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Oil Cycle Continues, Inflation Conundrum, and Oracle's Comeback 3/11/26
00:43:36
The IEA announced plans to release a record 400 million barrels of oil to help ease the Iran supply disruption, but does that leave some parts of the energy complex at risk? Inflation steady in February, but the Fed will have to reconcile high energy prices in next week's rate decision. Plus, Oracle looks to be in safer waters after its big third quarter beat.
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This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Lansford for this information packed daily market Preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions and key results and statistics that may impact your trading. Download the latest episode and subscribe@schwab.com Market Update podcast or find Schwab Market Update wherever you get your podcasts.
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A 14 point turn.
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An influencer even livestream the whole thing. Not good for business. Now with AT&T business Wireless routes are updating on the fly and deliveries are on time. And the influencer did get us 53
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Frank thank you very much and welcome to the Exchange. I'm Kelly Evans Sell the rumor, Buy the fact Take a look at oil prices heading back towards $90 a barrel today, even as the IEA is set to release a record 400 million barrels of oil by its members. We're off those $78 lows from yesterday and it's putting some pressure on stocks right now, but not too much. You can see the NASDAQ still positive, the s and P down 7. The Dow is the underperform. 319. Big piece of that is the financials once again. The losers? The staples as well. Financial stocks are off 9% now in the past month, and we'll hear from Watford CEO Brett Beardahl about his concerns about private credit shortly, along with what else has been weighing on the space. The stock of the day is Oracle, rising 10% after earnings, although it was down by half from its highs last autumn. Into the print, we'll talk about its plans for debt and more. But let's begin with this oil situation after the International Energy Agency announced plans to release the a record 400 million barrels of oil from strategic reserves to help ease the global disruption. Unclear the pace of the release and the breakdown of what types of oil, which traders say will be crucial to really understand the move. My next guest says pressure will remain on parts of the energy complex that are more difficult to store. Let's bring in Max Layton, the global head of commodities research at Citi. Max, it's good to see you. And overall, I mean, this is a big move. It's more than double what they did in 2022, if I'm not mistaken. Is there any concern that it would leave the inventory situ situation shortchanged. Or is that just not the worry right now?
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D
Thanks for having me. So around 12 months ago, inventory, global oil inventory was around 10 billion barrels. It's gone up 700 million barrels over the last 12 to 18 months or so. So broadly speaking, the world has built something of a buffer. And yes, you would draw down some of, some of that buffer with this 400, you draw down roughly half of it back 12 months. 18 months ago, oil was trading, Brent was trading 75 to $90 range. And that's kind of where we are at the moment, at the top end of that range. So you can look at this and say, hey, the markets kind of pricing a four to six week disruption. And I think the IEA and the OECD countries are going to come and fill that gap.
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B
Yeah, they are stepping up in a pretty big way, especially the U.S. japan, as I understand. What do you mean that there are parts of the energy complex though that will still remain under pressure?
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D
Yeah, sure. So I think what we're referring to there is in particular jet fuel. Jet fuel is a standout. So in Europe and in Asia, jet fuel prices are trading around the Russia, Ukraine, highs. It's the only part of the product the world doesn't consume, the crude oil. It consumes the products of crude oil, gasoline, diesel, jet fuel, naphtha that we turn into plastics. And some of the store, they degrade over time. And so we just don't have the same inventory that we do in the others. We've got a lot of gasoline inventory, we've got very little jet fuel. And so if there's going to be tension in the product market, it's going to be in jet fuel.
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B
Right. And so much of this still depends on those flows going through the Strait of Hormuz. How would you describe the situation today?
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D
Well, I would say that we're at a point now where the escalation from here would involve, on the kind of US and global side, potential 1970 style oil shock. So that's energy infrastructure being attacked almost straight out for months. There's, that's, that's where we could be heading. And on the Iran side, President Trump alluded to further measures that he could take that he's reluctant to take, that he doesn't want to take, which would I think be obviously quite destructive for the Iranian regime and the economy and the country more broadly. And so I think we're at a point where the next level of escalation is so painful for both parties is not the base case. It's not going to happen. So I think once the military campaign finishes, whether that's days or weeks, it's really hard to say. But once that finishes, I do think there is a path to both sides de escalating and that's the baseline view.
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B
Yeah. And I think you said you and others still have some questions about what the pace of this release will be and what types of crude specifically. So I'm curious if you can elaborate on those issues.
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D
Of course, yeah. So the IEA did a big study back in 2018 and they, they claimed that or they, they said in that study that if the countries, at a maximum the countries could do an initial flow of up to 24 million barrels a day. So 11 million barrels a day from the public stocks and 13 million barrels a day from the commercial stocks. 24 million barrels. I mean obviously it's not been tested, this has never been tested in the 30 years or so that they've been building this in across the OECD countries that participate in the iea. But, but wow. You know, it's possible, it's theoretically possible, but it would have to be something. It's kind of similar to like global central bank coordination. You'd need all the countries to participate. You need them to give clear messaging that they're going to provide liquidity and they're going to be there. So far that hasn't really happened, but I'm expecting that to happen going forward.
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B
And so is that pace for you a pretty swift pace that will do a lot to keep oil prices contained or is that pace going to be too slow?
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D
I think the early signs are it's not particularly quick, but it could be. And I think that's the important bit is on paper. So for example, if the US can do a certain run rate of destocking of public inventory, then you add on top of that the European countries, then you add on top of that the Asia based OECD countries. In total, according to this study, you could do up to 24 million barrels. The market probably only needs around 10.
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E
I see.
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You know, it's possible but they have yet to commit to doing it.
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All right, well we will all be following those kind of signs of movement with interest. Max, for now. Thanks, appreciate it. Max Layton with Citi. Now we've had 10 year notes go up for auction after a pretty poor three year auction yesterday. So we turn to Rick for the much more important one. Rick to see how it went.
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Absolutely. Now this is a reopen. First time it's reopened adding to an issue that was primaried about a month ago. So it's really a 9 year 11 month security. And the yield at 39 billion put forth by the Treasury 4.217. The when issued market was about 4.21. So it tailed about 3 quarters of a basis point. So it gets a little bit off for pricing the grade C minus, C minus better than yesterday's D plus. And the reason? Well the bid to cover was a little light against 10 auction average. The directs were a little light against 10 auction average and the dealers taking nearly 13%. 10 auction average at 10%. So it just was a little behind the eight ball in terms of all the metrics. But here's something interesting. Okay today should we close here be the highest yield close since the February 6th. But it isn't only us, this is us and Europe but not Asia. If you look at the UK they're on pace for the highest yield close in their tenure since October 9 of 25 and the EU since October 19 of 23. So we want to definitely keep an eye on long rates whether it's partially the convict, partially debt or trying to compete against all the AI generated corporate securities. Maybe a little bit of each. Kelly, back to you.
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Would you say C plus or C minus?
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C minus. Minus.
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All right. We need to get those grades up, Rick. Thank you Rick Santelli. Meantime, this comes after the CPI report which was roughly as expected but also it's a little backward looking. They now have to have to reconcile high energy prices over the past week as the Fed prepares to meet next week without the visibility on what that will yet mean for cpi. But some on the street are seeing ways to blunt the impact on consum consumers looking at the tax refunds which are 11% higher or so than last year. Joining us to discuss the current inflation conundrum is Jefferies chief US economist Tom Simons along with CNBC senior economics reporter Steve Liesman. Welcome to you both. Steve, just kick us off. What do we see in the pie headline in core? I'm sorry, the cpi. Thank you.
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F
I called it the CPI this morning. It's okay. So they were both relatively well behaved with some questions as to whether or not we're seeing the true picture in part because we're getting this housing disinflation and there's some talk about it being related to the shutdown. So when you get done doing all the things that would have happened because they wanted to put out a post shutdown inflation report, you might be adding 03 to 04 on top of it. So it looks still well behaved even if you add it back, but just not as good as maybe it is. The other problem is that there are components from the CPI that are used in the pce. Those components today caused, I believe, Barclays to double what it thinks is going to happen at pce. So what we thought was hopefully a coming together of these two, a kumbaya moment for these two series, they're in fact going further apart and we're probably going to get a hotter PC. And all of this is troublesome because we're definitely going into a period where at least the headline number is going to be hotter.
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Yes. And Tom, you know, Nancy Lazar was looking back at the, the 1991 Gulf price shock and you did see that headline accelerate while the core slowed because at the end of the day people only have so much money to spend.
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A
Exactly. It ends up being essentially a zero sum game at the end of the day. And I think that that's actually a big contributor to why we're seeing a difference between the CPI and the PC deflator as well. If businesses are, for instance, seeing margin pressure because they're having to pay tariffs or generally still seeing wage pressure from a lack of skilled labor that's available, then they're going to push those prices through to high margin goods or services that are generally sold to consumers who are less price sensitive, so upper income individuals. Because the PCE deflator is a measure of the price changes in what people actually spend money on, it captures some of that fact that it's only limited price increases that are being passed through. When the CPI looks at the big basket of goods and services and looks at what the average person buys, it's a lot of lower, you know, sort of more basic goods that are in there and they end up not seeing as much price increases since businesses know that there's just really no more, you know, change in the wallet for consumers to accept those price increases.
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I think the story here is the math that I'm getting from economists, which is take $20 extra per barrel, barrel, and that could add on 0506 to next month or the month after. Yeah, and that's okay. What we want to know is does it bleed into core? And that's the question. Does, you know, do rising gas prices, rising oil prices that can lift things that are not directly related? We know airline fares are going to go up. I think you had a guest on who said that the real crunch point is jet fuel. So you might get a sharper move there. But again, that's okay for the question that we talked about yesterday, which is, can the Fed look through this? If it stays in the headline, it can look through it.
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What's in the market right now in terms of any more cuts, less, fewer?
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Is that the right one? Well, we have the probabilities. We don't have to guess. It's 63% for the first cut. And what's important is that that's not until September.
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It's September now for the first cut.
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I find this remarkable because this is the way the market is trading and then no second cut there. And what's interesting is that you are now saying the market is saying Warsh is going to come in in June. He can send it as June. He's got another meeting in July, and then come September, he'll get around to cutting. I'm not sure I believe the way the market is priced, but that's the way the market's priced.
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What do you think, Tom?
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Yeah, I agree with Steve, actually. I'm been having a hard time sort of understanding exactly how the market has come to this conclusion. I wonder if perhaps there is some, you know, kind of cross signals, I guess, in thinking about how energy is going to affect the stance of global central banks. So, for instance, the ECB and the bank of England, they don't have as much flexibility to cut because they are exclusively focused on price stability and inflation. Right. And the Fed with a dual mandate in an economy where people generally need to drive to work and stuff is generally shipped on trucks that are driven with gasoline engines, all this stuff depends on energy. And thus there is a big risk to growth if energy prices remain quite high. So I also agree with Steve there that it's hard for me to see how Kevin Warsh would have sold himself to President Trump on his ability to deliver lower rates and then not really do anything on that front in the first couple of meetings. Perhaps the market is trying to price in some possibility that Kevin Warsh is not confirmed by the June meeting. Senator Tillis has said in the past that he doesn't want to move forward with that until the DOJ pulls or completes their probe against the Fed. You know, that's ongoing, so I'm not sure. But I still think that there will be a cut is, you know, could be even as soon as April, but definitely by June. And I would think at least two for this year and three is probably more likely than one.
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So I think it's important, Kelly, to point Out. I wonder what Tom thinks of this. Look through means different things to different people. Some people say look through and cut. Other folks say look through and don't hike as a response. If I had to, if I were to measure it. Exactly. Now, I think the center of the committee is in the ladder.
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Look through.
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That means we're not going to hike. There are some on the committee, Myron, maybe even Chris Waller, that say we can look through this and cut.
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Right.
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I don't think that's where the center of the committee.
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Even after the Negative payroll number. Minus 92.
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Okay, so tell me what the payroll number is and I'll tell you what the Fed is not cutting against. Right. So if we're losing 25, 50,000 jobs a month, the Fed is cutting, you think. But if you're still in this +30 range, this anemic job growth number, and you have this headline inflation problem and concern that it bleeds into core, then I think it's going to be a standard.
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Maybe I'd put it this way, Tom, as a final word is the market is at one cut and you might get there. If we have. If we have positive payroll prints the rest of the year. But. But which. And maybe not. But if we remain negative, do you think, then we're looking at two or even three still?
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Oh, yeah, definitely. I'm not expecting that we're necessarily going to see a series of negative payroll prints that continue on from. From February. You know, there are a number of things that kind of drag that number down that look like they're idiosyncratic issues that should resolve in the month ahead. I do think that what's going to happen here is that there has to be a perspective on what's going on in the energy complex and an understanding of how long this is going to last. We're not talking about a dramatic shift in the supply of oil on a durable basis. I don't think that this is an analogous situation to what happened with Russia where with the invasion of Ukraine, that there was a concern that you're going to lose whatever the daily production from Russia is per day on an ongoing basis. There's a lot of oil that's currently sitting in the Persian Gulf that right now kind of has a negative value and it really wants to get out of the Straits of Hormuz and sold onto the market. So when that comes, you know, there might be a slight delay and when it kind of translates into lower gasoline prices because of, you know, the refinery delay, you know, processing. But eventually there has to be an expectation that whatever price increases we're seeing from energy are going to reverse and we're going to get a big drop down in inflation at some point later in the year.
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B
All right, Tom, thank you. Appreciate it today. Thanks for joining us. Tom Simons and Steve, thank you of course, as well, we've got some breaking news out of Washington. Eamon Jabbers at the White House. Damon, what's happening?
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Hey there, Kelly. This comes from the U.S. international Development Finance Corporation. They've just announced over the past couple of minutes that they have found a partner for that reinsurance program that the US Government has been working on to ensure oil coming out of the Strait of Hormuz. The US International Development Finance Corporation saying that Chubb will serve as the lead partner for the DFC's $20 billion maritime reinsurance plan that's designed, they say, to resume commercial shipping in the Gulf. They're saying here in the press release that DFC and Chubb have also identified several American insurance companies to provide reinsurance policies behind Chubb and alongside DFC to expand market capacity. They say additional reinsurance partners may be announced in the coming days. There's a quote here from the CEO of Chubb, Evan Greenberg. He says in part, the commerce passing through the Strait of Hormuz plays a vital role in the global economy and providing vessels with insurance protection is essential for resuming trade flows. So that coming from Evan Greenberg, the chairman and CEO of Chubb, according to the DFC press release, guys, back over you.
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Shares almost kind of ticked briefly into the green. They're still down just fractionally as they, you know, investors have to weigh what this means for the company. But of course, the administration throwing everything it can try to get the situation moving. Amen. Thanks. Appreciate it. Amy Jabbers, Coming up, the bank stocks are on track for their first three week losing streak since October. We'll speak with waffed CEO Brent Beardahl about why that is and some of his concerns. Plus, Oracle says it's not planning to raise more debt this year. We'll get one investor's reaction to that. Coming up with the shares off session highs but still up a healthy 8%. We're back with much more on the exchange.
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This is the exchange on cnbc.
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Oh, could this vintage store be any cuter? Right? And the best part, they accept Discover. Accept discovery in a little place like this? I don't think so, Jennifer. Oh, yeah, huh? Discover is accepted where I like to shop. Come on, baby, get with the times. Right? So we shouldn't get the parachute pants. These are making a comeback, I think.
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Discover is accepted at 99 of places
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that take credit cards nationwide, based on
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the February 2025 Nielsen report.
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This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Lansford for this information packed daily market Preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions and key results and statistics that may impact your trading. Download the latest episode and subscribe@schwab.com MarketUpdatePodcast or find Schwab Market Update wherever you get your podcasts.
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Not every sale happens at the register before AT&T business wireless, checking out customers on our mobile POS systems took too long. Basically a staring contest where everyone loses. It's crazy what people will say during an awkward silence. Now transactions are done before the silence takes hold. That means I can focus on the task at hand and make an extra sail or two. Sometimes I do miss the bonding time.
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Welcome back. Another sign of problems in the world of private credit. JP Morgan is now marking down the value of private credit loans it holds as collateral and reducing its general borrowing capacity. There. Shares of private asset managers are lower Again today with Ares down about 4%, a little off that right now, but still on pace for its worst day in more than three weeks. The big banks are lower as well by 1.2percent fractionally now, a little bit off the lows. My next guest says there is some reason for concern here. Let's bring in Brett Beardahl. He's the CEO of Wafed Bank. Welcome to you and tell you at the RBC Financial Services Conference yesterday, was there a lot of talk about private credit?
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There was a lot of talk about private credit. And the reality is in the whole banking sector we talk about cycles. There's credit cycles. And it's really been 15 years since we've seen a credit cycle. And a number of the investors I was talking with said literally I haven't lived through a credit cycle. And if you think about what's happened with banking, we have kept our balance sheet so pristine, but private credit has kind of taken up, okay, we'll make the riskier loans. So it makes all the sense in the world to say, okay, if we're going to start having another credit cycles, where do you see that come through? And that's private credit and that's what's happening now.
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I like the way you put that in Many think this is a reckoning moment for the Industry, maybe an overdue one. The only general concern, I mean, other than if you're an investor in this space, is is there going to be broader fallout? You know, do we have to worry that because of kind of panic in one area over here that it's going to spread throughout the financial system?
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Yeah, I don't think so at all. I think. I think it's normal. If you're in the business of lending money, you're going to take losses. That's just reality. And we plan for it. And I think the banks are in really good shape. The question is, what was the underwriting on those private credit? Where did they go? And the irony I find here is, is banks said, okay, we're not going to make these loans, gave the opportunity to private credit. Then banks turn around and they loan money to private credit and they call it business loans.
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Loans. That's exactly right, yeah. So is that an issue?
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It is an issue for some certain banks. For WA Fed, for example, we said we're not going to do that. We find that a little bit, you know, counterintuitive. Why would you not make the loans yourself, then lend it to somebody else who's going to make the loans? But as we know, there is always. It's a river of demand. And if you don't, don't meet that demand somewhere, you'll meet it somewhere else.
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B
So you think it's going to be kind of contained, like, yes, there are going to be losses. Yes, the industry may adjust in size, but it's not something that, you know. So. So do you think financial stocks here present an opportunity? You know, if you think that maybe the economy does okay, I don't know what you're seeing in terms of loan growth.
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Yeah, I think financials present actually a huge opportunity. You look at our stock, for example, we're sitting here trading literally at tangible book value.
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Wow.
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Are you after.
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Even after the nice run we've had, you know, we have a wonderful chart that shows the growth in book value per share. And I can't control exactly what happens on the stock price, but I can control growing book value per share. And we have done a nice job of continuing to grow book value per share. So today, you know, the biggest opportunity we have is to buy our shares back and increase the slice of the pie for our existing shareholders.
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B
Is that frustrating, though? I mean, do you want to put that money to work in other ways?
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G
Oh, it's very frustrating. Of course we want to put that away, but. Or not put it away, Put it out get it out there in loans. But when you're seeing the competition make loans that are sometimes irrational, the most important thing you can do as a banker, and it's so difficult is to have discipline, know when to say, hey, I'll pull back and not grow, or, hey, this is a good time to grow. And with what we've seen with private credit, we've. We've said, okay, let's pull back a little bit. Let them make those loans that we might think are a little bit too risky, and then we'll see what happens there, and then eventually we'll come back.
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B
That's a good point, though, about, you know, you want to make your loans at the right price, maybe not what some others are doing. Meanwhile, there's this whole new. Tell me about X Money. Okay. This is a product that Elon Musk has introduced, which is sort of taking off, as I understand. And you think this is something the industry really needs to be watching closely.
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G
You know, I know very little bit about it like everyone else does. It's just being announced. I think they have it out in beta. But I think of Elon and whatever you think about him politically, he's the genius of our time and what he did to the automobile industry into the big three automakers with Tesla. I think he's going to do the same thing in banking with X Money.
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B
We better hope he doesn't. I mean, that doesn't bode very well if you're sitting on the other side of it.
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G
But we're not going to take it the same way that the automakers did. Right? We have to. The winner will be the consumer. X Money is going to offer a 6% interest rate on deposits. That is a loss leader. You can't make money with the Fed paying 4%. You can't make money at 6%. So he's willing. The richest man in the world is willing to pay an additional 2% to take market share.
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B
But that's not. How do you compete with that?
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G
Well, you don't compete with it just based on.
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E
Right.
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G
If you're just going to compete based on rate, you don't compete. Right.
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E
You.
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G
But what we offer, especially as regional banks, is relationships. So you have to have great technology. It's going to make us better. So you pair great technology with relationships. That's where I think we're going to be able to compete. But they are going to take amounts of market share from the biggest banks that I don't think we've ever seen in our lifetime.
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B
I'm Glad you kind of put this on the radar. And finally there's this whole question about stablecoins which the Bank Policy Institute is not in favor of. Kind of allowing them to offer yield or the bill, I think it was the Clarity act that's currently held up would allow this to be enshrined in the financial system. What's your point of view on this?
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G
My perspective is the world moves and you know, we have, you know, tokens and we have crypto and we have bitcoin and we have stablecoin, all of these things. It's wonderful. And if it can make payments faster, more reliable, we should do that. But if you want to pay interest on stablecoin deposits, fantastic. Do it. Do it within banking. Apply for a bank charter. Work within the same rules and regulations. Because everyone says stablecoin. Well, there's no risk in that. I don't believe that at all. There is risk in that and there will be fraud that occurs in there. Then I believe what's likely to happen if stable coins grow and then there's a failure? Where will they come when there's a failure? They will come to the FDIC fund.
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B
Yeah.
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G
So the banks will end up having to bail it out anyhow. So stablecoin welcome them paying interest, become a bank, pay interest on those deposits and follow all the laws and regulations we have to. Let's compete together for the betterment of our consumers.
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B
Point about going to the FDIC which you guys are funding. Help us out. Brent can walk us through everything. Thanks so much for making the time.
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G
Thank you for the opportunity.
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B
Appreciate it today. Brent Beard all with WA Fed Bank. Coming up, why the boom and bust days of memory stocks may be behind us and what it all means for investors. Look at these year to date gains still. We'll be right back. With the Venmo debit card.
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Thy ticket lady Jennifer of Coolidge. Well, many thanks good sir. Here is my Discover card. They accept Discover at Renaissance fairs? Yeah, they do here. Discover is accepted at the places I love to shop. Geth with the times. With the times. You're playing the loot. Yeah, and it sounds pretty good, right?
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A
Discover is accepted at 99% of places that take credit cards nationwide.
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D
Based on the February 2025 Nielsen report.
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A
This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Landsford for this information packed daily market Preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions and key results and statistics that may impact your trading. Download the latest episode and subscribe@schwab.com Market Update podcast or find Schwab Market Update wherever you get your podcasts.
- [29:04]
B
Welcome back to the Exchange and markets right now are still kind of, what do you call this? Processing. Trying to process what's going on in the oil complex. Aren't we all? The NASDAQ still up a tenth of a percent. The Dow is down half a percent or 250. And Campbell's is moving lower after posting weaker than expected results and slashing its full year forecast. They now expect EPS of just 215 to 225 a share. Previous guidance was 240 to 255. As a result, the shares are having their worst day since July of 23. They're down 5%. They are now trading at their lowest level in nearly 23 years. And it's a different story for the memory stocks. After a downturn during the recent volatility, they're back on a tear, picking up where they left off and adding to their massive yearly gains. Sandisk, Western Digital, SK Hynix, Micron, Seagate. We're talking fourfold to 12 fold gains in just 12 months. If you're waiting it out thinking I'll buy these names on the dip, well let's see how long you're going to wait. Christina Parts Neveless is here to explain. And the reports of industry were raising prices 100% every time you turn around these crazy numbers to back up the action we're seeing, which maybe speaks to the sustainability of this upcycle in the memory market. And so for decades and I bring that up because memory stocks are a trader's game. Boom, bust, repeat. But I spoke with many executives across the industry and the message seems to be very consistent. This cycle is different. HP CEO recently just told me, quote, we will continue to raise prices because the industry will continue to raise prices. There is just not enough supply for demand. He's speaking about memory. SK Hynix also told me that AI workloads require a fundamentally different and far more memory intensive architecture than anything the industry was built to say support. The quote you're seeing on your screen really speaks to customers just willing to sign on for long term agreements. And specifically on the demand side, Micron as well. Micron Management told me customers are now more than willing to sign long term supply agreements. Locking in memory for years. Marvell CEO, a perfect example, said on their earnings call they locked in supply all the way through 2028. Of course you got hyperscalers crowding out consumer supply and no meaningful relief coming until 202027 at the earliest. Memory stocks to Kelly's point have absolutely surged. Micron up more than 350% just in the year. SanDisk over 1000% during that same time frame. What memory management is now asking investors to believe is that this time is different. That has structurally broken the old boom bust cycle and with long term contracts replacing, replacing spot market deals and hyperscalers locking in supply for years, they maybe have a case. But to your point, you saw the stocks go down just last week. So others are saying this is just a. I doubt the cycle, I doubt it's not going to be cyclical. I just think that the upside right now is so great. This just is going to go on for so long when it turns, maybe it'll turn a few times within that before it falls out. But at some point there will be, you know, there will be the other side of this. But this current upcycle might last and last and last. But then, then you're making the statement that at some point everything will come down. It's not just memory. We're talking GPUs, CPUs, all of the optical connectors for all of these products, the build out of the data centers, the power needed. Probably true, yeah. I mean at some point this is, this is the gold rush, you know, and it may go on for some time. Right. But it's up to the companies I guess to try to figure out what do they worry about calling the top or not. You know, if I were them, right now it's just guns blazing like full speed ahead. Yes. None of these CEOs. However Marvell CEO did say on the earnings call that he does expect a moderation for Capex and he's the only CEO that I've actually heard say that out loud. But not memory supply that is just being locked in for years to come. Yes, first we'll have to see them not doubling prices in a month and that'll be the first two point $900 laptop is supposed to go up 40% because of these memory prices, according to Trend Force. Oh, another thing, all our electronics. Hang on to that one right there, stickers and all. Christina, thanks. Let's get to Mackenzie Seagallos now for the CNBC news update. Hi, Mackenzie. Hey, Kelly. President Trump has put his disarmament plans in Gaza on hold, Reuters says, citing three sources with knowledge of those negotiations. Reuters reports that Trump's attention has turned to the Iran war, which has ensnared multiple countries that pledged money to help rebuild Gaza. The White House denied the Reuters report, writing in a statement, quote, discussions on disarmament are ongoing and positive. The British government released documents today showing Prime Minister Keir Starma was warned of danger, general reputational risk around Peter Mandelson's relationship with Jeffrey Epstein before appointing him to the US Ambassadorship. Starma fired Mandelson in September after emails released to the public showed his relationship with Epstein. And Lava erupting from Hawaii's Kilowi volcano reached more than 1,000ft yesterday, prompting temporary closures of roads in a national park. It marked the 43rd episode since the eruption on the state's Big island began in December of 2024. Luckily, the molten rock was confined within Cloudy's crater and didn't threaten any homes or buildings. Back to you. Look at that. Wow. Mackenzie, thank you very much. Coming up, is Oracle safe now? It seems like Wall street got some of the answers it wanted from their earnings last night and no new plans to raise debt this year. Wedbush's Dan Ives saying the core air and cloud numbers and backlog tell a robust AI revolution demand story. The shares are up almost 9.9percent right now. We'll dig more into it next. One for the good guys, a clearer path ahead and delivers on acceleration. Those are just some of the positive commentary on the street today after Oracle's big beat. The company reported double digit growth in both total cloud revenue and cloud infrastructure. The shares were up at the highs 13% today. My next guest has held on to the stock throughout its recent weakness and calls the beat a big relief to the overall market. Surat said he is managing partner at DCLA and a CNBC contributor. So Surat, why did you stick with it? Welcome.
- [34:51]
C
So we know we bought it when the multiple was in the early teen, low teens. Then you know when you had all the announcements went up to the 40s. We sold a piece of it, kept kind of the remaining. But I still think cloud is the core for Oracle and what the issues that they face were in the credit markets really that was how much debt is a company like that going to take on? And I think Kelly, the reason that I'm relieved is because they said a couple of things. One is obviously the cloud growth is high in the 40s but more importantly the credit markets, the spreads kind of came down because they're not going to the markets to borrow any money and that's where the market's going to look for in the future to say, hey, you're spending all this capex, it's going to be self funding, we're not going to the credit markets and we're going to have our customers not bring our own chips. So I think you got a relief rally out of that because if it had been the other side, I think you would have brought down a lot more other than just Oracle.
- [35:45]
B
Yeah, that's what I was going to ask. Kind of talk about what you think the ecosystem here is that now can be breathing a sigh of relief.
- [35:52]
C
So I think you get the Nvidia breathing sigh of relief. I think you get the core Eves and then you get the other, you know, the chat GPT as well who are using all this as a sigh of relief because what that would have said was hey, wait a second, the demand is not there. And Kelly, you were just talking about, you know, memory stocks. It would have brought that whole sector down because the question would have been is is demand still there? And then are we double ordering? And then you know, it's sell first, ask questions.
- [36:20]
B
Do you think there's double ordering going on there?
- [36:22]
C
I think there's so much demand that right now, yes, I would say the Fab Seven, everybody is trying to get their orders in and that's also comes from, you know, the chip sector from, for your telephone. So I think that's all going to happen too and at some point those two are going to have to meet. And the question is what's the price
- [36:44]
B
point we're about to talk about? I'm going to, I'm going to give away our mystery chart if I ask you this, but I can't resist. You still like a couple of SAS talks. We were talking about Workday. I don't know if that's one of them. Intuit Salesforce. How are you thinking about the software space? What do you have exposure to here?
- [36:59]
C
So all three of those actually. So Intuit Workday and Salesforce and then we also own a couple like Roper. Look, I think it's you know, 11 to 12 times cash flow These are very cheap stocks, Salesforce, so they're going to buy back 50 billion workdays, got their, you know, new but old CEO back. And I think these are tough businesses for, you know, Vibe coding to take out. So they'll have to prove that they can execute. And especially like Intuit, that is such a big moat around its business. Right. I mean, you look at the information that all of these three companies have, it's going to be very hard to replicate the security issues, the integrated issues. So it's going to be an execution story similar to what Oracle had to do today. Yeah, and I think you'll get some of that multiple back because the earnings are going to be there, they're going to grow high single digits to low, you know, 10, 11%. That does not deserve a 12 times multiple. Something higher than that.
- [37:51]
B
You mentioned Vibe coding and a friend of mine who's one of the best kind of like computer scientists, programmer types out there is his firm says to him, you know, you got to do more with these AI tools. He kind of laughs. But, you know, are there any more implications of the fact that this, that Vibe coding is taking off to such an extent?
- [38:10]
C
So I look at it two ways. One is, yes, you can do that. But then you're, you're sitting there in isolated space and you know, what's to say that information that everybody wants is secure? Right. The second part that I don't think is appreciated as much as we just don't see that workday, Salesforce, Intuit, Roper, all these companies are sitting still. They're using all this information, all this technology to improve themselves. And they've got the resources and not just the people, but the billions of dollars behind them in cash flow. They're not going out to capital markets to say, hey, we need venture money. So I think that's where you have to kind of give them the benefit of the doubt and say, hey, they've done this before. I know some of them might not might lose, but if you go with the best of them, I think you're going to do well down in the future.
- [38:54]
B
And if you don't have the stomach for it, you can do the high quality compounders you say, like Visa, MasterCard and Thermo. Fisher Surat. We'll leave it there for now. Talk again soon, I hope. Thanks so much. Study from dcla. Coming up, Oracle is not taking on any more debt, but another software peer is Salesforce. See, we're going to reveal, because I just talked about it, Deirdre Bosa says it feels less like confidence they're playing here and more like defense. We'll talk about that right after this. Back in Moody's downgrading Salesforce as the company reportedly plans to sell up to $25 billion to fund stock buybacks. Deirdre Bosa has more in today's tech check. This is the theme. Watts doing it. Salesforce is doing it. People who think their stock is undervalued. Deirdre. Yes, but what they're doing and how they're doing it is a little. I mean, it varies. But basically levering up, taking on debt to buy back stock. That is the playbook specifically of IBM and old Oracle. Not a company exactly. That's pioneering a new AI software age. Now, on paper, you can see the logic. They just beat earnings. Revenue north of $40 billion. Free cash flow, nearly $15 billion. Investors spent years telling Benioff to stop acquiring, start returning capital. So he is. But here's what also stands out. Agent force their AI play. It's growing at 170% year over year, but it is still less than 2% of revenue. The stock is flat this month while ServiceNow, Datadog, Shopify, they've all bounced back from this sort of severe software sell off. So the market is picking winners in that sell off and CRM just isn't one of them yet. Now, there's another detail here, Kelly, that doesn't get enough attention. Salesforce pays about three and a half billion dollars a year in stock comp. So a big piece of any buyback isn't returning capital, it's just covering dilution. The bet here is that disruption fears, they're overblown. And if Marc Benioff is right, that looks smart. This all looks smart. If he's wrong, though, he just tripled the debt on a company whose growth story the market is already questioning. And to your point, Kelly. Yes, we're seeing more tech companies borrow more, but they're putting it in most cases to M and A or to build infrastructure for this trade. This is purely to buy back its own company. Begs the question, do they have something better to spend it on? Right. Tripling the debt load. Yeah, it is a big move. It is a big. And who was at the trade desk CEO the other day who bought a bunch of stock? They work day, they brought back the old CEO. I mean, I do watch this and say these people are putting their money where their mouth is. They are. They sound like they're saying, hey, it's going to be fine, and turning around and, you know, offloading the shares. Yeah. And I think that's correct. It is a signal of confidence. But in this case in particular, they're borrowing to buy back their own stock. Other companies borrow to execute a growth playbook. So I think that's like, that's the difference where we're looking at here. Yes, this is going to be a confident move, but could it be spending that money better somewhere elsewhere? Yeah, absolutely. Deirdre, thanks. Appreciate it for now. Deirdre Bosa Coming up, higher oil prices getting a lot of the attention lately. But NAT Gas higher as well. That could all mean a pricier gross grocery bill right around the holidays. Fertilizer costs are up. We'll explain all of it right after the break. Everything from oil to diamonds being held up in the Strait of Hormuz, including a key component of fertilizer called urea. Prices as a result are near four year highs as the Middle east produces between 40 and 50% of the world's urea exports, most of which pass through the strait that has Fertilizer names like CF Industries and intrepid potash surging CF is up nearly 18% since last Monday. Not only is CF North America's largest urea producer, but comparatively lower nat gas prices here could give them a competitive edge over Gulf based competitors when it comes to producing other fertilizer components like nitrogen and ammonia. Let's bring in Joel Jackson. He covers the chemical and fertilizer space at bmo. Joel, it's great to see you and these stocks, I mean if you own them and the conflict quells, do you think they still have significant upside?
- [42:49]
E
They do. I'm sure on the day the war ends, hopefully they would fall back a bit. But I think what we're seeing, you know, if there's weeks of outages here, we've seen a week and a half weeks of problems. The issues are going to linger for, for, for months. Right. You've got lots of problems going. You mentioned some of them. You have just gas prices going up, gas being cut in Qatar. Countries like India, which make a lot of nitrogen now are cutting gas to their own nitrogen production plants. So a lot of things that are happening that could make three weeks of war last for three months of, three months of lingering effects, you know. So I think you could, you could rest on the fact that price will stay higher for longer and these names could still perform.
- [43:26]
B
And how many times have we seen squeezes like this on these prices? What does it usually mean in terms of the effect on food in the Grocery store?
- [43:34]
E
No, in 2022, in the initial months of the Ukraine, Russia conflict, we definitely saw prices go up a lot for a year. They came down eventually. You never really saw the large impact on, on food prices, like fertilizer prices. They go up a little bit or a lot. They don't really impact food prices as much, you would think. So it is not that large an impact downstream on food and crop price. And that's why crop prices really haven't moved yet in the last week and a half.
- [44:00]
B
Could that change or because we're, we're hearing people talk about, hey, consumers, watch out around the holiday season, you know, and I don't know if that's just alarmist language or if there's some basis to it.
- [44:12]
E
No, of course it could change. If we get into months of problems in the street of our Mars and other things going on and the whole global supply chain of commodities changes and energy prices are higher than for sure it could change, but right now it just hasn't.
- [44:25]
B
Yeah, you're watching nitrogen, phosphates, potash, methanol. I mean, there's a lot of different kind of inputs here to the global supply chain. How would you kind of describe them in terms of importance and where are we seeing the biggest impacts?
- [44:38]
E
Well, half of the world's fertilizer is nitrogen. And as you said in your preamble, I mean, a large chunk of that is coming out of the Middle east and Russia for exports. And so, you know, you can't just replace that. And so you could see a dramatic change in half the furlough costs very quickly. And then of course, natural gas is a large input to a lot of fertilizer. So, I mean, methanol is more niche, potash and phosphate a little bit smaller. And potash and phosphate aren't as affected. Yes, they've got some production in Middle East. Yes, phosphate does use sulfur and ammonia, so that's also nitrogen. But they're just not as directly impact, not as materially impacted. It's really nitrogen where you could see the most impact and the quickest.
- [45:16]
B
And you also cover companies like Deere. What, what does this mean for them ultimately?
- [45:21]
E
Well, we've had a bad couple of years and the stock price done great for Deere and Agco, the equipment players. But we've really seen farmers not buy new trackers and combines for a number of years. Farmer economics haven't been great. If we're in a situation where crop prices are only up a little bit, but fertilizer and other input costs are up. A lot. It's going to make it hard to transition from kind of the contraction we've seen in ag equipment in large, large North American ag, you know, tractors and combines, you know, it's going to see hard to transition now to farmers wanting to spend the large capital purchases again. This could prolong the contraction like another year.
- [45:54]
B
Wow. Because we, I remember was, wasn't it Deere who had that big pop on earnings just a month or so ago?
- [45:59]
E
They had an investor day in New York that was great. And they really laid out a really strong, you know, midterm EPS guide of 40, 50, $60 EPS for a company that earn less than 20 this year. So they point to some really good, you know, performance if they can deliver over the next three, four or five years. That, that really got investors excited.
- [46:15]
B
Right. But I take your point that overall actually you think this could be a tougher go for them because they're facing, you know, and farmers might be facing rising input costs, but not so in a weird way, the farmers want crop prices to go up even though the rest of us might not.
- [46:28]
G
Right.
- [46:28]
E
Well, I mean we were still facing the transition this year from contraction, hopefully stabilization and growth back in large ag, large North American ag tractors and combines at this prolongs another year, you know, those targets might seem harder to achieve.
- [46:42]
B
Yeah, exactly, Joel, we appreciate it. Thanks. And by the way, your best case scenario now is that what is what for the actual activity that is passing through the strait.
- [46:51]
E
I mean, look, last week everybody thought the war was going to end in a matter of days, maybe weeks. Now it feels like it could be weeks, maybe months. It's just sort of the consensus view. So my base case is still, I guess that this will be over within weeks and the effects prolong for months. But honestly, it seems so fluid every day. Who knows?
- [47:09]
B
Yeah, No, I think it feels that same way to a lot of us. And yet the market, you know, kind of taking it in stride for now, Joel, really appreciate it. Joel Jackson joining us from bmo. We'll have much more on rising fertilizer and energy costs coming up on Power Lunch with Interior Secretary Doug Burgum. He's going to join us next hour. That does it for us here on the Exchange. And I'll try join Brian Sullivan on the other side of this. Quick break. Get in the game with the college branded Venmo debit card. Rep your team with every tap and earn up to 5% cash. Back with Venmo stash a new rewards program from Venmo. No monthly fee no minimum balance, just school pride and spending power. Get in the game and sign up for the Venmo Debit card@venmo.com College Card the Venmo MasterCard is issued by the Bancorp Bank. NA Select Schools available. Venmo stash terms and exclusions apply at venmo.me stash terms max $100 cash back per month.