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Market Highs, Memory Mania & Playing Defense 1/7/25
00:43:38
A bearish strategist emerges as the Dow and S&P 500 both hit record highs. Memory chips are on a tear as Nvidia's CEO calls it a "completely underserved market." Plus, defense climbs to an all-time high amid geopolitical tensions.
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D
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C
Scott, thank you very much. Oil prices are falling today. We've had some new highs for the market this morning. And are some of the darlings losing their shine? We'll talk about all of that today. Welcome to the Exchange. I'm Kelly Evans. The Dow in the S and P hitting fresh highs to kick off the session before pulling back this hour. The Dow and the Russell's have dipped negative. The strongest performer is still the NASDAQ up 2/3 of 1%. And that's despite the memory stocks taking a breather after yesterday's staggering moves. Western Digital giving up about 10% of that. Seagate and Sandisk are all also lower. Intel's up nicely though. It's leading the S and P with a gain of nearly 7%, biggest in a couple of months time. And we're also, of course, keeping an eye on the energy complex. Oil is down about 2% today. It's about $55 a barrel amid news that Venezuela will ship sanctioned oil to the US Indefinitely. That news also benefiting the refiners with Valero still up about 3%. And that's where we begin today with our Brian Sullivan who broke that very news for us this morning, and Eamon Javers in Washington. Good afternoon to both of you. Brian kick things off?
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E
Yeah.
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A
Well, you're seeing Valero move, Kelly, because Valero is seen as one of the companies that can process more Venezuelan crude oil. Remember, the crude oil that comes out of Venezuela is kind of thick. It's called heavy sour crude takes a specialist type of refining. Valero does that very well. So the idea in the marketplace is that Valero may see more input, more oil and thus make more money. Here's the news last night on social media. The president saying that they were going to take the United States, going to get or take whatever word you want to use, 30 to 50 million barrels of Venezuelan oil, which we would then process, sell into the open market, keep the money in a bank and basically then give it back to Venezuela at some point. And my reporting this morning was that 30 to 50 million just to start, that this is going to continue indefinitely. Now I want to go through some of the quick oil math. This is sanctioned oil. So Venezuela is doing 900,000 barrels a day. One third roughly is sanctioned. That's 300,000 barrels a day. So to get to 30 million barrels is what roughly? It's a long time. It's months and months and months. So this is not going to be some quick grab of Venezuelan oil. This is going to take a long time. The question here at the Goldman Sachs energy conference and the people we're speaking with and the Secretary of Energy he will speak with in just about one hour's time on Power Lunch, the question is, number one, why? We'll talk about that. But number two, how much energy and oil can you actually get from Venezuela? Could you meaningfully ramp up Venezuela processing? And would any US Companies go into Venezuela anytime soon? As I have reported for the last few days, Kelly, as you know, the answer to that question is largely no. It's not like tomorrow US Companies are going to say, okay, guess what, we're going to go into Venezuela, which is still relatively unstable. There's a lot of safety concerns. They actually don't even really know who's kind of in charge of Venezuela at this point. Here's the carrot and here's the stick. The President and I'm sure Eamon will touch on this, will meet with energy executives Friday at the White House around 2pm the discussion is likely, my sources tell me discussion is likely to fall around this. Basically what would it take to get a ConocoPhillips to get an ExxonMobil to get another US oil company to go back in to Venezuela? It's going to likely take not only obviously more oil, but probably some hefty tax breaks or some kind of financial inducement. Whether or not, by the way, with ConocoPhillips that involves getting back some of the 9 billion that they're owed from the government of Venezuela in a near 20 year lawsuit. So there is your basic setup. I know there's a lot there Kelly, the secretary of energy will join us live and exclusively in about one hour's time. There is a lot going on and still I want to be clear, a lot of questions about how this ultimately plays out.
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C
Right. And Brian, we see the price of oil falling on this news and that's good news for U.S. consumers. But again, it kind of makes life more complicated for the very producers the US Is counting on to help them out on the Venezuela front.
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A
Yeah, I think it's a good question. One will probably get you with the energy secretary, which is the Trump doctrine on energy and inflation. Is that because energy is such a huge input cost to so many things, it can adjust inflation up or down, you want to bring the cost of oil down. So the price of gasoline's at, you know, two and a quarter in many parts of the United States, but you don't want to bring the price of oil down so low that I think to your point, Kelly, it induces or forces some US Oil companies to say it's just not economically feasible for us to take more oil out of the ground at whatever, 35, 40 bucks per barrel. And so we're going to lay people off, we're going to slow the industry. Texas has been the economic engine in large part of the United States. This is, of course, the most energy, you know, sort of invested state. I don't think Trump and his allies would want to do anything to jeopardize Texas or the US Economy. It's a fine line, right?
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C
No, it's like we love your industry so much. We want more of what you do, but at cheaper prices. And hopefully you guys can figure that out. It's true, Brian, really appreciate, appreciate it. Great stuff this morning. Of course, we'll see a lot more next hour. Brian Sullivan standing by in Florida. Let's get to Eamon Javors for the very latest out of the White House on a busy day. Eamon, as questions also continue to swirl about what the moves in Venezuela mean for any potential action in Denmark and Greenland and other parts of the world.
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E
Yeah, real open questions there, Kelly. What we heard from Caroline Levitt, the White House press secretary, just a short time ago here at the White House was a rundown of some of the mechanics of how this transfer of oil from Venezuela to the United States will actually work. Here's what she had to say.
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C
The interim authorities have agreed to release that oil to the United States. So it will be arriving here at home very soon. The United States government has already begun marketing Venezuelan crude oil in the Globit marketplace for the benefit of the United States, engaged the world's leading commodity marketers, key banks, to execute and provide financial support for these crude oil and crude product sales. All proceeds from the sale of Venezuelan crude oil and products will first settle in U.S. controlled accounts at globally recognized banks to guarantee the legitimacy and integrity of the ultimate distribution of proceeds.
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E
So a couple of questions that we're still looking for answers for here. One is the big one, which is what is this a payment for? That is, did the United States agree to anything in exchange for this oil, or is this just a transfer of oil wealth from Venezuela to the United States as a result of that military action? And then a couple of other follow on questions, including in terms of the proceeds from this oil, what you heard the press secretary there saying is that those proceeds will be distributed based on decisions made by the US Government. So the big question is, where's the money going to go? Who's it going to go to and on what basis and how much? So all of that, you know, still TBD here at the White House as we try to get a little bit more clarity on exactly how all of this is going to work. Kelly?
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C
Yeah, fair enough, Eamon. We appreciate it very much. For now, Eamon Javers, we'll stay in Washington because there's been more breaking news just in the last few moments. This time it's on the housing front on a hugely controversial story over the years that's had at times various different parts of the world giving it political support. Anyway, Diana Olich, what can you tell us? Yeah, Kelly, the stocks of the owners of institutional owners of single family rental homes have just been taking a huge hit because President Trump just posted on social media that record high inflation has pushed Americans out of the dream of homeownership, especially younger Americans. And he said it is for that reason and much more that I am immediately taking steps to ban large institutional investors from buying more single family homes. And I will be calling on Congress to codify it to people live in homes, not corporations. I will discuss this topic, including further housing and affordability proposals and more at my speech in Davos in two weeks. Now, the key in that statement is that he would need Congress to pass something like that. But it's important to note large institutional investors and the biggest names are Invitation Homes, American Homes for Rent and Progress Residential. It should be known they own less than 5% of all single family rental homes in the U.S. they are concentrated in certain markets which can push buyers out in those area. But but the vast Majority of rental homes are owned by small to mid sized landlords, mom and pop shops. But again, you can see those stocks are taking a huge hit on that. Kelly. Yeah, down 5, 6%. So Diana, this was a post on Truth Social, so we'll wait more detail, I imagine. I mean private equity obviously has a huge component of this and they've had a lot of, you know, friendly policies from the administration, including things like changing who can access them, trying to get them into 401k plans and so forth. Nevertheless, this shows you the administration is doing anything it can. I'm sure it's had 30 different proposals for how it can lower housing prices. They've probably heard 50 year mortgage. We hear various reasons why that wouldn't make much of a difference. Build more supply. Well, I guess that's hard to do, you know, change the capital gains tax. But they seem to be choosing of all things, this one, and we'll see how much a difference that makes. But they're not necessarily choosing just this one, Kelly. Look, they went after the builders in December and you may remember that when he said that he was going to force the builders to build more homes and he was calling them all to Washington to do that and he did call many of the CEOs of the big public homebuilders of their stocks, took a hit as well on that. But then nothing came of it because they found like what could Fannie and Freddie, which is what he wanted them to do, what could they do to spur more homebuilding? Not they're in the mortgage market, so could you lower mortgage rates and get more demand and that would help them build more homes? But again, it's all in the details and right now the details are very scarce. How would you get these large institutional investors to stop buying homes? It would take an act of Congress or something. But remember, these are very big companies with very strong ties to the administration, especially when you talk about something like Blackstone, which owns Single Family Rentals. Yeah. By the way, we're showing shares of Rocket Zillow, some of the mortgage companies higher. And I guess, Diana, what they perceive to be a potentially influx of retail demand into a market that, you know, the institution, I think that's quote had. Yeah, I'd say that's a stretch. Well, we'll see. Nevertheless, probably more to come still on this front. We'll leave it there for now. Diana. Diana thanks, Diana. Olek, let's turn our attention back to the broader markets which have been shrugging off any larger headline risks, whether it's from Venezuela with the Dow and the S and P touching fresh record highs this morning. And let's bring in David Servos. He's Jefferies chief market strategist and a CNBC contributor. David, it's great to have you here today because a lot of folks feel like this market is getting ahead of itself, you know, to use that tried and true phrase. What do you think are the ingredients for it to continue to do well this year, to continue building on the gains that we've already seen? And why are we still so strong right out of the gate?
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D
Well, Kelly, happy New Year, first of all. And let me just say I think the two topics that you started the show with and that have been dominating all the, all the, all the shows this morning on CNBC are two of the big macro drivers that I think are propelling this market. One is housing reform, which I think is going to be a very big part of the administration's policy to tackle affordability. And a lot of that's going to center on interest rates, but also on the types of things we just saw with a single family home announcement and energy. If, if this president, if our president can, can get house prices more affordable, get interest rates down and get gas prices down, there's going to be a much different outcome or much more likely to be a different outcome in November for the Republican Party than if those were to to go in the other direction. Imagine gas at 350 to $4 or higher and interest rates up 50 to 75 basis points at the long end and mortgages following suit. That would not be a good storyline for come November. The opposite is what they're shooting for. And I think that's why there's so much focus on Venezuelan energy policy and so much focus on the housing policy. I think those are the two pillars that are really the keys to the election and that's why we're seeing them in focus.
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C
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D
And I think the market likes, you.
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C
Know, on the jobs report day, which we're going to get Friday. We got ADP this morning. How would you position for this? I mean let's go to, you know, your bread and butter and I can't wait for to get it. I want to get into the red, white and spoons trade but let me just set it up in the following way. What does the market want? We all want the jobs market to recover, to continue if it's too strong. I understand that might pose a little bit of a risk to, you know, to what we're talking about here with rates and everything. So what do you think we kind of what would be the best possible news on the labor market front right now?
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D
Well, I think for the markets a lot of strength is going to be a little bit disconcerting. So I don't think the market's going to love a blowout payrolls and it would be an unlikely storyline because we have seen a pretty significant deceleration. And frankly, Kelly, this has been happening now for years since 2023, we've seen the unemployment rate rising. It's over a percentage point above its lows of the beginning of 2023. And I think the market and the policymakers are kind of not focusing enough on that. I heard Jim Bullard say this morning, oh, you know, four and a half to four, six. That's kind of neutral. Well, you know what, you have a maximum employment and price stability mandate. We were at three and a half three years ago and I think it's. Or at least two years ago. I think actually three years ago. I think that the story is why can't we be at three and a half. We should be. We were there in 2019 and the Fed is playing, I think fast and loose with the inflation story. I think the market's a little over obsessed with the inflation story. And so I'm a little upset with where the debate is between inflation and unemployment. I don't think we can just leave millions of jobs on the table and I don't think we should. Yeah. And think we are. And a lot of it's coming from productivity gains in technology and that's a great Thing, but it's not great for those that are losing their jobs fast.
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But let me get now to what's fascinating. So, so that people know the backstory here. You've had this famous kind of booze and blues trade for, I don't know, it must be a decade now, which is you own the S&P 500, you own bonds and you can do quite well. Just look at last year for example. But I think this is fascinating and it gets into what we're talking about with mortgage rates. Your confidence is shifting to the front end of the curve, meaning maybe this is the year to own the S&P 500 in shorter term rates on lower Fed rates. But that the long and the treasuries, the 10 year that we always talk about may not fall that much, which is a problem. Right, for, for a lot of reasons. But I thought it was really interesting you're making that pivot. I love the name of the trade, obviously from patriotic point of view, but what you're really saying is that long bonds may not fall that much in yield.
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D
Well, remember why we, we own, we do this trade where we have the leveraged long in the fixed income. It's not a 6040 portfolio. It's a 100% of your assets are in stocks and you're levered. And then you have a bond portfolio that's also levered that has the same volatility as that stock portfolio is a pretty levered position that we've generally been recommending for well over a decade. Has done very well. I think the point is, remember the fixed income is there to insure you and the insurance is really going to come from the Fed and the lowering of rates. If there is a geopolitical storm, if there is some sort of major setback in the economy for whatever reason, I think the Fed's trigger finger is much itchier say than it was even a year or two years ago. And that means the front end is really going to perform for you. And it might be that the long end doesn't perform initially because people get a little nervous if they take some risk with inflation. So I think from an insurance perspective of what the fixed income leg of that trade does, the short end is better this year. The long end. The short end by the way, was better last year. I wish I would have been in the trade last year. We true, we ate about 6% on our fixed income hedges last year. We could have made 10 if I would have been in this version of it. So I gave up 4%. But you know, hey, we had a good year. We had a 24% year. So I'm happy. The bottom line with the trade is this is going to be a fed that is more likely to act and it's going to be in the event of some sort of need to act. And I think there's a general story that is also we're bringing the neutral rate discussion much more into focus and that, you know, my belief, I've been saying it for a while now, I just think neutral is kind of more closer to 2 than it is to 3. So I think to win there.
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C
All right. Well, you've got the red shirt on to honor the trade. I know it's wonky, but if you can't talk about it here, where are you talking about? Dave, thanks very much. Appreciate you making the time.
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D
Always a pleasure.
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C
David Zervos with Jefferies. Coming up, the Dow and S and P hitting new all time highs. But our strategist is turning bearish on stocks. Oh yes, and says it's time to buy commodities. Well, it seems like it. But he's also warring warning of a Chuck Norris premium in the markets. We'll ask him what he means by that. First though, the memory stocks on a tear to start the year, sparking a global rally in the semi space. We mentioned intel surging 8% today. SanDisk is still up nearly 50% in a week despite today's pullback. We'll talk about whether that rally can keep going right after this. This is the exchange on cnbc. Is it time to reimagine your future? The right business skills may make a difference in your career. At Capella University, we offer a relevant education that's designed to focus on what you need to know in the business world. We'll teach professional skills to help you pursue your goals like business management, strategic planning and effective communication. And you can apply these skills right away. A different future is closer than you think with Capella University. Learn more at capella. Edu. What made you confident that you could do something that hadn't been done before? I have no fear of failure. Trailblazing women, changing the game. One of my favorite pieces of advice, think about what your boss's boss needs. Leadership can look in many, many different forms. It really does come down to just trusting yourself. Life is short and you just gotta think big to accomplish big things. Julia Boorstin hosts CNBC Changemakers and Power Players New episodes every Tuesday, wherever you get your podcasts. The AI race has largely been dominated by the big hyperscalers and the chip companies. But there may be a new trade in town. Memory stocks like Micron, Sandisk, Western Digital and Seagate all up sharply to start the year as demand for high performance memory and storage surges. Nvidia CEO Jensen Huang even giving them a shout out calling memory a completely unserved market at this year's ces. So is this the next leg of the trade or was it already? Are they trading ahead of fundamentals? Perhaps, let's ask Mehdi Hosseini, he's the senior analyst at Susquehanna. Mehdi, welcome. Such a hot space. I mean they are though traditionally cyclical. Does it, does it matter right now? Do you worry about that in a couple of years time?
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B
I don't think we have a reference point. Over the past 20 years memory has been a kind of famine or feast in a six month frequency and it was pretty much driven by smartphone cycle. Now we're in a different paradigm shift. Over the past 18 months we have been highlighting the importance of DRAM and as as of last Monday night, here we are. We don't have enough storage and as Jensen highlighted, we do need a lot of storage. As more tokens are created, we need to store them and move the data around and storage becomes very critical. I think when you think about the big picture, when you look at these very expensive aircrafts, sooner than later, over the next 12 months the cost of memory, including storage, including DRAM is going to account for more than the compute. So as much as dram, sorry, as much as we talk about the compute, either GPU or cpu, sooner than later, your DRAM or your caching storage is going to account for more. And this is the reality that is coming to the market. Manufacturers are not ready. For the past 20 years we have been spending a lot and waiting for prices to adjust. And now given the secular trends, everybody is kind of confused as to how to plan and prices are going, going up more than anticipated. And the next, the next question is, well, how quickly can we add capacity? Keep in mind it took two years to add incremental capacity and I think maybe on Monday somebody told Jensen or reminded him we need more memory, we need more storage.
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C
Not just that many, but as I understand it, the Korea Economic Daily reported that SK Hynix and Samsung were going to raise prices 60 to 70% this quarter versus the fourth quarter. So it's not just Jensen Huang talking about this. Who pays that bill when you say that the memory is going to cost literally more than the compute, is it Nvidia paying that Memory cost, Is it the data center, is it the client?
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B
Well, that's a different debate. Just back to your point. Prices are going up but sooner than later we're going to run out of physical space to make the memory chips. And this is where these memory manufacturers have to decide and Jensen has to make a commitment that yes, we need to spend billions of dollars to build the factories that make the memory chips. As to your question, I think 26 is going to be who is going to preserve and expand margins? Is it going to be the memory guys? They're going to be Jensen, Nvidia, is it going to be TSM or is it going to be Dell, HP and so forth? Who can be a squeeze to extract more margins? I think given the underlying assumption that memory is going to be the bottleneck, I think memory guys should be able to maintain or expand margin. TSMC as the only foundry should be able to do the same. As to who, who is going to deal with extra costs is going to be a debate between Jensen and the rest of the supply chain.
- [24:09]
C
The reason I ask is because when we see a data, when we see the, you know, the stocks up 40% in a day, when you see they're raising prices by 70% whose margin is that coming out of?
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B
We're going to find out soon. I think if you think about the DRAM or hbm, DRAM is, is, is purchased by Nvidia or AMD or Broadcom. So they have to deal with the 70% gross margin associated with high bandwidth memory. When it comes to a storage that suddenly has, has taken a center stage. Well, it's not necessarily in video. I think the guys who build the rack, the guys who have to combine the A compute with storage and networking have to deal with higher prices. Look at Supermicro, Dell, HP, all of these guys are really struggling with a 5 to 10% gross margin.
- [24:56]
C
Yeah.
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B
So if they want more billions of revenue they have to deal with lower gross margin. Just to finish that. I think the business plan as of right now is for those ODMs and OEM, bring the volume and deal with a very low gross margin.
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C
Exactly.
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B
The guys, we're going to be paying the incremental costs.
- [25:14]
C
It's fascinating. I just want the audience to know as well if they're saying, well everything he's saying, what do I do? And you increase your estimates for all of them for Micron, for Sam Sung, Sanders, sk Hynix. So you think this keeps going. Just be sure to come back and ring the bell. Medi, when it stops.
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A
Sure.
- [25:29]
C
He's like, we've got time. Many Hosseini of Susquehanna really appreciate it. They always said electricity was going to be the bottleneck. It turns out it's memory. That's a twist to start off 2026. Coming up, JP Morgan is banking on AI to give its portfolio as a leg up on the competition. Speaking of AI, when JP Morgan's getting involved, there goes the memory prices again. We're going to talk about what it means for the future of financial services next. And as we head to break, let's do a quick check on Bitcoin. How's it doing? Down around a percent and a half today. Around 91,000 after nearing 95k on Monday. We're back after this. Welcome back. Just as we were starting to break out the Dow 50,000 hats, which don't exist, but feel free to send them if you want. We're no closer today because we're now at session lows. In fact, the Dow's down about 265 points after touching a record high this morning. And nearing that milestone. We're at session lows right now which would have US snap a three day rally after the first close ever above 49,000 yesterday. Caterpillar, UNH and 3M are all weighing on the Dow. By the way, the s and P, 50 points away from hitting 7,000 for the first time and it is still up about three points. We're seeing some weakness in the staples though. A quarter of the sector stocks are falling to multi year lows today. That includes names like Conagra and Campbell's which are trading at 2009 levels. Kimberly Clark and Brown Forman, lowest since 2013. Wow. Meantime, Apple is trying to avoid a six straight day of losses on its part. That would be its longest losing streak since August. It's down about 4% in this stretch. Elsewhere, real anywhere Real estate is what I should call it. Anywhere. Real estate ticker. H O U S and Compass. They're both soaring after the antitrust waiting period for their proposed merger expired without any regulatory challenge from the government. This would combine the two largest residential brokerages by sales volume. Both stocks back to their highest level in about four years. They're up 22 and 13%. And then of course, we have this move on that's helping the brokers broadly with the Trump administration cracking down on institutional homeownership. Meantime, JP Morgan just made a move that involves AI and it is an industry first. For more, let's bring in Leslie Picker. Leslie. Hey, Kelly. Yeah. J.P. morgan is now the first major investment firm to fully eliminate external proxy advisory services from its voting process. This is according to an internal memo obtained by CNBC and first reported by the Wall Street Journal. J.P. morgan's asset management division, with about $4 trillion in AUM, is launching what it calls Proxy IQ Now. This is a AI powered tool that analyzes data from more than 3,000 annual company meetings. Proxy advisory firms such as ISS and Glass Lewis provide information and voting recommendations to institutional investors. ISS declined to comment to CNBC other than to say that it's proud of its four decade record. Glass Lewis did not respond to our request to comment. JP Morgan's memo said, quote, by harnessing advanced AI, we no longer need third party data collection or voting recommendations in the US Cementing our first mover advantage and reinforcing our unwavering commitment to vote solely in the client's best interests using our information advantage. I'm told there will be a transition period during the first quarter of the year for this product. Chairman and CEO Jamie Dimon, though, has long lamented what he has called the, quote, undue influence of proxy Advisors. In his 2023 shareholder letter, he said the firm plan to generally eliminate third party proxy advisor voting recommendations from its systems. President Trump as well signed an executive order last month to reassess the rules around the proxy advisory firm's processes. Kelly all right, Leslie, thank you very much. A huge deal both for the AI space and obviously for the professional space as well. Let's get to Pippa Stevens now for the CNBC News update. Welcome back, Pippa. Thank you very much. Kelly. While a federal agent shot and killed killed a Minneapolis motorist this morning during an immigration crackdown in the city, according to the Department of Homeland Security. The woman allegedly tried to run over law enforcement and the agent shot while fearing for his life. Protesters flocked to the site of the shooting where Minneapolis Mayor Jacob Frey demanded that ICE leave the city immediately. Nick Reiner, the son of Rob and Michelle Reiner, was just in a Los Angeles courtroom for what was supposed to supposed to be his arraignment on charges that he fatally stabbed his parents in their home last month. But there was a last minute curveball as his attorney Alan Jackson told the judge he is withdrawing from the case. As a result, Reiner did not enter a plea. His case will be taken over, at least temporarily by a public defender. The new arraignment is scheduled for February 23rd and Florida Governor Ron DeSantis is calling an April special session of the report. Republican dominated legislature to redraw the state's congressional districts. It's the latest of several states on each side of the political divide to take steps to redraw their districts mid decade ahead of the 2026 midterm elections. Kelly, back to you. All right, Pippa, thank you very much. Coming up, the metals trade losing a bit of momentum today with silver slipping from its first ever settle above 80, down 4% right now. But our strategist still see some opportunities in the group. We'll tell you where and what impact Venezuela will have on the space right after this. Welcome back to the Exchange markets hitting new highs this morning. All of this following the US Intervention in Venezuela, although we've since turned lower on the afternoon, at least for the Dow. But my next guest, well, he's turned bearish on US equities more broadly and sees better opportunities overseas. Right now, let's bring in Marco Papich. He's the macro and geopolitical strategist at BCA Research. Marco, it's great to have you. I've been waiting to speak with you. Where have you been?
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E
Happy you're Kelly. It's a pleasure to be back.
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C
Happy New Year. I don't know where to start and we have to kind of do this quickly. So let's just do what you do the best, which is cut right to the chase. Why are you turning more cautious on US equities right now?
- [31:27]
E
You know, last year I was bullish. Bonds, bond yields coming down is good for US equities and that definitely turned out to be the right call in 2025. I'm worried that there's stickiness to US 10 year yield. 68% of the US GDP is US consumer and US consumers do need lower borrowing rates in order to sustain the health of the economy. It can't just be AI Capex. So I'm looking for a resolution to the current status of the 10 year yield which has been stuck at 4.15 for basically since late October. I don't like that that makes me cautious. Second, AI Capex story doesn't look as great as it did last year. Just some doubts about adoption. And then finally, we need some global growth concerns to be resolved. We need to see a little bit more out of China in order to be overall just bullish on risk assets.
- [32:14]
C
Now, I don't like this call because, you know, first of all, we all have four 1Ks, Marco. But secondly, because you had a pretty good forecast for last year, so it makes me a little nervous. And I think your point is really interesting about the 10 year. It's exactly what we were talking about with Dave Zervos at the beginning of the show because he's literally pivoting his trades this year where instead of betting on the 10 year yield falling, he's betting more on the shorter end, you know, maybe the shorter end of the curve as the Fed lowers rates. So it's not a great formula. The 10 year matters more for mortgage costs, a lot of borrowing rates and so forth. It's not great that everyone thinks it's kind of stuck up at levels where it's stuck up at.
- [32:49]
E
Well, I agree with Zervos that the front is going to come down more aggressively than the market thinks, but that's also in of itself bearish, particularly if borrowing costs don't come down. Now look, overall for the next 12 months, I remain, you know, modestly bullish. My S&P 500 target for last year was much more ambitious. It was 6950. For 2026 it's 7500, which is kind of meh. But that's because I expect some volatility. In the next three months, I expect some downturn. But over the course of 12 months I think the focus of the Trump administration will move from Greenland to more market relevant things such as housing policy. That's what really Scott Besson was flagging last year. Donald Trump talked about it over Christmas. Focus on affordability, lowering borrowing costs. If they engage that US consumer who is unlevered, then things can still look good for the US economy over the.
- [33:46]
C
Course of 12 months, a couple of positive leading indicators. We've had the semis at an all time high as recently as yesterday or the day before. Dow transports were at an all time high. Caterpillar is doing well. Copper, Dr. Copper. Those prices have been on an upswing. I mean there's a lot of factors actually I think even Nancy Lazar was writing this morning. There's some good kind of green shoots and leading indicators. And our guest yesterday was saying maybe GDP is actually starting to accelerate. So what I'm thinking about as I rattle that off is, is the 10 year yield moving higher because of that, are we sort of trapped right where if the prospects look better enough that we don't need more Fed rate cuts like the. The market still wants this story of falling inflation and falling interest rates for this rally to continue. I think that's pretty probably even more important than I. I'm open for that.
- [34:31]
E
I'm completely. That's why I'm not in a recession camp and haven't been really for a very long time. So I'm 100% open to the possibility that a 10 year yield is actually telling us something positive. The reason I hesitate to be fully on board with that view, even though I am long copper and industrial metals, is that I do worry that we have been in a cash driven economy for a very long time. And what I mean by that is that the US Government, government's fiscal outlays have been gargantuan and they've trickled down to the consumers and they've spent the cash. The problem is that is finally now out. We need, we need them to start leveraging themselves. And that's why I do think the 10 year yield still does matter. We need it to come down a little bit, not too much and then we're off to the races. Particularly if the Trump administration focuses on lowering that spread between the 30 year mortgage rate and the 10 year yield, which is still I think 50, 75 basis points to.
- [35:24]
C
Yeah, absolutely. That's probably if there's anything to squeeze, probably somewhere in there. Okay. So finally on more of the geopolitics international markets. Do you have a couple of favorite Look, Korea flying last year, weak dollar benefiting a lot of other part. Europe doing well despite not a lot of GDP or earnings growth. So when you look around, where are you most excited about?
- [35:44]
E
Yeah, so first of all, I think the way to play the geopolitics is what I call the age of empire premium. And in particular what I mean by that is commodities, industrial, metals, I think that they're going to continue to fly. One of the things that comes out of this Venezuela intervention by President Trump is that other countries are going to start thinking in terms of the same narratives. President Trump is very open and very transparent. I mean we're doing it for the oil. Okay, well if America is going into Venezuela for the oil, then other countries are going to go into other countries for other commodities and I think investors are going to start front running what's effectively going to be hoarding of natural resources across the world.
- [36:26]
C
Interesting. By the way, I caught the Chuck Norris mentioned before market watched. I just on the record Marco, because I read your stuff quickly on that. Do you think there's a Chuck Norris premium? In other words, a propensity to act premium in just WTI and metals broadly in the market? Like what just quickly explains explain what you mean by that.
- [36:44]
E
So yes, Chuck Norris Premium 1986 movie Delta Force, which I grew up with watching this stuff. So look, the Venezuela intervention was so extraordinarily successful that it behooves any policymaker to want to repeat it. Rinse and repeat. I worry about Iran. I worry that the Trump administration is gonna become enamored with these surgical Delta Force strikes around the world. Iran is clearly something Trump has been talking about over the last couple of weeks, even before Venezuela became topical. So I do worry that most of us look at what just happened and say, oh, there's going to be more supply of oil. But the reality is that there may actually be considerable geopolitical risk premium we have to think about first before we get to that more oil barrels out of Venezuela.
- [37:33]
C
Got it. Understood. I love the way that you are drawing on all of this to help us understand what could happen next. Marco, thanks for the time. Really appreciate it.
- [37:42]
E
Always a pleasure. Thank you, Kelly.
- [37:43]
C
Marco Poppich with bca. Coming up, Netflix is cheering Warner Bros. Rejection of Paramount's latest deal offer for the company, saying in a statement they welcomed the board's commitment to their merger agreement. And we'll hear from Netflix Co CEO Ted Sarandos next. Welcome back. And there's more AI deal news today with Elon Musk's Xai raising $20 billion while Anthropic is securing some new investors. Kate Rooney has the news in tech check. Hello again, Kate. Hi, Kelly. It's great to see you. So I am told by a source that Anthropic has now signed a term sheet for a $10 billion funding round. This is going to be led by Singapore's GIC and CO2. Those are both previous investors. Anthropic declined to comment, but I am also told that this puts the company's valuation squarely at $350 billion. The journal was first to report this one today. Meanwhile, XI this week closing a $20 billion round. There are a few key differences when you compare these companies and these funding strategies overall. So Musk's world, if you look at this, extremely insular. You're going to look at the cap table here. Mostly his inner circle, notably Valor, Antonio Gracias there, Tesla board member. You've also got Ron Baron, Fidelity with pretty deep ties to Musk and Emirati and Qatari wealth funds. Those I'm talking to out here say the group doesn't underwrite in what you think of as a traditional way. Not about near term revenue goals. It's more about muscle memory and a conviction in Musk. One person telling me XI doesn't even really go and publicly fundraise in the Valley you just don't hear about it. Xi's business strategy, it's also different. They say in a press release yesterday that they're going to be going after enterprises. But there are some questions over Xe's ability to win over Fortune 500 companies given some of the controversy around the company. Also spoke to competitors, some investors who point out at this point not really having a big enterprise footprint. It's been a profitable battleground for OpenAI and anthropic, though Musk has been able to weave X and Grok into his own enterprises. Think Tesla humanoid robots, Space X for example, and X. I already merged with X. Formerly Twitter, so Nvidia. We should also mention a strategic backer in this round. A bulk of the money is actually going to be going back into their H100 chips. And finally the round is going to be helping Musk expand his data center footprint. This is really key. Kelly, folks I talked to, are you building data centers fast? Could actually be Xi's moat here. Musk, of course, known for speed and pushing limits on that. Hope he can find those memory chips, as we heard today. Twin Kate, thank you very much. Appreciate it. Welcome back, Kate Rooney. Turning now to Hollywood, Warner Brothers once again rejecting Paramount Skydance, its takeover offer in favor of a Netflix deal. Our own Julia Boorstin sat down with Netflix co CEO Ted Sarandos as part of her new series Leaders Playbook, which explores. Julie, you can say more than the philosophies that have shaped today's most influential companies. Do tell. Perfect timing for all this. I don't know if you address that directly, but you know, kind of more broadly where, where they're coming at. Well, yes, it's perfect timing because Netflix's deal to buy Warner Brothers studio and streaming businesses is really a departure from its longtime strategy of building internally and is just the latest example of a leadership approach that co CEO Ted Sarandos explained to me, which is never say never, things change.
- [40:58]
A
Either the conditions change or your insights change. For me, the advertising one, I always looked at it like we were counter positioning against television by saying no ads. So we attracted all the people who are really irritated by ads. Everyone is not irritated by ads. And in fact, young people, they'll take a lower price to watch advertising because.
- [41:18]
B
That'S what they grew up on.
- [41:20]
C
But when you think about all this within the context of a company that's about innovation, how do you think about using things like never say never as a tool to continue fostering experimentation and innovation?
- [41:32]
A
It's you farming for dissent which is part of the original culture that helps alive and well on Netflix. Meaning you have to create an environment where people can say there are no sacred cows here. And I know how you feel about this, Ted, but how about this? And people know that that's not a career ender. In fact, it's a great way to position yourself as a curious thinker inside of our business is if you challenge conventional wisdom. Because I think Netflix was built by challenging conventional wisdom on almost everything.
- [42:02]
C
Tonight at 10pm we are debuting the first two episode of Leaders Playbook, the first with Netflix's Sarandos and Chief Content Officer Bella Bajaria, followed by Shake Shack founder Danny Meyer and CEO Rob Lynch. Kelly Love it. And it is getting. You know, I understand why Paramount is saying, you know, we'd prefer, I'm sorry, why WBD is saying we'd prefer the Netflix offer. You know, if the funding and everything behind Paramount looks a little bit more shaky. But it is a big departure for Netflix and the shares have been flattish lately. And as with many things, it'll probably pay off for them in the long run if they get this asset. But I can see that investors are a little nervous about. Yeah, I mean, Netflix shares have overall declined since this deal was first announced. And the reason why Netflix wants to this deal is because when it comes to valuable intellectual property, if you think about the brands that Warner Brothers has, not just HBO and all that streaming content, the fact that they have D.C. and they have the Harry Potter films, those are really iconic brands. And for Netflix, this is is an investment in content. And as they continue to scale globally, they just don't see any other assets out there like this. So it's worth departing from your strategy and worth being flexible when the right assets come up. I love that. Point of the perfect timing actually for people to watch this tonight. Great stuff, Julia. Thank you. Julia Boorstin, Coming up, the Defense etf, the ITA hitting an all time high today. Our trader says this stock is the top name in the space. It's Up Next Nearly 17% over the past month. And we'll reveal it next. As mentioned, the defense ETF hitting a new all time high today. That's the ITA amid tensions in Venezuela and the president turning his sights to Greenland once again. Joining us now with his trades, Jeff Kilberg is founder of KKM Financial and a CNBC contributor. I know how you feel about the markets overall, Jeff, but you feel positive about the defense names. They've been up a lot over the past year already.
- [43:51]
F
Well, Kelly, I have a smile on my face first of all and foremost Happy New Year. But the reason I have a smile on my face is that we just saw a new all time high in the Dow as well as the S&P 500 and the Vix is trading 14. So just to start the segment on an optimistic note I am cautiously optimistic but to your point these defense stocks we really have seen a sense of urgency from investors coming in. We've seen Lockheed Martin, we've seen GE Aerospace, we see a lot of these names really find and attract investments short term because of the political or the mounting political tensions across the globe.
- [44:21]
C
I can't believe they're up 80% on average over the past three years. Lockheed's your favorite. That was our mystery chart.
- [44:26]
F
So Lockheed Martin is the Central 40 holding we own in our Central 40 ETF ESN and it has been a laggard Kelly. It did not have a great year in 2024 but we think it's going to be bouncing back here. We think about us own what are critical names the US economy. Lockheed Martin is that name. So we get excited about owning this. We don't look for more geocal geopolitical tensions to mount but nonetheless Lockheed Martin is a solution. But don't forget about Boeing. Boeing is a great name here. We just saw a big order the largest ever Alaska air today for $15 billion for Boeing. So there's a lot of excitement about ITA and it seems momentum despite the fact it's had a lot of it. The aerospace and defense ETF is going to go higher.
- [45:04]
C
Yeah and as I mentioned in terms of little Dow theory, the industrials and the transports hitting a record high today. So I, I take. I'm reading the tea leaves like you are. Can I ask you about the chips though? Because the memory names are down after these huge moves over the SanDisk is up 47% in a week. Micron up 18 Seagate, Western Digital similar story. What do you do here and what do you do with Nvidia, which is the elephant in the room?
- [45:25]
F
Well, Nvidia, let's start with Micron, let's go there. There's a lot to talk about. The chips you're seeing sox, which is the semiconductor etf. We like to talk about having a great start to the year but it is interesting to see the dispersion inside of there. But Micron, that's actually our largest holding in our new ETF Kelly, the Mango Growth ETF that was up over 240% last year so it makes all the sense in the world up to being up another 20% just to start off January 2026 to have a little breather or some profit taking. But it makes a ton of sense. As we are seeing a race towards these data centers, we're seeing more and more competition come out there and that's really making a run towards memory. I get a little concerned if you don't own any memory, now is not the time to buy it. I look for more of a price discovery, more of a profit taking or utilizing options to establish a position. But we're going to hang on to Micron here. But you have to have the stomach.
- [46:14]
C
For these chip names hanging on to Micron. You're long, intel, you're long. In video, you're long, you're long, you're long.
- [46:20]
F
Yeah, well look, you know, it's giving you the reason going back to Intel, I'd not necessarily agreed with the US government taking a 10% stake in intel, but that was the best performing stock for our essential for ETF last year. So we're hanging on as well.
- [46:33]
C
US Industrial policy. Jeff, thanks. Really appreciate it. Jeff Kilbrand Power Lunch after this. At Capella University, we believe accessible education can make a difference. That's why we offer scholarship opportunities to all eligible students. Un futuro diferente esta ma serca de lo que cres con Capella University. Learn more at Capella Eduard.