Power Lunch - Stock Rally Fades 3/13/26

Episode Date: March 13, 2026

Apollo’s Torsten Slok joins with his macro outlook. Kpler’s Matt Smith discusses oil and the Strait of Hormuz.    And how healthy is private credit?  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Cox taking a bit of a breather today, but all the averages are still down on the week as the Iran war drags on. Welcome to Power Lunch alongside Steve Leasman. I'm Kelly Evans. Brian Sullivan has the day off. And let's take a look at the landscape this afternoon. Markets you see under pressure there, though, the Dow's been fluctuating between positive and negative territory for the past two hours or so. The S&P is down half a percent. The NASDAQ is the laggard again today. It's down 1 percent, even though Steve, in the previous two weeks of the Iran conflict, it was usually helping to hold up the markets, not the case today. Yeah, crude oil holding steady.

That's the other key indicator, hovering near the $100 per barrel markets. The Iran war nears its third week, President Trump announcing that the U.S. has, quote, unlimited ammunition and plenty of time to fight, as Iran's new ruler proclaimed the strait the Strait of her moves must remain closed.

We're going to drill down further on markets and the energy complex in just a few moments. Plus, we continue to see potential cracks forming for private credit. The list of lockups. growing by the week will help you tally up exactly which funds are blocking redemptions for how long and what that could mean for markets and your money. And Meta's avocado is not looking so ripe. See what we did there? The tech titan is reportedly delaying the launch of its new AI model from March to at least

May after internal tests showed a lag versus competitors. The shares are down 4% and we'll dive into all things AI coming up this hour. How are you at finding ripe avocados? Are you skilled at that? Gosh, such a nightmare. I'm terrible. If I'm in the store and it's like for the few hours from now, but once they're home, forget about it. My wife takes a medical. What were you thinking?

Exactly. We begin, not with avocados, but with markets. As stocks are little changes after you. But each of the major averages are on pace for a losing week with the S&P heading for its third straight, weekly decline. This comes its fourth quarter GDP numbers revised substantially lower this morning to an annual growth rate of just seven-tenths, not even a whole number, seven-tenths of percent, which is a sharp, step down from the previous estimate of 1.4% well below the Dow Jones consensus forecast for 1.5%. So will this have any impact on the Fed's rate cut decision when they meet next week.

Joining us now to give his take on is Torsten Slok. He's the chief economist at Apollo Global Management. Torsten, thank you for joining us today. Give us your take on oil because I think it's a sort of benign take, if I'm not mistaken. Well, if you put into the Fed's model of the U.S. economy at 35,000, increase in all the prices from 65 to 100. You get a very, very muted impact on core inflation only up 0.1, unemployment, over 0.0.0 and GDP down only 0.1.

Yes, headline will go up 0.7. So yes, there is a bigger impact, of course, on headline inflation, which includes food and energy. But to answer your question, Steve, I do think that at least at this point, the oil shock is actually quite limited. So therefore, it is going to lift inflation, unfortunately, in the wrong direction of what we would like, but the bottom line is that it's still going to be

a relatively limited impact on the U.S. economy overall. And there's, I want to come back and challenge you on that in just a second, but there's three reasons for this overall take, which I've been able to figure out. One is that we produce a lot more oil. That's one. Two is we use a lot less oil

when it comes to how much we need to grow. And three is the consumer bill for oil has gone steadily down from something like near 5% to something like 3%. So while don't send the hate mail, because for sure, we understand this hits lower income people and moderate people, much worse than it does the wealthy. But overall, as a bill for the economy, it's much less impactful than it used to be. Absolutely, because the U.S. is an oil net exporter.

Europe is an oil net importer. And this makes a huge difference. That's also why markets are trading the way they are, that Europe is much more negatively impacted. because Europe is going to have a negative impact because they don't produce the same amount of energy that we do in the US. In the US over the last, in particular 10, 15 years, because of fracking, oil production has gone up very substantially. So yes, the first conclusion is the differences you're seeing in markets is exactly driven by whether are countries like the US oil exporters or are they like Europe, oil importers. And to your second point, for everyone, Europe, US, Asia, across the board, energy intensity is down because the global economy has shown. shifted away from being a manufacturing economy where you had factories with chimneys, with smoke

coming out, so now it's much more service sector-driven economy. So for that reason, we are simply less dependent on oil than we have been a long time. But Torsten, if I'm on the energy-using side of the equation, not the energy-producing side of the equation, do I really care that I'm not shoveling money overseas, that all I'm doing is shoveling it from users to the producers? Isn't this a major wealth transfer. I mean, I did some calculations and I'm afraid of my numbers because there's so many zeros on it. But if you do 13 million barrels a day and add $32, I mean, I came up with like half a billion dollars a day additional transfer to producers. Maybe my math is wrong, but it can't be too far off. No, no, you're right. And this is also to your earlier point. If you look at the CPI

basket for low-income households, relative to high-income households, low-end consumers spent a bigger proportion of their consumption or of their spending on oil and also on food, and by the way, also on housing. So for that reason, if food prices go up, or in this case, if oil prices go up, or if house prices go up or their rents and mortgages go up, then it will impact disproportionately. So you're right. There are some distributional consequences, not only for households, but also for businesses. Some U.S. businesses certainly, of course, are selling fossil fuels and selling oil. Other U.S. businesses, which is a significant amount, of course, are on the other side of that, of course, and are spending more.

money on buying energy. Because it's you too, I feel like I can get into this territory. Maybe you can help me across the finish line. But there is an important channel here as we watch the tenure at 428 that I want to bring up from Jeff Curry, who says that this could actually have as big an impact on the economy in a different way from the 1970s or in the past, but it's through the credit channel. So this time, instead of us going and buying crude and them recycling those dollars into lower treasury yields, that full circuit isn't happening. And so if they're not purchasing our treasury yields, you don't really get that almost like built-in cushion that we used to have in the economy. So the fact that we're seeing oil rise, Torsten, and the 10-year rise, it's not like it's falling because it says the economy is going to be weak.

And then that exacerbates the deficit and debt situation. It does feel a little bit alarming. 100 percent, Kelly, I couldn't agree more, that there's a number of bullet points that are pushing upward pressure on long-term rates. We already have a significant fiscal challenge that's on its own. constantly requiring very significant financing, that's putting upward pressure on rates. Now we already have that core PCE and also headline PCE at a level between 2 and 3 that's still above the FET's 2% target,

and therefore the baseline outlook, the consensus expects is that inflation will be in the range of 2.5 to 3 until the end of the year, and now we add on top of that an inflation shock coming because of higher all the prices. That also argues for long rates going up. And exactly to your point, now that we have less recycling among,

in particular the Middle Eastern, States and other states that, of course, benefit when all the prices go up also means that there's less demand for the long end. So it is really quite striking that we're seeing the dollar go up and see long rates also go up at the same time. It is a situation that's really unusual. Steve, here's the line from Curry. This is in his piece called a crude awakening for Carlis. But he says in the 70s, OPEC surpluses were recycled through Western banks, expanding global credit in a process that resembled quantitative easing. Today, the transmission runs in reverse, as Torsten is saying, Mina Middle East. They, they're going to be.

invest domestically and de-dollarized. And so you're left in a situation where we face this, you know, yield-gued. I would push back a little bit on that because the dollar's a closed system. If Exxon gets a dollar versus Saudi Aramco gets a dollar, it's still a dollar, right? Unless it's converted to another currency. I guess his argument is when Saudi gets that dollar, they're de-dollarizing broadly. When Saudi gets it. Yeah. But now we're talking about Exxon and the U.S. companies. That's a piece of it. And the next question is getting in front of what oil companies do with this windfall that's coming their way. I can tell you that I know that back in the 70s, Exxon got into all kinds of crazy stuff like faxes and PCs. And I remember because I know Lee Raymond came along. He was the head

of Exxon. His job was to get him out of all those businesses. But they got into some crazy stuff because they had all this money. You could imagine windfall dividends coming out of them. And I'm telling you, it's going to be a political issue when they start reporting those earnings. You know, I've made this point before, Torsten, but what do you think about this? That we should make sure, there was a whole era when pension funds were getting out of energy stocks because they were, they wanted to be part of the energy transition. But you should make a case for being invested in them so that the dollars that your, you know, stakeholders are using to buy gas, gets recycled back in. In other words, the dollar comes back to you in some way so you can benefit from that,

from those special dividends and from that upside. Yeah, and that's why, of course, the headwinds have been to energy for now quite some years because of ESG and, of course, environmental considerations, but now suddenly we have a much much faster moving factor, namely when all the prices go up with the incredible speed that we've seen here over the last 10 days, it does indeed, of course, raise some new questions about, okay, but what are then the profitability considerations exactly, as you're saying, Kelly, about what energy companies will do, at least in the shorter run. Torso, I've got to do one more thing here, which is to kind of bring this back to the Federal Reserve.

When I look this morning at the Supercore, which I hate because Super means there should be more to it, there's less to the Super Corps. We take housing out, we take shelter out, we take shelter out, we. take energy out. It's something that Fed Chair Powell has flagged with something he's watching. That's still creeping up. And I get rid of the housing benefit there. I don't have energy in there. So I'm just wondering how chill you believe the Federal Reserve will be. Can it continue cutting? Does it have to pause for longer now because of this oil price surge? Well, and that's you and I when we met last Friday. We're also talking about exactly this issue,

namely, that the Fed is really facing some very difficult challenges. Because the economy is actually quite strong in the background. We have AI spending. We have also the one big of a bill. Those tailwinds are already arguing for an economy that's facing what I would call a Nike swoosh, where we're basically at the bottom and things are getting better. And now we're adding on top of that the risks that not only headline and core inflation, but as you are highlighting here, also super core inflation,

is actually still quite sticky. And this is the real challenge that 10 of the 12 voting FMC members at the last meeting, they voted to keep interest rates constant. And now that markets are getting surprised that we may not have any cuts this year, that's really whipped around markets in the rate side because now people are beginning to say, well, maybe we should even perhaps have a conversation about that the Fed should probably be talking about

maybe the risk of hiking later this year. We both have a hot economy and also more upside pressure on inflation. So this is indeed what's happening with Supercorps, a very important topic in that discussion. A 62% probability of one cut this year, which I think is like it's kind of a flip-bip-b coin, maybe a little bit more than a flip-bocrine

than actually cut once. But it's going to come down to, Torsten, you know, can the consumer hold? up through this oil price spike. And there's so few questions about the tax refund situation this week. I don't know if you think it's generally, I guess they have that. Absolutely. And what's very important is that the one big bill for bill lower taxes retroactively,

meaning that they were cut starting January 1, 20205. So that means that when we all go and file our taxes here in March and April before the April 15th deadline, we will all have paid too much in taxes in 2025. So that's why the average tax refund check, that's normally $3,000, will in our calculate calculation this year be around $4,000. So that's $1,000 more per household. And if there's $129 million in the U.S., that means that we'll have more than $100 billion going to consumers in the next two or three months. That's a very significant tailwind to growth, especially in the consumer stock in the very short term. I think there are some angry Republicans who designed a very,

very interesting matrix for giving out refunds ahead of elections that are now a little bit pissed off that that refunds are going to be soaked up by oil. And I'd just like to point out to the producers, you didn't think you're going to put me, Kelly, and portion together. We were going to possibly keep to the time segment for this line. I've got, that's not going to happen. If you want a paper tax refund, you're still waiting for that check. We could go on. Torsten, thanks. We'll let you go. Torsten's lock with Apollo. Speaking of the bond markets, the 10-year yield, 4-20. I want to call it 4-29 if you round up. It's nearing the highest close of the year.

and that's as the dollar is rising to 100 as well. Let's bring in Rick Santelli for more context. Hi, Rick. Hi, yeah. You know, I thought the big story would be, as you look at the week in twos and tens, that that would be the story. Right now, as we hover 272 in a two year,

it's up 16 basis points on the week. Yesterday, it closed at the highest yield since August of 25. If you look at the tenure there, as you just pointed out, Kelly, at 428, It's arguably within striking distance of the January 20th, high close of the year, basically at 430. You know, what's really interesting here is that current levels, it's up 14 basis points on the week. But the big story, I think, is the dollar index. You know, we all used to talk about the Yen carry trade.

There has been a dollar carry trade because the world all of a sudden got so negative on it. I think much of that was steeped in politics. But they borrowed dollars and were buying things. gold, different commodities. Well, a lot of things that are going down now, okay, or different currencies overseas, that financing is reversing. They have to cover these short dollars. So right now, as you look at that dollar chart, it is definitely from an intraday basis at the highest levels since Nova of last year. But should it close here be highest closed since May of last year for the dollar? Look at the dollar yen. At current levels, we are now at the strongest

since July of 24. And the Euro, our European ally, right now, highest close on the dollar-versed euro since July 30th of 25. So it really is a very strong dollar story. I don't know that it's not going to continue to go a bit higher. And I understand the linkage with crude oil that gives it a little boost. And it's pursuant to your conversation about why yields are going up. All your reasons, Kelly, and washing money and the crude oil, it's all true. But really the big reason is war cost money, inflation's sticky. All last year, I said, we're not going to spend much time under 4%. And I couldn't agree more. Debt and deficits is still a big issue in the value of the long end of interest rates. I don't know what we're going to do, Rick, if we're spending

money on the war, if interest rates go up and oil prices go up, and we don't even get the kind of relief that would come from a lower 10 year. And refunding tariff revenue. Right, we're refunding tariff revenue. It's like it doesn't, yeah. I think. I think. I think you're looking at it from a worry-wark perspective. You just told me it was the biggest problem. I'm agreeing with you. No, no, but wait, but I agree that that's the way it is now. But here's what I see.

I see that much of this cleans up. I think that the conflict goes in the way of Israel and the U.S. I perfectly suspect that down the road, things are going to get a little bit better. And I think better in terms of the economy could give us some growth that could ultimately address these costs. We're in a transition period now. period now. We're spending a lot of money, some money we didn't count on. But I don't think

it's going to last forever. But I think debt and deficits is a theme that will go on and on and on. I agree. And it leaves very little wiggle room because worse it gets, the bigger those interest payments go, and then the worse, I don't care what the primary deficit is. Anyway, we're off to a hot start here today. Rick, thank you. You blew up the A block, Kelly. We have Patty in the back there is just going to be in the fetal position under the desk there. And we haven't even gotten into private credit yet. That's coming up after the break with Leslie Picker. Don't go anywhere.

There have been quite a few headlines in the private credit world lately. All of them have been centered on these concerns about cracks forming in the space and fears that are sweeping across banks and the alternative asset manager space. You can see this timeline here. Although raising the question, is this the start of more to come or are these withdrawal and investing fears overblown? We turn to CNBC Senior Finance and Banking reporter Leslie Picker. And so, Leslie, it goes back to one of the things we say, well, is it a liquidity issue or is it a credit?

I mean, in many ways, these funds are designed to not let you take more than 5% of your money back. Yep. If they want to let you take more out as a confidence move, that's fine. But I know people in the space who say they shouldn't because it's just going to encourage more and more people, other asset management, to feel like they should do so too. And then others say, but a lot of investors didn't really realize the gate was there. So anyway, over to you. No, I think you're spot on.

I think that the gates were designed for a reason. And so as everybody talks about, you know, analogizing this to 08, this is not a run on the bank situation because by design, it doesn't, it can't be if the managers don't want it to be. I don't see any managers that would want it to be, but they have these designed gates for a reason that prevent everybody from taking their capital out at the same time so that they have to, you know, respond to that by selling all their assets at a file sale price. That doesn't have to happen. And we're seeing managers put those gates up for a reason. Like BlackRock left theirs for HPS, right? Left there's at 5%. I'm sorry.

Left it at 5%. Yeah, HPS. Blackstone said we're going to even use firm capital to give you back 7.8%. I'm sure they thought it's a vote of confidence in a way. It's for you, the investor, kind of a one-off thing. Exactly. I wouldn't. And there's also the public ones and then there's the private ones.

So it's just a very complex situation. It is. So there are public BDCs, which are trading at a record discount to their net asset values right now. So those you can, I mean, it's not really called Redemptions, but you could just sell your shares on the open market any day. And then there are semi-liquid, non-traded BDCs, business development companies. Those are the ones that we're talking about. Like Cliffwater. Is that?

Cliffwater isn't a perfect example of that. And then they have slightly different kind because they're more of a retail product. So like there's like flavors of ice cream. There are flavors of ice cream. The interesting thing about Cliffwater that may distinguish it from some of its peers is that about 30% of its exposure, of its investment. are actually in other private credit funds. So you think of it kind of like a fund-to-fund model. The rest is direct lending to companies.

But people say, oh, if you have that exposure and that you are invested in other funds, when you see these redemption dynamics, it can make people redeem at a higher rate because they know that the manager itself, Cliffwater, is then beholden to the redemption of the other, you know, the redemption tactics of the funds that it's invested in. Yeah, and the core. Go ahead, Steve.

All I care about is what this means for me. Yeah. So here's what I want to know. Is this the sort of thing that's going to mean I'm going to have to be up at 2 a.m. reporting about Federal Reserve bailouts of systemic risk and banks being in trouble and the Treasury coming in. Is this going to engender some kind of GFC type response? Or is this something completely different? Which is another way of saying, are the default rates really bad inside these loans? So I think by the time it matters to you, Steve, we will be in a full-blown cycle, credit cycle.

You'll see this in private credit. You'll see this in public credit. But not from this. This is not the font of the systemic risk that I worry about. So that the Fed worries about. What I'm trying to distinguish is within these portfolios is there's something emblematic of private credit that makes it more susceptible to defaults right now. Some have pointed out, of course, the software exposure. It does have outsized exposure software.

Now, software at this point in time is not a zero. So everyone's trying to figure out where to mark that and how much of an impact that has in these portfolios. that distinguishes it from the syndicated markets for sure. Now, another thing I think, Steve, as the Fed reporter and as someone who is watching at home might be paying attention to. Right. What's in it for me? Good. What's in it for you? Is we've been talking, the Fed started breaking out something called NDFI lending,

right, the big banks, from the big banking institutions. That has... Non-depository financial institutions. You got it. Alphabet soup, Steve's on the overall. And what that means is basically, in order to juice their own return, These private credit funds take out loans from the big regulated banks. You saw J.P. Morgan had some news out about this this week.

Wells Fargo is big in this category. There's some regional banks that are big in this category. And basically what they're doing is they're providing leverage to these loans just to make their returns better. I want to flip this on its head, though, because I talked to somebody yesterday who owns, who has a fund that lends to software companies. What kind of fund? Private equity and private credit. Okay. He says the default rates are very low.

Yeah. There's senior credit. You would own the company before, you know, you'd wipe out the equity before. Yep. And he says what is vastly overstated is the extent to which AI is going to come in and kick out software companies. He says they can't market it. They can't package it. And most of all, they can't service the software the way these big software companies do.

And so he thinks that the idea that this is going to zero or whoever this darn thing is priced right now is well overstated. And I got done. I said to him, sounds like you want to buy this stuff. He goes, yeah, maybe I do. There are bitter circling. I mean, that's part of this story. That's why Leslie talked to Boaz about this. They're bidding on that owl portfolio. Bois Weinstein, X of DG derivatives.

So they see, it was so interesting because I went into the interview. And, you know, he's sounded the alarms on the risks in private credit. And so I expected him to be very down on the asset class. And then he tells you he's long. He's long the equities. He is long. I mean, he's obviously interested in tendering some of these illiquid investors at a significant discount, at a 30% discount.

But he wants to own this stuff. You know, you wouldn't do that if you didn't want to own it long term. And he was actually, he sees this dynamic whereby the people who are locked up that want liquidity are then going to turn around and find liquidity where they can, which is in the public credit markets. And so he has significant short positions on, you know, through credit derivatives and credit default swaps because he thinks this illiquidity in the private credit market

is going to kind of spill over into the public. One quick final comment is a conversation I had with a really smart credit investor. And from his point of view, the error here that a lot of these portfolio managers committed was over allocating to one sector. And he said, if you look back over the last 20 years and we have these blowups, We had telecom. We've had energy. We've had, you know, if you're over exposed to software and then you face an issue, which

may not even be AI, it may just be that these companies can't all exist and thrive, you know, at the same time that that error will come home to Roost. Does it make it systemic? Not necessarily. But it doesn't mean that, you know, does Boas or anyone else know exactly where those marks are going to be? I mean, you'd have to go through piece by piece and decide what you think about their hundreds of holdings.

Well, what's really interesting in terms of concentration, I think this is the right thing to flag here because. You know, you can only really see what's in these publicly traded BDCs where you see each individual loan that's out there and kind of how they're marking it. First of all, there's a lot of overlap between private credit managers are all exposed to a lot of the same. Absolutely. A lot of the same stuff. And then they're marking it differently. So you're seeing some have, you know, a significant exposure that's marked at, say, 97 cents on the dollar.

Another one has marked at, you know, 95. 90. So there is some discrepancy there. So there's concentration risk, there's valuation. By way of context, the paper went to five in the GFC. Right. Right. So 97, 95, we'd get out cheap if that were this right. Although I have heard marks in the 60s and 70s as well. Absolutely. Yeah. Yeah. No, those would be considered obviously good credits. But my point is more that there's a little bit of arbitrary marking that people are kind of picking up on. based on your liquidity needs.

Exactly. Well, and also this goes back to the broader issue with the private space, which I think if people face losses because of this, that will be a bigger reckoning. Not systemic, just a bigger one. All right, producers, if you gave us less interesting topics, we'd stick more to time. It's not our fault.

On the floor here, and we got a lot of stuff to talk about. Leslie, thank you. Thank you. Coming up, avocado toast, META has reportedly delayed the rollout. See, I keep getting the avocados. They've delayed avocados rollout. The shares are down 4%. And we'll have details after the break.

Welcome back. Meta's delay of its new AI model is a reminder that in this race, spending alone does not guarantee leadership to New York Times reporters. Reports met a pushback the release of its latest foundational model, codenamed avocado, after internal testing showed it lagging the top systems from OpenAI, Anthropic, and Google. These companies are investing tens of billions of dollars, not just to build better chatboss, but to control the infrastructure models and applications that could define the next. era of computing. So when a company like meta hits a performance wall, investors have to ask what that says about the cost, complexity, and payoff timeline in this arms base. Let's bring in Alex Cantor, is founder of big technology. He's also a CNBC contributor. Alex, thanks for joining us. So put this meta AI misstep in context for us. Well, here is the context. You have OpenAI, building ChatchipT, which has 900 million weekly active users. Who knows? Maybe

it's a billion right now. And how many intentional AI users does Meta have? Nothing close to that. So there is a new category of consumer computing being created right now. And Meta's just not playing there. And we've been waiting for them to produce a foundational model, which is the model underneath the chatbot that's competitive with OpenAI, and they just haven't done it. And so it's getting to the point now where if Meta can't make this work with its own internal technology, it's time to look outside. Can you just respond? Does Meta has, have to do this? When I call up meta products, I'm not sure what AI has to do with what I'm using their products for. So here's why they have to do it, Steve. Look at AI as a competing technology.

If you're not spending time in meta products, you might be spending time in OpenAI's products. This is the consumer internet. It is zero sum. And if meta doesn't have an answer to the chat bot, Then it's going to fall behind. And that, by the way, OpenAI is going to introduce advertising, which is meta's business. People aren't just using these bots as things to help them get work done. And it's weird to say because Facebook made its bones on enabling human friendships, right? But people are becoming friends with these AI bots. They're becoming companions with them.

And if you don't have the ability to serve that to people, if you're meta, you're going to lose that share to Open AI. And that's why this is a must. So can it buy what it cannot create? I hope it does. I think there's no more time to waste, and it's time for META to reach out to Sundar Pichai at Google and say, Sundar, we need Gemini. We need to put Gemini in our chatbots.

We're going to shape them to make them have a little bit more personality than Gemini does, and we're going to take our distribution advantage, the billions of users that use products like Instagram, like Facebook, like WhatsApp, and we're going to serve them the best consumer grade chatbot on the market. So they, I mean, if Google will sell to them, they should go and not wait anymore because waiting to have the best technology has not served them well, and they're

going to lose this race before they even begin to compete in it. How do you play that deal? Is that a, I short meta and I buy Google in that deal, or is that a win-win for everybody? That could be a win-win for everyone. I think Google will get the win because it's selling, it's AI and it's showing that it has the dominant AI. And meta will get the win because it'll finally, you know, make its way into this race. And there is, there is a real delta here between those that do this well and then those that don't. Over the past year, meta's up about three and change percent. Google's up 85 percent. So it's time for meta to figure this out. And if Google is the partner that it needs to lean on, then maybe swallow the pride and go ahead and make the call.

What is it, Claude going to take over the world? Isn't that going to be the center of everything that we're going to be talking about? That's what I keep. hearing. And I'm a little behind on that score. You keep hearing it because it is going to take over the business world. And what we're going to see is this divergence in chatbots. We're going to have a group of chatbots that are great for consumers and a group of chatbots that are great for business. Claude is definitely growing but for business use cases, things like coding and making your presentations better and making charts. But this whole consumer side is wide open and maybe as OpenAI shifts its gaze and says,

I want to do more enterprise, there's an opportunity for meta to come in here and build that consumer bot if it gets its act together. Alex, in the last segment, we talked about this idea of, will AI tear asunder, pillage, pommel, the software companies, and somebody expressed some doubt to me about that.

Where do you stand on that? I heard that, and while you were making that case, I couldn't help but thinking, you know, today's AI is not going to replace software. And the reason that is is because when you sell software, it's the maintenance of that software, updating the new rules, doing troubleshooting, doing the help. But here's the case that it could get replaced. I'm not saying this is going to happen, but you have to keep in mind that there's a percentage chance that it goes that way, is that maybe the AI gets good enough where it's able to update itself with the new rules.

It's able to do the help desk on its own. It's able to troubleshoot. And I'm not saying it's definitely going to happen, but I wouldn't completely rule out this idea of self-improving software with the assistance of AI. It's a possibility. Yeah, I just think CFOs are going to be like, what, you're going to have the software done by AI,

or I'm going to go buy it off the shelf. And I think my job security is better buying it off the shelf than it is with it. I agree with you. But you do see real inroads, not in that department, but more in the IT, in the cutting and all of that. Yeah, the geeks will have fun with it. Real stuff is happening.

Alex, thank you so much for joining us, and I really understood everything you said, which is really great. Thanks so much. Okay, it is the most important and probably most dangerous waterway in the world right now. The Strait of Hormuz, how the oil market's future rests on whether or not ships can pass through right after this. Welcome back, and oil prices are on the rise again. In fact, WTI is near the highest levels of the day over $98 a barrel right now. Brent Crude is over 102. The Strait of Hormuz, the region's,

main export artery transporting a fifth of global oil and gas supplies is still effectively in a standstill for the past two weeks, with more than a dozen commercial ships reportedly caught in the crosshairs of the conflict. Defense Secretary Pete Heggseth addressing Iran's retaliations earlier on. They are exercising sheer desperation in the Straits of Harmuz. Something we're dealing with. We have been dealing with it and don't need to worry about it. Here is a live look at the shipping traffic in the strait from Marine Traffic. As you can see, a small number, a very small number of ships are currently in the passageway at the narrowest point. Let's bring in Matt Smith.

He's the lead oil analyst at Kepler, which owns marientraffic.com. So first of all, welcome. And we checked in with you a few days ago. It's nice to have you here on set. What would you describe as the current state of affairs in the straight? A few ways, really. One is that, as you mentioned, is ground to a standstill there, right, in the actual straight. But in terms of in the Middle East Gulf, you know, it's,

There's just all these tankers that are stuck in there that simply can't get out. Most of them are loaded because all of the empty tankers are getting used to be filled up. And the longer that this goes on, the worst the situation gets, right? We know how much passes through this choke point. And so the challenge becomes that you're having these producers in the region that they're having to shut down production, cartel, the soil production. There is some movement that we understand perhaps of Iranian ships that are getting through and their heart because that's how they get money.

I mean, they have to make sure that there's transit there. There's been reports of like a Guiana flagged ship, maybe heading to China. So what's getting through, what's not? And as we understand it, the next phase of this is the U.S. is reportedly going to lean more heavily on trying to clear the straight of hazards in a way that would allow for swifter passage. Yeah, sure. So in terms of what is passing through, it is just the odd tanker, like less than a handful every single day. Some of those are Iranian, some have just been ones that have just gone for it, right?

The brave ones or that. But in terms of the Iranian crude exports that are happening kind of in the northern area of the Gulf at the Kag Island there, those are holding up pretty well. And then we're seeing about 12 million barrels, so that's six VLCCs passing through there so far this month. And when you think about it, it kind of makes sense that they're letting their tankers go through. they're not blocking everything off, right? They're saying, okay, let's let our tankers go through. And maybe we'll get a situation that evolves over the coming weeks here where they will let certain players go through there and not let others. I don't know if in the back they can bring that map back up

because I would like you to talk me through what it takes to secure that thing. As I understand it, I talked to a military expert, there are multiple, there's that map again. there are multiple models of shoulder-launched missiles that from the land could hit a tanker. Yeah. So what does it mean to secure it? But Steve, it's not even that.

It's drones as well. Drones too, right, right. So our expectation is that you cannot make it safe. You can promise to have insurance, but that's little comfort if there's a chance of you getting it. If I'm a sailor and the boat has insurance, I'm not getting on the boat. Right, exactly. I mean...

And even if you have like a naval escort that gets you through, there, again, that's not going to prevent a drone strike either. And so this is the dilemma that we're in. This has gone on for a couple of weeks here. This could keep going for another several weeks. Talk to me about how the system backs up. Right now, I can't produce because I have nowhere to put it, right? The storage facilities are filling up rapidly.

It's a different environment, Steve, for the Middle East producers, because they produce a lot, they export a lot. Right. They do not need a lot of storage there. because they are just sending it out of the country. Exactly. Right. Or they shut it down.

Exactly. They shut it down. And then what does that mean down the road for the availability of oil even once the straight opens up? How much does this echo into the, how much does today's lack of production echo into the future? Well, that's why we've had this massive SPR release, right, 400 million barrels in a way to kind of ease that. But the challenge that you have here is even if you do open up the straight of Hormuz again,

there's such a backup of Towers. tankers, it's going to take maybe a month for it to get back to normal anyway. And so then you've got to get the empty tankers into load. You've got to get your production back up again. You've got to get your full tankers out. And so even if everything was resolved today, the ramifications of this would still be echoing through for at least another month and a half. Yeah, it was interesting to read that, you know, if you shut production long enough,

and we're talking a couple months, that sometimes you can't bring it fully back online. Like you can only do 80 to 95% of prior capacity because of all these degradation issues. But I think the oil market would shrug that off if it just had a sense that, you know, product is getting through. And when we spoke and Marsh and a few other people this week, they've said they're looking towards like multinational flotillas to, which we had in the 80s, I guess, with Reagan the last time that this happened. You had the Soviets and others coming in. So we have to, I guess, clear the mines, try to deal with the artillery that you've both mentioned and then perhaps have a variety of countries helping to escort these ships through safe passage. And I don't know how quickly we should be looking either for, you know, when. when Pete Higgseth is talking about this issue, I think people want to hear him outline

kind of the steps that we're taking to get to that goal. Yeah, and it is just too complex to do that, right? And the U.S. doesn't have the control over these oil fields or anything like that. So I think you have to bear in mind that these oil producers, OPEC, they are used to bringing production up and dropping it down, so it's not like they're shutting it off, they're curtailing it. We have certain players within the region, whether it's Saudi Arabia or United Arab Emirates, that can reroute their crude, and they are done. doing that as well. So we're seeing it with UAE. They've pushed their exports up by about

a million barrels per day out of Fajira. You've got a lot coming out of Yambu in the Red Sea now. And so certain players have options there. But in terms of how this all comes together and starts flowing again, it's pretty- Can you talk about those two things? The SPR release worldwide, as well as this pipeline that runs across Saudi Arabia, how much of what would come through the Strait of Hormuz can be replaced through those means? Yeah. And it's not just, it's the offload ability, right? Once you send it to the port, you've got to be able to load it onto the ship, correct?

Yeah, and that's what we're in the discovery process of with Yambu in the Red Sea there, because we've never seen it load more than two million barrels a day in a week. But in the Middle East Gulf, Saudi Arabia loads about five and a half, six million barrels a day there. That can't go out now. So what they're doing is they're sending it across on a pipe that has capacity of about 7 million barrels per day. We're in the discovery process of seeing how much could be loaded from Yambu in the Red Sea. potentially about another four million barrels per day. And so it's not going to get rid of that. Is that four of 19? Is that what I'm looking at? No, four of the six. No, but 19 is what's missing from

from the straight of Hormuz, right? Fifteen and probably nine that's stuck in there. How long does it take to build a pipeline longer than? Much longer than at this point. Quicker in Saudi Arabia than in New York, but that's for sure. Also true. Matt, thanks. Matt Smith. All right now more power lunch coming up right after the break. Welcome back, DALS trying to claw into positive territory up 22. Let's get to Frank Holland for the CNBC News update. Hi, Frank. Hey, Kelly.

ICE has replaced the contractor in charge of his largest detention camp. The swap comes amid scrutiny over living conditions at Camp East Montana, which is located in El Paso. I said in a statement to NBC News, this new contractor will focus on improving medical care and intake procedures. That facility, which opened last year, has had three deaths by January and has dealt with measles and tuberculosis outbreaks. Southwest Airlines will be discontinuing service at Chicago's O'Hare International and Dulles International Airs, beginning June 4th. Southwest said in a statement to NBC Chicago that operating at Chicago O'Hare continues to be challenging. The airline will still operate at Chicago Midway and Reagan International Airport in D.C.

Iran's national team is pushing back on comments made by President Trump yesterday, discouraging the team from attending the World Cup. The team said in a social media post that no one can exclude them from the World Cup, Trump said in a truth social post that he didn't believe it was appropriate that Iran's team attend. More power lunch coming up right after the break. Welcome back. Before we go, here is a sign of the times. We're nearly four weeks now into that partial government shutdown. And TSA workers are set to miss their first full paycheck today.

As a result, Axios is reporting that major airports are asking the public for donations to help TSA workers as they navigate their second shutdown in six months. The Denver airport, for instance, is asking for. grocery store and gas gift cards. This was before, by the way, or as we're seeing the spike in gas prices, the Seattle airport has opened a food pantry asking for donations of non-perishable food, hygiene items, and diapers. And the Axios article notes that TSA workers can't accept cash or cash equivalent gift cards, Steve, but they can accept these other items. I do a lot of travel. I watch these TSA workers. I feel like they've gotten so much better over

time. And I have complete awe in that they do it every day with so many people. And I think it's a tragedy that they're not being paid. These are not that high paying jobs to begin with. So missing paycheck or so they're looking for And I don't know, it sounds like there's not much

prospect of this getting resolved anytime soon. I don't know what the pressure points in Washington are for that, but maybe this will start to be one of them. It's just really awful. We'll be back with more power lunch just a second. Please just out with a note updating their rate cut outlook. It came out. the last hour. They say they're delaying the projected rate cuts from June to September. That's the

first one. And then a second cut from December all the way to March 2027. This reflects an upward revision, they say, to our PCE inflation outlook, an increased upside risk to headline inflation due to the Iran War. We view risks around our baseline as two-sided. If you look at where the market is trading, Ms. Evans, you're at 62 percent on the first cut for the year that's in December, and then only like a 22 percent of a second cut. We had it. one point during the year priced in three more cuts this year. What's amazing to me about this, it tells me that Kevin Worse comes in and doesn't do anything until at least December. I don't know if that's true, but that's the market's price. It's hard to con. And you and I talked to

Tom Simons the other day who still says he could see two or three. But so in other words, Barclays is now moving to where the market is J.P. Morgan still thinks no more cuts this year, I believe. And again, they are right. I'm not going to argue with Mike Chiroli, I'll tell you that. Mike is like the most down the middle. So that would be an incredible thing to watch is how just Warsh deal with that panoply of events. And you got Powell to deal with it too. And the main thing people you can know is next week is Fed Week. We'll have our Fed survey. It's good for our business, Kelly. And then it's the second to last one ever possibly. His meeting is penultimate meeting. Penultimate. We got to go. Steve, it's been a pleasure. Thank you so much. Closing bell starts right now.