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The Exchange
DOJ’s Powell Probe, Not Nvidia, and Credit Card Cap 1/12/26
00:43:31
Former Fed Governor Larry Lindsey says there are no heroes in the Justice Department’s investigation into Fed Chair Powell, while Brooking’s David Wessel warns the probe could ultimately spur more inflation. A portfolio manager who outperformed the S&P last year makes the case for chip stocks not named Nvidia. Plus, both traditional banks and fintech names are under pressure after President Trump proposed capping credit card fees.
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This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Lansford for this information packed daily market Preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions and key results and statistics that may impact your trading. Download the latest episode and subscribe@schwab.com market update podcast or find Schwab Market Update wherever you get your podcasts.
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A
The Fed fight goes into overdrive. A credit card crackdown and not exactly Caesar's wife. That's all ahead this hour. We'll explain what we mean by that. Welcome to the Exchange. I'm Kelly Evans and let's take a quick look at the markets which had those record highs last week. But we're seeing the Dow pull back somewhat from that down 52. But look at the others, the S&P, Nasdaq and Russell going green. And it's kind of interesting to get the market's message. State seems to be shrugging off these concerns to some extent about Fed independence. In fact, the rate sensitive sectors are leading the way today like Staples, Utilities and real estate. Those are your top performers. Financials are the worst performing sector today with credit card and lending stocks falling as the president pledges to cap credit card rates. Synchrony is down almost 9%. Affirm, interestingly enough, and Klarna are also amongst the decliners. If you thought buy now, pay later might benefit, Synchrony is on pace for its worst day since April. Those Fed independence concerns are sending investors to the metals trade. Everything seems to send people that way lately. Gold and silver hitting new records. Gold crossing 4600 today and the doll near a three week low. And that's where we begin with this unprecedented move against the Federal Reserve Chair Powell confirming the central bank has been served grand jury subpoenas from the DOJ in relation to his testimony on renovations at the Fed headquarters. Powell not taking these charges lying down, calling them A, quote, consequence of the Fed not allowing President Trump's preference for lower rates. Eamon Javors is in Washington with the very latest. Amen.
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C
Hey there, Kelly. We saw a powerful group of former Federal Reserve chairs and treasury secretaries, including Alan Greenspan, Ben Bernanke, Janet Yellen, and Robert Rubin, released this striking joint statement this morning in defense of Federal Reserve independence and in opposition to the Department of Justice's criminal investigation of current chair Jay Powell. They write, this is how monetary policy is made in emerging markets with weak institutions with highly negative consequences for inflation and the functioning of their economies more broadly. It has no place in the United States, whose greatest strength is the rule of law, which is at the foundation of. Of our economic success. And we saw Powell himself striking a defiant tone in this highly unusual video statement about the grand jury's subpoenas last night saying the President's professed concern about the Fed's construction project is just a pretext.
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The threat of criminal charges is a.
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D
Consequence of the Federal Reserve setting interest.
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Rates based on our best assessment of.
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D
What will serve the public, rather than.
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Following the preferences of the President. This is about whether the Fed will.
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D
Be able to continue to set interest rates based on evidence and economic conditions or whether instead monetary policy will be directed by political pressure or intimidation.
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C
No reaction yet from the White House to that joint statement by the former chairs, but the President was asked about the DOJ investigation by NBC News last night, and he said, I don't know anything about it, Kelly.
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A
A minor point in all of this, Eamon, but I was struck by the fact that the. We're in an age where the Federal Reserve chair can simply go into his office, put on a suit, get in front of the camera and post his statement to the American public directly on, in this case, Twitter. Right. Like, there was no. I don't know what would have happened in the past. Perhaps he would have agreed to an interview or. But the ability to just respond directly, I, I was struck by.
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C
Yeah, I mean, it's fascinating because we've seen sort of every other branch of the federal government or entity and government in American life taken over by social media, not so much the Federal Reserve. That changed yesterday.
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A
Yeah, fair enough. Amen. Appreciate it. For now. We'll see if we get anything else this hour. Our next guest calls the move to go after the Fed chair foolish. And he's a former Fed governor, former director of the National Economic Council, and head of the Lindsey Group. Let's bring in Larry Lindsey. Larry, it's good to see you. Welcome thank you.
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E
It's good to be here.
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A
Some are speculating, you know, that perhaps behind the scenes there's kind of heads are exploding. Perhaps the Treasury Secretary said, if it's true that, you know, Mr. Pulte had something to, I don't know. You know, it's hard to know from the outside what exactly happened here. But what's your response to. To what we do know?
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E
Well, first of all, you're right. We don't have any of the facts. So what we're doing is really speculating. But if the President were to ask me my opinion about prosecuting the Fed chair over construction costs, I would say he shouldn't do it. It's very, very foolish. I mean, first of all. And Kelly, I know you're sitting down, so am I. Your viewers are. This is Washington. A big cost overrun is. Happens all the time. I mean, it's like Rick back in Casablanca saying, I'm shocked, shocked, shocked. They were crossed over Syndicate construction of the Fed. Second piece of that is if there are cost overruns, is it really the chairman's responsibility? I mean, when JP builds a new headquarters, how many hours a day does Jamie Dimon spend going over the construction costs? To have the Fed chair have to do that detail, I don't think is a good use of his time. So I think the whole issue is foolish to begin with, and I think the President was foolish to bring it up.
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A
The President might say, well, my larger goal is to replace the Fed chair. And you know, this. I'm just trying to come with a line of reasoning here. I'm sure there are those who would also watch the market response first and foremost. And, you know, those who. That's why I mentioned Treasury Secretary Bessant, you know, his main goal. I remember him saying this in a podcast. He said, I'm the salesman for America's treasury bonds. You know, it's my job to make sure that people around the world are buying them, that people in this country are buying them. Firing the Fed chair is typically the kind of thing that makes people less inclined to hold them. So I can't imagine he would want to see this come down. That said, the reaction today is somewhat muted, and perhaps that's because the market is correctly, you know, understanding that maybe this isn't going anywhere. But what if. What if it does? What if it is?
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E
It's not going anywhere. It's also unclear how the whole process started within the administration. There are reports that it was made with Mr. Pulte, who had. Did his own investigation Forwarded the results of that to the Justice Department. President said last night that he knew nothing about it. I don't know if that's true, but we don't know why they brought it. Now one thing I want to add because it's not the general commentary is there are no real heroes here. And mentioned Caesar's wife. I mean if the Fed wants to cry, don't take away our independence because we're not political. Well, they shouldn't behave in a way that makes people think they're political. I mean, Kelly, how many times in the last hundred and ten plus years the FedEx Fed's existence have they initiated a rate cycle, the meeting before presidential election?
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You know, but I'm sympathetic to that one because that August jobs report was so bad and the Kerry trade was imploding.
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I, well, okay, I know a lot.
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Of people say now that was total politics, but the nerd in me kind of understands.
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E
Yeah, well they, you know, they, it doesn't really matter whether they do it that for as far as the economy goes, doesn't matter whether they do it. That'll that meeting or the next. But the answer was exactly once. It was unprecedented in a very close election. Then there was the behavior of the Fed under Yellen in 2016. In 2015, the summary of economic projections said they were going to do four rate hikes in 2016. Well, their first one was after Trump was elected. In other words, in the run up to the election they decided they didn't want to take any chances on, on a rate hike. Again, the reason for the delay where they basically countermanded the forward guidance they'd given was pretty clear. Now what you had was you don't have had a soto voce understanding here that's still politically, you don't have to have something like this happened for it to be considered political. So I don't think the Fed's made as much effort as perhaps it should to not get involved in politics.
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And I'm curious because just so people follow the analogy, Larry, the Caesar's wife was that he, she was found not guilty, but it still looked bad. So he, what should the Fed have done in order to ensure that there was no appearance of being politically motivated? And you're referring back to decisions of the past 10 years that all being history now, Powell still being in charge. What more should they do at the moment?
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E
You know, at the moment they should, they should always stay the course. I think that the September 24th cut, I remember back when I was on the board and you can double check it because we now have the minutes published. There was a lot of concern I raised among some others about the bubble forming in the economy. The chairman actually said, I agree with Governor Lindsey on that point. And then afterwards he said to me, Larry, we can't do it right before an election. And I agreed with it. The Fed shouldn't move right before an election. But that was the norm. You just don't do things like that. And somehow they managed to throw 100 years of tradition out the window to do that particular rate cut.
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And what does stay the course mean now? In other words, if they wanted to resist the political pressure and make sure they didn't have the appearance of, of trying to just do the opposite of what this administration wants, I. What then is the both the for appearances sake thing to do and the right thing to do?
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E
Well, the right thing to do is leave things unchanged. So let's, and here's where I think Powell should change his rhetoric. He's talking about the Fed being slightly restrictive. That's not by their own numbers what they are. They're being accommodated.
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Right.
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The rule is that the optimal fed funds rate, real fed Funds rate, is 1. It's probably higher than that. But they say what inflation's to a, that means fed funds should be three. Well, we're now below three. So in fact, fed funds is now moderately accommodative. So when he gives his press conference, don't talk about neutral or being restrictive. The fact is they are being accommodative. Mr. President, you're getting what you want. Besides which, look at the economic numbers. I mean, the gdp, absolutely. This has been soaring. The worst thing you can do when GDP is soaring is make money easier because incrementally most of that will go into inflation. So it would be a very poor thing for the Fed to do to cut rates right now.
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Yeah, and I noticed JP Morgan has changed and said they now after Friday's jobs report, think no cut this year, maybe a hike next year. Let me just circle back, Larry, to the independents question as the final one. You know, again, you've said you think that this move is foolish, you know, to have the DOJ act on the Fed. What are the longer term reverberations? In other words, whatever happens of this exact investigation, what do you think this opens the door to going forward?
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I don't think it opens the door to anything. I mean, I just look at the market today, right? We opened up with the Dow down, What was it, 400 or something? And now we're almost flat. The 10 year bond was hitting knocking on the door of 420. It's backed off from there. I think the markets understand that this is a flash in the pan. It is a 24 hour news story at most. Some of the media will try and stretch out to 72 hours or a week until the next thing comes along. But this is going to be completely forgotten in the great long history of the Federal Reserve.
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You don't think we're going to see it time and time again with the subsequent administrations and the subsequent officials and anything like that?
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Well, you know, Lawfare didn't start in the Trump administration. I would just point that out. Unfortunately, I think the country is stuck in a thing of Lawfare. But no, I do not think, I think this is a very short run story.
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All right, Larry, really appreciate you joining us today with your thoughts. It's good to see you as always.
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B
Thanks Larry.
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Lindsay with the Lindsey Group. Want to get to these 10 year auction results which are happening right at the same time. Sima Modi has the results and of course Seema, there's extra pressure on the auction with everything going on in the news.
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B
Absolutely. The spotlight on the bond market with the US treasury selling $39 billion in 10 year notes at a yield of 4.173 versus the previous auction of 4.175. Another comparable is the 4.18% we saw in the pre sale presale when issued yield. Let's take a look at bid to cover which is a good indicator of volume that came in line with the average at 2.55. If we then look at who is buying these US BO, the indirect bid which measures foreign appetite for US bonds that came in at 70% versus the 71% recent average. So a slight tick lower. But the direct bid which is an appetite for domestic fund managers buying US bonds 24.5% higher than the 19% average. Then there's the dealer take the percentage of auction which represents the portion of the auction that the big banks had to buy. That was at 5.9%. The recent average was 10%. Kelly?
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Yep. And I think that's probably why you see again the little bit of a relief in the bond yields there. And the Dow has now gone positive. Sima. Thanks Sima. Modi, despite the drama we've been seeing down in Washington, the markets are essentially taking this in stride. But is the so called safety trade getting the bid today with staples, utilities and commodities moving higher and what does that mean for investors from here joining us now is Tom Hancock. He's portfolio manager of the GMO US Quality ETF Fund was up 20% out last year, by the way, outperforming the S and P. Tom, welcome to you. And kind of where, where would you have us start? I mean, as you wake up and think through all of these issues, is it the 10 year that still matters first and foremost?
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Hey, Kelly. So in the whole Fed independence ten year thing, I think the market is telling us that they don't think this is a big deal. I'm actually a little bit surprised about that. I don't actually think the Fed independence has changed that much just because that was so much called into question, the way Trump has been jawboning in the past. But I do think this general cap on interest rate, regulate health care, all of this stuff, let alone the tariffs from last year, that is an overhang that's going to discourage investment going forward, potentially among corporates. So that's kind of the angle that I would be a little bit concerned about, but maybe it's just a tempest in the teapot and that's certainly what the market is saying right now.
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So in other words, you know, while the bigger issue would, would, you know, seem to be Fed independence, you say, you know, it's kind of echoing a little bit of what Larry said. Let's see how much, you know, more there is to the story, how much further this really goes. And if it's not much further, then you would direct everyone's attention to some of these moves to cap interest rates. You know, there's been some talk about, you know, stopping defense firms from doing stock buybacks and that kind of thing. And you think that could actually hamper the market, is that right?
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Yeah, just that overall sense of uncertainty, I think discourages investment and that's bad for the economy and bad for the market. I think putting aside the trade, which sort of moves to the beat of its own drum, I, I kind of actually believe the narrative that the President didn't plan this just because I don't quite see his motivation to do it from a game theory point of view. I think one of the things he wants to do is make sure Powell leaves the board after his term as chair expires. And this almost seems like something would have the opposite effect. We've seen how, how Powell reacted. I think this might make him want to do a John Adams and stay on the state in Congress in that case after his term as President expired.
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So we've got Caesar and John Adams so far, which Tells you what kind of day this is for investors to contemplate. Your top holdings include Microsoft, LAM Research, Alphabet, Meta, Apple, all the names we were just discussing discussing, plus a few more outside of that trade. But you know, is this a rally that you think even with those concerns about populism that you mentioned, it sounds like you view those concerns as more on the margin than affecting kind of the major planks of the rally.
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Yeah. For the kind of companies that you mentioned that are on the top of our our list, I think we've been and those companies have been benefiting from the broadening of the trade we've seen over the last year. And the semiconductor equipment stocks in particular like Lam have been really strong this year. And then we saw TSMC sales numbers last week. I expect I'll be reconfirmed with their earnings later in the week. So things seem very strong there right now with it with as we've seen a change in leadership.
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Let's put up the Nvidia chart because you actually have such a strong take on the market. You say we like the chip stocks not in video theme. So don't beat up on them too much. But I think they can handle it.
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Yeah. So I wouldn't say so much that we don't like in video. We just think there are better ways of playing it. I think if we went back a year ago, people thought of in video as synonymous with AI Capex and it was all going to Nvidia and as that went, Nvidia would rake in all the profits. And we've seen Alphabet's ecosystem really coming back into the fore. We've seen them through Gemini itself of course, but also through selling their TPUs partnering now with Apple, with Gemini. It's really become kind of a two horse race between Nvidia's world and Alphabet's World. And that's a change and I think that's a change that has some legs. So I see kind of the relative leadership that we saw in the fourth quarter continuing throughout the year. We like Broadcom, we like Alphabet. But in a way you can have your cake and eat it too. Because if you are uncertain about Nvidia vs Broadcom, you can say screw it. They both build their chips at TSMC and TSMC buys their equipment from Lam.
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And as I love it.
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Those are the true arms dealers.
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Yes, exactly. And you like software here as well, which I note. Tom, thanks so much for your time today. Really appreciate it. We'll check back in soon. Tom Hancock with GMO. Coming up, the 30 year mortgage rate still hovering close to a three year low after the President's bond buying plan. But one of our next guests says don't bet on them falling much from here. Redfin CEO Glenn Kelman is ahead as the 30 years right above 6% again. Plus another win for Google with Apple picking Gemini to run its AI powered Siri as Google Parrot Alphabet becomes the fourth and and newest member of the 4 trillion market cap club now hovering just below that level. We're back after this.
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A
Welcome back. Let's remember that Washington also dominated the headlines last week on Friday when the president said he's instructing Fannie and Freddie to buy $200 billion of mortgage bonds. That news sent mortgage rates below 6%, lowest level in nearly three years. And the housing stocks were higher, including Rocket Company, which rallied 10%. Joining us now is Glenn Kelman, CEO of Redfin, which is owned by Rocket. It's hard to keep track, Glenn. These companies, every time I turn around, another broker is buying another broker. It's good to see you though.
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H
Plenty of consolidation. Good to see you.
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Yeah, you got to get to the big four, right? In any industry, all of this is somewhat beside the point. Do you think this move will lead to lower mortgage rates? Will it lead to higher home prices? Have no impact. Have a big impact. How should we be thinking about it?
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H
Mostly band aids. Mostly band aids. The fundamental problem in America is that we've stopped building houses. We're about 5 million units short. And whatever we do to lower rates or to interfere with the Fed is just going to be temporary, long term Market set mortgage rates and whatever we do to home buying demand, when we try to limit institutional investors ability to own properties is also only going to be a Band Aid. So the fundamental issue here is that we just need more housing. And what's great about the government right now, the government is really focused on housing. So sooner or later we're going to figure it out.
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A
Right, but you want more. In other words, like for instance, Director Pulte told us last week he wants the builders to almost. It was something about guaranteeing they're going to do more if they want to be backed by Fannie and Freddie, something like that. But you'd want more policies that encourage home construction or also policies that would just put more inventory on the market.
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H
Yeah, the simplest thing we can do is just eliminate some of the regulations, especially around zoning. So it is so hard to build a house in most American cities. And that's why we haven't done tie federal funding to reform of zoning laws. It's already started to happen even in places like California which have loved zoning laws. So I know we can do it. I know we can do it. We just have to stay on track here and keep building.
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Maybe. But what you're suggesting is quite difficult, you know, to tie federal funding to local zoning laws and all of that. I mean, we're talking about complicated things to execute on.
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H
Americans can do hard things. Of course it's going to be hard, but we've been good at building houses for most of our history. Just got to get back on the horse here. I don't think it's that hard. Like when you think about other problems like climate change or the federal deficit, those are hard problems to solve. But building a bunch of houses, that seems pretty straightforward to me.
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A
I'm also thinking about that, you know, a little bit about China. So you know how in China home prices can never go down because that's where people store their wealth. There was a little bit of this with the Director Pulte's interview last week where he said, you know, we want to make sure that even as we're trying to make housing more affordable for new buyers, he said we don't want home prices, prices to go down. And that set off my Spidey sense a little bit.
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H
Oh, it should, it should. You know, we're one dimensional about most products. We want gas to be cheaper, we want bread to be cheaper, we want milk to be cheaper. What are housing? That's the reason Americans feel that this country is so unaffordable. It's Housing that they can't afford. And we think about home prices going down instead of celebrating that we treat it as a calamity. And that's just because a lot of homeowners have formed cartels where they have homeowners associations and they lobby the government to keep home prices high and to limit supply. But there's a new generation of Americans. The fundamental reason those people feel so disaffected is because the average home buying age has now hit 40.
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B
Right.
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You're not going to start a family.
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H
If you can't buy a house until you're 40.
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A
Right. But I guess where I'm trying to go with this, in other words, is it would be the best way to increase housing affordability would be for home prices to fall. And I understand no one in a house house wants that. But 40% of homes, I think, don't even have a mortgage. So there's plenty of equity cushion to absorb, like a 5 or 10% adjustment. I'm not trying to sound crazy here, I'm not rooting for home prices to fall, but it's obvious that that would help affordability the most short of the 10 year yield falling a point or.
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H
So, or even if home prices just appreciated less quickly than wages. So right now that's happening. Home prices are up 1%, wages are growing 2 or 3%. So that's progress. But the reason this correction that we've had since 2023 hasn't been a real correction is because sales volume is down, but prices just kept going up. So if you want the industry to heal and if you want society to heal where people can afford houses, you nailed it. You nailed it. Home prices need to come down.
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A
I don't know if that's the headline I want out there in the universe, but just, just something, I guess. For further thought, Glenn, we'll leave it there for now. Appreciate it today.
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H
Thanks for having me.
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A
Glenn Kelvin with Redfin. Coming up, the credit card and lending names are getting hit on a new proposal from the president to cap the interest rates they can charge. Now, is this an opportunity to pick up these names at a discount or not? Plus, investors aren't shopping at Abercrombie today. We'll tell you why the stock is dropping more than 16% after this.
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A
Welcome back. And we've erased a 500 point market drop to an 11 point gain on the Dow at the moment, the S and P is up about a tenth of a percent. But the Nasdaq is leading the way today with a nearly half percent gain. Small caps are up as well. And we're watching some of the individual movers this hour. Like Walmart, which is hitting a fresh all time high after the Nasdaq said the company will be added to the NASDAQ 100 later this month. Triple cues. Investors are expecting the stock to see more demand as a result. It kind of confirms this whole narrative that Walmart's a tech stock now. Anyway, it's up 3%. Different story for the teen retailers though. Abercrombie, as mentioned, dropping nearly 18% at the lows after cutting the high end of their guidance. And they're on pace for their worst day since May of 2022. American Eagle raising its Q4 operating income after a quote record holiday season, but its shares are lower after its Q4 comps were just in line with expectations. You're also seeing some pressure there on Urban, Victoria's Secret and Gap. And another day, another chapter in the Warner Brothers discovery saga with Paramount, Skydance now suing WBD and CEO David Zaslav. Paramount's David Ellison also gearing up for a proxy fight, telling WBD shareholders they intend to nominate board directors at the annual meeting. It all comes a little less than a week after WBD once again rejected the Paramount offer to stick with its Netflix deal. Netflix up fractionally today to Christina Parts and Evil. Now for the CNBC news update. Christina. Thanks, Kelly. The Supreme Court today declined to hear a challenge to the Boy Scouts landmark $2.5 billion settlement over sexual abuse claims. It was brought by dozens of survivors who wanted to file lawsuits against churches and other organizations that ran scouting programs. Where abuse happened also happened, I should say. The justices joined a lower court in rejecting plaintiff's claim that the bankruptcy and settlement deal improperly prevented them from suing. A new Senate report alleges that UnitedHealth used aggressive tactics to collect diagnosis to boost payments for its Medicare Advantage members. The Wall Street Journal says the report found the company, quote, turned risk adjustments into a business. A UnitedHealth spokesperson told the Journal the company disagrees with these findings. And Walmart is expanding drone delivery service to another 150 stores. The service will be available in Los Angeles, St. Louis, Cincinnati, Miami and other cities that have yet to be announced. Walmart has partnered with drone company Wing, which is owned by Alphabet, since 2023. And it goes full circle to your comment, Kelly, about Walmart becoming a tech company. True, dad. And being added to the NASDAQ 100 look at that drone. Christina. Thanks very much, Christina. Parts in Evolet Coming up, the criminal investigation of a sitting Fed chair may be without precedent, but so is Powell's response. And it could be why the DOJ's move could backfire on the administration. The exchange is back with more. This is about whether the Fed will.
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D
Be able to continue to set interest rates based on evidence and economic conditions.
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E
Or whether instead monetary policy will be.
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D
Directed at by political pressure or intimidation.
- [31:12]
A
That was part of fed chair Jerome Powell's public response to the DOJ's criminal investigation. He says the probe is not about his Senate testimony regarding renovations at the Fed, but rather because of the president's frustration over the Fed's refusal to cut rates and throws Fed independence into question. One of my next guest addresses Powell's unprecedented video message writing in the Wall Street Journal today, for years, Powell avoided fighting Trump. Trump, that's over. And both of my next guests agree the DOJ's move and Powell's response could potentially backfire on the administration. Here to discuss are David Wessel, senior fellow for economic studies at Brookings, and Nick Timoros, the chief economics commentator at the Wall Street Journal. Welcome to you both. David, I know that you've stayed in touch rather closely with Janet Yellen, Ben Bernanke over the years, and Brookings obviously does a lot on this very issue. So what do you make of it?
- [31:59]
G
Well, I think it's pretty interesting that White House has decided at this time to go after Jay Powell and he, for the first time has really fought back. As you said, he's usually been pretty restrained. I think on one level, it's just a manifestation of President Trump's determination to control the Fed like he does everything else. He wants lower interest rates. I also think it's an attempt to harass or bully Jay Powell into leaving the Federal Reserve Board when his time as chair is up, as you know, so he could remain as a governor until January 2028.
- [32:33]
A
You know, I've had a lot of email messages and messages elsewhere, David, and there are a lot of people who say that, you know, they don't believe that the Fed's really independent and that the bond market revolt over their 50 basis point cut last year. That's what Larry Lindsay mentioned, that they do think that was political. I mean, what do you think the response should be to those who feel that there's no independence to be lost because there wasn't any independence there?
- [32:59]
G
I think they're wrong. I think we have seen that over the last several years, the Fed has made some mistakes, but they've done it all in service of their achieving their goals of maximum employment and price stability. I think President Trump is upsetting the apple cart. He is challenging the notion that the economy works better when the Fed can set rates independent of political pressure. That's something that almost every modern developed country agrees with. It served us well for the last several decades with some hiccups. And I think he's putting calling into question the whole concept of an independent central bank. And that will mean if he succeeds, more inflation and the US Will look like a worse, less attractive investment to global investors.
- [33:50]
A
And Nick, in what ways do you think this could backfire? What might that look like?
- [33:55]
F
Well, Kelly, it could backfire in a few ways. One is that whoever Trump names is the next chair. If it's one of the Kevin's, if it's somebody else, that that person now has to run an even more difficult gauntlet in proving that or disproving that they're not completely in the thrall of the President here. So that's one way that it backfires. It makes life a lot harder for the next chair. It backfires if it brings Senate Republicans, moderate Republicans in particular, out into the public saying, we're not going to confirm a Fed chair if you don't do this along, along the lines of what Senator Thom Tillis said last night. And then it could also backfire to the point David made if Powell decides to stick around, that, you know, what he was ready for a life after the Fed, but he's not going to leave the institution when there's a real existential risk that things are going to completely change and that him holding onto his seat could be the difference between that kind of change or no change.
- [34:58]
A
Nick, elaborate on that for another moment. People understand the significance of him staying wouldn't just be to thumb his nose at the President. That's my editorializing as to why he would do so. But it would have policy impact directly, you think?
- [35:11]
E
Right, right.
- [35:12]
F
So, you know, assuming that other governors don't leave and you do usually get vacancies throughout a four year term, this is in the Supreme Court where people stay until they die. But you know, the President only has one vacancy scheduled before January of 2028, which is when Powell's term as a governor is up. That's the seat currently held by Steven Moran. So if the Trump administration wants to have more control over monetary policy, those seats are the way that you do it. And having a more normal transition where you, you know, you don't try to push the Fed chair out with a threatened criminal investigation. That's not normal. Of course it's not normal for the Fed chair to stick around. There's not really any precedent for staying on the board in order to protect the institution's independence. But that could be a test we run now.
- [36:05]
A
And finally then, David, if he were to do so, and there's many other things could happen here, we're just picking this one to about, talk, talk about for the moment. But could Powell then make the case that, that he's acting politically by sticking around?
- [36:20]
G
I don't quite understand. No, I think what Powell would be saying. Look, there are seven members of the board, as Nick points out, three of them are Trump appointees. If Powell leaves, there'll be four Trump appointees. They'll have a majority. What, what Powell will argue, and he's done pretty successfully in that remarkable video backed up by every former Fed chair, is that he's standing up for the independence of the Fed against the political assault of a populist president. It may look partisan, but I think it looks pretty principled to me. And it'll be interesting to see, as Nick points out, whether Republican senators stand behind.
- [36:55]
A
Right. If, meaning if this were the first time the chair stayed on instead of.
- [36:59]
G
It's not the first, actually, Mariner Echols stayed on after Harry Truman, wouldn't reappoint him as chairman, but the first time since the 1950s.
- [37:08]
A
All right, gentlemen, really appreciate it. Thanks for Joining us with the instant, I should say reaction, analysis, thoughts, predictions and so much more. David Wessel, Nick Timmers, you're welcome. Really appreciate it. Coming up, Alphabet's market cap hitting $4 trillion today and surpassing Apple's for the first time after Apple announced Gemini will run its Siri. We'll have the details and what it means for the future of AI at Apple and sticking with tech. We're watching shares of Cisco. With a C on pace for its 10th negative session in a row, it's just one day shy of its worst streak since 2015. Cisco is down about 6% over the past two weeks. We'll be right back. Two of the biggest names in tech are teaming up to just be that much bigger, I guess. Apple announcing today that Gemini will power Siri and Deirdre Bosa has more in tech check India. I think the real significance here is it. This was supposed to be a whole chat thing and now here comes Gemini, right?
- [38:00]
B
Exactly. So the partnership itself, it surprised no one. But you're right, Kelly, it absolutely hits open air where it hurts more momentum for Gemini, which has been gaining ground in terms of traffic and usage. This chart has been circulating for the last week or so, really just showing sort of how they're converging and how Gemini is catching up. But there is another way to look at this partnership. The deal locks Google into the most expensive part of the AI stack while Apple gets to keep control of the customer and the data. So yes, a new revenue stream and scale for Google, Gemini. But this also caps the upside and it shifts longer term leverage to the platform that owns the user and that being Apple in this case. So here's how it works. Most requests are handled on device on your iPhone, so that's on Apple's own chips. If the task is more complex, the request goes to Apple's private cloud compute, Apple owned servers, Apple controlled software. Apple's privacy rules. Google only sees what Apple decides to send and at that point it's highly scoped and anonymized. Google gets to keep the customer relationship and the data while Google gets paid for inference and scale. Yes, but it doesn't own the user. And this certainly doesn't help sell Pixel or Android devices on the back of this deal because they're able to access gemini on an iOS device. So going back to that chart I showed you at the start, owning the customer, that may ultimately matter more than owning the model, especially in this next leg of the race. So Kelly, extremely bullish for Google on the surface. That's how you saw it hit 4 trillion in market cap this morning, but longer term, not quite as clear. And you know, we don't have the answers to many of these questions. So a lot will be determined by, by what we hear.
- [39:37]
A
No, for sure. I also my, I noticed there's this new Meta Compute thing with Dina.
- [39:43]
B
Yes.
- [39:44]
A
What's her married name? Powell McCormick. Thank you. Yes, at the helm of it and Metta of course has been trying to get a foothold not just in AI, but I guess to deal with some internal problems over this technology. So what, what is this move and what does it tell us?
- [40:01]
B
I mean it's such a good contrast to what's going on at Meta. At one point they had the leading open source model in Llama and they have just quickly fallen behind, you know, all the Chinese model makers. They are doing open source better than Meta now, which was, you know, originally the biggest advocate. And yet, yes, there's a lot of sort of internal strife. There's a lot of movement in there and I think bringing in Dina Powell McCormick really shows where the focus is. Metta is going all in on the most expensive part of the stack and that is infrastructure they're using, you know, debt, joint ventures. SPV is increasingly to finance that. So they need someone with her background and that is, you know, 25 plus years in banking, plus connections to the current administration. That really helps on that side. But it also shows you. So you know, they're all in on spending but they don't really have the distribution or the products. They have the distribution. They're just not returning on it. They're not showing investors how they're actually going to cap.
- [40:54]
A
A very high powered move there. And of course we're watching to see how they try to claw their way back in. Deirdre, thanks very much. Deirdre. Bosa Financials are the worst performing sector today after a pretty nice run. Wells Fargo and Bank of America are among the biggest laggards after the president has proposed capping credit card fees at 10% cent. We'll get the trade with bank earnings kicking off tomorrow right after this. Welcome back. The Fintech names are under pressure today, no surprise really, after the surprise from the president which was his proposal to cap credit card interest rates at 10%. Shares of a firm, interestingly enough, are down nearly 6% and on pace for their worst day in about two months. Here to help us trade these names and more in the news right now is Tim Seymour, the CIO at Seymour at Asset Management, a CNBC contributor. Tim was interesting to me. I mean it makes sense that the credit card names are down but I thought buy now pay later might be in the green and say well this is a competitive advantage for us.
- [41:45]
I
Seemingly a place to kind of fill in the gap. But also I think the extension of credit overall is something that people worry about and that's really you know where do some of the buy now pay later folks come into play? I mean I think especially when the advent of this being the new way of financing there was some sense as rates went higher it would hurt them. No, not necessarily. It's really to me if you reeling credit becomes that much more competitive and I think it may be an environment where they're not the last dollar.
- [42:13]
A
Would you pick up any of the credit card names on the sell off? You know if you were in the camp of saying well let's see what the proposal really is or do you think that it's enough to know directionally there's going to be some political pressure here and to stay away?
- [42:24]
I
Well I think we, we have history of showing it was a great buying opportunity for buying the late fee, you know news and headlines that we had recently and I think if you look at banks overall all you know a Citi bank's overreaction today is just that whereas I think if you look at a capital one if you look at the synchronies some of these are a little bit more tied into. I think what's most interesting about these headlines for the market is they are coming after an extraordinary period for these names and especially for the money center banks and we're trying, we're not, we're about to have a big reporting and I think it's kind of obvious, you know the reason why it's for me I can own a 14 to 15% EPS growth in the banking sector which is the best we've seen in a while with all the other tailwinds is because I believe they should trade at a higher multiple based upon the world we live in which is a world of deregulation and of course the last two weeks have not been a world of deregulation. So at one point you know eight times or two point times price to tangible book for money center banks. It was easy to say on a historical basis they're kind of expensive coming in JP Morgan a 3.2 Citi the other in a 1.3 I like Citi here I'm long Citi. I think you're buying weakness I think obviously yield curve both being steeper Net interest income, investment banking fees, M and A bonanza. I like the story. I think weakness should be bought.
- [43:43]
A
They have a lot of the city wells. Sounds like you're saying any of the big banks have the big bank story, which is still a deregulatory one. But it is ironic to your point that every populist move is effectively a regular re regulatory one.
- [43:53]
I
Yeah, they have been. And I think the buy now, pay later and I think the deep part of the credit curve, in other words, 10% cap, makes a lot of these businesses not profitable.
- [44:03]
A
All right, let's move on to the metals. The gold trade again, new highs today. I forget if you've told me if you love all of it or just part of it or if you think the whole thing is looking crazy.
- [44:12]
I
I love it all. I've loved it all for a long time. And my emerging markets background has been about central banks diversifying. I mean China at 7 to 8% gold reserves, compare that to Germany, that's 80. Italy, 75% of their reserves in gold. So I'm not saying it has to get there, but that alone has been the story. Venezuela and Fed probe are not, you know, they're not the cake that's icing on the cake. The story around gold to me is an asset class allocation. It's a. Yeah. Weaker dollar. Yes. LED fast, less Fed independence are big ingredients. But this is a secular trend that's been going on. Gold is the best 25 year chart of any chart you can find. And I've, I've enjoyed this chart.
- [44:53]
A
But even like when it gets to the point that we're talking about icing on the cake, do you even think that, okay, there's got to be some kind of pause or reset here or you mean like when you're, when you're.
- [45:03]
I
Putting icing on a cake? Kelly, I know you know this because I know you bake a lot. You're almost done. And I don't know that that's a fair metaphor here because I think, I think gold is going to be 6,000 by 28. I think there's deficit issues for gold. I think there's an asset class allocation that I bet a lot of the big, big investment advisors, money center banks are going to say that they have a gold allocation that's, you know, maybe 10% or more.
- [45:26]
A
Right.
- [45:27]
I
And that's something that gold hasn't even experienced. So I like this trade.
- [45:30]
A
I buy a lot of cakes. Well, that's also good. That's also, well, not as good for the rest of the metals though. And I totally take the gold point. When you talk about silver and copper and platinum and palladium, are they being dragged higher by the gold price? When I know you look at them all in the green this morning and you say, well, did we get a new data point on electrification? Did we get a strong GDP demand point that would help them? Or is it simply gold goes higher and it pulls them up?
- [45:53]
I
No, no. I mean precious metals have worked now for three years and copper didn't work until October. Copper works because not only data center and EV demand and grid build out, which was a story three years ago, let alone now. Supply deficit, Indonesia, Grasberg mine for Freeport. Everywhere you look, geopolitics, statistics, copper hoarding, strategic asset dynamics of copper now that weren't there in place. And I think if you're investing in copper miners like Freeport or Southern Copper, and I am long them, I'm long in my etf. Yeah. The underlying copper input prices in these in these names have to be upgraded by analysts, which means the share prices.
- [46:30]
A
Have to be higher. All right, we'll take your word. We'll blow it. Not blowing out the candles yet. Tim Seymour, thank you. Thanks for watching the exchange. I'll join Brian Sullivan for power lunch right after the.
- [46:45]
B
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