & bank earnings. Evercore's Julian Emanuel and former Barclays CEO Bob Diamond joined the team to give their takes on the action. Plus: Microsoft out with a new 5-part plan to reduce consumer impact from its growing energy, water, and land use tied to AI... President Brad Smith broke down the move and what comes next this hour.
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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 market update podcast or find Schwab Market Update wherever you get your podcasts.
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Good Tuesday morning. Welcome to Squawk on the Street. I'm Sarah Eisen with Carl Quintanilla and David Faber. We are live from post 9 as always at the New York Stock Exchange. Coming up this hour, first on cnbc, interview with Microsoft President Brad Smith as President Trump touts the company's new efforts to quote pick up the tab for AI data center power consumption in this country. Plus Evercore's Julian Emanuel with us to talk about his new warning around near term volatility as we get more inflation data and earnings season kicks off. And speaking of earnings, we'll break down bank results and look ahead to more big name reports later this week with former Barclays CEO Bob Diamond.
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C
Busy morning for data as we got CPI and now some housing numbers. Let's get to Diana. Morning Diana.
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B
Good morning Carl. These are just breaking.
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C
We have two months now of October.
- [01:53]
B
New home sales data. We got October, both of which we did not have because of the government shutdown. So I'm going to go with October. Right now we got 737,000 versus expectations of 718,000. This is 0.1% below September 2025 of 738. So that tells us that 738 in September was actually above expectations of 710 and it is 18.7% above October 2024. So we're seeing a nice gain year over year and and I guess yeah, well above expectations on that. For sale inventory is also moving higher. It's unchanged from September but is 1.7% above October of 2024 and it is a 7.9 month supply. So that's still well above that median between you want six months is a balanced market between buyer and seller. The median price of a Home sold in October was $392,000. This is 3.3% below the September price of 405 and is below the it is 8% below October 2024. Now, we do like to use those year over year numbers for prices. So it does show that the builders are lowering prices. What we do know in September, October is that mortgage rates basically didn't move. They were between 6.2 and 6.4%. These numbers are based on people out signing contracts, so not closing. It's people making their decisions in October when those rates weren't really moving and when the builders didn' note that there was a lot of concern about the economy. So we did get a beat on that and that's good for the builders. I would also note that we finally got housing starts numbers last week. Housing starts, however, were 4.6% below the October starts from the year before. So we're seeing a weakening in housing starts. We saw a weakening in building permits, which are a future indicator of housing starts. But a nice beat on new home sales for October at least. Hopefully this data will start to get more timely as we move forward. Back to you guys. Yeah, kind of a mixed picture there for the homebuilders as well. Diana, thank you very much. Diane Olek. I'm still focused on these new developments that are happening around this federal investigation into Fed Chair Jay Powell because I think the developments in the last 24 hours have showed that the, the strategy is backfiring a bit. Just take, let's take the federal. The top Prosecutor in Washington, D.C. that's Judge Jeanine Pirro, who brought this investigation. She comes out today and says the U.S. attorney Attorney's Office contacted the Fed multiple occasions to discuss cost overruns in the Chairman's congressional testimony. But we were ignored, necessitating the use of the legal process, which is not a threat. And here's the key. The word indictment, she says, has come out of Mr. Powell's mouth. No one else is. None of this would have happened if they just responded to our outreach. This office makes decisions based on the merits, nothing more and nothing less. We agree with the chairman of the Federal Reserve that no one is above the law. And, and that's why we expect his full cooperation. That sounds a little like, like there's someone's blinking there, right? I mean, this is after a number of Democrats fined, but Republics Republicans even have objected to this probe into the Fed chair, this criminal probe. And here are some key ones on the Senate Banking Committee at this time. Yesterday we were Talking about Thom Tillis. But we also heard Senator John Kennedy, Senator Kevin Cramer, Senator Dave McCormick, all coming out against this criminal investigation by the federal government against Fed Chair Jay Powell. Something I've always said is that Fed Chair Jay Powell has worked really hard to earn the respect and credibility and support on both sides of the aisle of lawmakers. Remember, this is an agency that is overseen by Congress, not the administration. So given some of the Republican opposition here, the fact that now we're hearing her say that this is not an indictment, maybe walking it back a little bit, blinking a little bit. Look, a lot of people are pointing to the market rally yesterday, Carl, as evidence that the market's okay with this. But what I think it speaks more to is that there was so much condemnation on both sides of the aisle against this that maybe it looks like that the President won't be able to carry this further and the strategy looks like it is not working.
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That along with the.
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The color reporting from the Washington Post.
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And Axios, that Besant and Pulte have.
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C
Sort of been in this tug of war, if you believe the Washington Post.
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A
Besant kind of believe that this issue.
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C
Had been put to rest, the notion of Pulte going after Powell in a significant way and that this was perhaps a surprise. Yeah.
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B
And then Axios reported that Besant was so alarmed that he called Trump to warn that it had made a mess and could disrupt financial markets. There's a lot of people familiar with the matter kind of kind of reporting going on behind the scenes about which camp this came from. You know, some. Some are putting it on Pulte. You know, what I've heard is that Pulte actually was clearly involved with Lisa Cook, but didn't really know about this, this kind of federal investigation at all. Even though he's been very critical publicly of Fed Chair Powell. Whatever it is, I think that the attempts to walk it back and even from the administration themselves, President Trump trying to separate himself from it, I think tell you a little bit about the seriousness of it going forward. Now. That does not mean it's not over, though, you know, if she continues on this trail. One note that stood out to me was Matt Mali of Miller Tabak, who's a technical analyst. And what he said is if this is something that the administration keeps pursuing in any material way, it's going to create some real problems for the markets and our opinion. So we don't want to brush it off as quickly as the market seemed to do yesterday. So this overhanging risk, JP Morgan and Some of these other banks are holding conference calls on the subject of Fed independence, you know, talking to lawyers about what the, what the outcome outcomes could look like here. But clearly a lot of folks are coming out in support of, of Jay Powell. And from my point of view, you know, the administration had they were getting lower interest rates. They were going to get a chance to get a new Fed chair. They probably were going to get a chance to fill Fed chair Powell seat which doesn't expire for a few years. Now all of that is in jeopardy with some of these Republicans even saying that they're not necessarily going to approve his Fed chair pick unless this issue is resolved. So I think it undermines the credibility for whoever he picks as Fed chair as well.
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C
Maybe, maybe delaying rate cuts may be resulting in higher rates as the BNY Mellon CEO suggested this morning.
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B
It really does seem to be back backfiring in so many ways. You wonder how they're going to, how they're going to let this resolve. No indictment is that is the word though today?
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Yes.
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C
Let's continue the conversation this morning with Julian Emanuel, senior managing director at Evercore ISI, who joins us here at Post9. Jay, it's always good to see you. Welcome.
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A
Good morning.
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C
You still have 7750 right year end?
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A
Absolutely.
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C
Any reason that any of the topics we just talked about are going to.
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A
Get in the way? This is one of these times where first of all, if you think about it, at the end of the year, the markets ended on a quiet sort of uneven tone. But essentially people de risked volatility is very low. And now all we're already into, we're in the second week and it's already felt like a year in terms of the news flow. But the fact is is that the underlying trend of better earnings and stimulus and yes, there will be more Fed rate cuts. We think there could be three versus the market's expectation of two. All of that is going to support markets higher. This is one of these times that because of the newstape, the market should feel a little bit more uncertain. The biggest issue for us as we look at the year is a lack of fear if there's too much complacency and we kind of like to see a little bit of uncertainty here that's going to profit.
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C
Is your bull case anywhere approaching 9 still?
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A
We still think if you look at the backdrop, and this is another fascinating aspect about the end of the year, the uncertainty around technology and the trade specifically has intensified. People are cautious about it for all the Things that we saw concerns about capex, concerns about adoption. We actually think this is the year where corporate America has to prove to everyone that why and how they're driving revenue and cutting costs by using AI. Otherwise they're going to be judged as being competitively disadvantaged. And that's the kind of environment where you could get a potential AI bubble to 9,000.
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B
I'm all worked up about the Fed investigation, but normally I'd be talking about the CPI report which I think was another surprisingly weak report or good week in a good way, which is core CPI coming in on a monthly basis and a yearly basis less than expected. Usually the market would be celebrating that.
- [10:42]
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It'S not well and again remember we just made a new all time high yesterday. It's been a very strong expectations were.
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B
That this was going to be a hot print core CPI 2.6% and I.
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A
Would say this as well Sarah, there are still some residual questions around the information and the data itself. I think that's going to take another several months. But the underlying fact is is that again when you think of the long term inflation is moving the right way and growth, I mean The Atlanta Fed GDP is now is 5.1%. We probably don't want to be cutting rates just yet in that backdrop. And I think that's why the market doesn't think you're going to see one until June.
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C
You do think 14% earnings growth might.
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A
Be a little aggressive. We do, we, we definitely do. And I think part of what you're seeing this morning is a realization of that. And obviously the financials have been on an absolute tear for the last six months. And so that, that's a pause but again dropping back for us in an environment where you're going to get stuck stimulus and in an environment where rates are likely to fall, you know, high single digits earnings growth, the path to get there is probably going to cause some volatility but ultimately that's not going to be a headwind for stocks.
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B
What about geopolitics? That's another one that the, you know, when you look at ignoring some of the risks out there with, with this Fed, with Supreme Court, with all this people are mentioning geopolitics.
- [12:15]
A
Look, there's no question about the fact that we are probably going to get surprised by something at least every day, if not sooner. And you know, when you're having these kind of things, whether it's Russia and Ukraine, whether it's Venezuela, whether it's Greenland, etc. Etc, etc. There will be things that will disturb the flow of the market and cause investors to feel less certain. But again, it's if we look back and we learn anything from 2025 is that President Trump is very sensitive to how the markets respond. And, you know, he'll, he'll back off as the narrative appears to be happening today with regard to Jay Powell because there is a potential for the markets to digest this.
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B
You agree it seems like they're backing off, right?
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A
They are.
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B
Yeah. They blinked.
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A
Yeah.
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Yeah.
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C
What about small cap outperformance so far this year? Can that continue?
- [13:11]
A
We think it's one of those things where it's an episodic concept is that again, small caps have responded typically as they do to the fact that, you know, they were the laggard last year. People are underinvested. And by the way, the economy is running hotter than even we thought. And so that's definitely a positive. But ultimately for us, the story is going to be written by the stocks and the sectors that have gotten us here these last three years because frankly, the math doesn't add up that those places, the air centric places, you know, won't be the outperformers and that's where the capital markets are going to finally.
- [13:50]
C
You think gold's still a red flag?
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A
You know, that's probably the question we get.
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C
I was going to say, I'd imagine.
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Over the last month or two. And if you look over the long term, gold has absolutely been something that has traditionally had inverse correlation to stocks. I think it is really a reflection of liquidity. It's a reflection of these geopolitical machinations. And it is also part of the fact that to us, you made a major dollar top a year ago at this time and that's a natural reallocation of and portfolios.
- [14:26]
C
Julie, it's always good to have you.
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A
Thank you. Thanks for coming by.
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Here's our roadmap for you for the rest of the hour. Still ahead, former Barclays CEO Bob diamond will join us with the setup for the rest of bank earnings season following this morning's results from JP Morgan.
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Plus a first on CMC interview with Microsoft's president Brad Smith. This is the company works with the Trump administration to ease the burden of higher utility costs, of course, tied to AI and data centers. And don't miss fanatics. Chief Michael Rubin. He'll be with us to talk about the company's new push into sports entertainment. As we're at session lows here, back to 6959. Stay with us.
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Welcome back. Bank earnings season getting underway this morning. Results from JPM and Bank of New York Mellon. Leslie Pickers here with some key takeaways.
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Morning L.P. good morning, Carl. You saw there that J.P. morgan shares down about 3% after reporting earnings this morning. BNY BNY currently hovering around the flat, flatline. J.P. morgan's quarter complicated by the purchase of Apple's credit card portfolio impacting EPS due to a multibillion dollar reserve build. Excluding that, the top and bottom lines were higher year over year thanks to a jump in its markets division, particularly equities products. Investment banking fees declined in the quarter and missed estimates in the company's own guidance thanks to lower than expected revenue in equity and debt underwriting. JP Morgan reiterated guidance on expenses, which it expects to still be about $105 billion this year, and the firm said net interest income would be 103 billion in 2026. That's higher than the street was expecting. We got a bit of color from JP Morgan executives as well on the administration's credit card interest rate cap idea. CFO Jeremy Barnum said on the media call that such a move, if it were to happen would be, quote, very, very negative for consumers. Consumers because price caps would result in the removal of credit. Chairman and CEO Jamie Dimon also responding to a question about the DOJ subpoena of Fed Chair Jay Powell, Dimon said anything that chips away at Fed independence is, quote, probably not a great idea and it will have the, quote, reverse consequences. Dimon added that it will raise inflation expectations and increase rates over time. BNY updating guidance on an efficiency metric return on tangible common Equity raising at 5, 500 basis points to as much as 28%. BNY also bumping up its pre tax margin targets. The firm beat on top and bottom lines for the fourth quarter and reported a record year in revenue and net income. And that call beginning in about 40 minutes or so from now. Guys.
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C
Leslie, not uncommon to see JP Morgan shares down after earnings only of course to then climb during the remainder of whatever quarter we're in typically. But was there anything in particular you think that is giving investors some pause here, here?
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Yeah, I was kind of surprised by the move toward the end of the call there. It may have been some commentary surrounding loan growth and any expectations of two rate cuts potentially this year, which is what they've baked into their guidance whether that will result in more loan growth. And they kind of gave a mixed reaction to that saying, you know, not that may not necessarily be the key driver. There are various puts and takes with regard to loan growth expectations. One of the biggest drivers of their loan growth, of course, course, has been both credit cards as well as NDFI loans. Those are those essentially loans to private equity funds or private credit funds, non bank financial institutions and the like. And so all of those have kind of different, you know, puts and takes as it pertains to loan demand than just overall, you know, what we may have been used to historically.
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C
Got it, Leslie, thank you. Leslie Picker joining us to talk more about banks and anything else that we may come up with, Bob Diamond Atlas Merchant Capital CEO, former CEO, Barclays, of course. Let's start on the banks. Bob, you heard Leslie reporting on jpm. Just generally speaking, as we get ready for earnings from some of the other big banks, what are your expectations for the sector as we sort of move into a new year? I think it's a terrific environment for banks. I think this administration has been very balanced, very positive on bank capital, maybe coming down a little bit, being more clear in terms of the requirements. I think, you know, the rate cuts, the positive yield curve. I think dealmaking will be very good. This administration has been very clear that they're going to be more proactive in terms of approving deals generally. I mean, there's a lot of specifics by, by industry. So I think it's going to be a great environment in 2026 for banks deserving of higher multiples or, you know, I'm just wondering. And of course, whenever I hear something like that, I think, well, what could go wrong that we're not thinking about? Well, you know, I think I look back as is, you know, having been a CEO of a large bank and the better the environment and the better your earnings, the more cautious you are about the outlook and the more willing you are to say these are all the things to worry about. I think we'll see a little bit of that in the bank earnings, but I think for the US Banks, it's a very confident group. They're performing extremely well. We've seen bank of New York really improve over the last couple of reporting periods. We've seen Wells Fargo, their investment banking business really improve. So, David, I think it's just flat out a really good environment for the banks. Yeah. After what's been two good years in the stock market already for the big.
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B
Cap banks, one thing that could happen is he could just wake up one day and cap interest rates on credit cards, something like that.
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And find out a lot of things. Right. That we had.
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But that, I mean, that, that's not good. It's not great.
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Right?
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No.
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So I mean that there's, there's that policy risk and Congress could, I mean, I think he needs Congress to do that. Right.
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That's why he called Elizabeth Warren. Right.
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And it sounds like they might be on board with such a thing.
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Like the Mayor of New York. Let's, let's proclaim things that we, we actually don't have the power to implement kind of works.
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Yeah.
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C
You do it enough and maybe you get something done. Although it is interesting. Yeah. You know, back to banks. I've talked to all of you before about this. The regional and community banks, people forget this. There's four and a half thousand banks in this country. We tend to think of the top six or seven. There's four and a half thousand banks and the opportunity for them to merge, to acquire, to consolidate, to take costs out, to take advantage of AI, to take advantage of technology. We're very focused on that. It is not, it is not gone as quickly as we thought it would go. The consolidation of those four and a half thousand since sbb. But we are seeing signs of a pickup there. Yeah. And I think as you look forward over the next couple of years, we're going to see some great opportunities in those banks. That we don't hear of a lot of, you know, below the top level, below the super regionals, the banks in the 5 billion to 50 billion area and the opportunity to take costs out, particularly in state opportunities where you know, you, you get to combine kind of the client front end but take out the technology costs is pretty good. And given your history in European markets as well, I'm just curious as to what you think of some of the bigger banks around the world in particular in that region. I mean all we keep hearing about the economy there is not very good. Do the banks suffer as well? I don't think they have as good an environment both because of the growth in the US the depth and breadth of the financial services industry and the outlook for growth in Europe is less. But the bigger banks in the last three or four years we've talked about this. David Santander, you know my previous firm Barclays had a very good year by the way in the stock market. We're taking a look at it right now. Yeah, I mean the opportunity for those banks which took a long time post 2008 to really recover. I think I read last week that Deutsche is trading above book for the first time since 2008. Think about that. You know that's a real, that's a long period of recovery. And I think it's as much about the balance sheet is it is about confidence in the management of the institution. So I think the bigger, more concentrated European banks will do fine. My own view is Europe would be, it would do them a world of good to allow cross border mergers and allow those banks to become stronger to truly compete with the US price. You mentioned Deutsche. They had a great chart yesterday looking at financial services profit versus labor demand. Yeah. And they called it alligator demand Jaws. And they wondered whether I could make it even wider. I mean if you're looking for examples of AI driven productivity.
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Yeah.
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C
You don't need to look farther than financial services, right?
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No.
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And I think the big banks, but particularly the big banks outside of the US which have traditionally not been as efficient, I think the impact of AI will be, will be very, very positive. Would you? I mean there are reports of for example some surgical layoffs at Citi this week.
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B
Week.
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C
Would you expect a lot of layoffs.
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At banks this year?
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C
Not a lot. I think we'll see. I mean the demand, you know, particularly in support areas and back office areas and it, there's so much going on in terms of efficiency and I, I'd be very surprised if it was robust hiring. But I don't see mass layoffs coming. Finally, on behalf of Sarah, let me ask about the Fed and independence. I where are you on that? What are your thoughts about, about the last 48 hours of events? Listen, I've been in banking for 40 years. Fed independence is not just sacrosanct, it's one of the great attributes of the United States. And we've talked about this so many times. You look at the recovery from COVID the recovery from the financial crisis. Why was the US and why were the US Banks and the US Financial services industry and the US Economy ahead of the curve? Because of the depth and breadth of our financial services industry and to bring politics into Fed independence. And by the way, I think it's interesting to go back. I'll age myself a little bit, David, but you know, when, when, when Volcker was chairman of the Fed, no one has a Persona of being more independent. Every single week he had breakfast with James Baker, the secretary area of the Treasury. One week it would be at the Fed, the next week it would be at the Treasury. Of course, there's a coordination and there's, you know, their colleagues and they work together and, you know, they have the same goals. But that independence of the Fed, the rule of law, separation of powers.
- [26:14]
B
But do you think that's in question.
- [26:16]
C
Are really, really important? Sorry?
- [26:18]
B
Do you think that's in question right now, Fed independence?
- [26:20]
C
Yeah.
- [26:22]
B
Because of what this investigation?
- [26:24]
C
I think that's a part of it. I don't think that's all of it. I think it was a very thoughtful response given by Chairman Powell. And I think, you know, I think one of the tricky things to, to look at is his position of chairman of the Fed ends in May, but his position as a governor runs for at least two more years. And so I think that there's some pressure to open up that position. And, you know, I think he'll, he, he will and should stand strong. Yeah.
- [26:56]
A
Bob, thank you. Always appreciate it.
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C
Bob Diamond.
- [27:00]
B
Still to come on the show, growing power use by AI and data centers, raising prices for consumers. And now in the crosshairs of the President, Microsoft's Brad Smith joins us with details on a new plan to minimize community distress disruption. Plus, fanatics making a big new bet on sports entertainment with a venture called Fanatics Studios. We'll talk to CEO Michael Rubin about the move. And L3Harris, the latest name to notch a big government investment. Shares are gaining what investors need to know this hour. Stay with us. Not every sale happens at the register before AT&T business wireless. Checking out customers on our mobile POS systems took too long. Basically a staring contest where everyone loses. It's crazy what people will say during an awkward silence. Now transactions are done before the silence takes hold. That means I can focus on the task at hand and make an extra sail or two. Sometimes I do miss the bonding time. Sometimes.
- [27:57]
A
AT&T business, wireless connecting changes everything.
- [28:03]
B
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- [30:20]
C
Thanks for after the break, Microsoft's Brad Smith on the company's plan to combat consumer pain from the company's growing energy, water and land use tied to AI. Meantime, watch Silver as we go to break. Another big boost today adding to a major rally on the year.
- [30:36]
A
We cross 86, up 21%, 25 almost.
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C
For the year to date.
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A
Welcome back.
- [30:45]
C
Microsoft announcing a new initiative to offset the impact of rising energy costs tied to its AI buildout, promising the company's.
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A
Data centers will not increase electricity prices for local communities.
- [30:56]
C
Microsoft President Brad Smith joins us now in a first ON CNBC interview along with our Eamon Jabbers Heyman. Hey, good morning to you, Carl. We're here at the brand new Milken center on Pennsylvania Avenue in downtown Washington, D.C. and as you say, I am.
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A
Joined by Microsoft President Brad Smith. And Brad, you guys have released five.
- [31:14]
C
Core principles now for your AI data center build outs. Give us a sense of what those.
- [31:19]
A
Are and what you guys are trying to accomplish here. Well, first, I think it reflects the fact that AI and cloud leadership today requires many things. One of them is sustaining the confidence of local communities so we can buy land, build data centers and operate them. And what we pledge today is five things addressing five issues that are important to local communities across the country, electricity, water, jobs, taxes, and skills. We spell out what we'll do in every community where we buy, build and own our data centers. Is this an attempt to sort of.
- [31:52]
C
Stave off, you know, political blowback from these data centers? You get complaints from local communities, you know, they're draining all of our water, they're raising our power prices. These things make a lot of noise. Is this a way for Microsoft to say we hear you and we're going to do something about that?
- [32:07]
A
I think it reflects both a tradition and a culture we've long pursued as a company to be, I'll say, civically responsible, to be a good neighbor. But it also reflects the issues of the day. And when we go to local communities today, in contrast to say, a year or two ago, people do have questions. They're pointed questions. What does this mean for our electricity price? What does it mean for our water supply? What does it really mean? Who's really going to fill the jobs that are created here? And I think it's really incumbent on us as a company and probably for the entire higher tech sector to raise the bar, lean in, show people what we're going to do and ensure that our deeds match our words.
- [32:48]
C
We saw the president posting on social media about this last night. Maybe he broke the embargo on this news that you guys released this morning. But what have your conversations been with the White House about this? The President said he wants AI companies, tech companies, to pay their own way, pay their own tab when it comes to electricity in particular.
- [33:03]
A
Well, I think we've had a, a very good dialogue with the White House and the entire administration really going back to Inauguration day last year. And we really rely on their leadership at the federal level, you know, especially Chris Wright in the Energy Department, Doug Burgum in Interior and across the government. But I think they are also quite properly pushing the tech sector, including us, to do right by local communities, industries to ensure that we pay for our electricity costs and don't leave consumers picking up the tab. And that's one significant part of what we're doing today, providing that kind of reassurance to the public where we are operating these.
- [33:44]
C
So who does this differentiate you against? Right? I mean you're talking about not going out and asking for subsidies to build these data centers. Is this sort of the anti open air play by you guys?
- [33:54]
A
I would not characterize it that way. And I'm not the person who then says, well, we're better than that other person. I always ask how can we better be better than ourselves? How can we constantly raise the bar on ourselves? And I think when we do that, we also foster a conversation across the industry because at the end of the day there's really not a bright future unless we're all doing a good job.
- [34:19]
C
I saw an interesting comment that you made quoted in the FT yesterday, yesterday saying that you think that the Chinese are ahead of the United States in AI right now, at least outside of the of the West. Explain what your argument is there.
- [34:32]
A
Well, it really points at the issues of the day. People like to talk about AI technology, the models, the infrastructure. But ultimately when you look at countries, so much turns on who is the leader in using AI and whose AI are they using. And Deep Seek really changed the game a year ago. Right now there are more Chinese open source models being used, not surprisingly in China and Russia and Iran, but also increasingly across Africa. And this is an element where we think the United States needs to pay more attention. We have a couple of advantages right now as, as an industry, American tech has access to Nvidia chips. The Chinese companies do not. When we're in Africa, we have great models from partners like OpenAI. We are trusted. But as Chinese models get better, as the Chinese government subsidizes companies that build data centers as they long have in the telecommunications space, It's a different future and we all need to think about that.
- [35:35]
C
I'm almost totally out of time here. But real quick, do you need government support to do that?
- [35:39]
A
I think that we do need a broad minded government policy, whether it's on export controls or ultimately the role of development banks and development assistance to ensure that the countries of Africa that can't yet pay market rates for everything have something to compare to a Chinese subsidy. Great. Brad Smith, thanks.
- [36:00]
C
Thanks so much for the time this morning. Really fascinating conversation, Sarah. Let me toss it back over to you guys, okay?
- [36:05]
B
Thank you. Amen. On the hot topic of rising electricity costs. Still to come, former deputy Managing director of the imf, Gita Gopinath, fresh off a new piece arguing the global economy is actually more fragile than the headline numbers suggest. She'll tell us why. But first, sports powerhouse Fanatics betting big on entertainment with a new venture, Fanatic Studios. We'll break down the move with CEO Michael Rubin and the CEO of the new vertical Next.
- [36:32]
C
Health care stocks finished off last year with a bang.
- [36:35]
B
But can that momentum last in 2026?
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C
One investor says yes and it's Biopharma that will help lead the way.
- [36:42]
B
Tune in to our Market Navigator segment.
- [36:44]
C
Later on today on Power Lunch for which stocks could benefit the most.
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B
2Pm Eastern Time Digital sports platform Fanatics launching a joint venture with OBB Media to create Fanatic Studios. It's a new global sports and entertainment platform already announcing projects and partnerships with ESPN, the 2028 Olympics in L. A, Tom Brady, Fox Sports and more. Let's bring in Fanatics CEO Michael Rubin along with Michael Rattner, OBB Media founder and CEO. He will also serve as CEO of Fanatic Studio. Michael Rubin, I spoke to you two days ago on stage at the National Retail Federation and asked what other businesses you have coming. You kept this one under wraps. Tell us about it.
- [37:25]
A
You know, I bring so many things on your shows every once in a while I need to keep something is secret from you. But seriously, look, we're super excited about this. People keep asking us two questions all the time. One, what's next for Fanatics? Exactly what you asked me Sunday morning in New York. And the second is why are we not in the content business? I think the reality is there's not a more strategic business for us to be in than the launch of the joint venture with OBB Media to create Fanatic Studios. To create content that synergistic each of our three big businesses today. The next commerce business, gaming business, the collectibles trading card business so we could not be more excited about this. We have an incredible slate that we're launching with. I think a lot of people launch businesses like this. They don't have a lot to talk about. I'm excited, Ryan, to talk about all the big projects that we're already launching with.
- [38:15]
B
Yeah, I mean, Michael Raffner, maybe you can tell us about it and just tell us a little bit how it works. So it's the idea that they're sourced and developed in house and then sold the projects.
- [38:27]
A
Combination of it all, what's.
- [38:29]
C
Going to enhance the fan experience is really at the core of everything we do. Of course, Michael touched on the three core businesses, but when you look at the slate already, partnerships with Tom Brady like the Fanatics Flag Football Classic, that is a franchise able annuity that we plan to do year over year. Big live events is what we're interested in. We have partnerships with the WWE.
- [38:47]
A
That show makes the most sense for.
- [38:48]
C
YouTube because believe it or not, WWE has the 11th most subscribed YouTube channel in the world. Over 100 billion views. Something like the ESPYs, obviously long legacy.
- [38:58]
A
At ESPN that's going to be on ESPN.
- [39:00]
C
We want to meet the audience where they are. So we're going to go and take a bespoke approach to everything we're doing.
- [39:05]
B
So, Michael Rubin, we've talked so many times about the number of billion dollar business lines that you're building. Is this the next one Inside Fanatics and how does it fit within the portfolio? Portfolio?
- [39:16]
A
Look, the way we think about Fanatic Studios, it's probably the most strategic business that we could create because it supports our three existing businesses. Is it a billion dollar profit business? Only time will tell. What I can tell you is the excitement, the passion about what we're doing is enormous. If you think about something like the Fanatics Black Football Classic, that's a live event where we create the event. We own the IP. We're going to do this in Saudi Arabia March 21st of this year. Couldn't be more excited about building that live event. But also we've got other big things coming like that. You look at F1 and the movie they created. You look at Barbie. When I watch that movie, I thought about is how do we create products that fans love to better connect them to our existing businesses. I think there is an endless set of opportunities for us to work with the biggest athletes in the world who we already spend so much time, energy, capital with building their brands. And this is a way for us to better storytell with them and better connect with fans. So I think there's a big opportunity in creating live events, big opportunity in movies, big opportunity in documentaries. And the opportunity is just very vast across the board.
- [40:22]
B
I mean, Michael Ratner, I know you because, well, more recently you're the founder of, of the beauty line Road, which sold for $1 billion to Elf Beauty, Hailey Bieber's beauty line. But you've also been in the content business. Talk a little bit about what, what sort of ideas that you could do now with fanatics that you couldn't do at OBB Media.
- [40:42]
C
I think the idea of content, commerce and community has always been at the heart of everything we do. You cannot possibly think of a better partner to supercharge a sports business than the multi sport, multi genre business that Michael's built.
- [40:55]
A
And I do think that we think.
- [40:56]
C
About what are the ancillary opportunities, what are the surrounding businesses that we can get into but all coming back to again, how do we enhance the fan experience? This business is going to be multi part right? We are going to have things like.
- [41:08]
A
Doing the official Olympic film, which is.
- [41:10]
C
An honor and it's all about storytelling and it's an auteur that we're bringing on board to do that. Then there'll be things like big splashy events like we're doing in Saudi. I think what we really want to.
- [41:19]
A
Get at here is how do we.
- [41:20]
C
Create a holistic experience, surround sound for our audiences and fans alike. And that world of where's the consumer start and where's the audience stop is all blending together. The convergence of sports and entertainment has never been tighter.
- [41:33]
A
And Sarah, the one really interesting thing is we work today with over a thousand sports properties throughout the world and more than 5,000 of the greatest athletes in the world. And so when we go out and talk to them, they're so excited about saying how can we work to tell stories in a way that's great for, for them that also integrates our existing three businesses into it. So I think for us this is so strategic beyond any big revenue opportunity or profits opportunity. It's also about just the halo effect to our entire ecosystem and also how do we help the athletes. And sports properties are so important to fanatics.
- [42:08]
B
Yeah, I was going to, I mean, maybe you just answered it, but I was going to ask Michael Rubin if, you know, thinking about all your lines, if ultimately you're buying and you're buying from the same leagues that you're selling, with all these businesses getting more interconnected and whether there's, there's conflict there and how you sort of keep it all together.
- [42:26]
A
Yeah. So there's absolutely incredible entanglement in that. When we went out with this idea six months ago and started talking to the different sports parties we work with, they're all like, you're a partner that we have a big relationship. We trust. We know it's very strategic, much more than the money. So we're that much more excited to work with you because we know you're going to make sure that this tells our story and your story in a way that's great for fans. So I say the reception to this has been nothing less than unbelievable. And I think part of it's also we said how do we do this in the best way? I did go out and meet some of the best leaders in the sports content business. And while I don't like to say nice things about Brady in front of him, he's an absolute force of nature. He embodies everything at fanatics that we believe in. You know, this guy, I mean, he was a little late this morning. He was up at 4:30. I was up by 4. But he's a guy who works non stop. Yeah, we are, we are in la. But he's a guy who's just a business builder in the industry that we're so passionate about. And so the two companies partner together as a way that we can create the best results for the sports properties, the athletes and most importantly, for the fans.
- [43:32]
B
Well, as I learned this weekend, you only sleep 5 hours, 55 minutes. So it's not surprising. Guys, thank you for joining me to talk about this big he's younger than.
- [43:40]
A
Me so he, he, he's more like four and a half. We need, he's got to work like I used to sleep. He's got to be on like four to four and a half hours sleep. I'm not graduating up as you got.
- [43:48]
C
To check his every decade.
- [43:50]
B
Yeah, I'm trying to. Michael Rubin, Michael Rattner, Fanatic Studios, thank you both for joining us. Good to see you.
- [43:56]
C
Thanks for having us. When we come back, Delta says its earnings could jump more than 20% this.
- [44:01]
A
Year, but the stock seen a bit.
- [44:03]
C
Muted reaction to largely upbeat results, although off of the session lows. We'll talk about it after the break. As America celebrates its 250th anniversary, CNBC spotlights the companies that rose with the nation and continue to shape its future.
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B
I am Lisa Laird, 9th generation and CEO of Laird Company, America's oldest distillers. The origins of the company start back to 1698 when my family arrived here from Scotland. They came here for safety, to find a new way of life. Since apples were plentiful right here, they felt that that would be the perfect crop to work with. Laird's applejack is the original American spirit. My ancestors were Revelation Revolutionary War dragoons under the command of General George Washington. So when he was in this area, we did provide the troops with applejack. We've always remained true to ourselves, to our craft, to our value, to our vision. Our product has not changed the actual recipe, the process, how we produce our product is still authentic. Currently we have three generations that are working together. I am extremely proud and excited that.
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C
I could pass my passion on to.
- [45:27]
B
My two children to continue our legacy. I think the largest pivot during the history of Laird Co. Would be during Prohibition. Not many companies re emerged once they.
- [45:37]
C
Had to shut down.
- [45:38]
B
My ancestor had the foresight to petition.
- [45:41]
C
The federal government for a permit.
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B
We were allowed to produce 1 million gallons a year of apple brandy for medicinal purposes. Once Prohibition was lifted, we had the inventory America has a culture that celebrates entrepreneurship and individual success. We embody the American dream and we've been able to continue that American dream for 300 years. Welcome back. Here are three big movers. We're watching Delta Beats on earnings but issues guidance with the midpoints below. Analyst estimates Separately, the company announced plans to buy 3,787 Dreamliner planes from Boeing stocks down a little more than 1 1/2 percent. KeyBank upgrades AMD and Intel to buy from neutral, citing demand trends while bank of America America downgrades AAM to neutral from buy as they warn the company is increasingly reliant on SoftBank for as much as a third of its total licensing revenue and the Pentagon announcing plans to invest $1 billion into L3Harris is growing rocket motor business, which the company said it's planning to turn into a publicly traded company through an IPO. L3Harris shares up 2% when we come.
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C
Back, former National Economic Council Director Gary Cohn's with us. Break down this morning's CPI number and a lot more as Money Movers begins.
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B
All opinions expressed by the Squawk on the street participants are solely their opinions and do not reflect the opinions of CNBC, NBCUniversal or their parent company or affiliates and may have been previously disseminated by them on television, radio, Internet or another medium. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of an opinion. Such opinions are based upon information Squawk on the street participants consider reliable. But neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. To view the full Squawk on the street disclaimer, please visit cnbc.com squawkonthestreetdisclaimer Is it time to reimagine your future? The right business skills may make a difference in your career. At Capella University, we offer a relevant education that's designed to focus on what you need to know in the business world. We'll teach professional skills to help you pursue your goals, like business management, strategic planning, and effective communication, and you can apply these skills right away. A different future is closer than you think with Capella University. Learn more at Capella. Eduardo.