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Ripple Effects of the Iran War 3/12/26
00:43:53
Oil flowing through the Straight of Hormuz is the “only thing that matters in the world,” according to BCA Research. A former NSA and Marine Corps. hacker warns Iran is being much more aggressive in its cyber warfare, and says businesses need to take the threat very seriously. Plus, why the ongoing war could wreak havoc on real estate's key spring season.
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- [00:00]
Kelly Evans
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- [00:30]
Rick Santelli
Trading at Schwab is powered by Ameritrade, giving you even more specialized support than ever before, like access to the trade desk. Our team of passionate traders ready to tackle anything from the most complex trading questions to a simple strategy. Gut check. Need assistance? No problem. Get 24. 7 professional answers and live help and access support by phone, email and in platform chat. That's how Schwab is here for you to help you trade brilliantly. Learn more at schwab.com/trading.
- [00:58]
Kelly Evans
You're listening to the Exchange. Here's today's show. Send me a book, Jim. I want to read it. Welcome to the Exchange, everyone. I'm Kelly Evans. Oil and bond yields are shooting higher today and that's putting pressure back on the stock market. You can see WTI crude there. It was up more than 10% at one point. We're at almost 95 a barrel and Brent was at 100. As Iran's new supreme leaders say the Strait of Hormuz must remain closed. And Energy Secretary Chris Wright told CNBC today that the U.S. navy is, quote, not ready to escort tankers through the strait. You can see the effect that's having on stocks taking their cue from oil in the red again, although off session lows, Dow's down 544 points and today Big Tech is broadly lower. In fact, it's one of the worst performers with the semis and the linked trade selling off. The industrials are under some pressure today as well and yields continuing their climb higher. Take a look at the 10 year. We started March with the 10 year at 405 and today we're up near 425. We do have a 30 year bond auction coming up and, well, happening kind of now. The results are coming up. We'll bring them to you shortly. But we start with the driving force behind all of these moves, the escalation of the war in Iran as the administration takes steps to try and mitigate the economic impact. Eamon Javors is in Washington with the very latest.
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Rick Santelli
Eamon Kelly, we haven't seen President Trump on camera yet today, but he did issue A statement a while ago on social media, and we've got now these dueling statements between President Trump and the new Supreme Leader of Iran, as you mentioned. Here's what the President said. First and foremost, he said, the United States is the largest oil producer in the world by far. So when prices go up, we make a lot of money. But as for greater interest and importance to me as president is stopping an evil empire, Iran, from having nuclear weapons and destroying the Middle east and indeed the world. I won't ever let that happen, says the President of the United States. So the argument the President's making there, Kelly, is that higher oil prices are good for the United States because the United States exports a lot of oil. Here's what the Supreme Leader had to say. This was a statement that was given out by state media, read out by a state media TV anchor, and he salutes in this statement the war fighters in Iran who are fighting American forces. He says they have been responding to the enemy and they have blocked their way to take control of our country. My dear brothers, the nation wants you to defeat the enemy and use the leverage of Hormuz Strait to. To block the enemy. So clearly, this is a supreme Leader, or whoever issued this statement in his name, who is encouraging Iranian military forces to continue to use their leverage over the Strait of Hormuz. And that's what's rollicked oil markets over the past couple of days. And we don't see any indication here today that anything is turning significantly in terms of the politics of this or the situation on the ground and on the water there in the region.
- [03:53]
Kelly Evans
Yeah, I mean, we've been saying this all week long, but if you only followed the rhetoric from Iran, you'd think that the situation in the markets in oil was far worse. The IRGC a couple of days ago said that would not allow the export of even a single liter of oil from the region to the hostile side until further notice. And Ali Lajani, who some say is kind of, I mean, he's a top security official maybe calling the shots right now to Trump, said, be careful not to get eliminated yourself. So, again, that rhetoric from a few days ago, what you're telling us now is spicy.
- [04:20]
Rick Santelli
Yeah, look, I mean, this is a defiant message from the Supreme Leader or the Iranian regime more broadly, depending on, as we say, who. Who issued it and why. But clearly the message is, you know, we're not backing down, we're doubling down on the Strait of Hormuz. And what we heard from the Energy Secretary this morning was that the US Navy is just not ready yet. They're not in a position to be able to escort tankers through the Strait of Hormuz. That's largely because of the threat of Iranian fire from Iranian soil. And so the question is, what do you do about dealt with strictly by air power, or would solving that problem require boots on the ground? It's a multifaceted problem because you've got missile fire, you've got artillery fire, but you've also got drones. Now, in this new world, a new way of war, and drones can be launched from a whole lot of different platforms that are hard to root out. And we've seen that play out in Russia and Ukraine over the past several years. The drones on the battlefield really changed the calculus in terms of what, what you can do with actual soldiers on occupying particular pieces of land. It makes it much more difficult for soldiers to operate really anywhere in the world. And so we're watching this play out and wondering where it's all going to land. Kelly.
- [05:34]
Kelly Evans
All right, Eamon, thanks for now. Appreciate it. Eamon Javers, let's turn back to oil as it continues to rally despite the announcement of the release of oil from the strategic reserve. In fact, since that announcement, it's really only moved higher. The lows this week so far we were below 78 a barrel and we're at 94, 57 right now. Pippa Stevens has a closer look at the action. Pippa.
- [05:54]
Reporter/Correspondent
Hey, Kelly. So with the strait still impassable, Gulf nations are turning to other export routes to the extent possible, including Saudi Arabia's east west pipeline with delivery in Yanbu. Exports there are up to 2.8 million barrels per day. That's up from 1.2 at the start of the year. That's according to Kepler, with total capacity there at 4.5 million barrels. Now there's also Fujairah over here in the UAE just south of the Strait. Exports there risen to 1.94 million barrels per day, up from 993,000 at the start of the year. Now, both of these sites are not without risks. We did previously see Houthis attack ships down here in the Bab El Mandab Strait, also another choke point for global oil. And both are also within reach of Iranian attacks. But the bigger picture here is that this rerouting helps, but it doesn't make up for all of the lost barrels. The same with the IEA's historic release of 400 million barrels. It buys time, but it is not a long term solution. And now we have started to see the futures curve come up. Now, prior to the war, Brentford delivery back in October was trading around the $70 mark. Now it's up to $83. Of course, still short of the 99 where we are right now. But those tail prices are starting to come up now, Kelly.
- [07:04]
Kelly Evans
So, Pippa, one more time. The other ways they're routing the supply are through that pipe. Tell me that one more time.
- [07:10]
Reporter/Correspondent
Yeah, so we have the east west pipeline in Saudi Arabia to Yanbu, if you can get that map up here. And then we also have Fujairah. And so they are both trying. Here we go. There is Yanbu and there is Fuji Fujairah. So both are definitely within range of an Iranian attack. And so that does remain a risk here. And as they think, Aramco, we did hear that they were going to increase outputs at Yambu. But it does remain a risk that if you then increase capabilities at both of those sites, they also then kind of become sitting ducks in terms of
- [07:37]
Kelly Evans
potential attacks and targets. All right, Pippa, thank you, Pippa Stevens. Now, with the Strait of Hormuz still effectively closed, the stakes for global markets are rising. Our next guest says the oil flowing through there right now is the only thing that really matters. And joining us is Marco Pappage. He's Macro and Geopolitical strategist at BCA Research. Marco, appreciate you making the time again. We try to check in with you a little more frequently than usual as this is going out. And am I interpreting your view on this correctly right now? Which is to say, as the rest of us are thinking, hey, maybe this is going on, going to go on longer than we previously thought. Are you thinking the opposite right now?
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Marco Pappage
No, I'm not. I mean, there's a lot of uncertainty. There's a fog of war. I think that in the near term, I think the market is not reacting enough because there is a very large percent probability that it does last quite long. And so I think in the near term, the markets are too complacent. Even the oil markets that you're referring to, the spot price has gone up today, I don't think enough. I think the prices need to get to 120, 130 for the crisis to end. And so what I would say to you is that I'm more short term concerned about the complacency in both the equity markets, risk, generally speaking, but also oil. But in the longer term, yes, I do think that Iran would have to basically withstand considerable pain in order for them to maintain the closure of the straits. So the US Is going to shift into a punitive air campaign. I mean, President Trump basically said it. He said he's going to rain death, fire and fury on Iran and they will do that. And so anybody who thinks that Iranians can do this for six months is basically making an assessment of that this regime is willing with effectively turning the country into a parking lot over those six months.
- [09:21]
Kelly Evans
Well, I mean, what other choice? When you listen, we're all hearing these statements from the Iranians. What would be a sign to you that despite the rhetoric, they were looking for something behind the scenes to de escalate the situation?
- [09:36]
Marco Pappage
Well, first of all, they're talking behind the scenes to a slew of countries. Second of all, they haven't been clear on the closure of the straits for the past several days. They were equivocated. They said if you fax confirmation of Israeli and American ambassadors being ejected from the country, we'll let your ships through. We also have confirmation, although it's not completely confirmed, at least I don't know if it is, that some Indian flagged tankers have gone through. It just doesn't seem to me like they're in it for the long haul. Also, of course they have to present as if they are. Just like President Trump used to talk about regime change just a few days ago. And of course that narrative from the US side has changed. I think also Iranians have to, I mean it is in their interest to suggest they're willing to do this for months. But there's another question too that I have, which is that why does everybody pretend like this has never happened? You know, this actually did happen in the 1980s. We had tanker wars between Iraq and Iran and eventually, yes, eventually the U.S. navy. But also it was joined in that effort by many other countries. Even the Soviets participated, did clear the Straits of Mines and did put in a naval escort mission. So the question to me is really this. There's like a mathematical equation here. How much pain is Iran willing to tolerate from a punitive air campaign multiplied by a coefficient of the ability of the US and the rest of the world to clear the straits over the next month and then probably multiplied by some other coefficient of how many reserves does the world have? How much time can it buy? In the 1970s and 1980s we didn't have as plentiful global reserves. I mean, one of the reasons we have them is because of what happened in the 70s. So you know, Iran would basically have to endure extreme pain from a punitive air Campaign by the US Longer than those reserves can give the rest of the world time to clear the straits.
- [11:33]
Kelly Evans
And you also think watching the oil price like 120, 130, maybe you're using Brent as the proxy, but increasingly it almost doesn't matter. 120 or 130, you think brings us to a swifter resolve, or you think we kind of need to get to that point to get to any resolve?
- [11:46]
Marco Pappage
I think it does bring us closer. That's why I think the longer that the markets are complacent, the longer there'll be policymaker complacency. It's not supernatural. So If S&P 500 goes down half a point and then is in the green the next day, I don't think President Trump will have the urgency. But we need the urgency from the rest of the world because that naval blockade needs to be cleared, and it was cleared in the 80s. There is. The US does have the technological capability, but as you said earlier, it needs to deal with anti ship missiles. It needs to stop offensive operations in Iran and kind of focus more from a naval side on defensive. And this was all done in the 1980s. There are minesweepers in the region that can clear the mines. Other countries can send considerable arsenals as well. Many of the viewers here will probably snicker at my next comment, but France is sending eight vessels to the region, including its nuclear powered aircraft carrier that will significantly increase air assets in the region and two helicopter carriers that, at least as far as I'm concerned, are the most advanced in the world. Yes, even more advanced than what the US Has. So that is a good example of how a country, France is contributing. Over the next month, you will have a much larger international presence that will absolutely clear the straits. And so from Iranian perspective, you are kind of in a bind here. You're about to face punitive attacks from President Trump. And on the other hand, this international flotilla at some point will get to a point where it can get shipping through the straits as it did in the 1980s during the tanker wars. And so what is the interest in facing those very brutal punitive attacks during the duration of this? So, yes, I do think Iranians have an interest in negotiating as well, but they also have an interest in making sure that we're all very alarmed and that they sound very scary.
- [13:41]
Kelly Evans
You know, I love the formula. I think we should actually try to do something where we really spell that out because you're right, it's a good way to think about it. And we talked to Marcus Baker, who is Marsha's global head of logistics, marine and cargo yesterday and he said exactly what you're saying. He said because for them, for the insurance industry, this is not really an insurance issue right now. He said we need multinational flotillas. So it's interesting to hear you say the exact same thing right now. Marco, thanks for your time. Appreciate it. Marco Pape, it's joining us from BCA Research. Want to get to the 30 year bond auction with the way that yields have been behaving amid this conflict. Rick Santelli has the action at the cme. Rick, how to go?
- [14:17]
Rick Santelli
Well it went pretty well. Definitely best to breed, you know, three year old was a D plus, tenure was a C minus. The 30 year drum roll please. A B as in boy not a bad auction. 22 billion reopened 30 so 29 year 11 month security. The yield 4.871 which was about a half a basis point lower than A when issued market. Lower yield, higher price. Government's a seller. That's a good thing. So all the metrics were at or slightly above 10 auction average. It priced well. I give it a be as in boy. I look at the yield curve today we have up seven basis points on a two. We're actually down a basis point on a 30. Why? Well, we heard our guests talk about probabilities of war. In my opinion about as accurate as the probabilities of Fed fund futures. But nonetheless we see that they have gone down in terms of easing almost every day this week, especially from yesterday to today. What's going on in the short end is all about the coverage of inflation on this conflict and how it's affecting markets and really is getting to be a loud mouthpiece and investors are somewhat listening. Although many believe his last guess that the markets aren't really paying close enough attention. But we really want to pay attention to the yield curve. It's given us some good clues especially in front of Fed meetings. And ultimately what we want to watch is how European yields continue to move. Because should the 10 year for example close here be the highest yield close since February 4th. But yet you look at what's going on in the UK and Europe, their 10 year and longer maturities go way back further in history in terms of how high their yields have moved back to you.
- [15:59]
Kelly Evans
Tough position for them to be in right now with energy prices. Rick, thank you very much. We've got a news alert out of Washington. Emily Wilkins has the story. Emily, what's happening?
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Reporter/Correspondent
Hey Kelly. Well OpenAI's Sam Altman is on the Hill today meeting with lawmakers. I got the chance just to very quickly catch up with him as he was walking to a meeting. I asked him about what's going on with the Department of the Defense and of course, anthropic OpenAI and the contracts. But Altman told me is that it's very important to support the United States government and the democratic process. He said that obviously we have disagreements on some things that we don't think SCRs are a good idea, but we think that the country needs the ability to make decisions about how the most important things in the country are going to work. I then asked him about what he was looking for on the Hill today. Remember, Congress has talked a bit last year about preempting state AI laws. Listen to what he told me today.
- [16:53]
Kelly Evans
It's mostly been about economics, jobs, those sorts of things.
- [16:58]
Rick Santelli
We have not gotten on that topic so far.
- [16:59]
Reporter/Correspondent
Got it.
- [17:00]
Rick Santelli
We'll see what else comes up.
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Reporter/Correspondent
Anything else that you're expecting from Congress in terms of AI and legislation and
- [17:05]
Kelly Evans
what you're looking for from them?
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David Kennedy
I mean, certainly the economic impact in jobs are going to be a huge topic.
- [17:11]
Reporter/Correspondent
Got it.
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Marco Pappage
Thank you.
- [17:15]
Reporter/Correspondent
That was Altman as he was going into the office of Senator Brian Schatz. I had the chance to catch up with Senator Schatz when he left the office. He told me that they had discussed the Department of Defense and the contracts. He said that he did have some concerns with how things were being handled by Defense Secretary Pete Hegseth. When I asked him if open Air if he felt confident about them having a contract with the Department of Defense, he said that it remains to be seen. He is now meeting with Senator Mark Kelly. And we should note both Senator Kelly, Senator Schatz, both Democrats, both individuals who are very tuned in on AI as well as national security. Kelly.
- [17:51]
Kelly Evans
All right, Emily, for now, thanks very much. Appreciate that. Emily Wilkins, Speaking of defense, despite the escalating rhetoric from Iran's new leader, the defense stocks today are not only down 3%, they're on track for their worst week in almost a year. Granted, they are still up by more than 50% in that time, but are they able to keep up with the demands of the Iran war? Some are worried about the cost of replenishing this country's munition stockpiles. Morgan Brennan sat down with the defense official in charge of that process and joins us now with the highlights. Morgan?
- [18:22]
Reporter/Correspondent
Hi, Kelly. That's right. So I just spoke with the Defense Department's undersecretary of acquisition and Sustainment. Mike Duffy, just a short while ago from the Reagan Institute's National Security Innovation Based Summit. He is, you just mentioned the official that when the president calls defense contractors to the White House as what happened here last Friday and then announces a quadrupling of some missile and munitions production, he is the official that oversees that whole process and has been striking deals with the defense industry in the last couple of months to be able to realize that. So I asked him 13 days into operation Epic Fury for his update and assessment of that conflict in Iran.
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John Lavallo
Right now I think we're having great success in the operation. You know, my focus even before these operations has been on ensuring that we've got a defense industrial base that can support any conflict in the future. As you know, we rolled out some deals in the last two months to triple or quadruple production of some of our critical munitions. I think, you know, we're getting ahead of the need and the growth that the defense industrial base requires in order for us to secure our future. And so but as far as the operation is going, I think we're doing really well.
- [19:33]
Reporter/Correspondent
And I do want to get into some of those deals and what that means for the defense industrial base. But just first, because this has been the question is, does the military have what they need, whether it's missiles and munitions or other weapons systems right now, especially if we were to see this become a prolonged and protracted conflict?
- [19:49]
John Lavallo
Well, I think the best person to ask on that is Chairman Dan Kaine, and he said very clearly last week we have what we need. And my focus, as I mentioned, is just on ensuring that we've got an industrial base that can supply that for the future. These innovative deals and the acquisition transformation that President Trump and Secretary Hegseth have driven the department towards is ensuring that we've got a system that can get industry engaged to make their own investments and bring innovation from industry into the Pentagon and put it in the hands of the warfighter.
- [20:18]
Reporter/Correspondent
Under your purview also is foreign military sales. So just given the fact that there is this focus on stockpiles right now of weapons with this conflict playing out in Iran, South Korea over the weekend, for example, very vocal about the fact that they're seeing parts of one of their THAAD systems being repurposed to Iran, how much of that is actually happening in real time?
- [20:38]
John Lavallo
Well, we're constantly kind of evaluating and reviewing where our foreign military sales allocations are going. Right now we're focused on ensuring that our allies and partners that are in the fight have what they need as well as having what we need. But it's a constant process to us for us to look at where do we have the ability to transfer the weapons to the greatest point of need?
- [21:03]
Reporter/Correspondent
What do you see as the pain points or pressure points still, when we talk about supply chain and defense industrial
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John Lavallo
base, I think we're, you know, we're making great investments under President Trump's leadership to repatriate the critical minerals industry, everything from mines to processing to magnets, to ensure that these raw materials that are essential to us being able to maintain and develop these technologies and build them, to put them in the hands of the warfighter, are resilient and accessible for our domestic companies. So I think we've we've invested over $2.7 billion, which is, I think, almost three times what the previous administration invested over, over four years to ensure that we're bringing back that capability to the US So we have a resilient supply chain to support.
- [21:53]
Reporter/Correspondent
And so what's interesting is that over the last couple of days, we've had some reports that the Pentagon is hiring investment bankers as well to do more deals and to deploy what could be hundreds of billions of dollars in capital as well. He says the numbers that are being reported are questionable. But yes, they are hiring investment bankers and other finance folks and other experts in other areas of industry as well as they do think about this entire process very different, differently. Now, Kelly, bottom line here, expect more deals in the defense industry with this administration and also as we saw with L3Harris, a push for more competition, including through possibly more deconsolidation. So we'll see how all of this plays out. You can see that whole interview with undersecretary Duffy on cnbc.com that'll be up in just a little bit on the website.
- [22:37]
Kelly Evans
Yeah, and I understand why there's a lot of excitement in the defense space, but also some skittishness perhaps around what exactly that will look like. Morgan, thanks for bringing that to us. Appreciate it. Morgan brennan, Coming up, JP Morgan CEO Jamie Dimon warning about the rising threat of cyber attacks on this show just about a week ago now, it seems we have our first major digital assault since the start of the Iran war. How should companies defend themselves? That's next. Plus, homebuilders on track for their longest losing streak. Get this in eight years. As the Senate passes its housing affordability bill, which would ban institutional investors from buying homes. We'll talk prospects for its passage coming up on the exchange.
- [23:19]
Michael Cagino
This is the exchange on cnbc.
- [23:27]
Kelly Evans
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Reporter/Correspondent
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Kelly Evans
That's no chaos now.
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Reporter/Correspondent
No cash left behind later.
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Kelly Evans
Skip the showings now. Pocket extra profit later.
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Reporter/Correspondent
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Kelly Evans
This is so awesome.
- [24:13]
Reporter/Correspondent
Later or sell fast now and pop the champagne later. Cash now, more later. Now available nationwide. Start your offer@opendoor.com radio profits calculated after fees and costs. Eligibility and offer price may vary.
- [24:27]
Rick Santelli
Trading at Schwab is powered by Ameritrade, giving you even more specialized support than ever before, like access to the trade desk. Our team of passionate traders ready to tackle anything from the most complex trading questions to a simple strategy. Gut check. Need assistance? No problem. Get 24. 7 professional answers and live help and access support by phone, email and in platform chat. That's how Schwab is here for you to help you trade brilliantly. Learn more at schwab.com/trading.
- [24:57]
Kelly Evans
You got to expect there'll be cyber attacks or terrorist attacks either here around the world. You know, banks may be targets or may, you know, plenty of other people. And we, and we always try to
- [25:06]
Michael Cagino
be prepared for that.
- [25:07]
Rick Santelli
We never try to predict when, why, where.
- [25:09]
Michael Cagino
We spend a lot of money protecting ourselves for cyber.
- [25:11]
Rick Santelli
We think it's part of our job. But I've always said I would consider
- [25:14]
Kelly Evans
one of the highest risk banks bear, not just the cycle. Cyber. That was JP Morgan CEO Jamie Dimon on our air just last week discussing the risks cyber threats posed to the banking sector and beyond. And yesterday, hackers claiming they were retaliating on behalf of Iran launched a cyber attack on the medical device company Stryker. My next guest says that could be the start of many. For more, let's bring in David Kennedy, former NSA and Marine Corps hacker and founder of CyberSecurity firm trusted SEC. David, it's good to see you again. And I will say, as a different guest was leaving last week, another CEO, he sort of looked back and said to me, you know, I'm worried about cyber. And that really struck a chord. This is something that obviously CEOs are spending a bit of time on and what should they do?
- [25:59]
David Kennedy
Kelly? This is the first time where we're actually having a direct conflict with a type of regime that has very capable cyber capabilities. And so if you think about that,
- [26:09]
Marco Pappage
all rules are off.
- [26:09]
David Kennedy
Traditionally, you know, you look at China, Russia, North Korea, you know, they will hack into things, but they don't cause any type of major outages. What Iran is trying to do here now is really focus on our critical infrastructure. So anything from, you know, hospitals, energy sector, grid infrastructure, water treatment facilities, financial sectors, trying to inflict as much damage as possible to try to curb geopolitical policy here with the war and create, you know, uprisings here within the United States. So they're going after anybody they possibly can. And everybody is on high, high alert right now, especially in those specific industries. But abroad we need to be really careful over the next few weeks, a few months with cybersecurity. But we've been building for this. You know, we have been upping cybersecurity over the past several years. Enterprise has really been focusing on that, especially because of the ransomware issues. So we're prepared for this, but it's only going to take, you know, one small exposure that really opens up the hole for these Iranian hackers to really get into the infrastructure.
- [27:00]
Kelly Evans
In the case of Stryker, my understanding is they went and disrupted an internal login page and that the company told employees to to immediately stop using and turn off all of their devices that might be off of the off premises. So do you think that other companies should take proactive measures like that?
- [27:18]
David Kennedy
Yeah, when you see these types of things happen, you know, a lot of times the this group specifically called Hondala, which is directly aligned with the Ministry of Intelligence of Iran, you know, they specifically target, you know, a system that they can hit a lot of other things with. So, you know, what the biggest problem with this is, is when they get access to, you know, a type of system that has access to a lot of other systems, it starts to spread wildly like wildfire within the organization, causing these major outages. And that's really what these companies really need to be proactive about, is looking at, you know, where are our biggest points of vulnerability to where it could really impact, you know, our manufacturing process or our water treatment process and really home into those areas because that's what they're going to be targeting. They're not looking for individual systems, one or two or three. They're trying to thousands of systems at the same time to cause as much pain and agony you know, in those individual areas. And that's really the focus that we're looking at today and where all these, these companies are really focusing their efforts on.
- [28:09]
Kelly Evans
You know, not to give them any ideas, but I do worry more perhaps about infrastructure, anything on kind of the state, local government side of things, because companies, at least a lot of them, they have to worry about shareholders. They don't want to look bad, they can spend the money on cybersecurity. Little different stories sometimes with our kind of important, you know, resources. And I, I don't know if there's anything that we can do to make sure that we're not vulnerable or maybe I'm underestimating it and a lot of that work has already been done.
- [28:35]
David Kennedy
Well, you know, the government has the Cybersecurity Infrastructure and Security Agency, or cisa, and they have teams that are continuously going through a lot of our critical, critical infrastructure, but over 80% of it is private sector owned. So it's challenging to get these types of things. And then you look at a lot of the technology, you know, they might be 40, 50, 60 years old and very difficult to protect. And that's what Iran's really looking for. So, you know, our critical infrastructure is definitely the number one point of focus. But, you know, you look at hospitals, you know, emergency rooms, things like that, these are all within scope now because of warfare. You know, things that traditionally were off the table before are now on the table as far as what Iran is going to be targeting. And that's what we need to be concerned with. And even individualized people. You know, you could definitely do things to protect yourself, you know, putting things in, like multifactor authentication on your banking websites, you know, your social media accounts, things like that, to protect yourself. That has a big step, believe it or not, in reducing around 97% of the attacks that we see out there today through phishing and social engineering. But it's something that we all need to be aware of and know that the next couple of weeks are going to be pretty rough and they're gonna be lashing out as hard as they possibly can to hit us here at home.
- [29:34]
Kelly Evans
Yeah, great reminders. I do encourage people to go do that, be smart. I'm like talking to myself here, but what you're doing home and the, you know, all of it. So. David, thanks. Really appreciate it for now. David Kennedy.
- [29:44]
David Kennedy
Thanks, Kelly.
- [29:44]
Kelly Evans
Trusted sec. Coming up, Blackstone and other firms are reportedly in talks with Anthropic to form an AI joint venture. Let's get those details and the potential fallout to the software space that's coming up ahead with those private equity names still under pressure to the tune of 4% today. We'll be right back.
- [30:04]
Rick Santelli
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- [31:33]
Kelly Evans
Welcome back as rising oil prices and bond yields are putting pressure on stocks again. The Dow is down 555 and the price of crude is up to almost 95. It's not just crude either. We have all sorts of materials affected by the effective closure of the strait. CF Industries is leading the S and P again and hitting another all time high today. It's Fertilizer stock, up 36% since the start of the Iran war. Intrepid, Potash, Mosaic and Nutrient are also higher today amid fears of a prolonged blockage in the Strait that could drive up fertilizer prices and elsewhere. Atlassian shares erased a 7% gain after last night's news that it's cutting 10% of its workforce. That's about 1600 jobs. They say the restructuring is an effort to fund investments in AI and enterprise roles. The CEO saying, quote, our approach is not AI replaces people. But it would be disingenuous to pretend AI doesn't change the mix of skills we need or the number of roles required. In certain areas it does. And their shares have lost more than half their value since the start of the year and are nearly 70% off their recent high. So who knows, maybe that has something to do with it as well. Let's get to Julia Borson now for the CNBC news update. Hi, Julia. Hi, Kelly. Democratic Congressman Jim Clyburn of South Carolina announced today he is running for re election. The 85 year old Washington power broker is seeking his 18th term in Congress. Clyburn has long been a kingmaker in Washington, most recently in 2020 when his endorsement of former President Biden helped him win the nomination. Prosecutors are urging a federal judge and a new memorandum to to deny Sam Bankman Fried's request for a new trial. They argue the request should be rejected because he has failed to show how his conviction was unfair. The former CEO of the FTC's crypto exchange is serving a 25 year sentence for fraud and conspiracy. In a court filing last month, Sam Bankman Fried said new witnesses could refute the prosecution's claim that he defrauded FTX customers after a six year hiatus. The first passenger train service between China and North Korea departed Beijing today. It's one of several moves by the Chinese government to build up cross border infrastructure and bolster its ties with Pyongyang. The journey takes just over 24 hours. Back over to you. Wow, Julia, thank you very much. Julia boorstin, Coming up, our market guest has ignored the geopolitical noise. There are two names he likes in in Big Tech right now. We'll tell you what they are and where he stands on the stagflation debate. That's next. Stocks are falling again as oil climbs today. Despite all of that volatility, the S and P is still flat for the week and the NASDAQ is positive. My next guest fund is up 9% this year, outperforming the Dow S and P and NASDAQ which are all negative year to date. Let's bring in Michael Cagino. He's the president and portfolio manager of the Permanent Portfolio Family Funds. Good to see you.
- [34:27]
Michael Cagino
Good to see you.
- [34:28]
Kelly Evans
It's all on gold. I'm talking about your kind of outperformance
- [34:32]
Michael Cagino
gold and silver have definitely helped and probably fixed income. You know, the returns on the intermediate yields have helped us out.
- [34:41]
Kelly Evans
Really? The returns on intermediate fixed income yields?
- [34:44]
Michael Cagino
Yeah, because we have been banged up by the, the rise in rates as much as some other bond products have been recently.
- [34:50]
Rick Santelli
Right.
- [34:50]
Michael Cagino
So it's all relative. We're in what, early March relative.
- [34:53]
Kelly Evans
But being in the positive on a year like this, that's why I was asking about the precious metals contribution because you and I have talked about this for years. I mean you had strong feelings about people needing this in their portfolios and I guess a year like this proves why.
- [35:04]
Michael Cagino
The other thing that's helped us too is our energy stocks. So obviously with what's happened here, energy stocks have run incredibly in the last few months. Defense stocks, Lockheed Martin for example. So I would say some selective stocks have outweighed the negatives in tech for the moment. And then the gold and silver have definitely performed and the bonds have helped us a little bit on the yields.
- [35:22]
Kelly Evans
One more, I want to talk about tech, but before we do, you mentioned the defense stocks, you mentioned energy and there's a little bit of a, there are some people who are booking their gains in energy. They think the space actually got a little ahead of itself even with what's going on in oil and are moving to the sidelines. How would you describe kind of what's your thesis on energy? Are you sticking staying with it?
- [35:40]
Michael Cagino
Well, long term we like it. We believe that fossil fuels are going to be problem a part of what the world does for a long time to come. So we've always been believers and you know, I wouldn't necessarily buy them now. We were buying months ago on, on that longer term thesis. Great dividend yields, great total return vehicles. Lately energy stocks have run 20, 30, 40% some of them. And so you don't want to be buying them based on headline risk right now. You would wait for a pullback and initiate a position.
- [36:06]
Kelly Evans
With that said, what is your thought about the Iran war and the volatility that we're seeing in the oil price? And even with stocks to some extent you just wait for entry points or do you, does it, what does it tell you something more significant from our perspective?
- [36:19]
Michael Cagino
We're long term investors so we don't trade on the daily headline risk. So we generally tune a lot of that out and we look for opportunities that come up in the volatility for long term investing. And so we haven't really made any wholesale changes to our portfolio at all. It's been Tweaking based on the news, based on the headlines, where we see, see opportunities going forward and we'll continue to do that. So I think we're pretty well positioned with what's going on globally. Although these kind of events don't really benefit anybody really. You know, they're not good for business globally.
- [36:48]
Kelly Evans
No. But if you, so you're hanging on to you know, the exposure you've had in kind of gold and metals and some of the miners, you're hanging on to defense, you're hanging on to energy again being in those has been really good up until now. So now what moves are you making that you think there are some entry points where we're going to look back at another, another three or six months or longer and say yeah, that was a good entry point.
- [37:07]
Michael Cagino
It's colored by the day to day headlines right now. But certainly there are some things like I would say technology has been really sold off and from a long term basis pre Iran. All right, that's where the growth is, that's where the revenue is, the earnings and that's why people are running to those stocks. I don't think that's over. I know the mentality of investors so far this year has been that the returns in AI aren't going to be. We don't know what they are. They're more so skeptical. Companies are going to the debt markets. What's the ultimate return, how's it going to be used? Am I going to lose my job? All those things are weighing on investors minds with that sector at the moment. That being said, we think it's going to find its way into many, many applications, consumer, business, industrial, you name it, over the long term. And so we would be looking that as an opportunity area to add to
- [37:54]
Kelly Evans
what we're doing which makes me think about kind of software here, here's the, the big reveal. We tease the two names that you like which are Metta and Palantir, maybe there are others.
- [38:01]
Michael Cagino
Why these two there are we like those two. Metta, I think they're one of the hyperscalers. We believe they've, they've shown great cost containment and guardrails around their cost and spending. So even though they're spending like the others, we have a feeling that they know where the, the lines are there in terms of how to do it and still make money. So we don't, we don't anticipate they may have issues. Issues running debt. One of the things you, these companies have never gone to the debt markets before so it's kind of like when a person buys their first house or their car. Like how do they find answers?
- [38:31]
John Lavallo
Right.
- [38:32]
Michael Cagino
And these companies are going to have to be, you know, be able to manage this sort of new business and still eke out returns that investors want to see and are willing to pay for long term. So we think Matt is going to be able to do that. Palantir Huge addressable markets, both government. I know the CEO was interviewed the this morning and I caught some of that. The consumer platform I think is wide open for them. The government platform is going to continue to grow and they basically have a very large addressable market that I think they're hitting and it shows up in the quarterly results quarter after quarter after quarter.
- [39:06]
Kelly Evans
I think it says a lot about how much the markets move that we're now talking to you about. You're picking up tech stocks, right? I mean, for all the 2010s, it felt like you were saying, guys don't forget about material energy and gold and silver and all this. And now you're like, guys, don't forget about technology. You know, anyway, shifting in the times. Michael, thanks so much. Appreciate.
- [39:22]
Michael Cagino
Thanks as always, Kelly.
- [39:23]
Kelly Evans
Thanks for joining me. Michael Cagino with the permanent portfolio coming up, Morgan Stanley selling off today after the big bank along with private lender Cliff Water did cap redemptions on some of its credit funds. Amid these ongoing concerns, the alts have a software problem. But is one firm about to create an entirely new one? The Fox Fox Blackstone is considering letting into the henhouse is next. Anthropic is in discussions to bring its AI models to some of the biggest names in private equity, according to a new report. Could it be a catch 22 for the space? Deirdre Bosa has more in today's tech check. Hi, Deirdre. Hey, Kelly. So according to the information, Anthropic is in talk with Blackstone and other firms to form an AI joint venture, embedding Claude across their portfolio companies. But it could get uncomfortable quickly.
- [40:17]
Reporter/Correspondent
Say a Blackstone company uses Claude to
- [40:19]
Kelly Evans
replace a bunch of point solutions. That's great. Costs go down. But one of those solutions might be Smartsheet, which Blackstone also owns. So it'd be saving money on one
- [40:28]
Reporter/Correspondent
side but destroying revenue on the other. They'll make that trade anyway because private
- [40:32]
Kelly Evans
equity optimizes for the fund, not any single company.
- [40:36]
Reporter/Correspondent
So think about a different kind of P E firm like Thomas Bravo or Vista Equity. They're sitting on the other side of this because their entire model is software. It is sticky recurring software revenue Orlando Bravo says is a tailwind. But we already know that Wall street is paying more for companies that shrink in the name of AI than ones that are defending the old model.
- [40:56]
Kelly Evans
So Thoma Bravo stuck. If you push AI, you essentially accelerate your own disruption. But if you don't push it, Blackstone
- [41:03]
Reporter/Correspondent
will deploy it from the other side at this moment, Kelly, these tools, they already exist.
- [41:08]
Kelly Evans
What's arguably been missing is someone with the authority and the incentive to actually rip it out. Nobody cancels Salesforce because they saw a cool demo.
- [41:15]
Reporter/Correspondent
But firms, they have board control, irr target targets and a ticking clock. So if this joint venture gives them a turnkey way to cut software spending across their portfolios, they will move. So P might actually be the accelerant that the SaaS apocalypse has been waiting for. And this is just as investors are
- [41:33]
Kelly Evans
sort of getting back in selectively to this trade. I'm going to think this through, Deirdre, but I think I understand the need to be creative right now on their part. Deirdre, thanks. We appreciate it. Deirdre Bosa Coming up, housing starts hit their highest level since Feb of 25, driven though by any multifamily homes. Single family starts, as we found out, were down nearly 3% last month, down more than 6% from last month year. Where's the homebuilding boom we need? The stocks are also lower and on pace for a nine day losing streak. Nine days. We're going to dig more into the health of housing and how the Iran war could upend the spring season after this. Welcome back. One sector that has taken a hit recently from the war in Iran has been the homebuilders, principally because rates continue to rise. The Homebuilder ETF, the XH HB, hit a 52 week high just a month ago and has since pulled back by more than 15%. Bespoke noting it's currently on pace for its longest losing streak since 2018 and that can, quote, almost 100% be attributed to rising interest rates. That's not the only conflict related headwind either, according to my next guest. Joining me here on set is John Lavallo. He's a homebuilder analyst at ubs. It's good to see you.
- [42:45]
John Lavallo
Thanks.
- [42:45]
Kelly Evans
They're going to face some supply chain issues as well. Is that the idea?
- [42:49]
John Lavallo
Well, I think the biggest concern to your earlier comment is the rise in oil, right. And what the impact would be on mortgage rates and most importantly, consumer confidence. Now if you think about it, since the Iran conflict began, mortgage rates are up about 30 basis points. Now that's manageable, particularly in the context of oil going up 45 to 50%.
- [43:09]
Kelly Evans
Not as bad as it could.
- [43:10]
John Lavallo
Exactly. But consumer confidence is the biggest risk. I mean, do consumers say, hey, you know, this is uncertain. Maybe I hold back. Our channel checks would indicate that's not happening outside of the military buyer. The military buyer, obviously, for obvious reasons is worried about deployment and that's they pulled back.
- [43:26]
Kelly Evans
How big a part of the market are they?
- [43:28]
John Lavallo
It depends on the builder. For entry level builders, I would say they're within the top 10 buyer groups.
- [43:33]
Kelly Evans
Really?
- [43:33]
John Lavallo
Yeah.
- [43:34]
Kelly Evans
Wow, that's interesting because it makes sense. Entry level builders, you have a lot of military families. You know, they're in. And now they're just like, you know, we don't, we don't know what tomorrow may bring.
- [43:42]
John Lavallo
That's right.
- [43:43]
Kelly Evans
Huh. So overarchingly interest rates are the issue here. And the President has been making this big push on affordability. Sounds like this. It passed the Senate this morning, did it not? The Senate's version of banning institutional investors and trying to make housing more affordable. Is it going to get passed? I mean, what are the prospects for anything on the policy side changing the picture we just described?
- [44:03]
John Lavallo
So I think what the Senate did is took their original Road to Housing Financing act, combined it with the Houses housing for the 21st century act and put together this kind of plan. And they were both fairly similar. The House is a little ticked off because they said they weren't involved in this revised bill. There are still hurdles in terms of rent control. The house does not like that. There's also the potential forcing institutional buyers to sell homes after seven years that could actually hurt supply. So this is, is a bill that, look, there are some good things in it. It could help longer term in the near term. There's only one thing we think that could really be beneficial and that is reducing guarantee fees that get paid to the GSEs.
- [44:43]
Kelly Evans
G fees. How much are those 60 basis points
- [44:46]
John Lavallo
on a 30 year mortgage?
- [44:47]
Kelly Evans
So for instance, if, if I pay. And this is on top of the mortgage rate. Right, so. Or is it included?
- [44:52]
John Lavallo
Including.
- [44:52]
Kelly Evans
Okay. So if the mortgage rate is 6.2% or whatever it is right now, 60.6 of that is the G fee that you're paying for Fannie and Freddie.
- [44:59]
John Lavallo
That is correct.
- [45:00]
Kelly Evans
Wow.
- [45:00]
John Lavallo
Now there's some infighting within the administration because there's some folks that want to take the GSEs public are conversations with folks that have been involved in the negotiations. Say, look, that's not happening until the midterms. Are over. So if that's the case, why not at least temporarily reduce or cut that? That would be a shot of adrenaline to the market.
- [45:18]
Kelly Evans
So it would take a lot of money out of the Fannie and Freddie.
- [45:20]
John Lavallo
It would, but.
- [45:21]
Kelly Evans
So that's kind of a. Do we call it a taxpayer risk? I mean, but it, it's on one side or the other. I mean, if you're going to use taxpayer funds to try to stimulate housing, I guess that's one way to do it.
- [45:30]
John Lavallo
I mean, yes, look, look, they're under conservatorship. It's something that is very doable. Just like the $200 billion of MBS purchases that, that the government had the GSEs do. It's something that is very realistic. I'm not sure what supported us.
- [45:42]
Kelly Evans
Are those purchases having an impact on lowering. We're talking here more about the spread. There's not much you can do if the 10 year rate goes up. But have those purchases help with the spreads at all?
- [45:50]
John Lavallo
They have. I mean initially it was about a 15 to 20 basis point move in rates. There's been a lot of factors that have happened since then that have kind of distorted it, but they've helped.
- [46:00]
Kelly Evans
Why do you think if they pass a law that would require institutional investors to sell, why would that hurt housing supply?
- [46:06]
John Lavallo
It just makes the math very different for that institutional buyer. It just, it just changes the whole equation. And I think that you just, you see less purchases of new homes and I think because of that you'll see builders build less. And so it could actually be a negative for supply.
- [46:20]
Kelly Evans
When we say that housing starts are down 6% year on year, why principally would you say that is?
- [46:25]
John Lavallo
I think the builders are being very cautious about heading into the spring. They want to be ready, but at the same time they don't want to get into the same situation as last year where they overbuilt going into the spring selling season.
- [46:37]
Kelly Evans
But it's fascinating when people like yourself say they overbuilt and then on the other hand everyone's saying we need more housing. We need to do everything we can to get more housing housing. But you're telling me a year ago they almost had too much housing.
- [46:45]
John Lavallo
It's a great question because it's really limited to specific markets and not even specific states. But I'm talking the i4 corridor to be very specific. Yeah, I love it in Florida. You know, between Orlando and Tampa, or you know, parts of Austin and San Antonio, Phoenix. These are markets that we saw a lot of price appreciation there. Had to be some kind of reset and because of that, there was inventory that built quickly.
- [47:06]
Kelly Evans
We just have a couple seconds left. Who are you bullish on in the second space? Who do you think is adding supply in? You know, good stock to own.
- [47:12]
John Lavallo
We like the group at large. Topic is Pultegroup. Great diversification across the buyer groups. Also like Dr. Horton a lot.
- [47:18]
Kelly Evans
All right, we'll see if that mortgage rate can come down or not to help them out. John, thanks very much for your time. Appreciate it. John Lavalla with ubs. That's it for us. Thank you for watching the Exchange. I'll join Brian Sullivan for Power Lunch after this quick break. We will be joined by Ark Invest CEO Cathie Wood with some new developments in her world. That's coming up right after the break. You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time, same place.
- [47:48]
Rick Santelli
Trading at Schwab is powered by Ameritrade, giving you even more specialized support than ever before, like access to the trade desk. Our team of passionate traders ready to tackle anything from the most complex trading questions to a simple strategy. Gut check. Need assistance? No problem. Get 24. 7 professional answers and live help. And access support by phone, email and in platform chat. That's how Schwab is here for you to help you trade brilliantly. Learn more@schwab.com trading.