B (2:15)

Hey, good, good morning. Good afternoon, Kelly. Sorry about that. Respondents to the CBC Fed survey expect a hawkish cut, that is a cut followed by a pause. But also they show deep divisions over whether the Fed should be cutting at all, likely reflecting the same split on the committee itself. 87% think the Fed will cut this week, but only 45% think the Fed should cut. That's a pretty big split for this survey where respondents tend to agree with what the Fed's about to do. There are two dissents expected assuming a rate cut, and only 35% now see a rate cut in January. So this looks like a hawkish cut, so to speak. Scott Wrenn of Wells Fargo Investment Institute writes in the Fed will cut in December, even though you can make a very rational argument in that they should not do anything. Continued high inflation, that was the number one risk to the economy followed. That was number four last time. The AI bubble bursting, that's number two, followed by concern about Fed independence, the fiscal deficit and uncertainty from the administration's economic policy. Meanwhile, the growth outlook has been ticking up, running at 2% this year and higher next year, while inflation forecasts remain above the 2% target. That's the concern. Still, several respondents believe the Fed needs to cut because of weakness or potential potential weakness in the labor market. Alan Sinai of Decision Economics writing in quote, the Federal Reserve is behind the curve again, this time on the widespread weakening of the labor market. A preemptive 50 basis point cut in the federal funds rate is, is the right thing to do. That's what likely motivates the Fed to cut at this meeting. The greater risk that when the data finally do come out, it's going to show a weaker labor market more than the risk. Kelly, that it will show higher inflation.

A (3:56)

That's fascinating. Steve, stay right there. Our next guest says the Fed is going to cut by that quarter point and then they will stop. Unless, like Steve just said, the labor market cries uncle more loudly. Joining us is Paul McCully. He's the former chief economist at Pimco and currently an adjunct professor at Georgetown McDonough School of Business. Paul, we all obviously sympathize with the point of view that if the labor market's worse than we realize, you might want to cut half a point. But the data that we've gotten seem okay. I mean, the jobless claims data alone would seem to tell you there's no Major cyclical problem here.

B (4:26)

I think that's right, which is why I think the best way to describe what the Fed's doing now is completing the normalization process. They took off 100 basis points in 24. After tomorrow they have 75 basis points this year. 175 basis points is a lot. And it's taken us from a very restrictive stance of policy to where I think we will be tomorrow on the outer suburbs of the neutral neighborhood. Not slightly restrictive, which has been the refrain from the Fed with the last two cuts. But I think tomorrow they will say effectively we have completed the normalization process to the outer suburbs of neutral. Doesn't mean that this is it. But once you get to neutral, there is no longer a presumption that you're going to move at every meeting. And I think that's where we are. Outer suburbs of neutral.

A (5:29)

Well, you always put your finger right on it, Paul. And so today I noticed that, and he's been saying this for some time, but Larry Lindsey, who was briefly in the running to be the next chair, he thinks we're already in the downtown of Neutral. And if I remember correctly, he said, you know, neutral is about 1% for a real rate. Core PCE is running at 2.8 and the fed funds rate is somewhere around 3.8, is that right? So he thinks we've already arrived at that place. And he's not so much in favor of continuing to cut here. He points to the bond market, where Yields are up 20 basis points in the last week or two, as one reason why. And look at what's happening today. We see silver jumping, cryptos jumping. You do wonder if that's reaction to kind of too much liquidity.

B (6:12)

It's a conundrum, to borrow a phrase from Alan Greenspan, in that if you look just at financial conditions, look at the state of Wall street, look at the top half, the income distribution can make a cogent argument that we are at neutral or maybe even accommodating. But when you look at Main street and particularly the bottom half of the income distribution and small business, then you have to conclude that we're still restrictive. So essentially that cake shaped economy is befuddling everybody because there's not one natural neutral rate for the economy and the Fed only has one. So I think we've got very legitimate, honest debate about where we are in the neutral neighborhood. Is it. The suburbs are downtown. But the big message is that we've moved from the restrictive neighborhood towards the neutral neighborhood. And I think that will be the essential message that Chair Powell will deliver tomorrow.

A (7:20)

Steve, jump in here.

B (7:23)

Well, my first question, Kelly, is how come you never have Larry Lindsey on when I agree with him?

A (7:27)

Oh, I didn't realize that was the case, Larry. Larry is, I don't believe, available right now, but he's, I'm sure he's watching. And if you're ready, Larry, then we are. We have a spot for you tomorrow, Wednesday, anytime tomorrow is Wednesday.

B (7:41)

I think, no disrespect for Paul, but, but if you do a little bit more math, like I'm sure Larry has done, a 3% inflation rate with a 3% neutral gives you a zero real rate. And so, you know, we're getting close now to zero, to a really what you would consider a stimulus policy. And picking up on Paul's really intelligent remark, when it comes to different rates at different parts of the economy, you have this screaming investment for AI right now, and that would, that demand for capital would tend to raise the cost of capital. And yet you have this other economy essentially being left behind and forced to fight over the crumbs that are out there, the small businesses that don't get those kind of rates, individuals having it. So it's a real conundrum for the Fed trying to serve the entire economy with a single rate. My answer to all this is I think what Captain Kirk did in one of those tests he did, he's not going to play the game at all. I think the Fed should have waited and it's going to get a lot of data next week. Now I get why it's going to meet. I get why it's going to cut. That makes sense to me in terms of, well, the greater risk looks to be on the job side, but I would sure want to see all of the data, the inflation data we're getting next week, the jobs data we're getting next week to understand just how weak is the jobs economy. It's interesting to me, Kelly, the amount of confidence that Fed officials have in running the economy based on the alternative data I reported every day. I don't have the confidence to make a call about what's happening in the economy. On the alternative data, I get a feel for it, but I'd sure like to see the official data before saying this is what the Fed ought to definitively be doing. And just one other point, which is I would sure not want to be putting out forecasts right now based with the absence of two months of data.

A (9:30)

And no one wants to look bad. Paul, a final word on that.

B (9:34)

I share the concern about the forecast. We'll get the new dot plot. It's going to be interesting to see because we don't have a good base to make the forecast going forward. But from the standpoint of the Fed's action tomorrow, I think it is justified completely on the notion the Fed needs to normalize the yield curve. The long end of the curve, the belly of the curve have already discounted the Fed easing and the Fed needs to ease to validate what the curve's already done. So I don't think that the absence or the weakness of the data flow right now change that fundamental issue, which is the Fed needs to normalize the yield curve.

A (10:23)

All right gentlemen, thanks. Good to have you both here today. Paul McCully and Steve Liesman. We had a 10 year note auction in the meantime. Interesting result here. Didn't go that well. Rick Santelli has the results and the details at the cme. Hi Rick.

B (10:36)

Yeah, I know it wasn't too bad. You know yesterday's three year was pretty awesome. Today's ten year was a C plus type auction. And I'll go through all the intricacies. First of all the yield at this Dutch auction was 4.175 which is exactly where the when issued market was. So right where it needed to be. Pricing all the metrics are pretty much spot on the 10 auction average but one and that was how much the dealers took. And it's like a buffet. After all the investors take what they want, what's left goes to the primary dealers and that number was 8.8%. The 10 auction average is 11%. So there's where the plus comes from. So basically everything turned out about where it was supposed to. But it was a solid auction all things considered. Tomorrow will complete what is 119 billion in coupon supply with 22 billion 30 year bonds. And we see that the long end of the curve is very stubborn. You just heard the conversation that was going on regarding normalizing the curve. I don't know what that means, but what I can say is the curve doesn't need anybody to normalize it. It's looking at all the global debt, it's looking at what the Japanese are going to have to issue, the British are going to have to issue, the French are going to have to issue, the Germans are going to have to issue, the Americans are going to have to issue. And that's why should we close right here at 417 in a 10 year it would be the highest yield close since September 2020 6th.

A (12:12)

Kelly, back to, you know, quickly. Rick, you're a tough grader because after I heard what you said, it didn't sound like it was that bad. What is your take on whether the bond market is kind of revolting here about a possible rate cut? Is that how you would describe the action of the past couple of weeks or no?

B (12:29)

No, I wouldn't say it's revolting at all. If it was revolting, it'd be at four and a half percent. But what I think is going on is investors are finally starting to see the reality. They really had on rosy glasses. The inflation that's showing up in pretty much all the numbers is going to be somewhere between 2 and 3/4 and basically 3%. That's not at the Fed's target. And it doesn't look like it's going to get any closer anytime soon. All the data that we are still receiving doesn't look as weak for the labor market. So I think investors are just getting a bit nervous in front of tomorrow's cut. And that nervousness I think is well warranted.

A (13:08)

Yeah, maybe it's all about Japan. I don't know. Rick, we'll leave it there. We'll see you soon and talk more about this. Rick Santelli speaking to the Wall Street Journal earlier today. Possible next. Fed chair Kevin Hassett said there's room to cut rates maybe even more than 25 basis points due to productivity. He compared it to the 90s. He said right now AI is a bigger story productivity wise than the computer. And so that is the time when the Fed has a chance to do what Greenspan did. My next guest is sticking with tech stocks for this reason, even as critics warn they are overvalued and showing signs of froth. Let's bring in Steve Whiting. He's the CEO of Chief Investment Strategist. It's great to have you here.

B (13:44)

Thank you.

A (13:45)

Kelly, good to see you. Do you want to just top level address me? Do you favor the rate cut tomorrow?

B (13:49)

Well, look, if the Federal Reserve cuts as soon as possible, perhaps they can cut less. It really depends on how the economy evolves. And Steve Liesman's comment about, you know, a lot of the economy is just getting crumbs. Sub 1% industrial production growth, 2% drop in construction over the course of the year, 47% growth in IT equipment investment. You know, that is a bifurcated K in the economy. I think they could stop cutting because we're probably going to see those weaker parts of the economy rebound in 2026. Now it's not going to be massive, but construction and trade going to have a better year in the coming year. And that's probably going to be consistent with everybody saying, I see the Fed shouldn't have cut.

A (14:32)

Right. And that's fair. But you don't share these concerns about a rapidly deteriorating labor market. Or do you share then the optimism that Hasset is saying, which is you could cut not because the labor market's getting worse, but because productivity is a tailwind to the economy, we can have lower rates.

B (14:46)

Two things. If you just take a look at job openings, you take a look at the weekly surveys from. Indeed, for example, the labor market is cooling. It's cooling in a way that doesn't look like AI spending really. And AI is and every likelihood is a headwind that is going to continue to slow the labor market. So that would argue again for a little more aggressive monetary policy. But the idea that productivity gains, that the trend rate of growth in the economy is strong, so let's just have zero rates, that's the wrong view too. And the 1990s tells us that too, because it does mean, right, that demand for capital in the economy, demand for debt, that the trend pace of economic growth, the interest rate, that would stabilize financial conditions. Right. To give us. It's very, very hard to do all these things you say about inflation, employment, but financial stability too. Can you imagine runaway bubbles in the economy with easier monetary policy because the labor market is weakening? This makes it even more difficult for the Fed.

A (15:41)

So in the 90s, where was the rate like 5%, something like that?

B (15:44)

You can't really complain about long term rates in the 1990s, you know, we did a five and a half percent treasury yield. It rose when we had a very strong investment in what was at the time the beginnings of the Internet. We should be seeing some of those pressures now, at least modestly so from all of this. But you know, the types of debt readings that we're seeing, we see five hyperscalers have grown their debt. We're talking about everything from Oracle to Metta, 14%. That's about in line with their revenue growth. That would probably be twice as high. Right. If this was just a runaway bubble in debt in terms of those company spending.

A (16:21)

I see. So in other words, you're saying if the Fed does what Hassett argues they could, if they lower rates too much here because we have a highly productive economy, that you know they're going to end up stimulating a much worse air bubble.

B (16:33)

That is potentially the case. Even if that's what Looks right for the labor market. If AI is really making the trend rate of unemployment higher. Right. Because we're producing more with fewer people. Trying to fight that with easy monetary policy can be one of those things that can destabilize the economy too.

A (16:49)

On the flip side of that, you are sticking with as a kind of an investment theme or as part of just being in the market, think the market will continue to do well. You like the tech stocks. You don't seem to share those concerns that Michael Burry and others have had about them being overvalued or frothy or anything like that.

B (17:04)

I think it's just a little soon in this process having seen 95, 96, all the warnings, 97, 98. You know, the point here is that we're deep into a bull market. Bull and bear markets are going to exaggerate returns and there is a price to pay for that. So the median S and P return per year is 15%. The average is 10. The bear markets are going to come and we have to be prepared for that. But are we at this danger point, not again when the spending on this from profitable companies hasn't reached some critical stage for the economy where we're actually really over the edge.

A (17:39)

So you're optimistic for 2026?

B (17:41)

I think that, that we are optimistic for 2026, but I think you have to absolutely prepare. You know, you think about the municipal bond market 2008, it had a negative 3% return. Treasuries had a 14% return. You think about the health care sector, we're expecting a 15 to 20% return in the health sector, health care sector next year. Maybe that isn't going to quite be as much as some of the stocks possibly, but it's another source of return that is really lowly correlated with what's leading the market right now.

A (18:11)

You sound like Rich Bernstein who yesterday said boring is beautiful. That's kind of his playbook.

B (18:15)

You're going to want some of that for the other side of boom.

A (18:18)

All right, Steve, it's great to have you.

B (18:19)

Thank you.

A (18:19)

Steve Whiting with CIO Group. Coming up, Netflix investors are throwing a fit with shares on pace for a five day losing streak. Down 12% in that time is the best thing that could happen to the stock losing their bid for wbd. We'll debate. Plus Nvidia getting the green light to sell some of its chips to China. But there's a big catch that could have big implications for investors. We'll explain that ahead on the exchange.

B (18:46)

This is the exchange on cnbc.

A (18:53)

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Zoe, this thing weighs a ton. Drew Ski, lift with your legs, man.

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He's talking to you, Bridges. I'm not.

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Of course he did.

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A (20:54)

Netflix shares are under pressure again today. They're down as you can see, about another percent to 95% and change as the saga for them to buy Warner Bros. Discovery continues to Paramount is Launching a hostile takeover bid after it lost to Netflix. And Paramount shares, by the way, are giving up. Some of their yesterday. Gains are down about 3% today. Needham's Laura Martin writes that maybe this is the best thing to happen to Netflix. She says Netflix buying WBD would put $83 billion of additional value at risk of being disrupted by AI. And without WBD, she says Netflix is more global, more nimble and more tech first here now to discuss which deal would be better is Mark Douglas. He's the CEO of Mountain. And it's great to have you here on set.

B (21:34)

Welcome.

A (21:36)

What is going through your mind as you watch this? We've talked for years, Mark, about your bullishness about Netflix in general. So does this to you add to the bull story or how are you thinking about it?

B (21:45)

Well, I think it definitely adds to the bull story, but I also look at the deal and I think this is kind of a nice to have for Netflix. They already have global presence, they have many property. There are many reasons to go and watch Netflix, Netflix, but you know, so it's a nice to have for Netflix, but it's a must have for Skydance and Paramount for them to build that challenging platform. They're going to need Warner, hbo, Discovery, which I don't think people mention enough, all of these assets to build that challenging platform.

A (22:18)

So, you know, you're in the ad business obviously you have kind of a front row seat and a ability to kind of, you're like the high level data on this. Right. Do you have an opinion or a preference as to how this evolves? Are you worried it would be anti.

B (22:32)

Competitive, meaning Netflix getting?

A (22:36)

I guess in either case, frankly, just.

B (22:38)

The consolidation, I actually don't think either one would be anti competitive. But in terms of I know people at both companies, so I kind of, you know, have chatted with people and I think, you know, if you take an offer directly to investors and in this case probably the sum of the biggest investors, I think it's going to be difficult for the Warner Brothers board to kind of ignore an offer that's this much larger than what the offer they got from Netflix. So I think the decision that just kind of take it directly to the streets, so to say almost figuratively and literally, I think is a smart decision. I think Skydance stands a very good chance of winning in the end.

A (23:18)

Yeah. How is the health of the ad market? These, I mean, I got to ask you kind of because that's your bread and butter. But also, so to get a sense we hear from Hollywood, it's the worst of times. And if Netflix wins, it'll be the worst of times kind of thing. How would you describe the landscape right now?

B (23:31)

Well, in terms of the ad market, I actually think things are very healthy. That's certainly what what we see. There's still a lot of growth and so forth. But I think what's also a little misunderstood, this is one of the best times because of AI to create that challenger brand. The cost of creating content is coming down even for feature films is certainly coming down for in the advertising space and what we do. And so if you want into this market, you have these properties and you want to create more content, AI is going to be a way to do it very, very efficiently compared to what it used to cost in the past. So I think again, like Skydance, Paramount, you combine that with Warner AI tools in order to create the content for less cost. I think there's a real play here. Both companies, I think what's really nice is they both love content. Skydance isn't in this like as a financial play.

A (24:23)

Absolutely right.

B (24:24)

They're in this because they love the medium and they're willing to put a massive amount of capital to work to prove that.

A (24:30)

I think it's interesting that you said I will help the business models of these companies. Yeah, it sounds like Laura Martin's concern is that I could undermine the business model or disrupt a Netflix or a disruptive content powerhouse because you might have, you know, startups that are able to put content out there and get those eyeballs and just kind of create other platforms where those eyeballs could go. So she views it as more of a threat. You seem to view it as more of an opportunity.

B (24:54)

No, I view it very much as an opportunity because, you know, when you go out to dinner with your friends, ultimately you talk about the big shows, Landman, White, Lotus, many of on these properties and some of the biggest shows on Netflix. And I don't see that going away. People are not ready to talk about the short form film they watch for five minutes.

A (25:12)

Hey, this YouTube clip, have you seen any of these? What are they, like the 92nd soap operas that are now.

B (25:17)

Oh, yeah, that's pretty interesting.

A (25:18)

Have you seen them?

B (25:18)

I have and someone mentioned to me and I started seeing them and that's an example of you can have new content, new sources of content, but it doesn't change the fact that what you're probably gonna talk about at dinner is the season opener Lamb Man. That's where the conversation gonna go. And that's where consumers are going now.

A (25:35)

I bookmark Instagram reels that I like and I make my husband watch them. This poor suffering man. That's.

B (25:41)

I kind of do the same for my girlfriend. Do you?

B (25:46)

The moment she wakes up, I'm like.

A (25:47)

Here, check it out.

B (25:48)

I have something for you to watch.

A (25:51)

Mark, thank you. As always. Thank you, Mark Douglas of Mountain. Coming up, the president is allowing more Nvidia chips to be sold to China now. But then why did we impose tariffs on China in the first place? That's what one of our next guests takes issue with. And that's coming up on the exchange.

A (26:10)

Guys, thanks for helping me carry my Christmas tree.

B (26:12)

Zoe, this thing weighs a ton. Kruski, live with your legs, man.

A (26:15)

Santa. Santa, did you get my letter?

B (26:17)

He's talking to you, Bridges. I'm not.

A (26:20)

Of course he did.

B (26:21)

Right, Santa, you know my elf Drew Ski here. He handles the nice list. And elf. I'm six three. What everyone wants is iPhone 17 and at T Mobile. You can get it on them. That center stage front camera is amazing for group self. Right Mrs. Claus?

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A (28:39)

Let's get some show and tell now where we show you the chart and tell the story and it's Walmart today back in the green after snapping an eight day win streak yesterday. It's up a hefty 11% over the past month and just two points away from its all time high today. It's becoming the biggest company ever to move its listing from the New York Stock Exchange to the Nasdaq. Speaking of the Nasdaq, it's already trading like a tech stock with a forward P E of 40 Nvidia trades at a paltry 26 times. Walmart's outgoing CEO Doug McMillan was on squawk box this morning to talk about the move to the Nasdaq and the business and here's what he said about the health of the consumer.

B (29:17)

It's been really consistent for us. Now we're benefiting from some share gains. People with higher income levels are shopping with us more often and have been for a while. There's pressure at the bottom end. Inflation being low single digit right now helps a little bit, but it's on years of price inflation in some categories. Gas prices being low is helpful right now, so people are behaving pretty consistently, but there's pressure for those at lower income levels.

A (29:39)

What an impressive tenure he had. TD Cowan naming Walmart as one of its top 2026 plays this morning, saying the company is building a powerful leading edge tech powered ecosystem and is able to play both offense and defense. In other words, the best days for this stock they think are still to come. Let's get to Bertha Coombs now for the CNBC News update. Bertha hi Kelly A coalition of advocacy groups is suing the Trump administration over the release of materials related to US Military strikes on alleged drug boats, the Federal complaint says the strikes that have killed at least 87 people since early September are illegal. And Americans deserve to know the government's justification. Honduras has issued an arrest warrant for former President Juan Orlando Hernandez, who was freed from prison following a pardon by President Trump last month. Hernandez was sentenced to 45 years in prison in the US last year after being convicted of helping move tons of cocaine into the US And Dodgers star Shohei Ohtani was named the Associated Press Male Athlete of the Year for the fourth time. The 2025 World Series champion and MVP ties Lance Armstrong, LeBron James and Tiger woods for the most wins among male honorees. The AP is expected to announce its Female Athlete of the Year tomorrow. You know, with three home runs and 10 strikeouts in one game to win the National League, I mean, he's unbelievable. I'm trying to think of who would the female be? I don't know. I bet Kelshi has a market for that. Could be, could. Bertha, thanks very much for now. We appreciate it. Bertha Coombs, Coming up, Nvidia getting approval from the government to sell more of its AI Chips chips to China. But there are some strings attached. Are they constitutional ones? That's next.

A (31:34)

The Trump administration giving in video the green light to ship its H200 chips to China yesterday. The shares initially popped on that news, as we saw here, but they're lower today as major questions remain, like how those chips will actually get to China and what the government's 25% cut from those sales would mean for the bottom line, if it even can happen. Let's turn to our reporters for some of these answers. Eamon Jabbers is here with more on the logistics. Eunice Yoon is on set with us. She's got Beijing's response. Christina Parts. And Evilis has more on the deal's hidden costs for Nvidia. And joining us with his take on what this means for tech and policy, venture capitalist and political strategist Bradley Tusk. Welcome to all of you. Eamonn, let's start with you. These sales were banned in the first place because of national security concerns. So what's now being done to mitigate those risks?

B (32:19)

Well, the president said yesterday, Kelly, that this is only going to be to certain customers in China. Presumably, there's going to be some sort of national security vetting of those customers. But to give you a sense of just how head snapping this decision was yesterday, the Department of Justice had an ongoing codenamed operation called Operation Gatekeeper designed to keep these H200 chips inside the United States and keep the Chinese from using smugglers to get them. And yesterday, after the president announced the his decision, a couple of hours after the DOJ put out a press release saying that it had actually two men in custody on allegations of smuggling these H200 chips from the US to China. The US seized $50 million in Nvidia tech and cash. And here's what the DOJ said about that operation. They said Operation Gatekeeper has exposed a sophisticated smuggling network that threatens our nation's security by funneling cutting edge AI technology to those who would use it against American interests. The country that controls these chips will control AI technology. The country that controls AI technology will control the future. So that's what President Trump's Department of Justice said about sending these chips to China yesterday. At the same time, the president reversing course on this decision, the president said all national security protections are going to be in place. But presumably these same H200 chips that this group of smugglers, alleged smugglers, was alleged to be sending to China, that now will be legal under the President's decision. So that gives you a sense of how much things have changed just in 24 hours time.

A (33:51)

Kelly, is there any further explanation, Eamon, for the about face?

B (33:55)

Well, the President said, you know, a, the United States is going to collect 25% of the sales here. And the way that's going to work, a White House official texted me to explain yesterday, is that these chips will be sent from Taiwan to the United States where there's going to be a security inspection and the US will collect a 25% tariff and then sent back to the exporting destination. So that's the mechanism by which the US will collect that 25%. And so presumably it's that money, plus Jensen Huang's lobbying, plus this overall argument that says that actually the United States national security position is better if the Chinese tech stock stack is built on American chips than it would be if the Chinese do this on their own. That's the argument on the other side.

A (34:41)

Interesting. Aim and appreciate it very much. Obviously, Eunice Yunus here on set with us. And Eunice, there are those arguing that this will be perceived by China as a moment of weakness from the US that they can capitalize on. I'm curious what message you're hearing or getting from Beijing. Well, right now the Foreign Ministry hasn't officially said whether or not they would be happy with this move by the President. But what we've heard in the FTSE is that they were reporting that the government would be the Chinese government would be putting some restrictions on the importation of the H200. And it wouldn't be really that much of a surprise given that the Chinese government has already been trying to push back a little bit with the H20 chip, which is seen as not as quite as advanced as the H200 in the overall push that Beijing has, which is self reliance. And that self reliance push actually predates the Trump administration. It's the Chinese are kind of going on their own path where they want to make sure that they are able to make China great again and to do it in a way that where they would be the tech leader regardless of anything else. In other words, has the US Capitulated and realized we'd rather have the Chinese market for Nvidia chips because the Chinese are being success. We talked about the other day, there was that more companies ipo. There have been a couple of other chip companies in China they're obviously trying to incubate. Is that successful? Well, it's been successful in that there have been advancements made. I mean, when you talk to Chinese companies that do use Nvidia chips, they want to keep using Nvidia chips. The reputation of the Nvidia chip is that it's much more advanced. It's also much more efficient. They like the whole infrastructure around Nvidia chip chips. But because the government push has been to use domestic chips more and more, I hear that they need to diversify. So they'll use Nvidia chips, but then they also use Huawei chips, they use other Chinese chips because they want to be able to placate the Chinese authorities as well. Right. So it's up to China now, really, to decide how much they want to allow these chips into the country. Yeah, absolutely right. You'd appreciate it. And while the deal might sound like good news news for Nvidia on the surface, you just heard one reason why it might be more problematic than it first seems. And the path to meaningful China revenues is a bumpy one, says Christina Parts and Evilis. Christina, what can you add? Welcome.

B (36:55)

A lot.

A (36:55)

So let's start with Nvidia shares. They're down half a percent despite Trump's approval for these H200 chip sales to China. The muted reaction, though, to your point, Kelly, really reflects major hurdles that could limit any upside in revenue for Nvidia. First, there's pushback from Congress. A bit bipartisan Senate bill introduced just last week would require commerce to deny export licenses for the H2 hundreds and any Blackwell chips should they get approved for the next 30 months. The question really is whether Congress is going to stand their ground or back down. Second, margins could take a hit with a 25% government surcharge. You can call it a fee or tax because Nvidia makes less for every dollar sold into China. Third, advanced packaging capacity at Taiwan semi is, is already very tight. So how are they going to keep making more chips for China? And then most critically, what you guys just spoke about touched upon is China could still block these imports as domestic alternatives. Really only lag the H200 by about 12 to 18 months, so they're not that far behind. And then you have one more wrinkle in this. The H200 uses high bandwidth memory, which also HBM3E AI memory chips. So just know it's really advanced memory, which are currently restricted, restricted by the United States for sale to China. It's still unclear if Trump's approval also lifts restrictions on those memory chips. And that's why you have analysts like Wedbush Bernstein, Matt Bryson saying, quote, that he's reluctant to shift his model, which currently assumes no revenue contribution from China. And Beijing may already be pushing back a little bit. Like Eunice mentioned, the FTSE is reporting Chinese regulators are considering restrictions restricting these H200 chips. And that's because Beijing has poured billions of dollars into domestic alternatives from Huawei Camerocon and they want Chinese firms to use Chinese chips, not American chips. Washington has said yes for now, but China could really just say no. Well, exactly as Eunice was just outlining. Christina, thanks. Appreciate it. Christina. Parts the nebulous. Let's get the bird's eye view on the intersection here of tech and policy with Bradley Tuft Musk. He's Tuck's venture partner CEO and it's good to have you here, Bradley. So as you hear all of these different data points, what are you sitting here thinking about as it relates to whether this is good, prudent US Policy to now move forward, including with this supposed export tax?

B (39:12)

Yeah, three things come to mind for me. The first is I don't understand why we're sending chips to China when there are US allies like the uae, like Japan, like South Korea that want these chips, need these chips and are not our great rival. They are not trying to become the global leader in AI ahead of the US they're complementary to the US So why we're favoring China ahead of our actual allies to me is very confusing. That's number one. Number two, I don't know if you saw this, but the President put out a post Yesterday that said he's going to issue an executive order to limit AI regulation in states because AI is such a critical national security issue that we can't allow states to regulate it. If it's that critical of a national security issue, why are we sending the chips to China? Right. Completely obviates the other.

A (40:03)

We'll go ahead and finish the thought, but I might push back on that one. But go ahead.

B (40:07)

I mean, ultimately, you know, are there public policy issues for the regulation of AI that need to get dealt with at all levels of government? Absolutely. And would it be great for Washington to actually try to regulate in a meaningful way? It would, but as you and I have discussed before, Washington hasn't regulated Internet 2.0 yet. Social media is not regulated. Our kids are left completely unprotected. So the notion that they're all of a sudden going to figure out AI and stop the states from doing their jobs and justify all of it based on national security, and then the next day to authorize the sale of chips to China, like, those two things, in my view, don't compute. And then the third.

A (40:47)

Tell me your third thing. Okay, let me just dwell on this one for one additional moment, because it makes sense to me that you wouldn't want a patchwork of states doing anything about AI because it's so nascent and it is critical that it evolves. Like, look, even at ChatGPT in Gemini, just when we think the whole thing's over and it's all about now, everyone's like, forget it, that doesn't work. So I'm going like, this technology needs to be excellent, right? And not have anything standing in its way. Like, and I just keep thinking of the EU's cookie things. You have to click every time you open a website, Right?

B (41:16)

So that, that obviously doesn't make sense.

A (41:18)

I'm not sure what the AI equivalent would be.

B (41:20)

Well, right, but, but take, for example, like, health care, right? So every state has its own regulations around what's allowed in the states for insurance, for Medicaid, things like that. And there are several states last year that banned the use of mental health AI chatbots because they found that those chat bots actually led people to commit suicide.

A (41:43)

That makes sense to me that they would be able to do that.

B (41:45)

There are so many. I'm not necessarily talking about the underlying regulation of generative AI and liability for that and things like states like California and Colorado have gotten into, but there are hundreds and hundreds of industries that are typically regulated by city or state government, where AI is now A component of those industries and a city or state's job around consumer protection, you surely.

A (42:08)

Regulate the usage of AI, in other words. So, yeah, I think that's within their bandwidth. Right. But if you're a negative order.

B (42:15)

But at least I saw a draft of the executive order a couple of weeks ago and I reread it yesterday when the president made a, in his, his, his post. It does not really distinguish between generative AI and AI applications. Right. And at the very least, there are so many applications now that touch into the work that cities and states regulate. Construction, housing, energy, education, transportation.

A (42:39)

Absolutely.

B (42:39)

That they have to be able to do some regulation. You could certainly say, well, when it comes to things like generative AI, national security, we don't want you to do that yet. But again, even then, when you say, okay, well, why not? Well, we don't want to be a competitive disadvantage to China. If that were the case, why are you selling your very best chips to China and ahead of selling them to our own allies?

A (43:00)

As per usual, you've made me think that. I want to be clear that states know they can regulate the usage of aid and we're just talking about the underlying. But Bradley, we have to go. I just don't want to leave people hanging with your.

B (43:08)

What was the third important third point? This. Like, I've always thought that if Trump said the P and L of America fixing that is my job, then you could say things like the 25% here, the 10% of, of intel, the tariffs, everything else is we're going to generate revenue to fix our nation's finances. But when you cut national revenue by $4.5 trillion through the big beautiful bill last summer, again, there's just no logical consistency to all of it. So there's lots of things that Trump says and does because that could really make sense from an economic standpoint, from a regulatory standpoint. But it all seems totally random, haphazard every single day. And as a result, is there clear, consistent policy that's good for the U.S. not that I see.

A (43:55)

Understood. Thank you for stitching it all together, Bradley. Really appreciate your time today. Bradley Tusk, Tusk Ventures coming up, Home Depot popping 2% earlier in the session, then reversing course after projecting a 2025 earnings decline of about 5% at its investor day. They're also expecting flat to modest comp sales growth for next year. Shares are down about 3/4 of 1%. We'll have more on the biggest movers right after the break.

A (44:24)

Kind of a weird day in the markets we've got the Dow near session lows while the Russell's at an all time high. Dom Chu is here to explain. Dom. All right, so let's start off with.

B (44:31)

Some of the bigger movers in the in the S&P 500.

A (44:34)

Good news for shares of CVS Health up 2% after raising revenue and profit expectations for the the current fiscal year.

B (44:40)

And its investor day full year guidance also came in above analyst estimates.

A (44:44)

CBS says it expects a mid teens.

B (44:46)

Compound growth rate for profits over the next three years. Then you've got AutoZone shares falling by.

A (44:51)

Roughly 6 and 7% at this point.

B (44:53)

Worst perform in the S and P. The auto parts retailer reported disappointing profits.

A (44:56)

And revenue results as it continues to.

B (44:58)

Deal with headwinds from higher costs from tariffs.

A (45:01)

Sales growth at established store locations did.

B (45:03)

Match estimates and we're going to end with a debut on the New York.

A (45:06)

Stock Exchange cryptocurrency treasury company 21 Capital Capital.

B (45:09)

It completed its merger with special purpose acquisition or SPAC company Cantor Equity Partners.

A (45:15)

It's down roughly a quarter of its value compared to where it was for the SPAC yesterday.

B (45:19)

21 capital is majority owned by stablecoin giant Tether, also crypto exchange Bitfinex. Also Japanese conglomerate Softbank. An investor the company says it holds.

A (45:28)

43,500 plus bitcoins making it the third biggest corporate holder of bitcoin out there.

B (45:33)

Kelly, I'll send things back over to.

A (45:35)

You as we were just talking about with Mark Jackson, but kind of a tough year for the IPO lows. Dom, thanks. Coming up, this name up 16% since the Fed's October rate move. And our trader expects smoother sailing ahead if the Fed cuts again tomorrow. We'll reveal it and her other top Fed place next.

A (45:56)

We're just about 24 hours away from the Fed's next move on rates. A quarter point cut basically baked in at this point. And if so, which names could benefit the most? Joining us with her picks is CNBC contributor Victoria Green with G Squared Private Wealth. She's a cio. Victoria, what was our mystery charge? Should we start with Delta? Was that the one? I think it's Viking, right? If it's smooth sailing, it's got to be Viking Cruises. Or is it Delta with the clear skies?

B (46:21)

You're right.

A (46:21)

Let's start with Delta though. Why do you think this one would be a winner from a rate cut? Well, obviously airlines are hugely asset heavy, right? You've got debt, you're buying new airplanes. They're rapidly modernizing their fleet. They're modernizing airports. Delta is investing a lot back. So number one they get a benefit on their debt from lower rates. And number two, we're not super bullish on oil going into next year and fuel is a huge part. About a third of their EPS gets, gets eaten away by fuel charges. So I look at this stock and I love it. They also hit the higher end consumer. They get a lot from premium seats, corporate travel, overseas and international travel. And we are still spending money on experiences. The wallet might be a little bit tight, but we have seen time and time again the consumer really enjoys the experience. Right, so you're sticking. That's the name that benefited from the last rate move. Certainly done better in recent weeks. Delta you're sticking with. And then Viking, like you said, it was our mystery chart with a nice pun there. Why does this one jump out though as a name you should buy on a Fed rate cut because number one is going to hit the consumers. The consumers benefit lower costs, lower on credit costs. They're going to get a little bit of easing in their wallets. They're going to get some tax rebates. Number two, again they're asset heavy. Cruise ships are rather expensive to build and take into consideration and get them out sailing as well as their fuel costs again are a huge part of their expenses. And we're seeing the expectation with the IEA saying oil markets might be oversupplied for 4 million barrels a day. We think that we could get a nice little tail end lift from, from lower oil prices. But again it hits a higher end consumer Vikings. The river cruises in Europe, the fun explore expeditions down in the South Pole. They hit all of these fun high net worth individuals cruise lines and we've already seen them. They're already booked up 70% for 20, 26 above their run rate for 25. I love the way this company's operated and I see a huge tailwind lower because they're continuing to invest in cruise ships. A great tailwind for earnings. All right, which brings us to. So we've got kind of like consumer travel, if you want to call it that. Little bit of corporate in there too. But your third pick is actually Lowe's which is a play on an improving housing market, which would be good news to a lot of people's ears. Yeah, absolutely. If we can get mortgage rates down, which is highly correlated with fund funds, if we could get mortgage rates below 6%, 5, 5 and a half range, I think you're going to see that housing market on freeze a little bit. You're sitting at 6.3% on the 30 year mortgage right now on average. We can get that down. I think we'll have improvement there as well as consumers potentially taking out short term loans to remodel. There's been an entire freeze on some of the bigger appliance sales and the remodel sales. Lowe's, both those markets are market so well. They're well operated. They hit the construction market, the professional market as well as like the plants market for the consumer. So I look at this and I say between Lowe's and Home Depot, if you want a tangent housing play, Lowe's is a great place to be that could see a major beneficiary of these cuts. All right. And I'll summarize your fourth pick which you threw in there as well, which is prologis lower rates. In other words, boosting rates maybe being a lift to that stock which is up 21% year to date. Victoria we'll see how they all do tomorrow, even if it's a hawkish cut. And from there on, appreciate your time. Victoria Green that's it for the Exchange. I'll join Brian Sullivan for Power Lunch right after this quick break.

A (49:28)

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