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Iran Tensions, Trading Walmart, and “Owning” the Economy 2/19/26
00:43:50
Rising tensions between the U.S. and Iran send oil prices higher. Why Walmart is still set up for a strong year despite falling short on its earnings outlook. Plus, the Wall Street Journal's Greg Ip says the 65 and older crowd owns the economy.
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- [00:00]
Schwab Representative
Trading at Schwab is powered by Ameritrade, giving you even more specialized support than ever before. Like access to the trade desk. Our team of passionate traders ready to tackle anything from the most complex trading questions to a simple strategy. Gut check. Need assistance? No problem. Get 24. 7 professional answers and live help and access support by phone, email and in platform chat. That's how Schwab is here for you to help you trade brilliantly. Learn more@schwab.com trading before we had ATT business wireless coverage, our delivery GPS wasn't the most reliable.
- [00:33]
Kelly Evans
Once our driver had to do a 14 point turn to get back on route. A 14 point turn. An influencer even live streamed the whole thing. Not good for business. Now with AT&T business Wireless, routes are
- [00:46]
Schwab Representative
updating on the fly and deliveries are on time.
- [00:49]
Greg Ip
And the influencer did get us 53 new followers though.
- [00:52]
Kelly Evans
AT&T business Wireless Connecting changes everything. You're listening to the Exchange. Here's today's show. Thank you very much Dom. Rising Iran tensions, rising private credit, rising private credit risk, she said, and why it's good to be a part of the old economy. Welcome to the Exchange. I'm Kelly Evans. Let's take a quick check on stocks as we're close to session. Lows you see right across the board on your screen there. Dow's down 377 points. The Nasdaq also lower by 6 10. And it's trying for its first positive week in six. It's really been in the red since the start of the year. Walmart, Walmart and Deere are two big names today with diverging outlooks. Walmart's falling short while Deere raising its full year guidance. Deere shares are up nearly 13% right now to a new all time high today. And more pressure on the Ulta asset space on news that Blue Owl is halting redemptions at one of its funds and offloading $1.4 billion in private credit assets in order to address liquidity concerns. Those shares are down nearly 10% this hour. Aries and Blackstone seeing 5% drops as well. But let's start with this rotation into old economy stocks. Energy and materials are the best performing sectors this year. Energy is up 24%. Tech is down 4%. But my next guest is sticking with the tech trade. He says this rerating is overdone, especially in software and he's confident that new economy darling Nvidia will surprise us to the upside next week. Let's bring in Michael Sansettara. He's the Chief investment Officer at Sylvan Capital. Michael, it's great to see you. I mean, it's not like you're going to wake up one day and go, you know, I'm going to be an industrials fund manager. Right. But I'm curious, you know, what you, how you would come back against those who say, no, this shift could last for a decade.
- [02:36]
Michael Sansettara
Yeah, I mean, it can. There's, we've been waiting for some strength in industrials and we've seen the early stages and at 2025, so we actually own industrial stocks and all of the growth funds we manage at Sylvan. So I can't poo poo them. I just know that the tech weighting is a lot larger in the Russell 1000 Growth Index. So we've got to, we got to stay focused on both. But we own Deere as an example. I heard over the, over the break there, it's, it's been a great stock recently and finally getting paid on some of that weighting. So. But the tech stocks themselves in Nvidia particular we still think are pretty well poised. We've seen a lot of fear in the markets and it's kind of stock by stock, but we think there's a lot of room to growth even still in 2026 there.
- [03:14]
Kelly Evans
And we can come back to that in a minute. Talk about, you mentioned Deeres in the portfolio. I mean, how do you guys screen for growth and do you find that all of a sudden the companies with more attractive estimated revenue or earnings growth rates for the next four quarters might be in other sectors of the economy?
- [03:28]
Michael Sansettara
Yeah, you know, our goal is to really take advantage of all the major sectors in the economy. In the Russell 1000 Growth Index, seven of the sectors make up 98% of the weight and industrials is in there at 6 or 7%, I think. So you're going to own some industrial stocks if you're trying to beat the benchmark, which is our goal. And what we really do is we go company by company to try to find where the key metrics or the inflections are happening. Deere is actually not in the Russell 1000 Growth Index. So it's an out of benchmark ownership for us. But we've owned it for a few years now and we've been patient for this early cyclical turn. And this is the first green shoots we saw announced today. That gave us some sense that, okay, it's actually now happening early ag, early construction, the big AG is still lagging. We gotta wait for big ag to come around at Deere, but we think ultimately that'll probably follow suit maybe in another quarter or two.
- [04:17]
Kelly Evans
Well, I promise we'll get to Invita. And it's funny how I'm like, not even that interested.
- [04:20]
Michael Sansettara
We don't have to talk about.
- [04:21]
Jihan Ma
I know.
- [04:21]
Kelly Evans
We're like, you know what?
- [04:22]
Michael Sansettara
Forget it.
- [04:22]
Kelly Evans
Who cares? Maybe they don't. You know, when you say you see a green shoot here with Deere, what I was going to ask you is when you've owned something like this that suddenly is performing, do you want to lean into and press the position? I mean, do you want to add to it or, you know, or do you look at this as a moment of saying finally, you know, I've been waiting for it to show this kind of sign of life. We've gotten to look at Caterpillar. Right?
- [04:45]
Michael Sansettara
Right.
- [04:46]
Kelly Evans
Are these stocks now, stocks that, you know, this is their moment now they're the ones due for a bit of a reset or is that way too early?
- [04:55]
Michael Sansettara
Well, it's probably company specific. Right. Deere in particular has lagged like a Caterpillar. We don't own Caterpillar. Deere has lagged because it hasn't had the strength in construction like Kadasene. And that early small ag business typically turns first. And when it does turn first, what you get to do? To answer your question, you get to look at the position size. Right. If you're small, you add. If you're already there, you're already there. So without giving our clues away, suffice to say that we're happy to see it move today.
- [05:24]
Kelly Evans
I see.
- [05:24]
Michael Sansettara
And we think it'll lasts longer than just today. It's probably a longer term turn here.
- [05:28]
Kelly Evans
All right, so let's reluctantly turn our focus to media because a year ago, look, you and I both watched the earnings story there. What it did from what was the key year, 23 or something was. I've never. I mean, I didn't even know a company could grow its top line like that. Right. And the whole market has been trading with it until, what would you say, nine months ago. I mean, when did the relationship.
- [05:51]
Michael Sansettara
Six. Nine months ago.
- [05:52]
Kelly Evans
Okay, so what now?
- [05:54]
Michael Sansettara
Yeah, so now it's actually kind of been just going sideways. Right. If you go back, I think actually to July, end of July, beginning of August, you were looking at a stock that was, you know, 34, 35 times forward earnings, and now we've got a stock closer to 24, 25 times earnings. So it's basically gone sideways and the multiple is contracted, and that really just tells you that it's been growing into its multiple. And we see large cap growth stocks do that all the time. They have a bigger multiple than they historically have. I would argue Nvidia has never actually been very expensive stock till maybe back in the small cap days. But large cap stocks have to sometimes have that expanse of multiple and then they grow into it. And this is a company that still beat the last three, four quarters in that 3 to 4% range. We expect them to do that again next Wednesday, which may or may not actually move the stock a ton. If you look at the implied volatility around those quarters, it's only a few percentage points. So it's not like we think there's going to be some huge moment in Nvidia next Wednesday. It's going to be more of the same. But that more of the same is generating a lot of free cash flow and a great chunk of the S&P 500 earnings. So it's just well positioned. It continues to be well positioned. There's a lot of consternation around the AI trade, but the investing thesis is still solid.
- [07:10]
Kelly Evans
That one almost I can wrap my head around more. Let me ask you about the others in the mag 7 and this is a big question, but it's something that Jeff Curry talked about and it's in the newsletter today if people want to check it out. But this idea that now that these tech platforms, as he says, are putting steel in the ground and the output they're producing is AI compute, which is fundamentally a commodity, are they not going to be rerated like commodity companies?
- [07:35]
Michael Sansettara
Oh, that's a good question. No, probably not. Because the commodity companies, they end up looking more. Looking more like the shorter term supply and demand of that particular commodity. Right. I think the long term demand for these technology companies has been surprisingly resilient because they've managed to continue to innovate. Think about the magnitude of the cloud and creating the cloud. Going back to 2006, these companies spent tons and tons of money, lots of CapEx. Took them 8, 9, 10 years to break even on ROI. And now you're at a point where we're 3 years into the AI spend. CapEx, it is continuing to increase and folks are nervous and rightfully so. But there's ROI to be had. We've seen it now. We know it can happen further down the road as it gets older. Commodities typically don't have those long term secular trends. They tend to be a little more cyclical, a little more bouncy. So no, I'M going to go against that one.
- [08:34]
Kelly Evans
Understood. And you've got pretty much all the mag 7 big portfolio weights. Obviously that's what we're talking about here is reasons why to stick with them. Applovin Palantir, you think people can also pick up here anything else?
- [08:46]
Michael Sansettara
Yeah, I think Applovin is an interesting sort of high fear, high risk stocks. It's obviously in software so that's out of favor at the moment. But we think that the growth rate there is still probably misunderstood. Particularly if E Commerce really gets some traction. Their Axon model is going to go generally available supposedly this first half of the year. Maybe it even gets pushed into Q3. We're not particularly worried about what quarter it comes out. If that does well and we think it can, it's going to be a difficult particular line for folks to model. How well can it really fight against Meta and Google? But the early looks look really intriguing to us and you know that 23 times forward. I think that's a reasonable price to step into something like that if you've got a longer term horizon.
- [09:29]
Kelly Evans
Speaking of rerating, you know the big moves and names like that. Michael, thanks so much today. Appreciate it.
- [09:34]
Michael Sansettara
Great to see you Kelly. Thanks.
- [09:35]
Kelly Evans
Michael San Satara with Sylvan Capital. Now while tech multiples continue to collapse like you just heard about, that makes Wal Mart now one of the most expensive stocks in the market. Still trading around 44 times forward earnings before the bell. They reported their results. They beat expectations. Fell short on the full year outlook though and the shares call it unchanged today. My next guest has an outperform rating on the stock. Expects the retailer to have a strong year but says wait to buy it on weakness. Let's bring in Jihan Ma, senior research analyst at Bernstein. So Jihad, talk about the valuation is this should we think about this like a cloud company like we were just talking about from 15 years ago? When you put up results like this, the valuation is justified?
- [10:15]
Jihan Ma
Good question. I would say the difference there is that Walmart is not really at its mature stage earnings power yet. What's really fueled Walmart's significant multiple expansion over the past couple of years? Of course there's the recent sector rotation but fundamentally I think it's really that we started to see Walmart's decade long omnichannel investments really starting to pay off. Right. So Walmart US as a segment the EBIT margin dipped to below 5%. We see a path for that to grow back up to closer to 7% in the next couple of years. So they're still pretty far away from this long term mature stage earnings power. As a result, I think the PE multiple looks artificially inflated in a sense. So instead of trading at kind of a low to mid 40 times today, they're more trading in a 30 sometimes PE multiple today. And eventually as they get closer to their mature stage earnings power, I would expect the P multiple to normalize over time as well. But we're still at least another three to five years away as we continue to see additional leverage levers they can pull to keep on pumping the gas or the momentum on the E Commerce driven profitability improvement.
- [11:24]
Kelly Evans
So what's your price target for Wal Mart shares?
- [11:27]
Jihan Ma
So right now we're still in the 120ish range. I think we've put out some numbers recently in a valuation piece to say hey, in a fair value scenario we could see Wal Mart getting to like a 150ish dollar range in the next couple of years. That's assuming they become a $5 EPS stock trading at a 30 times PE multiple. So assuming like in 5 years time PE multiple normalizes as things start to run out of steam on the earnings growth, I think 150, it's kind of the reasonable fair value range to think about it realistically how the stock is going to trade. I think if there's still a lot of momentum that we continue to see in the next couple of years, it's very likely the stock should pass the fair value range. So still a lot of upside near term and then as people realize oh, the momentum may be running out and start getting out of the stock, you're going to see a pullback in multiples and that brings the stock back down.
- [12:28]
Kelly Evans
Is there anything is my words, not yours, it's a little bit of full steam ahead right now. Then is there anything they can do to avoid growth slowing in the future? I'm thinking about this chart. Everyone's circulating between Amazon and Walmart where Amazon has overtaken Walmart and those retail revenues and it's been on such a fast upward trajectory. If could, could Amazon's growth suddenly level off and Wal Mart kind of steal some. Is there anything they can do to. To go higher for longer?
- [12:54]
Jihan Ma
I think the growth is going to continue. Of course as they get bigger with E Commerce you can't expect them to keep on growing. E commerce 25% every single year.
- [13:04]
Nancy Tangler
Right.
- [13:04]
Jihan Ma
So, so by law of large numbers, that's their exact wording from this morning. It's unlikely that that growth rate is going to stay at that level going forward. But I think the other driver that's really driving the momentum, it's not just on the top line. It's also on the profitability side in terms of retail media, business mix really helping margins in terms of all the automation investments that Walmart is still making today, really starting to pay off from a cost reduction perspective. So I think they still have a lot to go on that front, but there's going to be a ceiling in terms of how much more they can say maybe five years from now and we'll reassess that situation.
- [13:42]
Kelly Evans
All right, I'm going to book it now. Jihad in the calendar February of what's five years from now? 2020-2031. Yes. Thank you and we'll see you then. No Jihad. Thanks very much for your time. Appreciate it. Jihan Ma from Bernstein Coming up, there's a Fed fight shaping up in Washington, a different kind this one. NEC director Kevin Hassett criticizing the New York Fed's finding on tariffs and now his comments are facing blowback. Those details ahead. But first, the Pulitzer Prize winning historian of global energy markets, Dan Yergen is here with his take on the rising tensions between the US And Iran, what it means for the oil market as crude prices hit their highest levels since last summer. We're back after this. This is the exchange on cnbc.
- [14:29]
Schwab Representative
Trading at Schwab is powered by Ameritrade, giving you even more specialized support than ever before like access to the trade desktop. Our team of passionate traders ready to tackle anything from the most complex trading questions to a simple strategy. Gut check. Need assistance? No problem. Get 24. 7 professional answers and live help and access support by phone, email and in platform chat. That's how Schwab is here for you to help you trade brilliantly. Learn more@schwab.com trading Comcast business helps retailers
- [14:59]
Kelly Evans
become seamlessly restocking frictionless paying favorite shopping destinations. It's how nationwide restaurants become touchscreen ordering quick serving eateries and how hospitals become the patient scanning data, managing healthcare facilities that we all depend on. With leading networking and connectivity, advanced cybersecurity and expert partnership, Comcast business is powering the engine of modern business powering possibilities. Restrictions apply. Before we had AT and T business
- [15:27]
Schwab Representative
wireless coverage, our delivery GPS wasn't the most reliable.
- [15:31]
Kelly Evans
Once our driver had to do a 14 point turn to get back on route. A 14 point turn. An influencer, even livestream the whole thing. Not good for business. Now with AT&T business, wireless routes are
- [15:44]
Schwab Representative
updating on the fly and deliveries are
- [15:46]
Greg Ip
on time and the influencer did get
- [15:48]
Kelly Evans
us 53 new followers though. AT&T business Wireless connecting changes everything. Welcome back to the exchange. Concerns over a potential conflict between the US and Iran continue to grow. That has WTI crude trading around $66 a barrel, touching its highest level earlier since last August. Brent nearing 72. This says the US is gathering the most air power in the Middle east since the 2003 invasion of Iraq, according to the Wall Street Journal. And President Trump says he will make a decision on whether or not to strike within, quote, the next 10 days. For more here, let's bring in Dan Jurgen, the vice chair of S and P Global. Dan, it's great to see you. I find it a little strange that this is being so telegraphed.
- [16:30]
Dan Yergen
Well, I think it is. I mean, the president is sending very strong messages and massing power. There's, I think he doesn't want to have an out and out war. I don't think, unlike some others, that he's necessarily seeking regime change right now, but he's putting maximum pressure on them in a way that hasn't been seen before. And I have to say the Iranians are doing their preparations too. Two days ago, they shut the Strait of Hormuz for a couple of hours for a military drill called smart control of the Strait of Hormuz. So the oil market has moved from waiting to saying, you know, maybe this is really going to happen.
- [17:07]
Kelly Evans
Right. You know, what is the demand being placed on Iran right now to completely end its nuclear program or is this in retaliation for the killing of its citizens?
- [17:16]
Dan Yergen
Well, no, although the president had a couple of weeks ago said help is on the way. I think this is he's very explicitly focused on the nuclear. I think there's also the question of their missile program. We destroyed or we destroyed a lot of their launchers, but they still have a very significant missile force. And that's one of the things the Israelis worry a lot about, as indeed do the Arab neighbors in the Gulf.
- [17:39]
Kelly Evans
So what would you expect the US to launch here if they were to do something? Are the contours of it becoming clear in your mind or no?
- [17:48]
Dan Yergen
Well, I think, you know, I was, I've been twice in the Gulf region in the last couple of weeks and I asked one of the senior people there, you know, what do you think is going to happen? His reply is, well, only really one person knows that and he's sitting in the Oval Office. I think that at the end of the day, the president is his thing is that he wants to deal with The Iranians. But he wants a very significant deal, and the Iranians are really testing him to see to what degree can they continue to negotiate. It's very interesting when the Iranian foreign minister says, we're making good progress, and Vice President Vance says they're still crossing the red lines.
- [18:28]
Kelly Evans
And, you know, if they were to say, okay, fine, you know, we see what is coming at us, we are prepared to make a deal. Would this be something like what? Like the deal that was made with the Obama administrator? Is that the wrong way to think about it? Again, it's unusual to see this military buildup for what, you know, you heard Richard Haass earlier. He said, you know, he would pursue this via the sanctions route, you know, putting max pressure on the economy and seeing if they respond in that way regardless. Is that what we think the White House is looking for, is some kind of, you know, Iran nuclear deal 2.0?
- [18:59]
Dan Yergen
Well, I think that they would not like the kind of deal that the Obama administration had where there was a time frame to it. I think we don't. We don't know what they would regard as total satisfaction, but basically, quote, it's the end of the nuclear program and very tight controls on it that don't have an endpoint on them, but would really take, you know, have a grip on them. And, you know, this is a massive, as you noted, Kelly, the biggest buildup since 2003. So this is a very powerful message, and it is maximum pressure, much more than putting sanctions on oil.
- [19:35]
Kelly Evans
Right. And finally, you mentioned the Strait of Hormuz. And for years, of course, we've been hearing about that choke point. Has it changed at all? I mean, has the world prepared for the possibility, especially since it was just closed, that it may be closed again and come up with a Plan B?
- [19:49]
Dan Yergen
Well, I think if you look at it, for instance, the Saudis have pipelines that could move, you know, very substantial amounts of oil to the Red Sea. And I think there is, you know, so people have been preparing for that. What's also different is, of course, the US has gone from being the largest importer to the largest exporters. And I think if we were not in the position we are in shale, we would see the oil price actually much higher than it is today.
- [20:13]
Kelly Evans
And one kind of broader comment, I guess, to situate this conflict in the oil price, when you look at the fact that energy this year, the sector's up 24%, the price of oil obviously has been high, not. Not extremely so in response to this obvious, obviously, but do you have a point of view on whether energy and oil prices will be headed higher in some kind of secular way, you know, regardless of whatever direction this conflict takes.
- [20:37]
Dan Yergen
Well, I think where we are now probably, you know, probably there's a $10 premium, 8 to $10 premium in the price of oil today. So I think if you looked at it and you know, not talking about what's going to be five years, but if you said if there was no geopolitical strain, if we weren't seeing what's happening with Iran right now and with OPEC plus putting more oil in the market, we'd expect oil prices to probably be about $10 lower, 8 to $10 lower than they are today. So there's definitely a fear premium in the price of oil today.
- [21:07]
Kelly Evans
All right, Dan, we'll leave it there. And thanks so much for your time. Dan Jurgen with S and P Global. Before we go, check out some of the defense names that are also hitting record highs as these tensions ramp up between the US And Iran that anyone from Huntington Ingalls to Lockheed, GE Aerospace, Northrop Grumman, rtx, all of these stocks today making new all time highs. And coming up, Deere having its best day in six years, a record high there as well after the company raised its full year outlook despite the tariff overhang. We'll talk about what's helping it offset those increased costs after this. And as we head to break the Dow is now at session lows, selling off by the tune of about 450 points, nearly 1% today. Drops of around 2 thirds of a percent for all the other major averages and the 10 year yield is now below 408. We're back after this.
- [21:56]
Schwab Representative
Trading at Schwab is powered by Ameritrade, giving you even more specialized support than ever before like access to the trade desk. Our team of passionate traders ready to tackle anything from the most complex trading questions to a simple strategy. Gut check. Need assistance? No problem. Get 24. 7 professional answers and live help and access support by phone, email and in platform chat. That's how Schwab is here for you to help you trade brilliantly. Learn more@schwab.com trading Comcast business helps retailers
- [22:25]
Kelly Evans
become seamlessly restocking frictionless paying favorite shopping destinations. It's how nationwide restaurants become touchscreen ordering quick serving eateries and how hospitals become the patient scanning data managing healthcare facilities that we all depend on. With leading networking and connectivity, advanced cybersecurity and expert partnerships, Comcast Business is powering the engine of modern business. Powering possibilities, restriction Supply. What do the steam engine, electricity and AI have in common? These technologies not only change how we work, they can transform entire economies. I'm Stephanie Wong, host of where the Internet Lives, a podcast from Google and Latitude Studios about the unseen world of data centers. Explore how data centers are unlocking growth in every sector of the economy. From agriculture to medicine to manufacturing, data centers are powering a new era of AI innovation. Listen to where the Internet lives wherever you get your podcasts. Shares of Deere are jumping to an all time high today. They're up nearly 13% right now. The company beating earnings expectations, raising its full year forecast. Seema Modi is here with more. And Seema, this was after a period of time where we thought they had all these headwinds and now suddenly they're this breakout on the chart. The five year chart may be. It looks crazy.
- [23:40]
Seema Modi
Crazy. I mean the news was as good as what investors could have hoped for from Deere. Here's the thing. Earnings beat by 20%. Its outlook for the full year was 6% ahead of consensus. There's three main drivers. One is higher prices are offsetting the impact of tariffs. Demand is starting to rebound, which is helping with inventory reductions. And three, the recovery in agriculture prices and the farm economy that's looking a lot better with soybean and beef prices. They've been depressed for in recent years due to China buying less from the US and more from Brazil. Dear executives on the call saying we're starting to see some stability for producers as China has resumed purchasing U.S. soybeans and and the recently approved government support program looks to provide some near term liquidity. As you know, ag prices are so directly linked to farmer confidence and they're willing to spend on equipment and on precision ag. That's the smart equipment that embeds AI into its devices. That's really why we're seeing the stock fly to a new all time high. In addition to strong earnings, we spoke to a fund manager at Gamco, Brian Sponheimer, who says it's important to note that companies like Deere, they make things tangible items that cannot be disintermediated by AI at a time when the market is punishing. Kelly Companies like software that do face that threat and that's really worked so far this year, they have got a tangible product. People understand it.
- [24:53]
Kelly Evans
I'm trying not to get carried away, but I'm like the kids are going to trade school. You know, we're moving to Pittsburgh. Like you think about the implications if all of the sudden the industrial and farm belt parts of the old economy totally could be at the rise. Not in a one or two month way, but it may be a decade long way. While the parts that were hot, software, the Sunbelt, things like that. You know, I just wonder about that resource allocation. But it's what you said about the soft too because we've spent a lot of time talking about the metals and things that go into the pipeline. But it's really broader than that.
- [25:18]
Seema Modi
Oh absolutely. I mean the fact that agriculture prices were depressed for so long to finally see this recovery and most of it having to do with China coming back to the US market in a strong way, not just resorting to Brazil for all their purchases of soybeans, that lifts investor far more confidence. And when they feel good about their farm, they are going to want to buy these equipment that by the way costs anywhere from $100,000 to millions of dollars for just one piece of equipment. It's very expensive but it's also being baked into the stock. I would just point out to price to earnings ratios. Deere now at 38 times. That's well ahead of its five year average of 18 times. And it's a similar story for caterpillar now at 33 times versus its five year average of 18. So a lot of this is being baked into these stocks already. That whole consensus, consensus that's fascinating.
- [26:02]
Kelly Evans
They're already jumping ahead to some of these conclusions. Maybe we'll see if they can now sustain that. Seema, thanks appreciate Sima Modi. Let's get to Contessa Brewer now for the CNBC news update. Contessa. Hi there Kelly. The Trump administration reportedly is proposing nearly $2 billion a year in funding to replicate the functions it was able to access. As a member of the World Health Organization, President Trump withdrew from the Global Health Agency last year saying the US payments were unfairly high. But the Washington Post reports that this $2 billion in new funding is about triple what it would have cost if the US had remained a member of the who. A South Korean court today sentenced former President Yoon Suk Yul to life in prison for leading an insurrection when he tried to place the country under martial law in December 2024. Prosecutors had sought the death penalty. And New York Governor Kathy Hochul today yanked her proposal to expand robo taxi service in the state by allowing services to operate in smaller municipalities outside New York City. A spokesperson for the governor said there just wasn't enough support in the legislature. It's a setback for Waymo and its expansion plans because the company currently is testing its self driving cars in New York City. That's the news now, Kelly. We welcome them in New Jersey. They can come easy roads. Put all the kids in that car. Take a separate car altogether. Yes, and get a mental break. Contessa, thanks. Coming up, are you over 65? Congratulations, you own the economy. At least according to the Wall Street Journal's Greg it. He's here. He'll join us next to break down the country's growing demographic divide. And as we head to break, check out shares of Klarna having their worst day on record after reporting disappointing guidance that overshadowed its first ever quarter where they're topped $1 billion in revenue. The buy now, pay later firm forecasting first quarter adjusted operating income between 5 and $35 million. That's well below the Street's $62 million estimate. The shares have lost more than two thirds of their value since the IPO back in September and three other IPOs have been pulled in the past week. We're back with more after this. While the country is dealing with job displacement from AI, housing affordability and rising debt, well, there's one cohort that's enjoying the best years of their lives. Seniors. Take a look at this headline in the Wall street journal. Over 65, congratulations, you own the economy. The elderly are physically and financially healthier than ever. So why do their needs keep taking priority over younger generations? And with that simple question, here is the author of that story, Greg if the chief economics commentator at the Wall Street Journal here on set with me along with CNBC senior economics reporter Steve Liesman. How Greg, I can only imagine the response that you're getting. You're not like, look, the people have been talking about this from multiple sides of the issue. Why did it jump to your mind right now?
- [28:52]
Greg Ip
So this basically flowed from an observation I made. I was looking at the research that showed that a lot of the economy is favoring capital instead of labor. High profit margins, high stock prices. And then I asked the question, well, who owns the capital? And when I broke it down, I was really surprised how much bigger the share of that capital is owned by older people over 65 or over 70. So essentially what you have, Kelly, is if you take an aging population and you multiply it by an epic 40 year boom in asset prices, this is what you get. A massive amount of wealth in the, in the hands of the people who are now retired, which is part of
- [29:29]
Kelly Evans
the boring 20s thesis that Ed Yardeni has been talking about that the boomers are going to have all of this capital, all this, you know, wealth to spend, and that's going to support the economy. Of course, there's a flip side as well. I don't know if, you know, but if we are all spending federal debt and interest costs in order to give seniors sort of extra income, you know, in retirement, so forth, is that. Do those. Is that. Am I going in the right direction here? Why this really sets people off.
- [29:54]
Greg Ip
I do. I think that what we need to do is a bit of a mindset here. Now, since I can remember, we've always worried about the welfare of the elderly. Right. Which is why, for very good reason, we brought into place programs like Medicare and Social Security, and they work. We've more or less solved elderly poverty. Not completely. There are some older poor people out there, but by and large, that is a great victory for our society. But somewhere along the line, we kind of allowed those priorities to get stuck in place without realizing that something was changing. And these are the things that have changed. First of all, as the article points out, the elderly are now actually, on average, not everybody, but on average, very affluent, very comfortable. They're healthier and they're wealthier than they've ever been. At the other end of the story, we're an aging population. The younger cohorts that need to support those older people are getting smaller. And we've all seen the data and the surveys and the stories about how much angst there is, you know, and
- [30:46]
Kelly Evans
I think the housing markets, you've jump in here anytime. I think that one aspect of this is, hey, it's great that older Americans, instead of being, you know, poor, are doing well, financial. The other problem, Steve, is that the younger group feels like, well, what about us? How are we supposed to support, you know, this through the, you know, entitlement system or what have you, while we can't even buy it? I think the housing piece of this is a big part of why, on top of the job anxiety people have right now. But I think housing has a lot to do with this, this divide.
- [31:11]
Steve Liesman
Can I just offer the context of this is a better problem to have than the reverse, which is that people are not living longer and they're not living healthier.
- [31:20]
Kelly Evans
Absolutely.
- [31:20]
Steve Liesman
We have decisions to make about this that are brilliantly pointed out in Greg's article Carnival. It has always been true that the older folks are net savers and the younger folks are net debtors to the older folks. What Greg's pointing out is the impact of all the wealth on this thing. But I have a solution. We should give all younger people shares in Carnival Cruise Lines. And the reason why that works is the following. The interesting key to all this, as I read Greg's story and some of the other reporting I've done on the economics of aging, people are living healthier. That means they're not sitting at home and get a picture of me guys knitting. Grandma's out on a cruise and Grandpa may be alive to go on the cruise with her. With her. Right. That changes the dynamics in the economics. What Greg is pointing to, and I'm gonna say this, and I'm gonna duck under the table and change my email, is we have to tax the seniors more. We can't let. And I'm sorry, folks, I'm going to be one of you if I'm not already. But if there's all this, if that's where the money is, it's where you got to go for the tax. And if the young people, they're all going to be working on Carnival Cruise Lines.
- [32:31]
Kelly Evans
But the issue is not.
- [32:31]
Steve Liesman
Look, and I'm not joking, but here's the Carnival. That's where they're all cruising.
- [32:35]
Kelly Evans
There's public and private aspects of this. The public aspect is the bigger concern. Correct me if I'm wrong. I mean, what's going on with the federal debt is much more of a problem than how much wealth different groups have with it. The issue is, you've seen the new
- [32:48]
Steve Liesman
numbers, but it's not having the money. It's the political will to make the people with the money pay it.
- [32:53]
Kelly Evans
But do we need Greg to lower, for instance, Social Security payouts to those groups who really need them instead of to the population writ large? And I know you don't want the
- [33:03]
Steve Liesman
email, you don't want the hate mail, Greg.
- [33:04]
Schwab Representative
Right?
- [33:04]
Kelly Evans
No.
- [33:05]
Greg Ip
So we have a contract with the elderly. Right. And there's a very important point to make here. This is not a morality play. I'm not saying that the elderly people are comfortable at the expense of the young people. It's the raw result of math. And the math is that there are fewer younger people due to lower birth rates coming along to support those older people. And we just had this epic acid boom. Those are somewhat impersonal forces. The question is, what do we do about them now? Like you, Steve, I don't believe that this is a private problem because the people who have strong assets today, they by and large made smart decisions. They took care of themselves. Great. I am fully in favor of that. But what we as citizens of society have to decide is do we want to keep diverting public resources to the people who are doing very well? And there's a statistic that really kind of like bowled me over that I use in my column today. In 2019, the federal government spent roughly $29,000 on Everybody 65 and over and only around $5,000 or $6,000 on Everybody 18 and young, longer five to one ratio, it's getting even more unbalanced. And partly that's just because health inflation, for example, I mean, that's just a thing.
- [34:14]
Kelly Evans
I do wonder how much.
- [34:14]
Greg Ip
I just want to make one last point. One of the first rules of holes is that when you're in one, stop digging. It's, you know, even if we want to leave safe, harmless seniors as we are today, there's no reason to keep adding to those benefits. So why, why did we just create a new tax break for people 65 and over? They're not the ones who need it.
- [34:32]
Kelly Evans
And people say Social Security, where it's all self funded, but Medicare being a much bigger, more difficult piece of this. Steve, I don't know what adjustments.
- [34:39]
Steve Liesman
I just want to overlay the political dimension on this, which is young kids at home. If you want to change the dynamic, you have to vote. Right. And it's, it's, it's, it's what Greg said. It's, it's not an issue that anybody created, but the politics caters to it. Right. And you might have certain benefits that would be less if the politics didn't skew the way they skew, which is that older folks come out to vote and young folks don't. And I think the other issue is it's not exactly clear how a younger cohort, all of whom are in different places in their, in their life cycles, would express that interest politically.
- [35:15]
Kelly Evans
Final quick question on this. Is there a crisis? Some might just say this is what happens over time. You know, if you invest in the stock market over time, you're going to end up wealthy. And we've done that as a society, made a big transition in that direction over the past 50 years, the age of the boomer. So, so if we wait long enough, will those who are young now be similarly in the catbird seat in the future going, yeah, there's no problem. What is the real problem that you, that you see here?
- [35:36]
Greg Ip
Well, first of all, I'm, even though I tend to be pretty bullish on America, always have been, I am not convinced that we will have another 40 years in asset markets and property prices. We've had like for the last 40 years heavily driven by declining real interest rates. And that that is over. The second thing is, is that there's the raw numbers, which is that even if the young people do well with their saving and their vesting, and by the way, I'm a fan of Trump accounts, these things that get people started, even if they do well, their numbers are just not going to be large enough to support all the promises we've made to the elderly. And that again, is just the raw arithmetic of the fact that the fertility rate keeps dropping and that, you know, we've basically clamped down on.
- [36:16]
Kelly Evans
But are those promises primarily the entitlement programs? And if Social Security is not really part of that because it's to some extent self funded, are we really just talking about Medicare? Are we talking about the changes need to be made to that kind of immovable piece of. I mean, I think the last time I looked it was like 24% of the deficit of government spending was really driven by health spending. And a lot of that is Medicare for the elderly.
- [36:37]
Greg Ip
It is the number one issue for sure, really quickly.
- [36:40]
Steve Liesman
We cannot solve this problem without immigration, I don't think. And I think we've made it potentially worse with the immigration rules that will limit the number of people coming in who are going to take those jobs that will serve the elderly out there.
- [36:54]
Kelly Evans
Well, that brings us back to the news of the day. Nicely done, by the way. And Greg, normally when Greg's here, we like to talk fed all this, kind of like this. Fun and easy compared with getting into these more difficult topics. So maybe next time. But Greg, thanks very much for joining us.
- [37:08]
Michael Sansettara
Thanks.
- [37:09]
Kelly Evans
Good to see you, Greg. From the Wall Street Journal, Steve Banks as well. Coming up, OpenAI, Sam Altman is making headlines for a new funding round and for a very awkward moment captured on camera has to do with what you're seeing here. We'll talk about that next. And as we head to break, take a quick look at shares of Pool Corp. Which are down nearly 10% on an earnings and revenue miss. And a disappointing outlook. Analysts flag ongoing soft demand. This would be its worst day in more than five years. And as we all remember, this was one of the COVID pandemic darlings in many ways. That Unwind still continues. We're back into. Two of AI's biggest rivals. Anthropic's Dario Amadei and OpenAI's Sam Altman are going viral after a public snub, an awkward exchange you can kind of see here where they refuse to hold hands on stage. The two are in India as part of the country's AI Summit. And Kate Rooney has more on their global ambitions in today's Tech check. Hi, Kate.
- [38:04]
Kate Rooney
Hi, Kelly. So both anthropic and OpenAI CEOs, as you saw on stage there, have been in India. They're making their case space for their companies on the global stage. Sam Altman, for his part, underlined OpenAI's ambitions and recent growth in the country. He says 100 million people in India now use chatbots each week. He added, it's the fastest growing market for Codex, which is basically their coding agent. One big question though is how are they going to monetize all of that international growth? Advertising is one answer. So there has been, that has been rather a central point of tension if you think about Anthropic super bowl commercial poking fun at OpenAI's ad strategy. A little bit of context behind the snub photo there. Altman telling cnbc though in an interview earlier, that it is early in ads but says anecdotally the feedback from users has been positive. Altman also says they do eventually plan to roll out ads internationally and this is going to help them monetize the more casual users of Chat. CBT does help offset some of the massive data center spending and then shore up revenue while this company is expected to be raising what is potentially going to be $100 billion funding round, according to sources. Altman also mentioned Instagram ads for inspiration for sort of what works in tech advertising. Meta, though, if you think about it, has not had the easiest time rolling out ads internationally. They've had a ton of regulatory issues, data issues, especially in Europe. Also more competition in India's backyard, in particular. China, of course, a major player in AI. They might be willing to subsidize consumer products on a different level. Altman called China's AI progress amazingly fast.
- [39:31]
Kelly Evans
Kelly so do you think that we should all give them a break because it was an awkward moment and they just didn't feel, you know, maybe they are, maybe they just felt weird. Or do you think there is like deep seated animosity here and they were like, no way.
- [39:46]
Kate Rooney
I think there is deep seated animosity. We did a story for Digital, sort of looking at all of the small, you know, small paper cuts that are sort of adding up to this bigger drama within the two companies. So you had the super bowl ads which really was this spilling into the public. But if you think about it, I mean, Darya amadi helped found OpenAI left and started OpenAI's biggest competitor, which is now anthropic. So you're seeing the snubs, you know, the more public version of sort of what has been a quiet rivalry. This kind of puts it perfectly. At the same time, you know, the, the fodder on social media and the ability for things like this to go viral. This is sort of perfect tech Internet content. You know, people are adding the Curb youb Enthusiasm theme song behind it. Very awkward moment. And I wouldn't expect them to hold hands. They've had some beef lately. I don't know.
- [40:32]
Kelly Evans
That's what I'm thinking. The fact that they ended up next to each other on stage is kind of interesting too. Like that their handlers wouldn't be like, no, no, no, no, no, I haven't seen that movie.
- [40:38]
Nancy Tangler
Right.
- [40:39]
Kate Rooney
I mean, they're rivals but it was sort of the perfect, you know, they both have their hands up and it's a slow, you know, looking around like, oh, what do we do? So it's kind of the perfect viral moment, but it does speak to a broader competition and growing animosity that we've seen between the two companies. It's actually just the founders for sure and business models competing. And it's really spilled into the public
- [40:57]
Kelly Evans
the way that anthropic tools have really taken a lot of the thunder from chatbots. I know that probably stings. Kate. Thank you, Kate Rooney.
- [41:04]
Kate Rooney
We appreciate it.
- [41:05]
Kelly Evans
Coming up, Deere and Walmart are among your stocks of the day. Some big moves here, some big changes in their outlooks. What do you do with them? We're going to talk to Nancy Tangler about that next. Plus Carvana shares down 11% on a mixed range report. Adjusted EBITDA below expectations despite the company reporting record full year revenue and growing units sold by more than 40% year on year. Battleground name under pressure today. We're back after this. Welcome back to the Exchange. And let's talk about Blue. I will take a look at the shares today. The firm selling $1.4 billion from three credit funds and permanently halting redemptions at one of its funds. They're down about 8 1/2% in the public markets. Let's bring in Nancy Tangler to talk more about this and a few other things on the move. She's CIO and CEO of Laffert Tangler Investments. Nancy, it's great to see you and you know, just talk through. If you were speaking to investors who might be in, you know, vehicles like these, what would you say? And also, is there a big spillover risk to the public markets.
- [42:10]
Nancy Tangler
So I think Blue Owl is a little different than, than some of the other BDCs. But we have expressed our private cred interest through Brookfield Asset Management, and that's a much more conservative kind of plodding along name. I just don't think you need to take on that kind of risk right now in this environment, particularly where there's already concerns with the hyperscalers circular investing, even though they've got the cash to do it. I think you want to sit this one out and just take your risk somewhere else.
- [42:46]
Kelly Evans
And because, Nancy, we often talk to you about, you know, growth stocks and tech stocks and, you know, so trying to figure out, okay, if software names are getting rerated, fine, they're doing so in the public markets, too. This is the same exact version of what's happening on this case, the credit side, but in the private markets. But do we, do we need to worry about the ripple effects from this move?
- [43:07]
Nancy Tangler
I mean, I think the names that they're financing are a little different, for example, than the names that we own. But yeah, of course we do. I mean, it feels a lot. It feels like the potential to act like the housing crisis that obviously sparked the great financial crisis. And so I think you want to be wary now, that said, I mean, the company is limiting outflows or limiting redemptions, but they've telegraphed that that's in the document that you signed. So some of this is being catalyzed, surprised by the hyperbole of the algorithms. And, and so they read the headline, they just start selling and then the hedge funds jump in. But I just don't think you need to take on this kind of risk in this environment. You can take it other places. And yeah, there could definitely be a spillover effect. Let's hope there's not. They have come out and vehemently said, you know, they're solvent, that this is a company that is, is doing all the right things from a credit analysis standpoint. I, you know, I don't know, I don't own it.
- [44:08]
Kelly Evans
It reminds me a little bit of when, you know, the analogy is being drawn to be reit. Anytime there's a sudden shock to valuation, you're going to see the fund where most, in that case it was commercial real estate, in this case, software. You know, fine, this, this is life. This is what happens if you're in one of those vehicles, if you're in the publicly traded exposed parts of the market too quickly. Before we move on to Wal Mart and Deere is There anything reminding me, Nancy, in software that you would be buying here on this pullback stock?
- [44:35]
Nancy Tangler
I'm sorry, are there any names in
- [44:36]
Kelly Evans
software, Any software stock?
- [44:38]
Nancy Tangler
Yeah, we recently added to Palantir and Microsoft. I mean you can. And before that, ServiceNow, you can make the argument that these companies are being rerated. I actually believe that when it's all said and done, they understand I just about as well as any of the companies in various sectors we cover. We think it'll probably ultimately improve their margins. So we're treating this. Not all names we got out of Adobe. I don't like Salesforce, so I know many do. And we, so we got out of those and we've been adding to these because we think this is a deep seek moment where you're going to get the opportunity to buy names like palantir at $75, $80 a share and, and then hold on. And yeah, they're volatile. They are. The valuations are pretty lofty even still.
- [45:25]
Kelly Evans
Yeah, I still think about when I'm using different software, like I don't know if I would. Is this really going to be replaced, you know, with something that I build or the firm builds anyway? We'll see. Quickly on Wal Mart and then on dear Nancy, what would you do on Wal Mart here? A little bit of a guidance Ms. I guess, you know, it's more the P E people want to talk about.
- [45:41]
Nancy Tangler
Yeah, I mean the valuation is pretty healthy. You know, it's been our poster child of an old economy company that's pivoting to new technologies. They did that. They went to the NASDAQ. They became one of the NASDAQ 100. We've owned it for 10 years. We're up about 670%. I think we sold some yesterday and I don't usually do that ahead of earnings, but we did because it got to be an outsized position. And we think the good news in some cases is is priced in. But don't forget, I mean they're growing advertising at 45%. Their e commerce grew at 23. It's now. It's now or over 20. It's now 23% of total revenues. They are changing who they are. And order fulfillment, 50% is automated.
- [46:23]
Dan Yergen
Yeah.
- [46:23]
Nancy Tangler
And so we love all of that because it improves margins and allows for growth. The trade down from the higher end elderly consumer.
- [46:31]
Kelly Evans
No comment. Okay, finally then, so. So speaking of old economy, what about Deere on this? This is a big jump today.
- [46:39]
Nancy Tangler
Yeah, I think you still buy it here. We own it. We bought it on that same theme. An old economy company that was embracing technology. They think of themselves as a SaaS company. I don't know if that's really true. But they are focused on the tech stack and they are delivering upgrading estimates. They've managed inventories by limiting production and orders are going up. So it's, you know, it's a name that yields 1%, but they're growing the dividend at 16, I think, and it's up a lot this year, but it's still attractively valued in our work.
- [47:09]
Kelly Evans
I think they're not going to tell people they're a SaaS stock anymore. They're going to say, I think that's right, we're a miner or a mining player. Nancy, thank you very much. Appreciate it today.
- [47:17]
Michael Sansettara
Okay, thank you.
- [47:18]
Kelly Evans
Nancy Tangler. That's it for us here on the exchange. And I'll go join Steve Liesman for Power Lunch. He's in for Brian and we'll see you right after this quick break. You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time, same place.
- [47:42]
Schwab Representative
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