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Kimberly-Clark to Buy Kenvue, Tech Deal Frenzy and Palantir's Potential 11/3/25
00:43:58
Kimberly-Clark agrees to buys Tylenol-maker Kenvue for more than $40B. Amazon teams up with OpenAI for the first time, while Microsoft cuts its own multi-billion-dollar deals with two cloud start-ups. Plus, Palantir hits an all-time high ahead of earnings.
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You're listening to THE Exchange. Here's today's show. Thanks, Frank. Welcome to the Exchange. I'm Courtney Reagan. And today for Kelly Evans, stocks mix to start the week. After finishing a third consecutive week in the green. Amazon the tech standout hitting a new record high $38 billion with open air for that one since earnings on Friday. Amazon up more than 15% over two trading sessions, on pace for its biggest back to back gains in three years. And we're watching shares of Palantir. That one's on deck to report after the bell. Stocks gone up 20% on average and 8 out of the last 11 times it's reported that stat courtesy of Capital Markets. So will today play out the same? We will look at how to position into the print. But we begin with deal news. Kimberly Clark agreeing to buy Tylenol owner can view for $48.7 billion. Seem David Faber joins us with the latest. Hi David.
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A
Hey, Courtney. 48.7 billion includes debt and of course it was about 40 billion worth of equity and cash before Kimberly Clark's stock price opened this morning. But with that significant decline, the value of the overall deal has come down a bit. That said, they've been at this for some time. According to my reporting, that is Kimberly Clark, which actually was interested in what was once a part of part of Johnson and Johnson that being can view. And of course many of the brands, they even came after them before they got spun out. The company did not perform well as a public company. It attracted a slew of activist investors and they've been arguing it's time for you to deal with this execution or lack thereof by selling yourself. And so that's the deal you see today in front of you. 350 a share in cash is what you get if you're a Ken View shareholder. And then that ratio that equated to $21 a share when we began trading this morning. Again given that decline in Kimberly Clark's Clark's stock price. The deal is not valued any longer at 21 but it was as much as a 50% premium. Of course this over a stock price that has been declining of late because of the Trump administration and RFK Jr. S association between autism and pregnant women who take Tylenol. Now there has not been any real data that fully supports those contentions. However it has had a significant impact on can view stock price which wasn't doing particularly well to begin with given overall execution issues. They they fired their CEO earlier this summer as well. They were operating with an interim CEO. But it did have an impact on what Kimberly Clark was willing to pay. My reporting indicates they had been as much as including perhaps A$7 shares in a share in cash plus a ratio you get down to 350 a cash and that ratio which will by the way mean that can view shareholders alone as much as 46% of the combination. And it is the combination that shareholders of both companies are banking on to deliver deliver 2.1 billion in overall synergies, most of them through cost synergies though some revenue synergies and to sever the deliver excuse me the execution discipline that Mike Shu, the CEO of Kimberly Clark is promising. So they can take advantage of that 2.1 billion in run rate synergies and ultimately get a multiple closer to that of Procter and Gamble which trades typically at more than 20 times earnings. And the portfolio here now is going to line up interestingly as a competitor to P and G when you put Aveeno and Johnson and Johnson and Listerine and Neutrogena together with the likes of so many of the brands that we will show you from Kimberly Clark as well, many of them paper related whether it be of course the diapers that people know so well or any of the others that you see up there including Continental and Kleenex and Scott and so that's where the hope is it will take some time. Of course the deal itself won't close Courtney till the end of or I should say the second half of next year. But the hope is to take a relatively low multiple they're paying and even for the pro forma meaning the combined companies a relatively low multiple versus the rest of the group and take it up through delivering on the synergies and the promise they believe will be held by that broad product portfolio.
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B
Yeah this is this was an interesting deal and as you've pointed out of course can you didn't perform spectacularly well since being spun off Originally and then obviously everything that happened with the government and RFK junior over Tylenol and the link he's trying to make with that and autism really took things down. You said that this deal has been in talks for a while, even potentially before the spin out. So I mean, did anything that happened with the government sort of spur this into action? Did it make it more ok? Yes, now maybe we need to make this deal.
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A
No, in fact, probably more closer to the opposite. When I was saying, you know, Kimberly Clark had interest in trying to effectuate what we would call Reverse Mars Trust when this was a part of Johnson and Johnson, then they went away. But they did engage back, I'm told as long ago as June in terms of at least exploring this. But in fact, I think it was the, the government activity that, you know, I don't know that it spurred a deal as much as it perhaps made Kimberly a bit less interest. I don't want to say less interested, but certainly reduced the overall price they.
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Were willing to pay.
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And I'm just looking back here at my notes from some of the conversations I've had. You know, they were close before RFK came with some of those, some of those accusations. And apparently it did take a while because it was a strategic review took place. They had a meeting, they had a proposal, they thought they were getting there and then they had to kind of start again. But they got to the finish line. And again, it's the price here that perhaps is going to be encouraging Kimberly Clark shareholders over time given they are paying a very low multiple. But it does come with risk, including litigation, Courtney. And that may be one reason why we see Kimberly Clark stock so weak today.
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B
Really interesting. And yes, that portfolio now does have a little bit more comparability with Procter and Gamble. Although to your point, Procter and Gamble still much, much larger, but it does make it more interesting. Thank you so much, David. Appreciate that. And all those details from the reporting that you have. And don't miss Kimberly Clark's chairman and CEO tonight on Mad Money with Jim Cramer. That's at 6:00pm Eastern time. We'll come from consumer deals to tech deals. Amazon Share is hitting a record high on news of a $38 billion compute deal with OpenAI. Mackenzie Seagalas has more. And today's Tech Jack to the woman. Sleep smack.
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C
Hey, Courtney. So OpenAI is teaming up with Amazon for the first time ever on compute in a deal that not only makes us the newest hyperscaler to power chatbots, but also consumes nearly all of the capital from the financing round that it just closed. The agreement gives OpenAI access to hundreds of thousands of Nvidia GPUs across multiple US sites, but notably not Amazon's in house AI chips. Now, AWS's head of machine learning services told me this is a pure Nvidia deployment, completely independent from the campus that it built to serve OpenAI rival Anthropic. And crucially, he said that unlike a lot of the OpenAI deals that involve compute that has yet to come online, this is already live and ramping fast, set to be at full capacity by next year. Now this contract, which I'm told was months in the making, marks a clean break from Microsoft's oversight. Their right of first refusal expired last week, freeing up CEO Sam Altman to sign with Azure's biggest rival as the cloud wars enter their next phase. And for Amazon, which is on pace for its biggest back to back gain in three years, it's both capturing part of that OpenAI halo and it's proving that it remains the firm leader in the cloud, especially after notching more than 20% growth in its AWS business, its largest gain since 2022.
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B
Courtney, so interesting Mac and I was going to ask you about the timing of that and then you beat me to it about that first right of refusal expired, which then cleared the way. I mean, do we know if, if Microsoft really tried to come to, to the table and they just weren't able to compete with Amazon?
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C
Well, we already started to see this separation of that relationship. So in January, that's when Microsoft first lost its exclusivity to provide cloud services to open AI. And then after that we saw, you know, this loss of a right of first refusal. But remember, they also got a 250 billion dol dollar a guarantee that OpenAI will spend that on its Azure services. So they made out pretty well in that agreement last week.
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B
Yeah, this is, this is pretty amazing. I mean, when you look sort of at what Open Air may still need to do to power the compute more, I mean, how long can they sort of live with where they are now? And how much more of these deals are we going to see just pile.
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C
Up what they keep saying, what CEO Sam Altman continues to say is the fact that as, as soon as they are bringing new compute online, they're driving new revenue streams from it. And in fact there are products that able to launch because there isn't sufficient compute available. And that's part of why when I talked to CFO Sarah Fryer, she highlighted the Fact that really the bottleneck is finding, finding players were able to offer them that compute. That's why they're getting creative with financing. Equity is too expensive to hand out, they say. So they say, they say that they're looking at financial instruments that are unlike anything we've seen before. And Courtney, we just saw XI do some creative financing themselves with that special purpose vehicle using Nvidia chips as collateral in order to power their build out. So these names are doing everything they can to get COMPUTE online.
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B
It's, it's really incredible. Mac, if I were you, I would have to have like a big bulletin board and I have to have all these things and you know, like On A Beautiful Mind. Exactly. With all the connections. It's just wild stuff. Mackenzie, thank you so much. Well, meanwhile, as OpenAI does continue to diversify beyond Microsoft, as she's pointed out, Microsoft today announcing a round of its own cloud deals. The tech giant signing a $9.7 billion deal with Australian company Iron and a multibillion dollar deal with cloud startup Lambda. Let's discuss all of it with Low Tony, his founding managing partner at Plexo Capital. He's also a CNBC contributor. Low, it's so great to have you here. I mean, Mac went through everything that OpenAI is doing. Obviously now they are partnering up here with us for compute as Microsoft's right of first refusal expired. But it doesn't seem like Microsoft is going to be too poor off right now. They've obviously been making some of your own deals. Can you sort of size up where we are in this space right now? Is Amazon a clear winner over Microsoft or is there enough for everyone to eat at this table?
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I think there's enough for everyone to eat at the table. And you know, look, it does dilute Microsoft's exclusivity, but not the partnership itself. Microsoft remains the primary supplier and investor and this simply reduces concentration risk for OpenAI. And I think it also provides a signal of both the maturation of OpenAI as a company, but also strategic intent. And I would say that intent is clearly now to identify ways to control the entire vertical stack of AI along with this horizontal diversification of cloud.
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B
I mean, it's really so powerful to think of all the deals that Open Air has made. Does it also though, open up any risks for all of the players that are now sort of tangled up, happily or otherwise with OpenAI?
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D
Well, what I think we see when we try to balance is this more of a potential boom or a bust? This deal in and of itself Definitely tilts more towards the boom side, the ability to have access to more compute, which Sam has noted is the real constraint. So I think what you look for is signals around what that demand actually looks like and how it translates into revenue and ROI for both OpenAI and the other companies that are using AI. But I think again, I go back to this strategic intent, the ability for OpenAI to be a central player, where before they might have been seen as getting squeezed from Nvidia and then the application players. I mean, now this is starting to look more like OpenAI is using the Apple playbook and really owning the entire vertical stack. So the ability to do the deals at the chip layer, now we're seeing orchestration and diversification with these data centers. And you know, I think next what we look for is for Open Air to move up and do some exciting things at the application layer. And what all of this means is more control for Open Air along all of these different layers as well as increasing the margins by going after these different lines of business.
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Really fascinating stuff. We're showing a stock chart here and Oracle is down by about one and a half percent. I mean, is that because the market's viewing them as a loser in all of this today?
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You know, I don't think that there are any losers yet. Clearly Oracle has a lot happening right now, building out the Stargate data centers. And you know, that's going to require more energy, it's going to require more silicon, it's going to allow OpenAI to be able to do more with their models and again to be able to continue to move up that stack to the ultimate prize, which I believe is going to be the application layer. You know, what we may be seeing is we may be seeing this moment where we saw the Apple App Store. Right. I think what's really exciting is preparing for the demand as well as being ready for all of these wonderful applications that I think we're going to see at the application layer.
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How long do you think OpenAI can continue as a private company? I mean, at some point is it going to have to go public for the capital needs?
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Well, when we think about where all of the sources of capital are to fuel these, what could potentially be well over a trillion in the Beta center build out, we start to run out of deep pocket private investors. There's only but so much private capital. When you start to go out to the different regions, you go to the Gulf States, the Middle East. I think next will be a lot of the crossover investors like the Wellingtons. Of the world. And those are really the signs when a company is preparing to cross over into the public market. You know, I think Sam has even said he's very excited for the public to have access to be able to own open air shares. And at the end of the day, you know, I think we're looking at a multitrillion dollar market cap company and it probably will be the biggest IPO that we will have ever seen.
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That's exactly what I was thinking. My goodness, the market capitalization of that company if and when we do see that ipo. Thank you so much for joining us. Low Tony Plexio Capital, Flexio Capital and CNBC contributor. She tried to say thank you. Coming up, UBS sticking with stocks over bonds right now, but could the ongoing government shutdown derail the rally? We'll get the latest from Washington and ask the firm's global head of equities about her strategy. Plus, Palantir hitting an all time high ahead of its earnings. After the bell, the options market pricing in a 9% move in either direction. We'll look at what the Street's expecting and whether Palantir could have a pipeline problem on its hands. The exchange is back after this.
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Edu. Welcome back to the Exchange. Palantir hitting a new all time high ahead of its earnings. After the bell today, the stock has become very expensive with shares priced at 85 times sales over the next 12 months, making it by far the most expensive stock in the S&P 500. But between the ongoing government shutdown and potential peace agreements on the horizon, should investors be worried about Palantir's path forward? Seema Modi is at the New York Stock Exchange with a closer look. Hi Sima.
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Hey, Court. Well, the bar is set high. Wall street is expecting the company to deliver a 50% drop in quarterly revenue and a nearly 68% jump in earnings when the company reports earnings tonight, really fueled by what we've seen over the past year, which is a surge in defense spending here and overseas. Top of mind for analysts is going to be the government shutdown. How is that impacting the company's pipeline and fourth quarter guidance, demand for its software and ability to extend contracts? Palantir does make over half of its revenue from providing defense software to governments clients. And the other big topic is going to be international, which is slowly becoming a bigger source of revenue with countries like Israel, Poland, Ukraine using Palantir's data analytical software in counterterrorism efforts and then on commercial. Analysts will want to know if Palantir's boot camps where it trains clients on how to use its software is leading to faster adoption. Now, as you mentioned, the stock has been on fire this year, prompting investors to speculate whether CEO Alex Karp would entertain the idea of a stock split. Shares are now up 170% so far in 2025, the fifth best performing stock in the S&P 500. On the call, analysts will look for any color from CEO Alex Karp not just on the stock split, potentially if that happens, but also the latest deals with the Oracle Snowflake and that one that was announced with Nvidia CEO Jensen Huang last week.
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Court, very interesting stuff. Sima, thanks so much for the primer for what to watch for when those earnings come out after the bell. And my next guest is expecting big things from those results, but he does have a neutral rating on the stock and $170 price target. So for more, let's bring Gloria. He's head of technology research at DA Davidson. Thank you so much for joining us I guess, sort of give us your overall expectation for the print. I mean, do you think margins can hold up in that 80, 81% range? That's really impressive.
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Yeah.
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There's no reason to believe that they will not. This is a company growing revenue, 50% with 50% operating margins. Both are by far the best in the entire category. Palantir is the best software company and it's not even close. They are doing things that other companies have not been able to figure out how to do. They are helping companies with disparate data in a lot of different places bring that data together so those companies can build AI applications. They're doing it because they're not requiring their customers to cobble together a lot of different pieces of software and then hire a consultant to implement it, which is most of what other software companies are doing. They go to their customer and they tell them, we'll do it all for you, we'll help you from A to Z to get to the solution you want around AI. And nobody else has been able to do it, which is why they can charge the premium, keep these margins high and continue to win. And it started to self perpetuate. The more they win, the more their customers are showing up, the more partners they're getting and it's reinforcing their growth path. So we absolutely expect them to continue to have spectacular results.
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Well, nothing that you said there makes me understand why you have a neutral rating on the stock and you're holding it at 170 for the price target above 200 at this point.
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Because we're in unprecedented valuation territory, whether it's 85 times or 100 times revenue. We've never been at these levels for any company, including Palantir. So it's hard to say whether it should be 120 times revenue or 80 times revenue, 300 times earnings, 200 times earnings. So we stay away from that conversation. We're more focused on how well the company's going to do and are very clear about how highly we think of it without getting caught up on in valuation terms that again are almost nonsensical because the numbers are so unprecedented.
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So when we are looking at the businesses seem to sort of discuss some of the issues potentially with the government business. The commercial business is not as large, but certainly has a lot of opportunity there. So what are you expecting in the details when it comes to the government clients that they have as then as well as the commercial clients?
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Yeah. So the government is where a lot of the moving pieces are. The big picture is the US Armed forces and defense agencies are adopting Palantir's software at an unprecedented rate. Palantir does for them what they want to do. Instead of having to build the software themselves, Palantir does it for them. That's a constant that's been reinforced by this administration and the direction of the U.S. department of Defense over this last year. On the other side, you have a government shutdown that often slows down decisions. It slows down spending. We're going to have to watch for what they say about that. And even if they say it hasn't impacted them yet, at what point in a government shutdown do they start feeling it? And then the last piece is the smallest piece, but it could be impactful, which is this was a fiscal year end and because of all the moving pieces within the US Budget, there may have been a budget flush. They may have actually gotten paid a lot more by the end of September just because agencies knew they may not be able to spend in the new year or they may not get budgets in the new year and they wanted to spend ahead of time to reserve some services going forward. So all those moving pieces will interact. Again, long term the situation is very good. But in the short term there should be and could be some noise around that part. The U.S. government business.
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B
Very interesting. Well, before we let you go, I know that you had a meeting with the CFO of Palantir sort of to describe to you how AI has potentially changed its trajectory. Can you explain what you learned?
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Absolutely. That Palantir has been preparing for this for really for its entire existence. This situation where companies would value the ability to bring data together, would value a company coming in and solving all their problems and would value a very strong sense of mission and purpose that in the past maybe some of their commercial customers were hesitant about. Now everybody sees Palantir as a winner and is embracing that. And that's what our conversations with their customers have led us to believe as well. People want to be associated with a winner.
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B
Very interesting. Thank you so much for joining us. Giloria DA Davidson on Palantir, which shares her up going into that print today as they've been many of the days over the last year. Well, coming up, a check on the health of regional banks with the CEO of Texas based Colin Frost. Bankers will ask him what's pushing their mortgage lending business to record highs. The exchange is back right after this.
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Welcome back to the Exchange. The ongoing government shutdown is set to become the longest in history this week, topping the 2018-2019 closure. What will it take to get Congress to end the stalemate? Emily Wilkins is in Washington with the latest. Hi, Emily.
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G
Hey, Courtney. Well, look, some senators, they are optimistic that the shutdown could end this week, and that's because of a number of things, but there are three to really keep an eye on. First, of course, over the weekend, open enrollment began for millions of Americans who get their insurance through the Affordable Care act marketplace. The end of the tax credits for premiums this year means that the cost of those premiums is expected to double for millions of Americans. That's one thing to see how that pressures lawmakers. Second, we're seeing more ground stoppages at airports, Newark Airport, of course, being the latest as air traffic controllers and thousands of other government employees continue to go unpaid. And, and third, tomorrow is election day for governors races in New Jersey and Virginia. Now, some lawmakers I spoke with, like Virginia Senator Mark Warner, he said he was surprised at how little the shutdown seems to be having an impact. But Senator Lindsey Graham told us last week that everything it could all add up to getting the government reopened.
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A
A lot of things happened bad this weekend. I'm hoping next week, hopefully after the election, that we can get the government back open talking about our differences on health care.
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G
We gotta mention another pressure point in the shutdown, that funding for SNAP running out. That is set to be at least partially alleviated. The Trump administration announced this afternoon that they would be using a contingency fund to partially fund the program for this month. Still, when the Senate votes for the 14th time today to reopen the government, we're not expecting anything to change, at least not today. Courtney.
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B
Wow. A lot of interesting things here to talk about, but I would love to go back to your point about snap. I know we were talking about it a bit last week, and then Treasury, Treasury Secretary Scott Bessant made that point over the weekend that they were going to look into things. But last week I believe we thought that the USDA had said, no, we can't do this. So can you explain the mechanism? What is the emergency funding? How would it work? Is it definitely going to happen now for all the people that really, quite frankly, need this program?
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G
Courtney, we're still getting some details on exactly what the mechanisms are going to be here. It does sound like they are going to be able to use that contingency fund to partially fund the program. There's not enough money in that fund to do a full funding of what they would need for snap. I think also a question right now is exactly the amount of time that it could take. I think Scott Bessant mentioned that funding he hoped could go out by Wednesday. We have also been seeing some reports saying it could take take a little bit longer than that. And of course, for those who rely on the SNAP food program, that is all going to add pressure to them. That's going to add pressure to food banks who are already under pressure because of federal employees. So it's all really adding up the longer the shutdown's going.
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B
And then, Emily, if I could, I know it's not directly related, but just in the psychology of the American voter, with voting day obviously coming tomorrow, knowing that the government is shut down, I mean, has there ever been any studies or anyone that's sort of trying to say, well, you know, the longer this goes on, the longer Americans are going to be frustrated and maybe that could impact turnout at polls. I mean, do we know if there's any connection there, Courtney?
- [28:54]
G
It will be really interesting to see because as you pointed out, you know, the past number of longest shutdowns that we've had, they've occurred right after Election Day. So this will kind of be a new situation for us. One thing, though, I was really interested to see over the weekend, when it comes to how voters and Americans are feeling, NBC did put out a new poll. They looked at a number of different things, including who is to blame for the shutdown. And a Number of Americans, 52% they are blaming Trump and Republicans versus 42% who are blaming Democrats. And that's somewhat similar to what we saw at the start of this shutdown. It is a reason that maybe if both sides might feel comfortable continuing it for a few more days or a few more weeks even if you can't find an off ramp that both parties can agree to.
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B
Wow. Emily, thank you so much for bringing us the latest there. Now to Brian Sullivan for a CNBC news update. Hi, Brian.
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Hey, Courtney. Three days after the FBI announced their arrests on social media over an alleged Halloween terror plot, two Detroit area men are charged with attempting to transfer firearms and ammunition to commit terrorism.
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In a social media post, Attorney General.
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Pam Bondi wrote that the charges reveal a major ISIS linked terror plot. An attorney for one of the defendants.
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Told the Associated Press over the weekend that the plot never existed. Defense Secretary Pete Hegseth visited the demilitarized.
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Zone along South Korea's border with the North Korea today. Head OF Talks about reshaping the role of US Troops in the region.
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US has signaled an openness to making US Forces on the Korean peninsula more.
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Flexible in response to other threats, including China's growing military reach.
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And billionaire philanthropist Mackenzie Scott, the ex.
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Wife of Amazon founder Jeff Bezos just.
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Donated $80 million to Howard University and $38 million more to Spellman College.
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Howard says part of the money will be used to train more medical professionals, while Spelman says it will expand financial aid and invest in infrastructure.
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Big donations there.
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Courtney, back to you.
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B
Yeah, she's quite the impressive philanthropist. Brian, thank you very much. Coming up, the NASDAQ coming off its seventh straight month of gains, its best streak in eight years. But can that record rally continue? Last UBS Global Head of Equities. That's next. We're back right after this. Welcome back to the Exchange. The S&P 500 just posted its sixth consecutive monthly gain in October, but the number of decliners outnumbered advancers last month, suggesting a potential problem ahead. But my next guest says the bull market has more room to run. Investors should position accordingly. Joining me now is Ulrike Hoffman Bercerty. She is chief investment officer, Americas and global Head of Equities at UBS Global Wealth Management. Thank you so much for joining us. I mean, there's so much to talk about in the markets, but because we have yet another deal in the air, open air space, this time with us Amazon, I'd love to talk about how that sort of underpins the idea of technology powering the economy. Do you think that this can continue at this rate?
- [31:51]
H
Well, I think it's a great observation. I think first of all, I think the market and also tech overall, that AI trade that has underpinned the incredible run in the S and P is now More and more tethered to the success of OpenAI. It is committed 1.4 trillion in infrastructure spend over the next years. And all those expenses need to be balanced with income. So I think the key question now for the market will be how and how quickly will OpenAI monetize to be able to pay for those infrastructure expenses?
- [32:23]
B
And so if you're looking to be a beneficiary of some of this, Open Air obviously is not yet a publicly traded stock. You cannot buy shares of that. It seems like they're investing in many, many other players that are hyperscalers or, or you name it, really. Anyone that touches the AI trade, do you have advice for investors?
- [32:39]
H
Well, look, OpenAI has already amassed one of the key and critical resources to win this game, which is consumer attention. It has amassed 800 million weekly average users, and that can obviously be monetized relatively easily through subscriptions, through API usage and so forth. So I think that is the key metric to watch. And likely that monetization will come at the expense of some other consumer digital platforms, because you know that that money that spend has to come from somewhere. It's not all going to be incremental spent.
- [33:11]
B
But you don't think this is any kind of a bubble like we've seen before? There's so much discussion about is this an AI bubble, Is it going to burst? What are the risks? Knowing how interconnected all these players are starting to be this circular idea. Yeah.
- [33:25]
H
So whether it's a bubble or whether we are in a high valuation environment, I think is largely definitional. Then valuations are high. I think one thing is key, and that is tighter risk management. You have to be much more focused on the fundamentals because markets don't correct just because of high valuations. They correct because fundamentals disappoint. And again, I think we are on the verge of now changing from the first phase of AI where it was all about everybody is going to win and the promise of AI more towards this second stage of AI where we're going to ask what is the proof that works and who can actually win?
- [34:00]
B
Sure. Exactly. That's sort of the show me story. Right? We really need to see that. I'd love to get your take on what's going on with the government shutdown and how that may be influencing maybe less markets, but maybe more. More the economy or more what the Federal Reserve is able to see and what they're not. As Jerome Powell described it, like driving through a fog. You have to slow down. We're now almost at the longest shutdown we've ever seen this week. We'll hit that if we still stay here. How impactful is that to the markets in the economy?
- [34:29]
H
Yeah, the Congressional Budget Office has estimated it costs us, in terms of unrecoverable economic losses, $250 million a day. So the pressure is mounting and our hope is now that President Trump is back from Asia, that his focus returns to domestic policy and that we may in fact get a resolution maybe as early as this week, but hopefully before Thanksgiving.
- [34:52]
B
So many pressure points there, of course. And Emily Wilkins was talking about how open enrollment has begun. How many Americans are going to see those premiums go higher. Health care is an area that you're actually interested in. Can you explain what you like about health care?
- [35:06]
H
Yeah, first of all, it's actually been one of the sectors that has done best this earnings season, at least from a beat ratio perspective. Nine out of 10 health care companies in the US beat expectations and especially pharma in the areas of next gen immunology, in obesity, and also in oncology. All those companies have beaten expectations. And again, we have seen that some of the policy headwinds that have been with us were at least partially addressed in the Pfizer deal, the most favored nation pricing, and also the tariff. So we think that now is a much better setup. And ultimately we think that also health care is going to be one of the biggest beneficiaries from AI. We think that the costs of bringing a drug to market have increased so enormously over the last decades, more than 10x over the last 10 or so years. So if AI can help reduce the cost of bringing a drug to market, from discovery all the way to clinical trials, I think that may bring again more fantasy back into what could operating margins look like?
- [36:10]
B
And yet amazing. That would be so wonderful. I really help influence outcomes in health care for the good. I think that would be so powerful for all of us.
- [36:19]
H
And it's a nice diversifier for the AI trade in the public markets because we've seen on the days where the AI trade has been down, health care actually has been up. So empirically a diversifier, yet a beneficiary.
- [36:30]
I
Yeah, a.
- [36:30]
B
Before we let you go, obviously a lot of focus on the United States or here in the United States, but you do have expertise internationally. Is there something globally that you think we need to be paying attention to? Opportunities perhaps outside the United States?
- [36:43]
H
Yeah, we like China Tech. We have liked it for some time. Again, China has now become the leader in open source AI. When you look at the leaderboards. So that's certainly something that we think will drive productivity growth for the economy over time. Time. But we also like Japan. We recently upgraded Japan. We think now it's a story not just of self help but also of macro help. You know, finally we see wage inflation, we see shareholder focus. And yet the BOJ is only normalizing rates. So that's an attractive setup for us as well.
- [37:16]
B
Very interesting conversation. Eureka. Thank you so much for joining us. Very good stuff. Well, coming up we have election day tomorrow as we previously discussed. And we are going to look at the Mom Dhumi effect effect on New York's Muni bonds. And we're watching shares of Pure mining down more than 12% after announcing it will acquire new gold. And an all stock deal valuing the Canadian miner around 7 billion pure on pace for its worst day in about two weeks. While new gold shares are also lower by about a percent. Welcome back to the exchange markets. Right now our mix NASDAQ composite is higher by 7.10of a percent. Leading the way, S&P 500 is up by a third of a percent. The Dow Jones Industrials though down by 4.10of a percent. IDEX Labs best performer in the S and P today hitting an all time high after better than expected results. The pet health care firm raising its full year forecast and strong demand for testing. On the flip side, contour brands plunging 9% after posting mixed quarterly results. The apparel company it owns, Jean Brands you might know like Lee Wrangler beating the Street's estimates on earnings but missing on revenue. Also raising its full year earnings guidance thanks in part to the recent acquisition of Helly Hansen. But looking ahead to next year, Contour says it expects to see a bigger impact from tariffs coming up, Colin Frost Bankers among the worst performers in the region, the bank ETF today. But the Texas bank recently raised guidance for the third time this year and DA Davidson says it continues to take market share from larger banks. We'll talk to Frost Bank CEO Phil Green. That's next. The exchange will be right back. Treasury Secretary Scott Besant pushing for the Fed to accelerate interest rate cuts, saying parts of the US Economy and housing in particular may already be in a recession. But higher rates, not holding back mortgage lending at Frostbank. Colin Frost Bankers, the holding company of the Texas regional bank posted record lending activity in the third quarter. Joining me now is Phil Green, chairman and CEO of Cullen Frost Bankers. Thank you so much for joining us here. You know, I understand you're located in Texas and sometimes Texas can Sort of operate in different, in different ways in different areas of the country. So can you explain to us with real estate, of course we know is very local, what is going on when it comes to mortgage lending for you all?
- [39:34]
F
Well, thanks for having me, Courtney. It's been, it's great to be with you here today. You know, it's interesting to see what's happening with mortgage lending. We, as you mentioned, we've had really great activity going into the quarter. And one of the things that's happened is that rates have reached an inflection point, I think where we're seeing people not only buying new homes, but almost half of our activity is from refi activity today. Getting people that were in those arms before that are starting to come to maturity and you're seeing that rate change. And if you see a five handle on rates, we've got a 575 for example, on the conventional mortgage you're getting, people take that rate. So we're starting to see that happen as rates have come down, people are taking advantage of that for refi's and also purchases. We're also seeing that in the home equity lending as well as, hmm.
- [40:22]
B
What about sort of other areas of investment in lending that your bank deals with? What is the Texas consumer feeling right now when it comes to making bigger investments maybe beyond the home?
- [40:34]
F
You know, I think that the, there's a bifurcation with regard to the consumer today. I think the, the middle to low income segment of the consumer is, is really careful today. Continue to be careful. People, they're spending on core, but they are being really careful on some of the discretionary items. When you look at the high income consumer, we're still seeing good activity from them, good activity and automobile purchases and those kinds of things. So it's, it is a bifurcated market today.
- [41:05]
B
So you talked before about when you see potentially a five handle on mortgage rates like a five and three quarters, that maybe that changes things. What are your expectations or the bank's expectations forward rates will be, say over the course of the next year? I know obviously some central bankers are hoping for bigger cuts while others still aren't sure because of the lack of data that we have right now with the government shutdown. What is your expectations for where rates will be and then how are you operating your business as a result?
- [41:34]
F
Well, you know, I wish I knew exactly and I'd be right now, but I think that we're expecting for the Fed to continue to respond to what's going on in the economy as they see it. And you're right, we don't have quite as many data points, but I think one of the things that, that they responded to before, and I think one thing that businesses are hoping they respond to is there's a little bit of developing softness in the labor market. And I think, you know, as I said before, asset prices are one thing, but when you're dealing with labor, you're dealing with people, you're dealing with families. And so hopefully we'll see them respond to that and, and follow along as they see the economy slowing, lowering rates.
- [42:15]
B
You know, there's been some consolidation in the regional bank space. Where do you all sit with that?
- [42:21]
F
Well, we're, we're innocent bystanders. We are seeing it happen. It's not something that we're interested in, where we are growing organically. In fact, we've increased our number of physical locations by 50% over the last five years and in great Texas markets. So that's really how we've chosen to address expansion, is doing it organically. But you know, I'm only half kidding when I say we're bystanders because dislocations happen when mergers happen. Right. And we were ready to take advantage of those customers who might feel like they're disenfranchised or they may be ready for a change. And frankly, some of those bankers that might feel the same way. So we're keeping a sharp eye out for that.
- [43:04]
B
Very interesting. It is an interesting space to continue to watch. Phil Green with Cullen Frost Bankers. Thank you very much for joining us here today on the Exchange. Well, coming up, Democratic socialist Zoran Mamdani has big plans to address affordability in New York City. And while those plans come with a high price tag, the New York State muni bond ETF is up 3% since he clinched that nomination back in June. So what Mandami as mayor could mean for the muni market in the long term, that's coming up next. Welcome back to the Exchange. New York City residents head to the polls tomorrow to vote for a new mayor. Front runner Zoran Mamdani has suggested increasing taxes and taking on more debt. Debt to tackle inequity issues, quality issues. Leslie Becker joins me now with a look at what the Democratic nominee's agenda means for the muni bond market. Leslie, this is an interesting story, and I hadn't really thought all this through.
- [43:54]
I
Yeah, it's all just about the credit health of New York City. Following this front runner and his proposals so far, it really hasn't created many Tremors in the muni market. Despite some of his proposed policies, the iShares New York Muni Bond ETF, which comprises both state and local holdings, well, that's basically up about 3% since Mamdani's primary win. And that's because, as a recent report by investment manager GW&K put it, New York is, quote, uniquely protected from fiscally questionable plans, regardless of their popularity, by a set of guardrails that have existed for decades. For example, state law and city charter rules require NYC's budget to be balanced and the fiscal health is monitored by the New York State Financial Control Board. In order to spend more, Mamdani will need to hike corporate or personal income taxes, which he's proposed. But both the New York Governor and state legislature have been skeptical, and any changes to revenue sources require state approval. Lastly, Mamdani's plan proposes $70 billion in new borrowing for affordable housing. But the state has a constitutional debt limit and New York city only has $42 billion in available capacity. As New York Life Investments noted in a recent report, quote, combined with a return to population growth, stabilizing real estate fundamentals and rising revenues, these guardrails provide confidence that the city is well positioned to navigate economic and political shift shifts. The firm said any spread widening post election would be an opportunity to increase portfolio allocations to New York City munis.
- [45:34]
B
There's just so much to think about with the different proposals that he has put out there. Lastly, I mean, what happens if a lot of people leave?
- [45:42]
I
That's the big question right now. As you heard from New York Life, they're thrilled by the population growth. The commercial real estate fundamentals are doing a lot better post Covid. But that calculation changes. If there's this mass exodus out of New York as has been kind of publicly threatened by some very prominent people, what does that do to the revenue source? Because as we just talked about, the state budget or the city budget has to be balanced. They're mandated for that. And so if you see revenue sources decline, then you have to cut spending programs as well. So that creates more of a vicious cycle there. But in terms of just the fiscal controls of population growth in and the fundamentals of the city are steady, then there's not really too much that can be done at the city level that really changes the equation.
- [46:30]
B
It's really interesting. I think New York City has changed in a lot of ways post Covid. But then maybe there are some things that are coming back, like the population that you're talking about. But still, obviously These could be pretty big numbers that we're talking about if it happens. And so some prominent. It takes one or two big prominent folks, right, to make a big debt. Like when Citadel founder Ken Griffin decided to decided to leave Illinois, for example, and move his firm to Florida if crime skyrockets.
- [46:54]
I
And I mean, people are nervous about 1970s and kind of what happened there, right?
- [46:59]
B
Exactly. Leslie, thank you so much. Really interesting take on this story. That is it for us. Thank you for watching the Exchange. Power Lunch starts right now. You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time, same place.
- [47:14]
A
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