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The Exchange
The Exchange 12/23/25
00:44:08
Listen to the day's top stories, the must reads & a whole lot more for today's modern investor.
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A
You'Re listening to THE Exchange. Here's today's show. Thank you very much, Scott. The economy is humming, but the consumer still doesn't feel great. And that could get worse in the new year, our guest believes. Welcome. Welcome to the Exchange. I'm Kelly Evans. Let's check on markets with the S and P a little unch today. It's up about a third of a percent. Same for the NASDAQ. That said, at 6899 we are inching toward a new all time high or 21 points shy of that.6920 on the S and P is the level to watch. As for bond yields, the short end of the curve is higher after that strong GDP number this morning. The two year around three and a half. The ten year down a bit from the earlier levels but still around 417 this afternoon. Bitcoin down to 87k. Those yields might have something to do with that. Fresh records again though for gold and silver. And copper is hitting its highest level since late July as the metals complex just continues this roaring end to the year. But we begin with the print. That surprise third quarter GDP coming in much stronger than expected, better than 4%. Diane Swonk told us it was looking that way the last time she was on. Steve Liesman is here with more.
- [01:52]
D
Yes, and I've been digging into the reasons for it and I'll get to that in a second. Let's give you the stronger GDP allayed fears of weakening growth, but came along with a stronger inflation report that created some new doubts about future rate cuts. We'll go through all that GDP for 3. That's against a 3. 8 in the prior quarter and a 3. 5 or sorry, a 3. 2 expectation. It was driven by spending, an upgrade to the services spending that was in there. Investment coming down. There were declines in Structures, which is weird given all the data center. But gains in equipment spending. Government was up 2.2 versus minus point one in the prior quarter, largely on defense. Defense, the contribution of trade was high higher than expected even though it was lower with a surprise in exports. The one negative in the report. Inflation indicators ticked higher with quarterly core PCE rising to 2.9from a year ago compared to 2.7in the second quarter. That was the thing that shocked the bond market. The result of stronger growth with higher inflation was to drive down the probability of a rate cut in January just 13% now from an already pessimistic 17% and further diminish the chance of a March rate cut. Probabilities, though, rise for April and June, though they're down a little bit from where they were. Economists at Citi writing the divergence between soft labor markets and solid real activity has the potential to exacerbate the disagreement between more hawkish and dovish Fed officials. We also expect consumer spending to hold up but to slow further to better align with a job market where the pace of hiring has slowed. The big reason for the beat was that consumer spending number concentrated mostly in July with new data on services. This will tend to raise the outlook for fourth quarter growth. But the strength waned as the quarter progressed and that's going to tend. Kelly, to temper the optimism about the consumer.
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A
You know, the market. We saw bond yields backing up on this because of the usual, okay, well now the Fed might have to raise rates again or cut rates less than expected. Now, I want to point this out.
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D
Pissed about.
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A
We're about to talk, but the market's come back this afternoon before we get. Has it come back for bad reasons, meaning because consumer confidence was weak and. Or good reasons because we had strong GDP and the inflation number was in line this morning. Don't overlook it, that PCE number. Right? I mean, so here's the President's rant five minutes ago, several paragraphs. Look, I sort of feel his pain. He's like, it's driving him crazy that we talk about this all the time. Good news is bad news on Wall street, right? That, oh, he's worried that as soon as good economic news rears his head, Fed officials are going to raise rates. So if you skip to the bottom of this, he says, you know, the eggheads. A nation can never be economically great if eggheads are allowed to do everything within their power to destroy the upward slope. And he says, anybody that disagrees with me will never be the Fed chairman. In other words, he wants the message for investors, for these officials, for everybody to be strong. Growth is good, we can still lower interest rates and that will all work out just fine. There will not be an inflationary problem. Of course, you and I would look to the market to render that verdict.
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D
Yeah, I think what the president is talking about here, whether he knows it or not, is productivity.
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E
Yes.
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D
Okay, so and this is what the market is gauging. This is what the Fed is gauging. This is what Alan Greenspan gauge back in 96 and made a good call. Okay. And that's this. Can the economy run hot? It's the only question that matters. Right. Inflation is bad. I'm sorry? Growth is bad if it uses or utilizes or overtaxes the resources of the economy. Now there is a conservative kind of liberal split on this where conservatives say growth is not bad, you increase the capacity and they kind of demean or otherwise criticize the Phillips curve type. More liberal economists, I guess is the way to put it, who say, you know what, if you tax the economy, you on this curve of trade off between inflation and employment, you're over utilizing resources. Okay, let me, let me sum it all up. If you have higher productivity, you can run the economy hot. You can have, you don't have it. You have to be more careful and worry about inflation. The biggest, most important question now for investors. Maybe I'll turn to the camera. The most important is like, like a Jon Stewart thing. The most important question for investors right now is whether or not you take a flyer on productivity. It's the most important question for the Fed. I've been asking every Fed official I've talked to, are you ready to take a flyer on productivity? And some of them are.
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And what Steve means by that is are you ready to lower interest rates even in the face of strong economic data and not worry inflation is going to pick up?
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D
That is a beautiful summary of exactly what the debate is. Are you ready to say, you know what, I'm closing my eyes and I'm going to take a step off of that Mesa like Wiley Coyote don't have.
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A
To close your eyes and just blindly go for it. You can look to the market. If they start hinting at lowering rates even in this kind of environment and you don't see inflation break evens rise, that's kind of a green light.
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D
It is sort of a green light. But if you don't mind, Kelly, because only on this show can I do this and further complicate the situation by saying there's another aspect to it which Is all of this. And Fed Chair Powell was asked about this at the last press conference. It raises the neutral rate so you can come down closer to the neutral rate and run it, run a lower rate, but you ultimately are not going so far down because all of that investment and all of that productivity and growth should stimulate and should run with a higher neutral rate.
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Means the sort of stopping point for lowering rates is higher. So, like, where are we now? Three.
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D
And you're. You're three three, three five. Three seven five.
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All right, so right now, let's call it. We're 3.6.
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Right.
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And it might mean instead of cutting all the way to two and a half, you can only cut to three or something.
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D
Can I correct your example, which I know you do have, it's maybe three and a quarter versus three. The reason of that is do they.
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Think it's that high?
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D
3 is where the market is priced now. Okay, so whether or not, I don't know, the market has already incorporated a higher neutral rate. But hang on, I just want to look at my December 2026 Fed Funds Rate before I answer that question. And that has. That's interesting. Boy, guys, do we in the back have this December 26th fed fund contract? Because if we do, you're the best. You're the best anyway. But even if you don't have it, ask Betsy, she has that. It's 312 now. It has risen, which is interesting. It was down at 307. It was down below 3 and it's now up a little bit higher. So I'm kind of more right about that than you are. Down to 250.
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Right? Right.
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Market season, end point three ish. Maybe a little bit halfway to that three.
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So we got a couple cuts.
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So you got to think about that. We can get down lower, but the low, the bottom is a little bit higher.
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That is interesting. All right.
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Yes.
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Steve, stay right there. And if you like this, don't worry, we've got a couple more hours of.
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It.
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D
If you don't time to make the hand.
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December consumer confidence did sink to the lowest since April over these concerns about jobs and income, which have continued to be top of mind. So let's bring in the conference board CEO, Steve Odlin. All right, Steve, Adelaide, jump in the mix here. Important to this whole nice story we're trying to tell that the President wants to hear about strong economy. Without inflation would be a labor market that is, I guess, strong but not inflationary. What do you see going on here? Because right now consumers are Worried about the opposite. They're worried about job loss. I everything like that.
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F
Well, so the conference boards consumer confidence index declined for the fifth month in a row. That's bad news. However, there was some good news in it. Remember, there are two components to the consumer confidence index. One is the present situations, so how, how the consumers are feeling about their situation right now. The other is the expectations index. So what's going to happen in the next six months? All year long, the present situation has been pretty good, pretty strong. People are saying, yeah, I feel okay now, but my expectation is that it's going to decline. For the first time all year, it flipped. So the expectation index seems to have bottomed out and they're now starting to say I'm hurting. This is starting to feel bad right now. Now on top of that, you have to bifurcate because the income level is, you know, drives their expectation. And if you look at below $125,000 annual income, their consumer confidence went down. But above that, their consumer confidence actually went up. And I think this is what the administration is looking at. There are two economies.
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You see the K, in other words.
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Feeling great and one is not feeling so great.
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So Steve, we have now coming down the pike, we'll talk more about this later on bigger tax refunds. We also have possibly the Obamacare health premiums going up. Not exactly the same crowd, but some overlap there. Do you think the consumer is going to get a tailwind early next year or is it going to be the opposite where all these factors come home to roost?
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F
The big spending is on the high end. You know, the wealthy consumer is driving it right now. And that's the important thing. It, you know what, it depends on commodities right now. Gas is coming down, that's helping. Food is still rising. And so when you talk to these consumers, they say, look, we thought inflation was going to come down. What they're really saying is we thought prices were going to come down and they're not seeing food prices come down in everyday prices. Now, flipping over to what Steve, can.
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D
I just, Steve, I want to just interrupt for one second which is does all this emphasize also the regressive nature of tariffs as a tax, that this is certainly burdening lower income Americans?
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Are they showing up in prices?
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D
Tariffs are a regressive tax.
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But do we have them in the prices? Tariffs, Tariffs in the prices.
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D
Tariffs are certainly in the prices. You have a one point.
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F
You also have this, you also have this small business thing, Steve, which is, you know, individual consumers are also small businesses. Millions of small businesses, sole proprietorships, one or two employees, they act as consumers. They put their, all their credits on a credit, their personal credit card. Those folks are really hurting. Big businesses doing fine, small businesses hurting. So it's Main Street.
- [11:53]
D
I have an idea, Kelly, that we could talk about some other time. I don't know how to do it, but there should be a small business rebate on tariffs. But I don't know how they do that.
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A
Reminds you of ppp.
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D
PPP or that was some way. I don't know, Steve, but I think Steve is onto that. That's, that is, it's not the sole piece, but I believe it to be a piece of like you can say, all right, it's kind of washed out. We're able to grow, do all kinds of stuff with tariffs. Okay. But it hits a certain sector of the economy.
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This is where the Berry Knapps of the world would say that's why you've got to get the rate down. You know, Steve, you're lying.
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D
Can you talk about. Go ahead.
- [12:24]
F
Yeah. Can I say one more thing, Steve, on this overheating thing? In a normal economy, the past historical economy where it's manufacturing driven economy, we would be overheated right now and the inflation thing would be more important. This is a services driven number. You said it yourself. That's the surprise. It's the upside is particularly in July and August on services and yet the labor market is weakening at the same time, which means there is productivity in the service sector which is driving the numbers. So this is a different kind of economy than we've seen in the past.
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A
What Would you leave your message to investors as Steve Odland?
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F
Yeah, I think that, you know, look, I think we're, we're projecting at the conference board, we've got two rate cuts in. We're not projecting the exact month. There's probably two quarter point rate cuts left. We think that there's still going to be, you know, continual growth here, but it's got to slow going into the first quarter of next year. So, you know, you take that and, and you know, you balance it out and it says that this, the status quo should kind of chug along.
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D
Steve, I didn't get to see your business Europe. The job market indicators inside the conference board, what did they show this month?
- [13:37]
F
Yeah, well, you know, look, jobs have been weakening, job creation has been weakening. But when we talk to CEOs, Steve, they are not, they're not firing. Okay? Now you hit, you hear the headlines, you know, you hear the AI thing. But you're not, when we talk to people, they're saying, well, we're cutting costs by taking heads out because we have to afford the investment in AI. But you know, you don't hear a lot of one to one. So it's, the issue is that there's a lack of hiring. It's not that we're, you know, we're risking a huge downward move in, you know, with, with the employment in, you know, big layoffs or anything like that.
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All right.
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It's going to be kind of a maybe a wobbly start to the year. We'll see if you're right. Steve, thanks so much for your time.
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Can we tease that we'll be back at 2 o' clock with David Zervos and he'll give us this supply side idea for why the economy can run hotter, which is much closer to, to the President's view.
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Yes, Stephen. I 2:00pm 2:00pm People. Stay tuned. And Steve Odlin, thank you. Appreciate it. Cable history Speaking of affordability, the Trump White House is also teasing major housing reform that would address some cost issues. Could be a catalyst for one of my next guest favorite trades, the homebuilders trade. That's been kind of difficult this year. The group is having a tough quarter to date. Especially joining us now is Bill Smead. He's the chief investment officer at Smead Capital Management. Bill, it's great to see you again. Welcome.
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Hey, great to be with you.
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Jump in here. You can pick the housing piece first if there's anything in that last discussion that, you know, you wanted to chime in on.
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B
Well, I don't want to pick on your prior guests too much, but somebody once said if you put all the economists end to end, you'd never get anywhere.
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A
Understood. But where so do you come down as, as in this is an economy that can be strong with productivity and low inflation or. No, that's what the president wants or thinks can happen.
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The most productive multiplier effect in all of economics in the United States economy is home building and household formation. So in my opinion, it's more important. How soon Taylor Swift has a baby is more important to the economy than what the Fed does.
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E
Agreed.
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B
All this Fed stuff. Right. So think about it. The president has suppressed gasoline prices to give people the feeling when they go to the gas pump that they're getting a deal while the Strategic Petroleum reserve is empty. If we ever actually had to fight somebody, we'd have no oil in the tank. And then hope you ignore the fact that when you go to your favorite restaurant, you're paying 30% more than two years ago.
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A
Right. Even if Taylor has a baby bill, is that going to help people start families, afford housing, give the economy the kind of kickstart you're envisioning?
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B
Well, you get out of an apartment when, when you have a baby, when, when the baby's crying. You don't want your next door neighbor banging on the wall and saying, gee, can you get him to be quiet? And the answer is no, you're not supposed to get a baby to be quiet. So the situation is that the Trump administration has been brilliant in pulling all these levers and attempting to make all these relatively violent short term disruptions. But the most important thing to the economy is too much money chasing too few goods. And one of your economists made a great point, and I see this in my neighborhood. There are $10 million homes being built in Phoenix like hotcakes. But yet the mortgage rates are too high to convince someone that has a 3 or 4% mortgage to trade up.
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A
To another home, which is the of primary mortgage holders. The Journal had this stat this week. They said 54% of people have a mortgage at 3 or 4%, I think it was. So what would you envision? I mean, are these policy changes going to be able to rectify this whole situation or no?
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B
No. We have a kind of a strange theory and it has to do with why does Willie Sutton rob banks?
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A
That's where the money is.
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B
And that's where the money is. So if the Fed or anybody else wants to get long term interest rates down, money has got to go from where it is, which is in the eight largest cap stocks in the S&P 500 index, to something that, that would, to buy bonds. That's where the money is. And it's not in long bonds. So they cut the short rates and the, and the long rate goes up. The only way you're going to get long rates down is break the mania from, for the s and P500 passive index. That's the only way you're going to get long rates down, right?
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A
Well, bonds, they're kind of unchanged. I mean, you're doing okay, you're not doing great. So people would have to think I'm going to make a lot of money or the alternatives are not going to look that great. And I don't think the President's interested in either one of those outcomes.
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B
No, that's right. You're absolutely right. So the answer is, from a historical perspective, stocks have been fantastic for really 15 years off and on with only relatively short bear market interruptions. And, and when people get afraid of stocks, that is when long term rates will go down, people seek safety and the equity risk premium is completely out of line. And so are somebody mentioned yesterday or the day before that an ounce of silver is, is worth more than a barrel of oil.
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A
Correct.
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B
And I think that's only happened once or twice in the last 40 years or something.
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Right. So you, and I think your message would be fade. This kind of year end whoosh. You know, you're sticking with energy, you're sticking with the homebuilders, you're sticking with health care trades, you're sticking with, you know, all of these areas that are not participating in the whoosh.
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G
Correct.
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B
And they are demanded, they're needed. Right. And, and then one last thing about the economy, the economics of it all, all this spending on building out for AI is probably artificially juicing the GDP numbers. Right. I mean you take a small town, you build one of these gigantic operations and it just juices it. But, but then when you're done, you in Prineville, Oregon after Amazon builds two 750,000 square foot warehouses that employ 12 people, all you're left with is higher electric rates.
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A
I know, but Kelly's going to pay 40 bucks a month for ChatGPT if it goes that direction because she loves it so much. Bill, appreciate your time. It's great to check in with you year end. We'll see what 2026 may bring. Bill, Smead with Smead Capital Management. Coming up is better becoming a battleground stock. One firm says yes and it's time to buy the dip. With shares 15% off their August highs, he'll join us to make his case. PL + January is shaping up to be a messy month on Capitol Hill with one issue threatening to cancel out the cash boost coming from this year's tax refunds. We'll tell you what it is after the break.
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This is the exchange on cnbc.
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To reimagine your future? The right business skills may make a difference in your career at Capella University. We offer a relevant education that's designed to focus on what you need to know in the business world. We'll teach professional skills to help you pursue your goals, like business management, strategic planning and effective communication. And you can apply these skills right away. A different future is closer than you think with Capella University. Learn more at Capella. Edu.
- [22:10]
A
Let's be completely honest. Are you happy with your job? The fact is, a huge number of people can't say yes to that. Too many of us are stuck in a job we've outgrown or one we never wanted. But we stick it out and we give reasons like what if the next move is worse? I put years into this place and maybe the most common one. Isn't everyone miserable at work? But there's a difference between reasons for staying and excuses for not leaving. It's time to get unstuck. It's time for Strawberry Me. They match you with a certified career coach who helps you go from where you are to where you want to be. Your coach helps you clarify your goals, creates a plan and keeps you accountable along the way. Go to Strawberry Me Coaching and get 50% off your first coaching session. That's Strawberry Me Coaching. Welcome back. And shares of Meta are down 12% over the past three months. These are amid concerns that not only have they fallen behind in AI, but that management hasn't provided details about how they plan to change that. My next guest says this recent weakness is a buying opportunity, but he still lowered his price target to 815, acknowledging some further near term risks. That's still more than 20% upside, by the way, from their current price. Colin Sebastian is Baird Senior Internet Analyst. Colin, welcome to you. Do you how do you expect them to flip the narrative here?
- [23:31]
E
Yeah, Kelly, thanks for having me. So you know, our point today is is not to say that they're not legitimate concerns over over margins and investments by matter. In fact, we've highlighted those for several months. But what we're nudging investors to do is look a little bit further ahead, especially given the importance of the theme. Metta will be launching a lot of AI product next year, leveraging all the star talent that they hired in 2024 and 2025. And we think that will create or could create more of a halo effect around the company and help sustain healthy growth.
- [24:04]
A
What kind of product? And it's so funny because I understand that everyone's piling on them for not having the killer app or something, but they have Instagram, which is this is a great algorithm Tons of ad load now clearly being optimized daily by. I mean, this is what I imagine is going on in the background. That is probably. Tell me that's not as great an advertising model as what Google used to have.
- [24:27]
E
Well, it's a fantastic advertising model. In fact, Google and Metta accounted for about 80% of the entire industry's growth this year. And I think it's layering on top of that. And the AI, the large language model, the next Llama model from the team at Metta that's going to build the next foundation for these apps. Not just Facebook and Instagram, but also threads, also WhatsApp, and importantly meta AI, the app, as well as wearables, which will be a key factor, we think, going forward in 2027.
- [24:57]
A
Right. So, you know, in other words, do you think they need new products and, you know, models that we're all using, or can it just be enough that time spent on Instagram goes up?
- [25:09]
E
Well, I think it's a combination. I mean, certainly those are the core apps and there's a, there's a big gap between monetization on Meta versus monetization on Google. So we, we still see a lot of growth there. But Meta is a company that's very adaptable. We've seen the company transform through the mobile app transition, through a lot of the first party data issues with, with Apple, with the TikTok obviously ramping up significantly. And we think these are just another stairsteps for better, more technology transformation. And it'll be both. It'll be the core apps as well as these new products we'll start to see next year.
- [25:43]
A
Before you go, Colin, I'm also curious about this winning stretch we've seen in shares of Airbnb. Kind of a complete pivot. But it's interesting to watch the market tell you something might be going on there. And what do you think that something might be?
- [25:55]
E
Yeah, I think for Airbnb, I mean, you know, it's really been the early stages of monetization growth on the platform. And I think investors are now looking ahead to adding a loyalty program, adding hotel listings, adding advertising as a revenue source. Those are all incremental to growth. The second key topic is, you know, nobody's surfing online anymore. Ask anybody under 30 years old. So when you go to Chatbots or Gemini, companies have to have unique services, unique products in order to, to be seen or to be found. And Airbnb has that. They're not selling, reselling a Marriott hotel room where you can rent anywhere. They're selling unique inventory. And so in general, sites like Airbnb that have access to long tail unique inventory and products are going to do well. And that's an increasingly important theme because.
- [26:44]
A
You think if I'm chatting with ChatGPT and I'm saying, hey, give me an example, right, where they would point me to an Airbnb listing instead of a traditional hotel or something like that.
- [26:53]
E
Yeah. And the inventory of those rentals on Airbnb is unique. So, you know, as opposed to being one of many different sites that has a certain product, a commodity product or a commodity hotel room.
- [27:07]
A
All right. Well, shares are flattish year to date, but up quite a bit in the past couple of months here. So we'll see if they can monetize that more fully. Colin, thanks so much today.
- [27:14]
E
Definitely.
- [27:15]
A
Thanks.
- [27:16]
E
Appreciate the time.
- [27:17]
A
Coming up, the FDA approving the first ever GLP1 weight loss pill from WeGovy maker Novo Nordisk. Shares surging 8% on the news puts the pressure on Eli Lilly, which is racing to launch its own obesity pillar. All the details and the outlook for 2026 right after this.
- [27:36]
C
Is it time to reimagine your future? The right business skills may make a difference in your career. At Capella University, we offer a relevant education that's designed to focus on what you need to know in the business world. We'll teach professional skills to help you pursue your goals like business management, strategic planning and effective communication. And you can apply these skills right away. A different future is closer than you think with Capella University. Learn more at capella. Edu.
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A
Welcome back. Stocks are finding their footing here this afternoon except for the small caps which are down half a percent. But the Dow and the S and P are up a third of a percent. The NASDAQ up 4 10. And keep an eye on the S and P which is near some key levels. First time its all time closing high is 6901. So we're above that right now. This could be a record high if we just stay here. The record intraday high is also within reach. It's at 6920, about 16 points higher. And here are some of the individual movers this hour. Warner Brothers discovery. It's up about a percent after the company's fifth largest investor told Reuters that Paramount's latest offer to buy them isn't sufficient. Shares of Paramount are fractionally. They were fractionally lower on that Netflix flattish. WBD is trading just a penny shy of 29. Is this anticipation that these prices are going to be raised obviously is being factored into the market. And Novo Nordisk shares are up 8% for their best day since Jan after the FDA approved the first GLP1 pill for obesity. Annika Kim Constantino is our Pharma reporter on cnbc.com Annika, good to see you. How big a deal is this?
- [29:39]
I
Good to see you. Right. This is a huge deal not only for Novo, but also for patients. This adds another sort of treatment option for obesity and can help reach patients that maybe were afraid of needles or maybe we're afraid of the taboo of having to take an injection. So that's really good on the patient side, but also for Novo, it's a huge deal for this company, especially after a rough year where we saw Lilly gain the majority market share in those obesity space. And so Novo kind of has this advantage here for being first to market with a pill and also having a pill that's slightly more effective than what we've seen with other pills on the market. You know, when I talked to CEO Mike Dudstar earlier this morning, he did talk about this efficacy and why it's so important for this pill to be competitive here.
- [30:23]
G
The magnitude of the weight loss really matters to people. Knowing that they can get the most efficacious product actually matters. So I am very excited that no other phase three trials has been able to show this level efficacy at 17% being equivalent to your injectable sister, I think is really something that others are not able to claim.
- [30:52]
I
So as you remember, you know, Lilly has another obesity pill that's in development right now. It could win approval kind of in the next few months, but its efficacy is slightly lower than Novo's here. So again, that's the big distinction between the two pills.
- [31:04]
A
How much do we think it might cost?
- [31:07]
I
Right. So what we know for Novo's pill is that it's gonna cost $150 per month for the starting doses of the pill. And so we don't know what those higher doses are gonna cost at this point. But again, this is still a significant discount from the injections, which are roughly $1,000 per month. And even with recent discounts that we've seen both Novo and Lilly take off their pills, you know, those are still closer to the 3 to 4 to $500 range. So this $150 price point is gonna be huge for patient access.
- [31:34]
A
All right, Annika will leave it there for now. Big day, obviously, for both the drugs and for the pharma companies. Annika. Kim Constantino. Over to Mackenzie Sagalos now for the CNBC news update. Hi, Mackenzie. Hey, Kelly. According to a new report from the Pentagon's inspector general, Lockheed Martin's poor maintenance of the F35 fighter jet is partly to blame for it only being able to fly 50% of the time in 2024.
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H
The report says that despite that, the.
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A
Pentagon still paid Lockheed $1.77 billion without any economic adjustment. The F35 is considered the most sophisticated stealth fighter jet in the world, but.
- [32:09]
H
Has been plagued by problems throughout its development.
- [32:12]
A
Insurance company Aflac has disclosed a massive data breach where hackers stole customers personal information, including health information and Social Security numbers. According to TechCrunch, the company confirmed that.
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H
It started notifying about 22.6 million people.
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A
Whose data was stolen. And in a filing with the Iowa attorney general, they wrote that a cybercriminal organization may also be targeting the insurance industry at large. And the Powerball jackpot is soaring to $1.7 billion after another night with no winner. The cash option is around 781 million, making the jackpot the fourth largest in Powerball history.
- [32:48]
H
The next drawing Christmas Eve.
- [32:50]
A
Back to you, Kelly. Maybe they can use the proceeds to fix the fighter jet. Sounds like that might be a little more urgent. Anyway, Mac, thank you very much. Coming up, Congress is done for the year, but it's facing some headwinds after the holidays. We have the details and why it could put a damper on what could be the biggest tax refund season ever. Stay with us. It could be the biggest tax refund season ever, at least according to NSC Director Kevin Hassett, who made those comments over the weekend. He also reiterated to CNBC this morning that the consumer is staying resilient because Americans are optimistic about income growth in the year ahead. But my next guest says there's a big risk on the horizon and one that will come before those tax refunds hit. Joining us to discuss is TD Cowan's Chris Krueger. Chris, it's good to see you. And you're talking about the Obamacare subsidies, right?
- [33:42]
J
Great to see you as well. That's correct. They're going to expire. Congress is out of town, so they'll expire next week. That's about $30 billion that 22 million households have been using to offset their health insurance premiums. You know, there could be sort of a Festivus miracle here, a retroactive fix when Congress gets back around January 5th. January 15th is when open enrollment ends. Government funding runs dry on January 30th. Those are really sort of the two action forcing catalysts we're watching for. But right now, it doesn't seem, it doesn't seem too optimistic. And it's about $30 billion that will be coming out of the economy.
- [34:22]
A
That said, 135 billion is the amount of tax refund money that's coming. Right? I mean, that's, that was Wells Fargo's numbers that would dwarf this hit.
- [34:32]
J
Well, yeah, I mean, we know that the, what the ACA subsidy is the forecasts for the refunds. You know, I've seen, you know, anything from 100 to 135, but it's still not insignificant. One thing on the refunds as well, if there is a government shutdown over this issue, again, those refunds might be delayed if the IRS is shuttered once again, too. So to your point, I mean, there's still a lot of fiscal tailwind coming, but it's not, it's not all in one direction.
- [35:03]
A
No. And the other thing that I wonder more about is A, the fact that if people know it's coming, do they pull the spend forward and kind of, you know, use the powder price before it's even there? And B, as we've heard people say, look, the consumer products companies know this as well and they could raise prices and therefore you get kind of less bang for your buck.
- [35:22]
J
That's right. We also, I mean, there's, there's a tremendous uncertainty going into the new year with the IPA tariff decision from the Supreme Court. We were expecting that by year end, but the court is gone until January 9th. So, you know, we basically are starting the year where we started at the end of August on Capitol Hill. No resolution on the ACA subsidies and no resolution on government spending.
- [35:45]
A
But it sounds to me, again, going over your numbers like the benefit is probably, the boost to consumers is probably going to be real and significant. And I know it's ironic because this is people's own money that they're getting back, but nevertheless, 130 billion is a big number. The Wells Fargo team also said, you know, if there's any kind of tariff repeal or rebate that could be 160 billion like these numbers I think could boost GDP by up to a point in the first quarter. So we're coming off a 4% Q3 with 3 and a half percent consumer spending into a situation where they might get a little extra boost. So even though there's an affordability crisis, you can see this at least kind of drawing out the amount of time that people are able possibly to keep all of the spending going.
- [36:25]
J
Now for sure. You know, what else is on the horizon with, with tariffs could, could be positive, could, could be negative. But yeah, I mean, I think that the story, the story for a lot of investors coming out of Washington is definitely the one big beautiful X, you know, fiscal tailwind, but just, you know, reminder that there are some cross currents and that those refunds won't hit in all likelihood until the March April time frame. Whereas there's sort of a sequencing issue here in that you're going to get real hits to, to households and that cohort is probably pretty similar to those that are expecting the refunds. Right. You think about the people on, on the Obamacare exchanges. It's a lot of early retirees, a lot of small businesses and those are folks who in theory will be beneficiaries of the no tax on tips, no tax on overtime and the increased senior deduction.
- [37:26]
A
And finally, what do you think they're going to end up doing? I know it's maybe hard on this one to tell what the outcome might be. Do you think they're going to end up coming to some kind of deal to keep some form of the subsidies in place or. No.
- [37:37]
J
There'S really not that much time. It's going to have to be retroactive really comes down to President Trump. Does President Trump want to do something on this issue? He's probably the only individual that could kind of break the logjam right now. There will be a vote in the House on a simple three year extension. Enough Republicans joined the Democratic discharge petition for that. But it's really up to the, up to the senate. It's a 60 vote hurdle in the Senate, so you would need no less than seven Republicans. They're not there right now. What does, you know, what are, what are members of Congress hearing from their constituents, what is the media coverage of this, how large are the premium increases, et cetera. So TBD right now doesn't look great, but I'll end with a definitive maybe.
- [38:27]
A
All right, Chris, we appreciate it. Thanks for your time today. Thanks so Much Chris Krueger with TD Cowan. Coming up, two of AI's biggest names are battling over what the future of this technology will look like. And we'll talk through the implications for the AI trade next. A heated debate playing out publicly between two of the world's premier AI scientists. They're facing off over whether the technology can evenly match humans and intelligence or if a new approach is needed. Deirdre Bosa has more in today's tech check. Deirdre.
- [39:00]
H
So Kelly, this is a real split right at the top of AI between two of the most influential minds in the field. It goes straight to the core of the trade and whether the current build out actually pays off. So on one side you've got Demis Hassabas, founder of DeepMind Global, Nobel winning scientist now running AI at Google. His view is simple and that is that today's large language models scaled far enough are already on a credible path to general intelligence. Then you've got Yann Lecan on the other side. He's one of the godfathers of modern AI too. And until recently he was the chief AI scientist at Meta, believed to have been pushed out in part because of his view that large language models aren't enough. His comments in a recent interview pouring gas on that debate.
- [39:42]
E
There is no such thing as general intelligence. This concept makes absolutely no sense. Human intelligence is super specialized. This concept of general intelligence is complete bs.
- [39:57]
H
So Kelly, he's really calling into question the entire assumption behind the industry's capex bet. The idea that scale eventually unlocks general intelligence, which then unlocks a surge in economic output. What everyone is sort of pushing towards. Now. Elon Musk has weighed in as well. He said he tweeting demos is right. So if he and Hassabas Altman too by the way are correct, the AI trade keeps working. Capex is intact. You keep sort of working towards general intelligence. But if Yann Lecuna is right, then a lot of today's capex looks premature and that payoff could get pushed out. So Kelly, this is a debate that we're likely to keep hearing into 2026 as investors in the public markets continue to question all the spending and roi.
- [40:39]
A
I think either way, AI moves forward. I don't think it matters whether it matters to them. I'm saying to me, as a very simple, humble user willing to pay $20 a month, wait till you see Deirdre, my little, what are they calling it? The year in review tomorrow. Oh my gosh, I am a simple person. There is a Costco receipt in there like it is, I'm using it for that, you know, and so to me it's like, who cares? Both these things keep getting better and. But they're useful. The point is they're useful.
- [41:07]
H
Yes, Kelly, it depends on how useful. What Yann Lecun is working on, you probably find really interesting. It's world models, right? So you're not just talking large language models, analyzing text, inputting text, pushing the boundaries there. But this is the physical world as well. I think I showed you maybe a few months ago, world models what Fei Fei Li, another big player in the space, is working on. But basically, you know, 3D models that you can create with just a picture. Imagine what you could do, Kelly, with your Costco receipts and plans, interior Design, your own 3D model.
- [41:38]
A
It all sounds like it would require a lot of compute, though. I don't know if I were investing in this space, if I'd be saying to myself, you know, well, if this other version wins, there's no need for all of this. It sounds like the way we're going, there's going to be a need for a little bit of everything.
- [41:51]
H
And that's a, That's a good question. I'm not sure that Yann Lecun's idea or way of developing AI requires less compute, but the idea is that it may require different compute, and scaling laws alone don't get you there. So it's a good question. I don't know that we have the answer to it yet again. It's going to be relevant in the coming year.
- [42:08]
A
I can't wait to see your photo tomorrow, Deirdre. I want to know. It's going to be very revealing.
- [42:13]
H
I know. I'm excited for that one.
- [42:14]
A
Tune in, Deirdre. Thanks, Deirdre Bosa. And that's just the perfect segue to talk about data centers in space. Because while we may be years from this becoming a reality, and I'm not sure we, I mean, meaning maybe it's next year, I don't know. We're going to look at the real world impacts these projects could have, including on this name, up 46% year to date. More right after this. There are two key challenges when it comes to building data centers in general. One, is building enough of them to keep up with demand, and two, keeping them cool. But there is a place where energy is cheap and cooling is essentially free, or so they tell us. How far away is that from reality? And really what's at stake for the earthbound companies working on these data center and space projects. Joining us now is Andrew Obin, equity research analyst at B of A who covers the industrial space. Welcome.
- [43:03]
G
Thanks so much.
- [43:04]
A
When you hear data centers in space, does it make you laugh, shake your head or go, yeah, this is actually what's coming and we're starting to think about the build out for this already.
- [43:13]
G
Well, at first I thought it was bonkers.
- [43:14]
A
Yeah.
- [43:15]
G
And then when you dig in, you actually realize that there are very specific developments that are driving the narrative. And we think it's going to be front and center for investors over the next 12 to 24 months. And that's why we wrote the report that we did.
- [43:28]
A
What are the developments that make this not a science fiction narrative, but a real possibility?
- [43:33]
G
Yeah, sure thing. May still be a science fiction narrative. Right. But let's step back. So the real constraint of the world, we're running out of electricity. We. And you know, our point is that even without the AI because of electrification, the US was not going to have enough capacity to meet the demand. So right now, if you want to build a data center, you have to get online. You have to get your grid connection on top of the regulators now want you to do things to the data center because data center is incredibly disruptive to the grid. So, you know, why are people thinking about space? Space is cold.
- [44:13]
A
There's no NIMBY issues.
- [44:15]
G
Well, that's exactly right. There is. It's much less regulation. Right. So you escape regulation. There's plenty of sunshine, you can generate 8 to 10 times the energy from sun that you can on Earth. And it's cold. Right. So you don't have to worry about cooling. So why all of a sudden there are these headlines? So the magic number, the way the math works, is that operating data centers, not just electricity availability, it's also expensive. So 40% of operating cost of a data center is electricity.
- [44:45]
A
Wow.
- [44:46]
G
And what's happening, the magic number, if you can launch things at space at $200 per kilo, all of a sudden the math starts working that the cost of launch equals the value of all the electricity that you're going to consume.
- [45:03]
A
Is this purely hypothetical or are there people who have kind of proven capability to go and do this?
- [45:09]
G
Well, so this is where it gets interesting. So a, you know, if you look at the developments. So there is a project, there is Star Cloud project. It was launched in October and Nvidia talked about it. Now this is one GPU launched in space. You know, I think it's like 1 kilowatt, a small step for man It's a very small step. More important step. There was also a soundcatcher paper out of Google Goal. So that got a lot of people's attention. But the most important thing is that it's what's taking place at SpaceX. Right. And you have Starship Block 3 that's going to become operational next year and that actually supposed to get you on this path of getting to 200 per kilo by the end of the decade. Right. And in fact Musk is also talking about Starlink V3 having this AI capability. So all of a sudden it went from. Well, I'm on science fiction. And by the way, people are talking about since 1940s, right.
- [46:05]
A
There's like two steps ahead. It's fascinating to watch how this could all tell me which other companies obviously might have a Space X IPO next year. This will be a big narrative in that. Who else in your coverage space? If I said I just want to get invested in this now to potentially benefit from, from any upside here.
- [46:22]
G
Look. So we have a different analyst who covers that entire complex. But for us, the reason we rode the Republic Port because we actually started to get inbound calls, it was more like who's going to get out of business? Who's going to get driven out of business because of that?
- [46:34]
A
Right. Is it time to abandon all the data centers?
- [46:37]
G
That's exactly right. Do you need electricity? Do you need power? So our takeaway is that there is still plenty to do on planet Earth. Right.
- [46:45]
A
Assuring.
- [46:45]
G
Right. And you know, there is a timeline and I think realistically we've spoken to some CEOs and our coverage and people think it's more 2035, 2040, where it becomes at scale. So the most interesting thing that we. So we looked at it as a threat to the existing infrastructure. But the reality, if you look at, actually if you look at the Star Cloud project, right, still has CDUs, you still need to cool the chips, you still need to process the electricity.
- [47:12]
A
Heard that. Yeah.
- [47:13]
G
And what's also interesting, on top of it, you have to dump this heat into space, which is actually becomes a very sophisticated engineering problem because it's vacuum.
- [47:24]
A
They're playing the music like we don't want to hear about dumping the heat in space. Andrew, this is supposed to solve all of our problems. In all seriousness, it's a great report.
- [47:30]
G
Thank you.
- [47:30]
A
Thank you for joining us.
- [47:31]
G
Thank you so much.
- [47:32]
A
Giving us a reality check. Andrew, open power lunch 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.
- [47:46]
C
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