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Crude Climb Continues, China's Price Spike Warning, and KKR's Major Deal 3/30/26
00:43:08
WTI crude hits a three-week high after Trump threatens to "obliterate" Iran's energy sources. Chinese manufacturers warn to brace for price hikes due to disruption in the Strait of Hormuz. Plus, KKR agrees to sell cooling systems company CoolIT for $4.75 billion to Ecolab, making 15 times its initial investment.
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- [00:00]
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- [01:00]
Charles Schwab Representative
Trading at Schwab is powered by Ameritrade, giving you even more specialized support than ever before, like access to the trade desk. Our team of passionate traders ready to tackle anything from the most complex trading questions to a simple strategy. Gut check. Need assistance? No problem. Get 24. 7 professional answers and live help and access support by phone, email and in platform chat. That's how Schwab is here for you to help you trade brilliantly. Learn more at schwab.com/trading.
- [01:28]
Leslie Picker
You're listening to the Exchange. Here's today's show. Scott thank you and welcome to the Exchange. I'm Leslie Picker in for Kelly Evans. Today, stocks higher but off session highs this hour as the President says the US Is in serious talks to end military operations in Iran. The Dow up more than 200 points, still on track for the worst month in three and a half years along with the S and P Tech lagging once again with the nasdaq. Nasdaq dipping in and out of the red today, yields have turned lower as well with the 10 year back down to 4.3%. Oil prices though still elevated. WTI hitting a three week high earlier trading at $103 a barrel, rent at 112. And while the US and Iran may be getting closer to a deal, aluminum shares are spiking on new attack, new attacks that damaged major Middle east facilities over the weekend. Alcoa on pace for its best day in five months. And Iran is where we begin of course. Megan Casella, Washington with the latest. Megan hey Leslie.
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Megan Casella
So that's right, the President kicking things off earlier today suggesting there are real diplomatic negotiations taking place with Iran. But he is also threatening to destroy Iranian energy sites if a deal is not reached soon. He posted on Truth Social, the US quote, is in serious discussions with a new and more reasonable regime to end our military operations in Iran. Great progress has been made. But if for any reason a deal is not reached shortly, which it probably will be, and if the Hormuz Strait is not immediately open for business, we will conclude our lovely stay in Iran by blowing up and completely obliterating all of their electric generating plants, oil wells and Carg island and possibly all desalinization plants. Now, Leslie, at the same time, Iran is continuing to refute the idea that serious talks are happening. An Iranian Foreign Ministry spokesperson telling msnow earlier today, US Officials say whatever they want. We have not had any negotiations with the US and all of this comes after US Special envoy Steve Witkoff said late on Friday that the administration thinks there will be meetings this week and that they are certainly hopeful for it. So still some major questions as to when and where those meetings will happen, as well as who exactly would be involved. I will flag. White House Press Secretary Caroline Levitt is set to brief reporters sometime this hour. You can see a preview there. So we may learn more then. Leslie.
- [03:49]
Leslie Picker
Yeah, of course, it's hard to make sense of everything with the US Saying one thing, Iran saying another thing. What do you think the appetite is for actual boots on the ground in the region?
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Megan Casella
That's one of the biggest questions that's out there. We know that the Pentagon is preparing for this possibility. The reports are that there are some 50,000 troops, U.S. troops now in the region. That's up from 40,000 that are there all of the time anyway. We also saw reports over the weekend that the Pentagon is preparing for possibly weeks of some sort of deployment, probably not a full scale invasion, something less than that. We don't know, though, what exactly that will look like or if we'll get to that. It will flag. Secretary of State Marco Rubio earlier this morning on ABC did say that they are still looking for diplomacy, for negotiations. That's how they would prefer to move forward here, but they have to preserve all of their options.
- [04:36]
Leslie Picker
All right, Megan, thank you so much. Megan Casella from Washington. My next guest says the Houthis getting involved increases Iran's leverage on several fronts. Joining me now is Jonathan Panicoff, director of the Snowcroft Middle East Security Initiative at the Atlantic Council. Jonathan, why does the Houthi involvement change the game here?
- [04:55]
Jonathan Panicoff
Look, I think there's a couple of concerns. First of all, obviously there's direct connect strike issues. If the Houthis are going to target Saudi Arabia, Saudi energy infrastructure in retaliation. Should the United States actually take a ground invasion approach? I think there's a second part of this which is, look, the markets have built in for a while from a historical precedent of the Houthis, frankly, using the Babel Mandap as leverage in the same way that the Iranians now using the Strait of Hormuz as leverage. But the problem is, given oil where it's been given the restrictions, there's going to be a serious challenge. If you also see a constriction through the Baba Mandeb for oil markets through out processing, it's going to be a challenge all the way around. And so it just creates a new dynamic that potentially could really complicate the situation and make it even more challenging.
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Leslie Picker
Yeah. Can you explain that to us? Because, you know, obviously over the last few weeks, few years, we've come much more acclimated to the importance of the Strait of Hormuz. But you know, the other one is, is less well known in terms of its impact on global energy, global trade and so forth.
- [06:03]
Jonathan Panicoff
Yeah. So you have had traditionally about 10 to 12% of oil running through the Babel Mandeb. And now that you're seeing the Saudis frankly increase through the east west pipeline over to Yanu, the capacity out into the Strait of the, into the Red Sea through Suez, you've got this question both going both directions on what the challenge is. So the Saudis come out through Red Sea, go south through the Bob, but Asian goods, for instance, any manufactured goods, electronics, things going to Europe are going the other way through the Baba Mand, up north through the Suez. Either way, you have significant challenges if the Houthis are involved because they're going to constrict it and you use it for the same sort of leverage that now means that you're taking maybe instead of having an issue of 25% of oil off the market, 33% of oil at the top end, that makes it much, much harder all the way around.
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Leslie Picker
As we think about the next steps here, it's clear the administration prefers diplomacy, at least that's what they've said. Marco Rubio has said. What do you think the red line would be for further attacks in the region, Carg island and other assets that would impact oil assets.
- [07:21]
Jonathan Panicoff
Yeah, there's a little bit of a challenge here because the Trump administration looks like it's planning for two different types of operations. One is more immediate, which is you're talking about Carg island or you're talking about greater or less of tune of which are smaller islands in the strait or actually trying to have some sort of force deal with Iranian assets, military assets along the coastline of the strait itself, that look, it's pretty clear the US could certainly do it. It would be a challenge. It would not be an easy operation, but it's clear what it would be. The issue is long term in terms of well then who holds it? What is the long term structure of that like so that you can have frankly the ships passing through safely. The juxtaposition is the US is also talking about the highly enriched uranium and going in and that becomes more concrete idea of what needs to happen. But the operation would be so massive in scale as a special operation, either one would be a huge challenge to the Iranians. They would not be happy about it and you'd almost certainly see retaliation.
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Leslie Picker
Do you think the Gulf states have broad consensus over what should be the next step, the next steps in this war?
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Jonathan Panicoff
I think it's starting to fret. I think you had consensus earlier, but in your look, I think folks like the Emiratis, probably the Saudis really do want the US to keep pushing ahead. They want to get to a point where Iran cannot be a meaningful threat to them. They do not want to go through this again. Others then I think we've seen this in reporting. Certainly the Omanis, probably the Qataris, are much less inclined to keep going forward. They want an off ramp. The longer this goes, the more likely you're going to start to see those frictions come to the surface even more. But right now I think you're already starting to see some of the divisions.
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Leslie Picker
What are those divisions? What are those frictions mean for the leverage that the US Has? We talked about the leverage that the, that Iran gains from the Houthis involvement. What about the fraying of the consensus between the other Middle east partners?
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Jonathan Panicoff
Look, it certainly makes it harder. If the Iranians know that they can try to pick off one or two or three of the Gulf states to try to go towards negotiations, then it's obviously significantly more challenging. If the GCC is a unique unified bloc, the reality is that at this point we're just not going to probably be able to keep seeing it going forward in the way that we had. It's not impossible to get them to hang on, maybe in a more unified public manner. But even behind the scenes you're starting to hear rumors of different countries going to the Iranians, going to each other with frankly different perspectives on how to go forward and what should come next. So if you don't have a negotiated settlement, the Iranians just see this as another means to increase their leverage, frankly. And that means, frankly, in a zero sum game right now it's going to be negative for the U.S. all right,
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Leslie Picker
thank you for breaking it down for us. For us. Jonathan, Panic off the Atlantic Council, it's super complicated. Quickly moving situation. Oil prices moving higher on the Houthis involvement and on the President's threat to obliterate Iran's oil wells if a deal isn't reached soon. That's sending WTI to a three week high. Brent trading at an 11 day high. And my next guest doesn't see any light at the end of the tunnel and says consumers in the US could start to feel an even bigger impact. Joining me now to discuss is Denton Cincin Grana, Chief oil analyst at Opus Denton, no light at the end of the tunnel. Why is that and where do you see prices settling from here?
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Denton Cincin Grana
Yeah. So no light at the end of the tunnel. Originally we're being told to about four week, four weeks for this to take place. Now it's another four weeks. So you're looking at probably like eight to 10 weeks. Obviously lost production, lost barrels of oil moving. You have diesel prices in the United States well over the $5 a gallon level pushing towards almost $2 above where they were at this time last year. That's going to have an economic impact where shippers are going to be charging diesel fuel surcharges to customers and at the end of the day that's going to be passed on to the end user which is you and I when we're buying stuff at the stores.
- [11:38]
Megan Casella
Yeah.
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Leslie Picker
And reading your notes in preparation for this segment, I see that you believe that the gas prices could accelerate within the next 24 hours. You maybe want to go fill up my car because they have been plateaued at below $4 a gallon. But you think that will change just within the next day.
- [11:56]
Denton Cincin Grana
Yeah. And again, you know we're at398,399. You don't have to be Nostradamus to predict that one that we're going to get another penny or so move up over the next 24 hours. You look at the futures market that's moving higher. Spot markets are moving along with that. So it's pretty much almost a layup or a Yukon buzzer beater to beat Duke which makes everyone happy getting over $4 a gallon.
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Leslie Picker
I'm in a line I myself but. So it's a good weekend.
- [12:26]
Denton Cincin Grana
Yeah.
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Leslie Picker
One thing I want you to help us put into perspective is just how levered the US economy is to oil prices today versus a decade ago or two decades ago. Obviously we feel it when we fill up our tank at the the pump. There's no denying that. But in terms of just how much it matters what the spot price is given, you know, the US Is energy independent. I know it's a global market and therefore that doesn't necessarily help things with the price. But you know, in terms of just the overall leverage to the broader macro picture here.
- [13:01]
Denton Cincin Grana
Yeah, again, the economy, the global economy runs on oil. Economies run on diesel. You get diesel from crude oil. We've really been kind of insulated from this in the United States. Even though WTI is over $103 a barrel, you have several other grades of US crude that are over $100 as well. But really the Shell revolution that really kind of started about 10, 15 years ago has really insulated us from this. We've really weaned ourselves off of Middle Eastern oil to the point where we're only bringing in about 600,000 barrels a day from Middle Eastern countries, from the Persian Gulf. A lot of it's domestic and our largest exporter to the United States, as we all know, is Canada. So we've really kind of pulled back on the amount of Middle Eastern crude oil and that's insulated us. But again, you mentioned it. It's a global market. It's what's going on right now. And I've used this phrase and I'm kind of getting sick of using it, but it's the tide that lifts all boats.
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Leslie Picker
What about the boats that and the countries that do tend to use more Iranian oil, say China. What does this all mean for them?
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Denton Cincin Grana
Yeah. And especially with President Trump's threats to Iranian oil infrastructure. About 90% of Iranian crude goes to China. Obviously if that's destroyed, China is going to have to come to the more kind of open markets or non sanctioned markets. Iranian oil has been sanctioned for, for a long time now. And China was one that did not recognize Western sanctions, so said, hey, it's cheaper, we're going to buy it and that we're going to do what we want to do on that, on that front. So again, China would have to come to the more open market. But you're seeing real, the real impacts in Asian countries. They're already steps to kind of reduce demand and Covid back in 2020 kind of gave regulators the playbook of how to, how to really reduce demand, keeping people home. Four day work weeks in some countries in South Asia, working from home, et cetera, you know, trying not to use gasoline where possible. I think one kind of, I believe it's Vietnam. Trying not to use air conditioning, that's going to be a tough one. But you know, in government offices you don't have to wear a suit. You could wear, I guess, T shirts and flip flops to try and stay cool.
- [15:13]
Leslie Picker
Yeah, it does feel like deja vu in so many ways. Denton, thank you so much for breaking it down for us at Opus, Really.
- [15:20]
Denton Cincin Grana
Pleasure. Thank you.
- [15:21]
Leslie Picker
Thank you.
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Denton Cincin Grana
Absolutely.
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Leslie Picker
Coming up, the S and P trying to stay out of correction territory. And our next guest says the Street's strong earnings forecast should help it avoid that. The names he likes and where he sees stocks going from here next. Plus KKR's co head of global private equity will join us on the heels of one of the firm's most successful bets on record. We'll get the details behind the deal and his take on the state of the private markets. With KKR shares on track to close out their worst quarter in 15 years. The exchange is back after this. This is the exchange on cnbc.
- [16:02]
Charles Schwab Representative
Trading at Schwab is powered by Ameritrade, giving you even more specialized support than ever before, like access to the trade desk. Our team of passionate traders ready to tackle anything from the most complex trading questions to a simple strategy gut check. Need assistance? No problem. Get 24. 7 professional answers and live help and access support by phone, email and in platform chat. That's how Schwab is here for you to help you trade brilliantly. Learn more@schwab.com trading cidp can make your
- [16:32]
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- [17:28]
Jay Powell
There's sort of downside risk to the labor market which suggests keep Rates low, but there's upside risk to inflation, which suggests maybe don't keep rates low. You've got tension between the two objectives. And I think to try to expect unanimity at a time like that, where it's really quite historically challenging, it would almost be misleading to be really confident in which way that should go.
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Leslie Picker
That was Fed chair Jay Powell speaking at Harvard today on why the next Fed move could be either a cut or hike. But despite the uncertainty about monetary policy and the Iran war, my next guest says he remains optimistic about market fundamentals. Joining me now is Sam Stovall, chief investment strategist at cfr. You remain optimistic. See, yes, there's uncertainty. It explains why there isn't necessarily consensus. I also hear the risk of stagflation there. So how do you kind of square all of those various risks with how to play the equity markets right now?
- [18:21]
Sam Stovall
Hey, Leslie? Well, I think what you really have to do is look underneath the surface to see what is working or certainly not working very well. As we head into April, which is among the strongest months of the year, we are certainly seeing stocks, sectors and sub industries that are trading at very low relative strength index levels, so levels below 30. Also, when you basically just see how many people are talking about that we are expected to see stagflation, a global recession, et cetera, it sort of indicates to me that maybe we could end up with a bit of a favorable move, counter trend move, at least for the near term in April. And what could end up driving that is the expected 12% gain in S&P 500 earnings.
- [19:12]
Leslie Picker
Yeah, it's hard to believe that we're already about two weeks away from earnings season to start once again, you know, how, how do you think the market will sit with both, you know, what they see from the fundamental side with the earnings as that season starts to begin against the backdrop of war, the risk of, you know, of inflation from here with oil prices, the risk of a potential hike. I mean, how do, how do you think the market will suss out all of those various factors?
- [19:41]
Sam Stovall
Well, I think it'll discount a lot of the earnings that have been reported. To say that's backward looking. Now the real question is what's going to happen going forward. Report is Wall street too optimistic about 2026 estimates, which are now about 16% versus 2027, which is about 17% earnings growth. So the worry is that maybe all of that to be trimmed. But the one thing that continues to surprise me is the resilience of the overall market. It took us 50 days to move from the all time high on January 27th down to the 5% decline threshold on March 18th. Going back to World War II, anytime that we took 40 days or longer, we never fell into a bear market. Also, we have yet to eclipse the 10% threshold. And going back to 1980, anytime that we went beyond 50 days, and right now we're at 62 days beyond 50 days to cross that 10% threshold, we also did not fall into a bear market. Obviously that's not a guarantee, but it certainly is an encouraging statistic.
- [20:49]
Leslie Picker
Yeah, it speaks to your point about the ephemeral nature, at least the ephemeral response from the market as it pertains to the geopolitical condition. In terms of specifics here, you like Broadridge and Deckers. They've each sold off pretty significantly over the last year. What do you think the market is missing about those names and what do you think propels them higher?
- [21:10]
Sam Stovall
Well, I'm not necessarily sure that they are missing something, but rather maybe they've overdone it. Market. You know how technicians like to look for indications that the market has thrown the baby out with the bathwater. So what I did was I looked at those sub industries within the s and P 1500 to say which ones are trading at RSI of 30 or lower. And many of these, like footwear, is at 26 in terms of data processing and outsourced services at 23. So a company like Deckers Outdoor, we have a strong buy recommendation on because it's got two great brands, Hoka and Uggs. Above average peer above peers in terms of margin growth and a strong balance sheet. And when it comes to Broadridge, shares remain attractive in our opinion because of its large cut of multi year reoccurring contracts. So basically some longer term opportunities and maybe even take advantage of some short term weakness.
- [22:12]
Leslie Picker
And you also like Alphabet, which is up 75%. What do you think catalyzes that one higher from here? How much more room does it have to run?
- [22:21]
Sam Stovall
Well, we're encouraged by the company's valuation, its free cash flow potential, and we also believe that Google can sustain its 13 to 15% revenue growth through 2027.
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Leslie Picker
All right, Sam Stovall with CFR A, thank you for coming on today.
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Sam Stovall
My pleasure. Thanks.
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Leslie Picker
Coming up, Palo Alto Network CEO is buying $10 million worth of shares amid the sell off tied to fears of AI disruption. But it's not the only cyber name getting a vote of confidence from Wall street today. We'll reveal the name ahead
- [22:55]
Charles Schwab Representative
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.
- [23:22]
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Pete Stavros
AT&T business Wireless connecting changes everything
- [24:22]
Leslie Picker
welcome back. The S and P and NASDAQ hovering near session lows while the Dow is paring its earlier 460 point gain. The Russell 2000 small caps underperforming the main major averages today, but coming off its first positive week in five, here are some movers this hour. Fannie Mae and Freddie Mac shares soaring after billionaire investor Bill Ackman singled them out as, quote, stupidly cheap late last night on X. They're up nearly 40% on his bullish comments, but still about 60% off their recent highs. Memory stocks are getting crushed again today. Seagate, Micron and Western Digital are the worst performers in the NASDAQ 100 today. This despite JP Morgan initiating Seagate as overweight, seeing 40% upside, citing a margin expansion story. And oil prices? Yes, they are climbing once again. WTI crude back above $100 a barrel while Brent is topping 113. That has gasoline prices on the verge of topping $4 a gallon, up more than a dollar since the start of the Iran war. That's on average there. While drivers are already feeling the pain at the pump, shoppers are about to feel a pinch from another part of the world. Chinese manufacturers Eunice Yoon has that story for us.
- [25:32]
Eunice Yoon
Pickleball paddle producer Devi Way has a message for American shoppers. Americans will have to pay more, he says, because of the swings in oil prices. The Chinese businessman has had to hike prices on his paddles and pickleballs by as much as 20%. I might have to go even higher, he says, maybe double if the Iran war doesn't stop soon. Mr. Wei's goods are made from plastics that are derived from oil.
- [25:59]
But the war in Iran has stalled shipments of oil and its products through the Strait of Hormuz. And that's raising concerns among manufacturers here about a further disruption to the global supply chain.
- [26:11]
At this Beijing trade show, ballooning oil prices is the buzz. James Lee, who sells a third of his scarves to the US has marked up these ones by 5%. This scarf is 30% polyester, he explains. We will definitely pass on the extra cost to our customers. Toymaker Wang Mingming is hoarding two months worth of pvc, a plastic polymer, but isn't sure he can hold off charging more for his figurines. In our industry, these materials are almost irreplaceable, he says. If oil prices rise any further, we really won't be able to manage. But perhaps the biggest worry is how costlier oil takes cash out of consumer pockets worldwide. More money for gas means less for Huze pickleballs. Ordinary people are getting squeezed the most from the high oil price, he says. Their spending power just isn't what it used to be.
- [27:11]
And that poses a challenge for China's leadership, since the economy, with its massive trade surpluses, is becoming more and more dependent. Leslie, on exports.
- [27:21]
Leslie Picker
Absolutely great, great package there, Eunice. Can you also remind us just what the inflation picture looked like for China going into the war?
- [27:32]
Eunice Yoon
The inflation picture from a Chinese perspective, is looking quite comfortable because they have more of a deflation problem. So it actually looks as though they might themselves start seeing some prices picking up over here.
- [27:46]
Leslie Picker
So is that, you know, obviously they've had the deflation problem, they've had the real estate issues and some other macro struggles as well. So in terms of inflation, how do you think policymakers there are viewing it?
- [28:02]
Eunice Yoon
Well, in terms of inflation, it's still something that the Chinese worry about. I mean, from a factory perspective, they're more concerned about deflation and a lot of the price competitiveness here. But I think people are very closely watching what's going on with oil. I mean, from a diplomatic standpoint, the government here, it appears as though they're feeling some pressure. I mean, they have sent a. An envoy to the region. But I think what's interesting is also what they're not really doing, which is they're not really pushing themselves to be a party that would be heavily involved. In fact, that envoy who did go to the Middle east did not visit Israel and Iran, even though the Chinese have been on the phone with many of the parties. And then another thing that's of course interesting here is that the Chinese have plenty of oil reserves. I mean, yeah, estimates have been that they have like three or four months worth, but it's still unclear whether or not they're going to release that oil. And they haven't really done a whole lot for the manufacturing sector or for other companies for that matter.
- [29:03]
Leslie Picker
A lot of crosscurrents there. Eunice, thank you for breaking it down for us. Eunice. Yoon. Time now to go to a CNBC News update with Angelica Peoples. Angelica.
- [29:14]
Angelica Peoples
Hey, Leslie. Heavy train, that heavy rain that triggered severe flooding and landslides in Afghanistan and Pakistan has killed 45 people over the past five days. 74 others were injured and 130 homes were completely destroyed in the storm. Authorities are warning that conditions remain unstable in the region, citing the continued risk of rain and flooding. Eli Lilly has reached a 2.75 billion dollar deal to bring drugs developed using artificial intelligence to the global market. The company announced they will partner with Hong Kong based in silicone medicine. And Silico has already developed at least 28 drugs using generative AI tools, half of which are already in clinical stage trials. And preparations begin today for NASA's historic Artemis 2 mission. Four NASA astronauts say they are ready to go on the 10 day journey around Earth and the moon. The crew was originally set to launch in February but worked to fix a hydrogen fuel leak. And the rocket's upper stage propulsion system has pushed it to Wednesday, April 1st. So we'll be watching to see how that goes. Leslie, back over to you.
- [30:18]
Leslie Picker
Absolutely. I can expect some good pictures out of that one. Angelica, thank you. Coming up, KKR's co head of global private equity will join us from one of the biggest deals in the firm's history, at least in terms of return on equity, turning 270 million into nearly $5 billion in just three years. The details and what it says about the state of the industry. Next, A rare bright spot in the private markets these days. KKR making 15 times its investment in a company called Cool it, which recently sold to Ecolab. Three years ago, when KKR took a majority ownership in the data center cooling business, it gave employees a stake as well. Shortly after announcing a sale to Ecolab, the firm's employees learned about their payout. Here you can see the reactions. The average payout was $240,000. And the most tenured employees received up to eight times their annual salary, a minimum of $380. For more on this deal in the state of PE, let's bring in Pete Stavros, partner and global co head of private equity at kkr. Pete, congrats on the deal. It's a top three deal for the firm ever. Also, further validation of the employee ownership program, which you have been a longtime and early champion of. Of course, it also happens to be a service provider to an area that's skyrocketing, which is data centers. So I'm just curious, kind of what you attribute the success of this deal to and do you think it's repeatable?
- [31:50]
Pete Stavros
Well, we. Thanks for having me. We hit the right wave at the exact right time. So we bought the business in 2023. Obviously, data centers and I have exploded since then. This is where everything's going. We worked with the management team to double the workforce, 10x the capacity. The earnings of the business went up tenfold. So this wasn't just a matter of multiples went up. And we got lucky. Of course, we were fortunate, but it was great to see workers be fortunate as well. You know, when good things happen, the owners benefit. And here, nearly 700 frontline folks got a chance to benefit as well.
- [32:27]
Leslie Picker
In the industry right now, exit exits like these are rare all the time, any cycle. But exits in general are, you know, down in terms of dollar value. They were up in 2025, but in terms of number, they were down about 9% last year. And I'm just curious how you found the exit environment when you were going through it with cool it. Do you feel like things are getting a little bit more unclogged, or is it still kind of the same bid ask spread, dynamic, the valuation, you know, mismatch that we've been seeing over the past few years.
- [32:59]
Pete Stavros
Well, this was unique. I mean, this was an absolute frenzy. We had six major companies dying to own it. Everyone was putting in phone calls to the firm, anyone that they knew, trying to get a leg up on the process. I would say more typically these days, the exit environment is not as robust. I mean, back in 21 and 22, when the market was really hot, if you had even a decent business, there'd be six, 10 people who wanted to own it. Today, a lot of exit processes, there's a couple. So it's more of a. Of a buyer's market. Private equity has gone through a cycle in these last five, six years. In 21 and 22, the private markets were on fire and a lot of our peers overspent during that period of time. So there was at high at exactly when the 10 year was 1%, multiples were high, people overspent and that's created a bit of an overhang in the industry. And now it's the other side of the coin. There's not as much dry powder, not as much new money chasing deals. So it's an interesting time to deploy. Exits are a bit harder for the industry. Now I do have to say I expect this year to be an all time record exit for a series of exits for kkr. You know, year to date through we're only in March. We've already signed up 10 exits. We haven't announced the aggregate dollar value, but it's in the many billions, billions. And I think this could be the greatest exit year we've ever had.
- [34:18]
Leslie Picker
Exits in terms of dollar value or number dollar value. And is that just because of the vintage of the fund and because of the environment you think you can sell them into?
- [34:27]
Pete Stavros
Yes. So in that 21 and 22 period of time when our peers overspent, we had learned that lesson four fund cycles ago. So one of the great things about being KKR is you've been around 50 years, you've kind of seen everything. And the firm's good about learning from mistakes. So when we overspent prior to the Great Recession, we put in place a process where we would linearly deploy our funds. So if we raise $10 billion, we're going to deploy 2 billion a year for five years. That means when 21 and 22 happened and the market was on fire, our process required us to be constrained. And so we are not overweight. The bad vintage years we've more evenly deployed. We have that same bias on the exit. So once a business has once we've basically accomplished most of what we came to do with a company, we head for the exits. So right now we're exiting businesses from that, let's say 29 to 22 period. We're starting to exit those now. And as I said, we were already off to a great start. It's just March and we've got 10 deals out the door.
- [35:33]
Leslie Picker
So constraint on deployment but not on, on exits.
- [35:35]
Pete Stavros
Not on exits. Yeah.
- [35:37]
Leslie Picker
I want to turn to the private markets industry. It's gotten a lot of attention obviously over the past few months there's been some consternation about private credit and the health of the borrower class. And as the global head of co head of pe, you oversee portfolio companies that service a lot of private, private credit originated debt. What do you make of the noise relative to what you see in your own portfolio in terms of just the health of, of these borrowers, the health of these sponsor back companies? Especially since PE is subordinate to private credit.
- [36:08]
Pete Stavros
Yes. So we've seen, God, we've had a long stretch of double digit earnings growth in the portfolio, including the last four quarters. I always hesitate to say that that is reflective of the broader economy. What's, or what's going on more broadly because our strategy is, you know, we are constructing pretty unique portfolios. We're not really reflecting the economy. There's whole parts of the economy we don't participate in and then our earnings growth is largely driven by operational improvement. So it's not as though this is just, you know, a rising tide lifting all boats. But in terms of, on the new deal environment, private credit, you know, we're still doing private credit deals. In every new transaction we're looking at a syndicated offering and a private credit offering and we're looking at what's more flexible, what gives us better pricing and better terms and we pick the best option. But the private credit market is definitely not debt fed. It's maybe slower than it was in that hot 2122 market, but it's still active.
- [37:01]
Leslie Picker
And you think net, net private credit still outweighs for your needs? The syndicated market depends.
- [37:07]
Pete Stavros
Depends on, you know, the state of the market. So typically the syndicated market has, has gone through more boom and bust periods where the banks just are out of the underwriting business for a period of time. Private credit has been more consistent. As it stands right now, we are still leaning private credit and it's still more user friendly. The pricing is good enough and the terms are often more flexible. So as I say, it's far from. That market is far from shut.
- [37:34]
Leslie Picker
Interesting. The Department of Labor today issued some new draft rules surrounding private markets and 401k is essentially making it easier for plan operators to not get sued for things that have high fees, which are many alternative assets.
- [37:50]
Megan Casella
Assets.
- [37:51]
Leslie Picker
I'm just curious your reaction to this notion for one case, what they mean for the alternative asset managers and you know what they mean against this backdrop of all the noise surrounding retail investors and semi liquid funds and all of that.
- [38:06]
Pete Stavros
So the, the announcement from the Department of Labor I think was like 170 pages and I haven't read it so I can't comment on exactly what's in
- [38:12]
Leslie Picker
there chat CPT for that.
- [38:14]
Zepbound Advertisement Voice
Exactly.
- [38:15]
Pete Stavros
But I do understand the sentiment of why the government wants individuals to have greater access. You know, if you look at the United States, the number of public companies in the last 25 years is down by 50% today, 90% of any company of all the companies, excuse me, with 100 million of revenue or more are private, probably much higher even than that for technology companies. The returns in the public markets, look at The S&P510 stocks in the last five years are driving 55% of the returns concerns. So I get the desire to get more people access to it. And I think these rules are all with an eye towards how do we make sure it's done appropriately, safely, you know, and there's always still going to be a fiduciary in the middle of all of this. So I understand the sense, you know, why this is happening.
- [39:03]
Leslie Picker
Yeah, it'll be interesting to see kind of what comes from here. Pete Stavros, thank you so much for joining us today. The co head of global private equity for kkr.
- [39:11]
Pete Stavros
Thanks for having me.
- [39:12]
Leslie Picker
Appreciate it it. And a quick programming note, don't miss an exclusive interview with BlackRock's Rick Reeder that's coming up today at 3:00pm Eastern on Closing bell. Coming up, cybersecurity stocks sinking late last week on Anthropic reported push into the industry but recouping some of those losses. Wolf upgrading Crowdstrike to outperform, writing that Anthropic new model could actually benefit the company. What those new tools can and can can't do. Next. Welcome back. Anthropic reportedly testing a powerful new AI model with more advanced cybersecurity capabilities. That news hitting the cybersecurity stocks last week. Sima Modi has the details in today's tech check. Kasey.
- [39:56]
Seema Modi
Hey Leslie. And there's a key distinction here. This is Anthropic latest model rumored to debut in April and the expectation is that it will be more powerful and robust in nature and according to reports will lower the barrier, possibly to barrier for it to bad actors. Now the CEOs of the world's largest cyber companies are calling on AI labs to be more responsible. Palo Alto Network CEO Nikesh Arora writing in a blog post this morning that a single bad actor will now be able to run campaigns that once required entire teams. Every desktop, he says now effectively behaves like a server and is likely to have unsupervised AI tools operating near sensitive systems. Sometimes the attack surface keeps growing mostly unnoticed. Aurora, who bought $10 million in Palo Alto stock last Friday, is calling on OpenAI and Anthropic to release these capabilities in a responsible fashion while ensuring the defenders have been consulted. The key question, Leslie, now for investors is if the large language models continue to enhance their AI capabilities and build offerings that are competitive to the software and cybersecurity vendors, will they replace these companies or they actually increase the total addressable market? Analysts at Wolf weighing in on this whole conversation, they think this only leads to more spending on cybersecurity. They're actually upgrading shares of CrowdStrike to 450.
- [41:10]
Leslie Picker
Yeah. How important is it to have essentially separation of church and state in terms of you've got the AI company as they've got access to data, you've got the large language models on one side. Do you need a separate company operating cybersecurity in order to, to protect that and ensure that there's integrity and in the various models, or is it okay for it all to be just in one house?
- [41:31]
Seema Modi
That's a great point. I mean, right now the industry is set up in such that you have the Silicon Valley cybersecurity incumbents that are providing the software, the AI architecture to these Fortune 500 companies to ensure you can reduce the risk of cybersecurity attacks. But at the same time, as new, as innovation continues to get faster and evolve, the AI labs and the large language models are, are pledging that they can get, become very good at these specific tools. The Silicon Valley incumbents will tell you they're not offering the full security solution. So that's where the debate lasts. But at the same point, same time, you have the government here in a position where they need to figure out what type of guardrails they're going to be putting in place for the large language models if their new products could lead to more attacks.
- [42:13]
Leslie Picker
Yeah, no, it's, it's absolutely fascinating. Seema Modi, thank you so much. Coming up with Shares trading around 5015 times Morgan Stanley says now is the time to buy this Mag 7 name will reveal it next. And we're watching Cisco shares of the food distributor down nearly 15% after announcing it will acquire Jetro Restaurant Depot for $29 billion. Cisco on pace for its worst day since March 2020. The exchange will be right back. Welcome back to the Exchange, Metta. That was our mystery chart having a tough start to the year. But that's not discouraging Morgan Stanley, the firm naming it a top pick for 2026, but trimming its price target by $50 to 775 a share. That's still nearly 50% upside from here. So is Metta set to stage a turnaround? Let's see what the charts have to say. Joining us for more is Paul Siana B of a securities head of technical research. Paul, what's the matter chart telling you about, you know, its potential upside from here.
- [43:28]
Paul Siana
Hey Leslie, good to see you. Thanks for having me. Look, matter fits into the narrative of the NASDAQ 100 with the topping structure and the downside that the market is seeing. I think it's interesting that matters, you know, falling pretty quickly, I guess we say in technicals falling like a knife towards those 2025 lows, about 475. So maybe the brave try to step in there and hope that level holds. But for now it's in a downtrend.
- [43:51]
Leslie Picker
It's a downtrend for Metta. What about Microsoft?
- [43:53]
Paul Siana
Yeah, similar idea except you know, leading Metta on that turn. Both as well as Nvidia and some of the other major tech names are the reason why the NDX index of the NASDAQ 100 double top this year and as a broad index still has further downside likely.
- [44:09]
Leslie Picker
And so how does all of that contribute to what we're seeing with regard to the NASDAQ right now?
- [44:17]
Paul Siana
Yeah, the NASDAQ 100 and the S&P 500 both have these topping structures where price action is biased to the downside. Of course, you know, markets have fallen below their 200 day moving averages, but more so they're starting to fall closer towards their 200 week moving averages. Right. You have something like Meadow, which rising 200 week moving average is now at about 450 and approaching that 475 level. The Nasdaq 100, however, that 200 week moving average is much lower at about 19,000. So you know, we're not saying that the Nasdaq 100 is going all the way down to that longer term moving average, but that's the current trend. It's mean reversion.
- [44:56]
Leslie Picker
Are there any bright spots that you see within the Mag 7 from a technical standpoint?
- [45:01]
Paul Siana
Well, really comes back to oil, Leslie. Oil markets have double bottom this year and that macro story is what's driving this risk off appetite. So you know, if we go back to oil prices and we think about the double bottom that formed over the last year, it had this big move up to 120 on Brent, we're used to seeing consolidation periods after that and then the risk of a fifth wave to a new high. So in a scenario where the upside is still biased higher oil I think it's going to be hard for risk assets like those equity markets you've mentioned to really catch a strong bit. They might catch a bounce, but to signal the start of a new secular uptrend, let's say in these names you really need to know if one oil prices have peaked and to if US Yields are going to stop going up.
- [45:51]
Leslie Picker
Is that true for all sectors? Are there areas that you think are less correlated to the price movement we've seen in oil?
- [45:59]
Paul Siana
I think you want to be long oil proxies and long higher yield proxies because those are the two fixed income markets that are really starting to trend right now. And you know, if they keep going that way then that's likely a place to be overweight.
- [46:11]
Leslie Picker
Is there anything in the tech world that you think is immune from both the pressures in crude as well as the pressures in and kind of the disintermediation narrative at this point?
- [46:22]
Paul Siana
I wouldn't want to try and cherry pick a tech name until there's more macro clarity and response from what's happening globally so those names could perform.
- [46:31]
Leslie Picker
What about financials?
- [46:35]
Paul Siana
Similar story with regards to the flattening yield curve. That's a tougher environment for financials to survive in. If you look at something like the 210 curve you had that break support over the last few weeks, I would say keep an eye on the five 30s because that has tested and still is holding some support. And if that can hold, then perhaps there is some opportunity within financials.
- [46:57]
Leslie Picker
All right, Paul Siena, thank you so much for your time today. Talking tech, talking financials and oil. There's so much at play. Meanwhile, the S&P 500 turning negative. NASDAQ firmly in the red as well. That is it for us. Thank you for watching the exchange. Stocks again struggling to hold on to their earlier gains. The Dow the only major average in the green, but well off its 460 point high power. Lunch with Brian Sullivan is up next after this quick break.
- [47:28]
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